Marketing PDF

Diploma
in
Business Administration
Study Manual
MARKETING
The Association of Business Executives

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ABE Diploma in Business Administration
Study Manual
MARKETING
Contents
Study Title Page

Unit
Syllabus i
1 Marketing Culture and Orientation 1

The Development of Marketing 2
What is Marketing? 3
The Strategic Orientation of Business 4
Developing a Marketing Orientation 9
Strategic Implications of a Marketing Orientation 11
Coordination of Marketing with other Management Functions 13
Organisation for Marketing 20
2 Markets and the Marketing Environment 29

The Concept of the Marketing Environment 30
Macro Forces 31
Micro Forces 35
An Alternative View of the Marketing Environment 37
The Marketing Audit 38
Market Segmentation, Targeting and Positioning 43
The Marketing Mix 55
3 Marketing Strategies 59
Strategy and Planning 60
Corporate Strategy 61
Marketing Strategies 65
Corporate Objectives 67
Marketing Objectives 68
Models for Formulating Marketing Strategies 74
4 Marketing Plans 89
Development of the Marketing Plan 91
Nature of a Marketing Plan 93
Implementing the Marketing Plan 98
Control and Evaluation 108
Evaluating Sales Performance 111
Evaluating Marketing Performance 112
5 Research for Marketing 117
The Research Process 119
Types of Research 123
Sources of Information 126
Research Methods 129
Using External Research Agencies 133
Information Systems 136
6 Understanding Consumers and Consumer Behaviour 143

The Buying Process 144
Influences on Individual Buying Behaviour 150
Classifications of Consumers 153
The Social Psychology of Consumer Behaviour 158
Organisational Purchasing 173
7 Product Management and Development 179

Nature of Products and Services 181
Product Management 185
Product Branding 197
Product Packaging 199
The Product Life Cycle 200
Extending and Expanding the Product Life Cycle 209
New Product Development 212
8 Pricing Policies and Price Setting 219

What does a Price Represent? 220
The Pricing Decision 222
Breakeven Analysis and Price 233
Price Elasticity 234
Marginal Costing 237
9 Distribution Policy and Management 241

The Importance of the Place Element 242
Channels of Distribution 245
Dealing with Intermediaries 252
Distribution Channel Maintenance and Change 259
Physical Distribution Management (PDM) 262
10 Marketing Communications 269

A Strategic Approach to Promotion 271
The Communications Process 277
Advertising 282
Sales Promotion 289
Personal Selling 296
Public Relations 303
11 The International Dimension to Marketing 315
Globalisation of Markets 316
The International Environment 317
Obtaining Information about International Markets 321
The Influence of Regional Trading Alliances 324
Working in International Markets 326
Adapting the Marketing Mix 329
12 Marketing Issues: Responsibility and Change 331

Introduction 332
Social Responsibility and Corporate Strategy 332
Constraints on Marketing 338
The Changing Marketing Landscape 346
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Diploma in Business Administration – Part 2

Marketing
Syllabus
Overall Aims
To develop the students knowledge and understanding of:
1. The history, philosophy, and concepts of marketing in domestic, international and global
settings. The development and possible future direction of marketing as a business philosophy
and functional area of management will be examined in a domestic, international, multi
national and global context. Internal marketing, relationship marketing and societal marketing
will be examined.
2. The micro and macro marketing environment. Students to be able to identify the micro and
macro environmental factors such as elements of the political, economic, social, technological,
and legal environments and the internal company factors, such as structure, organisation and
corporate culture, that may impact on a company’s marketing effectiveness. This framework
will be developed in the context of a domestic, international, multi national and global context.
3. Principles of analysis, modelling and measurement of the marketing process. The key
analytical frameworks and methods of marketing research, consumer behaviour, organisational
buying behaviour, forecasting, marketing information systems, market segmentation, targeting,
positioning and monitoring procedures will be examined in detail and their application and
relevance to the marketing process discussed and explained. International situations and
examples will be used to illustrate the application of these principles, models and techniques.
4. Managing the marketing mix - the nature of product and service marketing. In this part of the
syllabus students will examine the principles of marketing in both the context of the marketing
of goods and services. The concept of an integrated marketing mix and the traditional
McCarthy 4P classification as it relates to products will be covered. The nature of services and
the extended and augmented 7P marketing mix which includes people, processes and physical
evidence as well as the traditional product, price, promotion and place will be discussed. The
individual mix elements will be considered in the context of the construction and execution of a
strategic and tactical marketing plan.
5. Product and service policy. Students will examine what is meant by product policy and
understand key concepts and models related to product policy including the new product
development process, market segmentation, diffusion of innovations, product range, product
lines and product mix. Analytical techniques and frameworks relevant to the planning of
product and service strategies will be examined.
6. Channel and physical distribution policy -business logistics. Students will gain an appreciation
of what distribution polices involve in terms of both channels of distribution and physical
distribution and understand key concepts and models related to distribution including channel
choice, level of market exposure, selection of channel intermediaries, channel conflict and co-
operation, “wheel of retailing”, service elasticity and the components of a business logistics
system. Distribution is to be considered at the domestic and international / multi-national and
global levels.
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7. Marketing communications policy - the integrated marketing communications mix. Students

will examine what marketing communications policies involve. They will gain an
understanding of the main marketing communication mix elements, models of the
communications process, the evaluation of communication campaigns and the integrative
nature of the communications mix. Internal communication as well as external
communications will be examined.
8. Pricing policy. Student will examine what is involved in formulating pricing polices including
different approaches to the setting of price, methods used in the setting of price, the price /
quality relationship, price as a segmentation variable, price discrimination, particularly
differential pricing in relation to international market segmentation, promotional pricing and the
communication role of price. Pricing within a consumer and business to business marketing
framework will be examined as will the international and global dimensions of pricing policy.
9. Marketing planning, analysis control and implementation. Students will examine the main
tasks and concepts associated with strategic marketing, marketing planning and marketing
management process. Students will gain an understanding of the nature of corporate planning
and where strategic marketing planning and tactical and operational marketing plans fit into the
overall planning framework. The structure and content of marketing plans will be considered
and the main planning tools will be considered.
10. Future developments and the social, environmental and ethical dimensions of marketing.
Students will examine the possible future direction of marketing and its increasingly wide
application to a number of non business settings e.g. Charities, public sector organisations such
as museums, political marketing and public health programs. Particular attention will be paid
to future global, technological, social, environmental and ethical dimensions of marketing as
well as future geo-political trends and their implication to the marketing firm e.g. European
integration, trading blocks such as NAFTA etc.
Programme Content and Learning Objectives
After completing the programme, the student should be able to:

1. Demonstrate a knowledge of the evolution of the marketing concept, be able to contrast with
the production, product and sales oriented business philosophies from which it has evolved. To
gain an insight into its likely future development, particularly in relation to global,
technological and ethical dimensions.
2. To be able to identify the main tasks and concepts associated with marketing planning and the
marketing management process and to be able to formulate, implement, manage, monitor and
control marketing polices and plans.
3. To be able to identify the micro and macro environmental factors and the internal company
factors, such as structure, organisation and culture, that may impact on a company's marketing
effectiveness, in both a domestic and international context.
4. To appreciate that marketing is just as importantly applied within an organisation as it is
without, and that ‘internal marketing’ programmes can be effective in helping to create the right
corporate ‘spirit’ and ‘culture’ in order to achieve true customer focus and marketing
orientation.
5. To appreciate the importance of developing long term relationships with customers and other
important individuals and groups in the marketing ‘task environment’, such as intermediaries
and suppliers. To be able to formulate effective relationship marketing programs. To
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appreciate the value of the firms existing customer base and the concepts of a portfolio of
customers, of ‘data base’ marketing and the active management of a customer portfolio.
6. Gain an appreciation of the approaches to market analysis and measurement. To be able to
apply the underlying concepts of marketing research, consumer behaviour, organisational
buying behaviour, forecasting, marketing information systems, market segmentation, targeting,
positioning and monitoring and control procedures.
7. Define what is meant by product policy and understand key concepts and models related to
product policy including the new product development process, market segmentation, diffusion
of innovations, product range, product lines and product mix.
8. Define what distribution polices involve in terms of both channels of distribution and physical
distribution and understand key concepts and models related to distribution including channel
choice, level of market exposure, selection of channel intermediaries, channel conflict and co-
operation, ‘wheel of retailing’, service elasticity and the components of a business logistics
system.
9. Define what marketing communications policies involve and understand the main marketing
communication mix elements, models of the communications process, the evaluation of
communication campaigns and the integrative nature of the communications mix.
10. Describe what is involved in formulating pricing polices including different approaches to the
setting of price, methods used in the setting of price, the price / quality relationship, price as a
segmentation variable, price discrimination, promotional pricing and the communication role of
price.
Method of Assessment
Assessment will take the form of a ‘closed book’, unseen, written examination of three hours duration
in which candidates will have to answer any FOUR questions from a selection of EIGHT. All
questions carry equal marks. Questions may be divided into more than one section. When this is so,
the allocation of marks to each section will be shown.
Reading List:
Essential Reading
! Lancaster, G. and Reynolds, P. (1998), Marketing; Macmillan
Additional Reading
! Lancaster, G. and Reynolds, P. (1999), Marketing; Business Masters’ Series, Kogan Page
! Lancaster, G. and Reynolds, P. (1996), Marketing; Butterworth Heinemann
! Lancaster, G. and Massingham, L. (1998), Essentials of Marketing, 3rd Edition; McGraw-Hill
! Dibb, S., Simpkin, L., Pride, W. and Ferrell, O. (1997), Marketing: Concepts and Strategies,
3rd Edition; Houghton Mifflin
! Brassington, F. and Pettitt, S. (1997), Principles of Marketing; Pitman
! Perreault, W. and McCarthy, J. (1996), Basic Marketing: A Global Approach; Irwin
! Zeithaml, V. and Bitner, M. (1996), Services Marketing; McGraw-Hill
! Stone, M. and Young, L. (1994), Competitive Customer Care: A Guide to Keeping Customers;
Croner
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! de Mooij, M. (1997), Global Marketing and Advertising: Understanding Cultural Paradoxes;

Sage
! Chisnall, P. (1996), Marketing Research, 5th Edition; McGraw-Hill
Journals
! Journal of Marketing (AMA)
! European Journal of Marketing (MCB University Press)
! Journal of Marketing Research (AMA)
! Marketing Intelligence and Planning (MCB University Press)
! Journal of Consumer Research (University of Chicago Press)
! International Journal of Research in Marketing (Elservier)
! Business Marketing Digest (Reed Business Publishing)
! Journal of Retailing (New York University Press)
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Study Unit 1
Marketing Culture and Orientation
Contents Page
A. The Development of Marketing 2

The Industrial Revolution 2
The 20th Century 2
B. What is Marketing? 3
C. The Strategic Orientation of Business 4

Production Concept 4
Product Concept 6
Sales Concept 7
Marketing Concept 8
D. Developing a Marketing Orientation 9

The Need for Integration 9
Introducing the Marketing Concept 9
Internal Marketing 10
E. Strategic Implications of a Marketing Orientation 11

External Changes 11
Organisational Changes 12
F. Coordination of Marketing with Other Management Functions 13

Marketing and Production 14
Marketing and Finance 16
Relations with Other Departments 17
Conflict between Marketing and Other Departments 19
G. Organisation for Marketing 20

Alternative Structures 20
Organisation Structures for Marketing 23
Comparison of Marketing Structures 27
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2 Marketing Culture and Orientation
A. THE DEVELOPMENT OF MARKETING

It would be a mistake to think that marketing is a phenomenon of the 20th century. Its origin can be
traced back to early civilisation. When communities began to specialise they produced surpluses in
certain products which they then sought to exchange with other communities. The need to exchange
goods encouraged the emergence of local markets where different products could be brought together
in one place for sellers and buyers to trade. In these simple market structures, the sellers had a fairly
good idea of what pleased their customers, since often they were neighbours of each other.
The Industrial Revolution

Prior to the 17th century and the start of the Industrial Revolution, producers and merchants tended to
operate on a small scale, concentrating their operations in very localised markets. The Industrial
Revolution, however, brought with it advances in technology and production techniques which meant
new processes, greater output and a transformation of the British economy away from its dependence
on agriculture to one of industrial production. Industry now became more remote from its markets as
it sought power and fuel to generate its machines.
Increased output meant an even greater desire to trade, while the large-scale production forced the
development of distribution channels to enable the demand from wider, larger markets to be met. The
era was founded on the principle of supply in trying to satisfy even greater demands by increasing
production efficiency. It laid the foundation of the modern industrial society, with sophisticated
systems of marketing institutions and finances, all of which are based on the fundamental concept of
carrying out trade through exchange.
The 20th Century

Improvements in technology and production processes have meant that this century has witnessed a
transition from a production society to a consumption society. Increasing competition, not simply
local or regional, but national and international, has meant that the problem is no longer one of supply
but of anticipating demand. All kinds of industries are now engaged in an intense struggle to establish
customer preference in favour of their products over that of the competition. Rather than wait for
orders to come to them, the industry must go out and manage demand for its products.
For many this was the start of the marketing era and out of it many of the modern marketing practices
were born. Advertising appeared as a means of stimulating sales. Branding and packaging were
developed as a way of saying something about the quality of the product. Salesforces were
introduced rather than relying solely on the merchants to find and develop new markets for their
products, while products themselves were developed to better satisfy customer needs.
Today there are many more producers and products than there are markets for them, which has
resulted in an imbalance where supply now exceeds demand. For modern business to achieve the
levels of demand it requires, it must not only concentrate on improving efficiency levels of production
but, more importantly, must also produce products the market wants to buy. This requires business to
place greater emphasis on marketing research to find out what buyers want, not what they simply
need, and to match its productive capacity and product lines to meet the anticipated wants. In effect,
the national and international situation has changed from a seller’s market to a buyer’s market, and
failure to give buyers what they want will surely lead to failure.
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Marketing Culture and Orientation 3
B. WHAT IS MARKETING?
As we have already noted, marketing has been around for thousands of years and has evolved from
simple bartering to the highly complex systems which are in use today.
Marketing as a discipline has its critics. These are the people who think of marketing as being a
“poison pack” which is responsible for all the evils in the world – mainly because of criticisms
relating to the effects of advertising.
However, marketing also has its devotees. Some people see marketing as a “magic wand”; they think
that when a company has problems all they need to do is to get in a Marketing Manager and all the
problems will disappear.
Neither of these viewpoints is correct. Marketing is now recognised almost as a science. It is seen as
a logical approach to business which involves the studying, and understanding, of relationships and
exchanges between buyers and sellers.
Various definitions of “marketing” have been proposed by practitioners of marketing:
“Marketing is a human activity directed at satisfying needs and wants” (Kotler).
“The management process responsible for identifying, anticipating and satisfying
customer requirements profitably” (CIM).
In marketing terms, a customer’s needs, wants or requirements tend to mean a product. The product
may be tangible or intangible – it is still something that the customer wants in order to deal with a real
or imagined requirement that they have or, to put it another way, a customer has a problem to solve.
People can satisfy their requirements, or problems, in one of four ways:
! Self-solution (coming up with the answer to the problem themselves)
! Force (threatening/stealing)
! Begging (pleading/seeking sympathy)
! Exchange (offering something of value to the owner)
The last method, exchange, is based on a mutually beneficial outcome to both parties. This value
exchange summarises marketing and applies in every type of product exchange, from the simple
purchase of a bar of soap by a customer in a supermarket, to the purchase of attack aircraft by a
government. In every case both parties give, or exchange, something of value to the other.
For this to be possible, two parties must:
! Have something of value to exchange
! Be capable of communicating
! Be free to accept or reject the exchange situation
The existence of these criteria does not necessarily mean that an exchange WILL take place – only
that it is possible.
Successful exchanges will only occur when there is some individual, or organisation, with enough
interest (and available resources) who is prepared to enter into an agreement with the owner, or
producer, of some particular item(s).
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C. THE STRATEGIC ORIENTATION OF BUSINESS

It is very easy, on a marketing course, to get carried away with the total ethos of marketing but we
must remember that not every organisation adopts a marketing stance. Having identified what
marketing means and its development, we must, before we explore the nature of marketing any
further, take a look at alternative methods of carrying out business.
No matter what the market type is, the company has to deal with it on a day-to-day basis and present
itself as a successful concern. How the company presents itself and its activities to the world will
depend very much on a combination of factors, including among others:
! The nature of the product being sold
! The beliefs of the decision makers
! The extent of the influences from the environments
! Customer expectations
A company may be seen as being “aggressive”, “caring”, “ethical” or some other identifying factor
which summarises what the company stands for in its marketplace.
The perceptions held by the public may, to a large extent, be influenced by the approach or stance that
the company adopts. The different approaches to markets are referred to as Strategic Business
Concepts or Strategic Business Orientation.
There are only really four different types as outlined below:
! Production Concept (or orientation)
! Product Concept
! Sales Concept
! Marketing Concept
Production Concept
A company following this concept is operating on the idea that the more you can produce the more
you can sell. Managers assume that customers are only interested in the availability of products and
of low prices and that marketing is not necessary. This may or may not be true. Consider the
following examples:
! A fashion company making exclusive dresses, selling on average at £3,000, produces and sells
12 dresses each month.
If they were to double their production rate it is unlikely that they could retain their “exclusive”
appeal. This would mean prices would have to be reduced and revenue would fall – not to
mention the increased costs in materials and labour needed to make more dresses.
! A company making electronic switching gear, on a batch production basis, produces 4,000 units
each four-week period. The units are sold at £3.00 each and are recognised as being “superior”
products to those of the competition, which sell at £2.50 per unit. The competitor sells more
units than the company does.
If the company were able to increase production and reduce the price slightly they could
possibly sell more units and increase their revenue. Of course, calculations need to be made
taking into account all costs incurred, e.g.
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Current Potential
Level of production 4,000 6,000

Sales @ £3.00 £12,000 @ £2.75 £16,500
Fixed costs £2,000 £2,000
Variable costs (£0.25 per unit) £1,000 £1,500
Profit (per four weeks) £9,000 £13,000
Assuming that new production plant cost £4,000, and that all units produced were sold, it would
take only one month’s production to recover the costs. After that the company would be
making even more money than they are at present. Even allowing for a price match to that of
the competitor this would seem an advantageous move for this company.
However, let us take this one step further with another example:
! Imagine a company that makes a small electrical product which can be used in photography.
After introducing a small pilot batch, it appears that sales potential for this product is
promising. The company has the production capacity to produce 3,000 units per month.
Managers fix a target production level of 12,000, which will take four months to complete, and
production begins.
Once the first monthly batch has been completed selling activity takes place and everyone
stands back waiting for the orders, but few orders are taken. An investigation is begun after
eight weeks as to why the product is not selling – by which time the company has produced a
total of 6,000 units.
The investigations are completed by the end of Week 10 (7,500 units produced). The company
discovers, by asking its current customers, that a new digital camera has been launched which
has made their product obsolete almost overnight. The company are left holding all the stock,
and now have to accept the losses or find other markets for the product which, in turn, will
involve them in even more costs for research, marketing and other activities.
In this last example the “production concept” has failed miserably. To simply mass produce any
product on the outcome of meagre research is foolish in the extreme. The company might well find a
market for their product but it would be a “niche” market rather than a mass market because of the
changes in technology. Producing in smaller batches appropriate to the level of demand makes much
more sense.
Using these three examples we can see that there are times when a “production orientation” will work
and times when it will not. This concept works when:
! the market is low cost and high turnover,
! there is high demand for the product,
! buyers are sensitive to price,
! the organisation has the capacity to mass produce, and
! the marginal production costs incurred are low,
BUT does not work in the opposite circumstances.
Companies following a production orientation gain from:
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! Economies of scale
! Reduced marketing and production costs
! Greater market share
! Strength over the competition
However, they lose:
! Any degree of “exclusive” appeal
! Close contact with customer needs
! High levels of customer loyalty
It is not enough for a company to simply make lots of what it is good at – if the customers do not want
the product it is a waste of resources and is likely to end in financial ruin.
Product Concept
This type of orientation is present when managers in the company believe that customers will
recognise a good product and buy it when it is made available. The managers have such a firm belief
in the quality and appeal of their product that they cannot accept that customers may not readily see
the same advantages and they fail to undertake any marketing or even carry out essential research
before beginning production. Consequently the managers are dumbfounded when customers are not
beating a path to their door to buy up the existing stocks.
Perhaps one of the most quoted examples of this type of orientation concerns the Sinclair CV5, a
small motorised vehicle which was introduced into the UK by Clive Sinclair. Sinclair thought he had
an excellent product which would help alleviate pollution and lower traffic levels on the roads of
Britain.
He did carry out product tests – but they were in a gymnasium. When the product was finally
launched it proved to be dangerous and frightening when users were faced with large trucks and other
vehicles using the public roads. Sinclair had underestimated the fact that his target audience liked
their cars and that they were not going to buy something which, in their opinion, was inferior to what
they already had. Despite his belief in it, the product failed completely.
Although the CV5 is used to demonstrate how product belief by managers can be dangerous it is not
the only example in existence. Currently there are many organisations who have excellent products of
all kinds but, because they do not market them or tell people about them, they are not selling. One of
the most pertinent in my recent experience concerns a branch of the armed forces in the United
Kingdom.
This particular branch of the forces is known throughout the world for its superb training facilities but,
because of the global reduction in defence forces, the facilities are now underutilised. To make use of
the facilities and to recoup some revenue decisions were made at senior levels to offer personnel
training to other national governments. There is no doubt that the product is excellent and yet it was
not taken up to any large extent. This is simply because they thought everyone would come running
once the decision had been made and little effort was put into finding out if what they had actually
matched the requirements of the potential customers.
The goods news is that professional marketing help was sought and customer needs research was
undertaken. A major drawback to sales was identified as being the lack of facilities for accompanying
families while personnel were being trained. This aspect has now been addressed and sales are
healthy. I am sure that this product will be a major earner in the near future.
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We must not overlook the fact that sometimes a good product does have a good future and that the
belief of a manager can save the product from disappearing. Innovative products spring from creative
minds and sometimes creative minds can be far ahead of the majority of the public. It is only after a
period of time, and education, that people will appreciate the benefits and begin to buy. The product
may then take off and become very successful. If every new product that did not sell was dropped
immediately we would never move forward, but to simply go ahead and produce a product because its
creator believes in it is dangerous.
Companies following a product orientation can only be successful if:
! There is a current demand for the product
! There is a potential demand for the product
! Products are given full marketing support
! Products meet customer requirements
Thus it is obvious that product orientation MUST, if it is to be successful, be adopted only after
research has been carried out.
Sales Concept
Orientation on selling means that the company sells what it makes – it does not make what it can sell.
Managers believe that buyers have to be “coaxed” into buying by aggressive techniques.
This will involve heavy activity on the selling and promotional aspects with perhaps discounted prices
being used and incentives to buy being offered. The company is more interested in “moving stock”
than in stocking the right goods.
Companies selling goods very similar to those of the competition are often following this type of
orientation as they can see no other way to get customers. Consider the following situation.
In a medium-sized town there are four outlets selling carpets. They are all selling very similar
products, many actually coming from the same manufacturer. The managers think that the only way
they can get customers in is to “attract them”. So:
! One outlet offers 10% reduction (a reduction in profit)
! Another offers interest free credit (charges from the finance company)
! Another offers free fitting (labour costs incurred)
! The last offers extended guarantees (insurance costs for potential replacements)
In each case the company is using money to attract money and each gain will only be short term. It is
likely that they will have to continue on this round of competitive activity just to stay in the market.
If one of them were to break the cycle and research customer requirements they might well find that
customers are prepared to pay a slightly higher price for good quality advice on carpet buying –
something which would not cost too much money to provide but which would give the outlet a
competitive edge.
Sales orientation usually implies the existence of an aggressive sales-force and this can bring a
company into disrepute. If a salesperson is more interested in his/her commission from a sale than in
repeat business from a customer they are more likely to use methods which could be, to put it mildly,
disreputable. Corporate reputations can be damaged very easily, but can take a long time to be
recovered.
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In the mid 1990s in the UK the financial services sector was greatly affected by previous sales
techniques used by their representatives. Changed government legislation resulted in vast amounts of
money being paid to people who had been given bad, or misleading, advice from pensions and
insurance salespeople in the past. The result of this has been that salespeople must now be qualified
and are strictly controlled. Methods of paying commission have been changed and there is now no
advantage for a financial services salesperson to use any aggressive methods.
Despite the above comments there is, and always will be, a place for sales orientation. We have
market traders who sell aggressively to move their stock; and there are companies who buy and sell
inexpensive products which customers may buy either on impulse or to meet a short-term need. But it
is safe to say that if a company wishes to obtain and keep a customer, they must be looking to satisfy
customer needs and not simply make a sale.
The sales concept only works when:
! There is little need for an after-sales service
! Companies are not interested in forming relationships with customers
! Buyers have low expectations of the product or service
! Repeat purchasing is unlikely
Marketing Concept
Companies following the marketing concept firmly believe that the customer is the key to successful
business. Unlike the three concepts discussed above, the marketing concept actually begins WITH the
customer and the company is trying to provide what the customer wants rather than making the
customer want what the company has.
If an organisation is following the marketing concept it will have three distinct characteristics:
! Customer Orientation
The organisation must define customer needs from the point of view of the customer and not its
own. It will need to seek information actively from the marketplace in order to assess whether
the offerings are meeting customer requirements and, if not, why not.
! Organisational Integration
All functions, sections or departments of the organisation must work together to meet the
overall objectives of the organisation – which must be to satisfy customer requirements. When
individual sections of a company do not fit in with the total effort there may be friction or
problems which can result in lost opportunities or dissatisfied customers.
! Mutually Profitable Exchange
The organisation is entitled to a reasonable profit for a reasonable product. The customer is
entitled to a reasonable product for a reasonable price. In other words – both should be
satisfied. This satisfaction may well be the result of negotiation where the customer has
accepted an alternative product or where the organisation has had to accept a lower profit – but
they must be satisfied with the exchange. If it is not a mutually accepted exchange, it is not
marketing.
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D. DEVELOPING A MARKETING ORIENTATION
The Need for Integration

Marketing affects most other activities in the company, so it is inevitable there will be a lot of
discussion between managers about the outcome of the marketing decisions.
Each manager wants to run his department as efficiently as possible, which often means, for instance,
that the production manager will want to set up and run a production line for one product, then set up
for another product from the range, producing everything in economic batches. Consumers do not
buy that way and they neither know nor care about economic batches.
If the production manager tells the buyer he wants to produce a quantity of products, the buyer will
know what raw materials to order and when they should be delivered. The same information tells the
personnel manager how many people will be required and he will decide whether or not to take on
more staff, either temporarily or permanently. The same reasoning can follow through to the
warehousing and distribution functions. All this activity can fit neatly into place to make the company
look as if it is running efficiently.
Yet it is possible for all this to go on without anyone giving a thought to the wishes of potential
customers. I have even seen new products designed with no reference whatsoever to the wishes of the
very people who might have bought the product. When I was asked to do some belated market
research on a new product, I took the prototype with me and almost everyone said they liked the idea
but not the size. None were ever sold and development costs were all wasted. Worse still, the
principle had been revealed and was soon copied by rivals.
The situation can change if a marketing concept is introduced gradually, rather than overnight. Even
in companies which consider themselves to be marketing oriented, changes in activities which will
affect other departments must be made with care, so that managers are aware of the benefits they can
achieve as well as the different working routines, which they may not like.
Introducing the Marketing Concept

Most companies already have some marketing activity, although there are a few who do not use the
word “marketing” at all. When I taught marketing to a class of buyers at a night school, one of them
started by saying “No-one does any marketing in our company and we have been going 100 years; we
don’t need marketing”. A few weeks later the same man said “I am astonished. I have been doing the
marketing all the time and I am the Chief Buyer!”
The activities called “marketing” go on in most companies and it is useful to identify just what level
they work at. If the marketing function can be shown to be useful to other departments, any changes
which may be recommended will be accepted more readily.
Many examples can be quoted of the way in which a formal marketing function can help other
departments. I was told by a sales representative that a certain large company refused to buy from our
company because of “group policy, which nominated suppliers”. I found that three companies in the
same group were already buying from us, so the salesman went back with the information and made
the first of many sales.
When “marketing” can be seen to be beneficial to other departments, changes can be made so the total
marketing effort is more efficient.
Salesmen are probably the first to acknowledge that they get some help from good publicity, so it may
be logical to start by introducing a better class of product literature and to run better advertisements.
When customers see the result and gain more confidence in the company, sales may rise and salesmen
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will be glad of the help. Increased sales will affect most departments in a company and if marketing
can get some of the credit there are better chances for improvement in other ways.
Marketing depends on information and the most specific information about the needs and wishes of
existing customers can come from the sales people who meet them, listen to their comments and note
their dissatisfactions. The information flow will grow more quickly when it can be seen that
marketing can operate as a two-way system. Even simple activities, such as clipping from
newspapers any items of news about customers, can be the start of a two-way flow. Salesmen are
grateful for sales leads and even such a simple service will usually be appreciated.
Once the sales team realise the way in which marketing can collect useful information, they will soon
start contributing their own items, which may seem trivial at first glance. However, a good marketing
information system can put bits of news or even gossip into context and what looks like a collection
of trivial items may become quite significant information when put together and related to other
items.
Part of the marketing effort will almost certainly be sales forecasting; forecasts which are even
reasonably close can be a big help to buyers, enabling them to place orders for materials and
components ahead of their required delivery time and possibly at better prices. The same applies to
the finance manager, the distribution manager and probably to every manager in the company.
Most of what is covered above already happens in most companies, but there may well be a need to
formalise efforts to make them into a more coherent marketing activity.
Internal Marketing
You might have deduced by now that the marketing manager has a marketing job to do within his
own company if he is to introduce the marketing concept fully and effectively.
Internally, there is a variety of “customers”, starting with the chief executive (to be handled with care)
and including all the directors and senior managers. The marketing effort required here will be to
persuade them that the inconveniences which marketing will demand are worthwhile in the long run.
They will be the ones to make the lower ranks enthusiastic about marketing.
Perhaps we should start right at the beginning and convince directors and senior managers of the
quality of the products. That may surprise you, but in this changing world there may be many
managers who were happier “in the old days”, when the pace was slower and new technology could
be picked up leisurely. If they do not believe in the new products and policies how can they expect
their workers to believe in them?
Many of the ideas used to communicate with customers outside the company can also be used, with
modifications, to communicate with people inside the company. Good news can be spread by means
of a company newsletter. A creditable mention in the newsletter can work wonders for an employee’s
morale; I have seen the time when sales engineers went to great lengths to get unusual applications of
the firm’s products written up for the newsletter. The prestige of being one of the few who were
named easily justified the strenuous efforts which some of the engineers made to get the photographs
and diagrams needed. I tried hard but never quite made the headlines.
If a worker is proud to work in a specific company, he or she will do more than the minimum required
to keep out of trouble. I am sure you will have met the employee who does “just enough” to keep out
of trouble and you can contrast them with the dedicated company enthusiast who does far more than
just keep the boss happy.
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If someone is “freewheeling” the cause may not be within the control of the marketing management,
but overall company morale is a fair topic for management meetings and freewheeling is a sign of
poor morale.
Skinner, in his book Marketing published in 1990 by Houghton Mifflin, refers to “discretionary
effort” which he describes as the difference between the minimum effort to keep out of trouble and the
maximum amount of effort an employee can put into the job.
He goes on to suggest that part of the marketing effort (and budget!) can usefully be allocated to
researching the opinions of staff at all levels and to internal publicity.
This is not just a matter of analysing sales figures and comparing them with a previously set standard.
Reasons for over- and under-achievement should be found and lessons learned at all levels.
Real benefit can only come from internal marketing if management allocates enough time and money
to making any improvements which may be required. This is where internal marketing may become
very difficult.
From time to time a company may derive a lot of benefit from having a marketing audit carried out by
a firm of specialists – the effort and the results may be agonising, but the outcome may be a company
in better shape. I mention this with some caution, because a firm I worked for was practically ruined
by taking on consultants who ignored the most important people – the customers. Perhaps the brief
they received told them to ignore the customers? I do not know, but I had to put up with some very
strong comments from good customers. Clearly, the brief is vital and full co-operation of staff can
only be obtained if there is adequate consultation before the experts arrive. In that case it was disaster
right from the start, although the consultants were a big-name firm. They got off to a bad start by
making it clear they had little respect for us, almost blaming the lower ranks for the problems of the
firm.
E. STRATEGIC IMPLICATIONS OF A MARKETING

ORIENTATION
External Changes
There is little point in changing attitudes towards marketing internally if there is no equivalent change
in the company’s external activity. Various groups of people have an interest in the affairs of specific
companies and will see external activities more clearly than internal changes.
The change from sales orientation to marketing orientation was described this way by Levitt in his
famous article Marketing Myopia:
“Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling
is preoccupied with the need of the seller to convert his product into cash; marketing
with the idea of satisfying the needs of the customer by means of the product and the
whole cluster of things associated with creating, delivering and consuming it.”
Changes in the company’s strategy, as it changes from sales orientation to marketing orientation, will
be evident to people outside the company in various ways and we can look at some of the more
significant strategic changes.
! Product Design
Customers will see the changes which they asked for in design now begin to be available,
whereas the sales-oriented company just wanted to push what they had or could get easily.
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Customers will notice that the sales team will ask more questions and there may even be
marketing researchers asking questions about desirable features in products. Whereas the
standard products were offered for long periods and changes were not welcomed, the
marketing-oriented company will offer new features or new models much more readily.
Competitors will also notice a difference – their products will face more challenging
competition from new or modified products.
! Suppliers
The old, long-run demands for existing products will be replaced by shorter-run demands for
different products to suit customers’ needs. There ought to be a new enthusiasm in the
company, which will be reflected in purchases of raw materials and components.
Product line changes will show in different buying patterns in the company and ideas might
also come through for quite different types of supplies.
! Publicity
A marketing-oriented company will be much more “visible” in appropriate journals and maybe
in other media too. There will be more originality in the design of advertising campaigns and
evidence of co-ordination of different media.
PR campaigns will be evident and the company name will feature more prominently in trade
and other journals as articles are published by the company’s technical experts. If the new
strategy runs to sponsorship of sporting events, there will be dramatic changes in publicity
efforts; selling activities ought to synchronise with sponsorship activities as far as possible.
! Distribution
“When do you want it?” might surprise some customers who have become accustomed to
“You’ll have it next Tuesday, when the lorry will be round your way”.
Scheduled deliveries to fit in with the customer’s production plans may even feature in the
strategy of a marketing-oriented company. “Just-in-Time” deliveries are part of the marketing
strategy of some suppliers, who get the benefits of long-term association with valued
customers.
! Prices
There are not likely to be any bargains simply because a company changes its strategy from
sales to marketing orientation, but the prices and terms which are applied are likely to be more
realistic. Financial arrangements should be more in line with the customer’s individual needs,
because the marketing-oriented company will see the total offering, from analysis of the
customer’s needs right through to satisfying them, as one integrated concept.
Organisational Changes
When a company starts to put the needs of the customer first, there may have to be significant changes
in the organisation and it is unlikely that old ideas of tightly regulated departments will survive.
Customer satisfaction will have to become everybody’s job and there will be changes in the handling
of customer contact especially where customers collect from warehouses or company-owned shops.
Management may well decide that changes have to be made, but it is equally important that the same
managers allocate adequate facilities and money to make the changes smoothly.
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Although many people regard marketing as just the application of common sense, there may be times
when the actions necessary to satisfy customers will be a nuisance to some production people, who
might well resist.
Sometimes activities which appear to be quite unrelated to marketing can cause problems. A
production bonus scheme was introduced in a factory which made conveyor belts and output went up
dramatically, along with improvements in product quality. But so did the number of part-delivered
orders, because the operators had soon realised that if they made big belts they got more money than
if they made smaller belts.
Unfortunately, customers wanted a full set of belts including both big and small, to fit during their
plant shut-down which happened just once a year. Within two years the company no longer made
conveyor belts – they still had the ability but they just had no customers.
In another factory a new buyer saw an increase in sales so he ordered double the quantity of one
particular raw material; but when it was delivered there was not enough storage space for the extra
quantity. If he had bothered to ask for predictions of production and sales over the next few weeks, he
could have placed the larger order at a better price and asked for scheduled deliveries to fit in with
production schedules.
It is clear there can be difficulties in making the change from sales or production orientation to
marketing orientation and it would be easy to get the impression that “marketing” are trying to
dominate the whole company. A sales forecast (prepared by marketing) becomes an impossible target
and sales people are upset. Production is based on the forecast, along with material purchases, and if
the demoralised sales force do not sell as much as the new marketing people think is possible, the
whole company can be at loggerheads.
Such desperate situations should not happen, of course, and can be avoided if the chief executive
ensures that full and frank discussions are held at all levels. People do not automatically know about
or believe in marketing, so there has to be a period of training and adjustment before a company can
claim to have made the transition from sales or production orientation to marketing orientation.
The transition period can be easier all round if marketing people market themselves internally to their
colleagues.
Finally, I must stress that I have taken extreme (though true) examples, so as to show the extent of
potential problems. Many companies already have some commitment to marketing and would not
necessarily have to go though all the difficult times described above.
F. COORDINATION OF MARKETING WITH OTHER

MANAGEMENT FUNCTIONS
The most important single element in the implementation of the marketing concept is that of
coordination – or bringing together and reconciling a diversity of conflicting views and attitudes in
order to design a uniform customer-orientated plan of action.
It is not a question of marketing dictating policy or operations: it is to do with marketing coordinating
and cooperating with the other departments which exist only because there is a market for the
products or services of the company. Marketing, like any management function, takes its lead from
the policy decisions of senior management. Marketing, however, through its research functions,
provides senior management with the information upon which it will make decisions. In effect the
marketing department has the responsibility for coping with all the vagaries of the marketplace. It
provides the organisation with forecasts and estimates of sales volume, profitability and market
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potentials, as well as the limitations imposed by the company on resources and policies. Marketing,
therefore, has an overriding responsibility which cuts across the entire organisation. Whilst this does
not directly set the goals for other management functions, indirectly it provides the information base
from which the goals and schedules of all other functions are determined.
Clearly, then, an effective working relationship between marketing and the various other functional
areas of the business is vital to success. The task of the marketing department in this process is to
represent the interests of the customer to other departments in such a way that customer needs are
adequately met. Here we will consider two of the most important interrelationships, namely those
between marketing and production, and marketing and finance.
Marketing and Production

(a) Role of Marketing Before and During Production
The marketing concept requires that products are designed and made to satisfy clearly specified
consumer needs. The marketing function, therefore, must provide accurate and timely
information to the design and production departments about the nature of these needs. In
addition, where possible, this information should be provided in terms which the management
of the production function will understand. For example, phrases such as “we need a better
quality product” are too vague to provide clear guidelines to production staff as to what are the
specific requirements of the marketplace. What are required, for example, are sizes, colours,
fabrics, flexibility, weight, standards, etc.
Similarly, the marketing function should be responsible for the provision of information which
will form the basis of production planning. Sales forecasts and estimates of market demand are
essential for efficient production planning and control.
(b) Role of Marketing After Production
Once the products have been designed and produced in the required quantities, they must be
efficiently marketed to identified target markets. After purchase, marketing must monitor
customer attitudes to the company’s products; any adverse comments or complaints must be
noted and, if necessary, passed back to the production department for action.
(c) Cooperation Between Production and Marketing
Marketing, therefore, plays a role both before and after the production effort. An effective
working relationship between production and marketing is an essential requirement for
efficiency. To illustrate this point, we will examine three aspects of this relationship.
Making a New Product
Before an elaborate marketing plan is implemented, it is essential to ensure that the product will
be available when and where it is required. For this reason, a production scheme is needed, and
the marketing team must liaise with the production team in order to achieve this aim.
Where an entirely new product is involved, it is usual for the manufacturing department to
produce a quantity to be introduced to the customers on a sample basis. Such sampling
frequently reveals flaws, either in the production technique or in the quality of materials used,
which can be easily rectified before mass production begins. Whilst it is essential to avoid the
overproduction of a new line before it is satisfactorily established, it is equally undesirable to
accept orders for large quantities of a new product when such quantities will not be available at
the time required.
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It is exciting to contemplate the prospect of a successful market research and advertising

campaign, culminating in a massive launching of a new product, with the result that very large
orders are taken within the first few days and the product continues to sell well over a long
period of time. However, the introduction of a new product needs care, with a steady
advertising build-up and an order book which begins modestly and develops gradually over a
period of months.
A steady expansion is much easier to deal with from both the marketing and production points
of view than an initial onslaught which may or may not be maintained.
Maintaining Level and Standard of Production
Once the scheme of production has been established and the level of demand has been
ascertained, the marketing organisation must ensure that the production department maintains
both the level and the standard of production. The standard of production is obviously of vital
importance, since the manufacturing department needs to be able to produce homogeneous
units of the product for as long as is necessary. The maintaining of standards applies not only
to the basic production process, but also to the various subsidiary processes, such as finishing,
painting, packaging, etc.
The level of production, once determined, should be maintained in accordance with future
demand. It will be necessary for the manufacturing department to produce, initially, a number
of units of the product to deal with the first sales. For the most part, however, the production
team should be engaged in manufacturing goods ordered for delivery at least several months in
the future. This precaution will allow for any unforeseen circumstances such as breakdowns in
production flow, whether from strikes or from delays in receiving raw materials or
subcontracted components.
It is prudent, therefore, for the company to carry about three months’ production of a particular
line, as a stock from which orders may be fulfilled and which may be replenished from new
production. Obviously this will depend upon the nature of the product, the demand, and storage
facilities. Some firms in the fast moving consumer goods markets maintain less than one
week’s production in store, and companies manufacturing perishable goods such as bread and
confectionery must obviously sell their products within a very short time, in order that the
consumer may purchase the food whilst it is still fresh.
Improving Production Methods
The techniques of production are not the province of the marketing executive, but it is highly
desirable that the marketer be aware of the processes involved in making the product which he
is selling. The reasons for this are as follows:
! Much of the success in marketing the product will depend upon the marketer’s ability to
impart to the potential customer its technical merits.
! Potential customers are likely to wish to discuss certain technical aspects of the product
with the marketing executive, and it is therefore necessary that the marketer has a sound
grasp of the production technology in order to be able to discuss any queries raised by
prospective buyers.
! The marketer who is sufficiently production-orientated may undertake extensive overseas
marketing visits without being accompanied by one of the technical production staff.
This will reduce the expenditure involved in the trip, as well as inspiring greater
confidence on the part of potential customers.
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! Most manufacturing organisations have a research unit of some kind, which is constantly
experimenting with new processes, and even with new materials. It is of vital
importance that the marketing department should be fully aware of the progress being
made by the experimental unit, for the successful results of experiments will become the
selling products of the future. At the same time, however, the marketer, by virtue both of
his contact with a wide variety of buyers, perhaps situated in different countries of the
world, and of his knowledge of competitors’ products, may be able to impart valuable
information to the production team for successful incorporation into their own
manufacturing techniques.
Marketing and Finance

(a) Role of Marketing and Finance
Many of the decisions which must be taken in marketing a product or service require
information from the finance department. Perhaps the most obvious of these is the provision of
cost information for pricing decisions. At this point, it is important that you appreciate the need
for the finance function to provide accurate information. In turn, the marketing department
must provide accurate information to the accountants with regard to, for example, forecast
levels of sales, market share objectives and competitors’ prices. The important point is that
effective coordination and communication is a two-way process.
(b) The Need for Effective Teamwork
You should be aware that pricing is only one of the various activities which require that
marketing and accountancy work closely together. As we did earlier for production and
marketing, we will examine situations which might require effective teamwork between these
two departments.
Planning and Controlling Salesforce Activities
As with any area of business activity, it is important that marketing activities be planned and
controlled. In broad terms this means setting clear, realistic objectives, preferably, and where
possible, in quantitative terms. Having determined objectives, a company should then measure
its performance in terms of the degree to which these objectives are being achieved and at what
cost or how efficiently. Take, for example, the planning and control of the efforts of the
salesforce. The average company spends thousands of pounds keeping each member of its
salesforce on the road. In addition, the difference in performance between an effective and
ineffective salesperson can be enormous. Taken together, this means that, ideally, a company
should have clear objectives for the activities of its salesforce and, in addition, be able to
measure the efficiency of each member of the sales team.
Setting sales objectives is a matter for the marketing department. The finance function is
required to provide information which will enable marketing and sales to assess the cost-
effectiveness of the sales team. We might, for example, require information on the following
factors:
! Total selling costs
! Breakdown of total costs by salaries, commissions and expenses
! Details of costs incurred by each salesperson
Together with information provided by marketing and sales, this information enables the
following to be calculated:
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! Average cost per call

! Sales costs by territory
! Trends in direct versus indirect costs
Marketing and finance must work together as a team to achieve effective sales control.
Credit and Discount Policies
An important aspect of competitive marketing strategy is the issue of policies and procedures
for customer credit, and discount policies. For many purchasers the amount of credit which a
company is willing to extend is a critical factor in the purchase decision. In many companies
decisions on credit and discount are often taken unilaterally by either the marketing department
or the accounts department, when what is required is a joint decision on credit and discount
which reflects both the competitive needs of the marketplace and the financial resources of the
company.
For example, a decision by the marketing department to allow an extra 30 days’ grace between
delivery and payment may well be very competitive but may cause severe cash-flow problems
for the company. Similarly, a decision by the accounting department to cease offering price
discounts for quantity may improve the short-term financial or cash-flow position of the
company at the expense of long-term market share. Clearly, such decisions cannot be taken
without consultations between marketing and finance.
Relations with Other Departments

(a) Scope of Relations
We have examined in some detail why marketing and sales need to have an effective working
relationship with production and finance. Although these are two of the most important
functional areas with which marketing must work, they are by no means the only ones. In fact,
all of the functions of a business need to work together to achieve customer satisfaction at a
profit. The marketing concept stresses that customer satisfaction is a function of the total
efforts of a company, not just those of the marketing department. Packaging, quality control,
transport and distribution, purchasing, even the efforts of the company word processor operator,
may all influence the level of customer satisfaction. To illustrate this point we will examine a
practical example.
(b) Quoting a Selling Price
The sales representative is one member of the organisation who is in contact with the buyer,
and he may, in fact, discuss the question of the final selling price. Whilst it may be desirable
that the representative should have some scope for negotiation as far as the price is concerned,
he must be in possession of all the relevant facts to enable him to arrive at a final minimum
price at which the transaction will show a profit. It is, therefore, absolutely vital that the
representative, through the sales or marketing manager, should continue to consult the other
departments concerned in the computation of the selling price.
The following price computation shows a number of factors which might be taken into
consideration in estimating selling price. If the goods are subject to VAT, or quantity discounts
are involved, then further complications will arise.
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Computation of Sales Price Per Unit

£
Raw materials 4.23
Labour 2.81
Overheads 1.32
Production cost 8.36

Mark-up – 10% on cost 0.84
Transfer to sales 9.20

Basic overhead addition (15%)
including delivery in UK 1.38
Profit mark-up on cost – 10% 1.06
Cash sales price 11.64
3 months’ credit – 2½% additional 11.93
6 months’ credit – 5% additional 12.22
Above prices valid up to 1 dozen

1% discount – 12-50 units
1½% discount – over 50 units
(c) Requirements of Particular Departments

It would be necessary in this case for the marketing and sales department to liaise with the
following other departments of the organisation.
Production Department
The “transfer to sales” price of goods manufactured by this department includes a number of
items which may be subject to variation. For example, the cost of raw materials might increase,
whereas labour and overhead costs are always subject to adjustment; the mark-up of 10% over
production cost may be incorporated in the transfer to sales price merely as a precaution against
increases in the cost of production.
Full liaison with the production department will ensure that the marketing department is always
aware of the degree of flexibility allowed in fixing the transfer price, while, at the same time,
the production department can advise when a change of production cost will be likely and how
many units can still be sold at the original price.
Packing Department
Explicit instructions must be given to the packing department by the marketing department in
respect of every sales contract. It is essential that he goods sold are not only ready for despatch
when required, but also packed correctly.
Transport Department
Good communications must be maintained between the transport and marketing departments,
since delivery on time is a vital part of any sales contract, and penalty clauses may be invoked
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for late delivery. Full transport and delivery instructions must, therefore, be given to the
transport department as soon as possible, so that it can make its own arrangements for
programming the despatches.
Financial and Credit Control Department
Buyers often request, and are granted, periods of credit. Granting credit must be considered
from two separate aspects: the financial cost to the company, and the creditworthiness of the
buyer. The marketing department should be in regular contact with the finance and credit
control department in order to receive up-to-date information in respect of the costs of
financing and the limits which are accorded to buyers.
Conflict between Marketing and Other Departments

It is generally assumed that the effectiveness of any individual department or management function
and, ultimately, the whole company, will depend upon cooperation among the specialist functions of
the business. Although in principle all departments should cooperate, in practice there is often
substantial rivalry and conflict between them. This is because department heads may have their own
views as to what constitutes the effective management of their particular area of activity. Further, the
aims of the marketing department, imposed by a logic of customer satisfaction, may be at odds with
the aims of other departments.
The following table illustrates a number of conflicting issues that may arise between marketing and
other functions.
Functions Source of Conflict
Production Production often stress long production runs of standardised items,

together with finite sales forecasting for planning processes.
Differences occur on issues of lead times, modification changes,
minimum ordering, scheduling, stockholding, etc.
Marketing, on the other hand, will stress the need for a greater variety
of products, shorter production runs, etc.
Research & R&D may emphasise a need for pure research, for experimentation
Development (R&D) and greater accuracy and development time.
Marketing’s emphasis will be on more applied research and they will
become frustrated with overruns on time and budget.
Purchasing Purchasing specialists will stress the need to choose between

suppliers, to focus on price specifications and delivery times.
Marketing may stress the need for high quality, higher priced items in
line with what customers are demanding.
Design Engineering design will seek to standardise, while marketing will

seek to customise.
Finance Potential conflict here is often over prices to charge and pricing
methods, cost allocation, profitability targets, credit control and
marketing budgets.
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Interdepartmental conflicts, even at this level, are often attributed to the issue of ownership or
territory. This is where departments form views or beliefs as to whose function certain organisation
activities belong to.
Marketing research, selling and promotion are widely recognised as the proper reserves of marketing
management. However, within marketing operations there are subfunctions such as product planning,
customer service, packaging, distribution and pricing which are often fought over between marketing
and other functions.
G. ORGANISATION FOR MARKETING

You will be aware that there are all sizes of organisations in existence, ranging from the one-man
operator to the huge multinational conglomerate business group. Despite the differences in size, they
all have one common characteristic: they exist to provide something to other parties, and survive by
making a profitable return on their output. Regardless of the reason for existence, every organisation
needs to be structured to make it efficient and effective.
Basically the structure is the skeleton, or the back-bone, of the organisation and is generally used as a
means of grouping the necessary activities together in some way that makes sense.
Structures are drawn as diagrams, or organisation charts, and I am sure that you have seen many
examples of such charts during your studies to date, as well as in your own work experience.
An organisation chart can serve many purposes:
! Identifying responsibility for activities
! Showing who is in a decision-making position
! Giving the hierarchy of command
! Enabling the chain of communication to be seen
Alternative Structures
A business, of any kind, may be organised in several ways. The most common structures are as
described below.
! Regional/Geographic
This is a very simple way of splitting up responsibilities. The region can be small (local towns)
to very large (Africa, Indonesia, United States, etc.). As the business develops each area can
then be sub-divided to cope with increased work, e.g. north, south, etc. or perhaps in one of the
ways we consider below.
! Task/Function
Typical functions to be found in organisations are: Finance, Production, Purchasing,
Marketing, Personnel, etc.
Structuring a company by this method means that, irrespective of the region involved, there are
people who are responsible for certain activities with the resulting benefits of experience and
expertise. If a company organises in this way and then subsequently grows in size, it may
further sub-divide the activities into regions.
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! Market/Customer
Depending on what is being offered by the company this may be a very good way of
structuring.
For example, a company which provides diagnostic testing media will have many different
types of customers: hospitals, agricultural testing laboratories, food manufacturers, public
health laboratories, cosmetic manufacturers. Having personnel who deal with specific
customer groups means that expertise can be built up and specialised knowledge is available to
deal with any relevant problems.
! Product/Technology
This type of structure is usually found in the large conglomerates which have a wide range of
products, e.g. ICI has paint, chemicals and textiles, which are used by different people for
different purposes. The production processes can vary greatly and may have their own
requirements which demand that they are regarded separately. Add this to the different
customers they are likely to be dealing with and you can see why such a structure might be
used.
! Matrix
This is a form of management structure which involves bringing personnel from various
sections of an organisation together for specific reasons. Predominantly used for a problem-
solving exercise, it is most commonly used for managing complex projects and has the benefit
of multiple-skilled and experienced people working together. NASA (North American Space
Agency) was one of the first organisations to use this type of structure when they wanted to
land a man on the moon! Sometimes a member of the team will be acting as a “leader” and
sometimes just as a “member”, depending on which skills are needed at any given time.
Managing Director – Directors
Finance Design Production Marketing

Dept Dept Dept
A B C
Project S Coordinator
Project F Coordinator
Project Y Coordinator
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! Vertical and Horizontal

Structures can be either vertical or horizontal:
Vertical Organisation Horizontal Organisation

Manager Department Manager
Supervisor
First Sales Sales Persons
Second Sales
Third Sales, etc.
Vertical structure can mean a long chain from the top to the bottom of the organisation, with
power and authority reducing the further you move down the chain of command.
Horizontal structure means fewer “lines” of management and that people are nearer to the top.
This can create better communication links which add to the overall efficiency and
effectiveness levels.
Many businesses have now moved to a horizontal type of structure as it has been proved that it
can be very effective. As people are “moved up” the chain of command they are given more
responsibility and greater authority for decision making. This, in turn, helps to motivate them
to be more productive. (It can also reduce the numbers of staff.)
! Strategic Business Units
The evolution of markets and business into the highly complex and competitive state which
exists today has led many companies to base their activities on Strategic Business Units
(SBUs). This idea was first introduced by McKinsey & Co. (USA) for General Electric in the
early 1970s but it is common practice today.
The whole concept simply means that companies have identified certain units of their business
as being key sections and, as such, these sections are given individual responsibilities.
An SBU is a separate operating unit within an organisation which is self-contained and can
relate to a single product, a product range, a department or even a subsidiary company within a
large multiple organisation.
McKinsey & Co. stated that to be an effective SBU, the unit must meet the following criteria.
It should have:
! A unique purpose in the organisation
! Its own “manager” (at any level) to make decisions
! Its own plans which fit into the overall corporate plan
! Its own customer base
! Recognised competition
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The benefits of operating on the basis of SBUs include:

! The single-mindedness of the personnel involved
! No fragmentation of effort
! Easier processes for purchasing, accounting, etc.
! Easier monitoring and control of activities
The disadvantages can be:
! Duplication of effort by scattered expertise in the organisation
! Restrictive practices between SBUs to gain competitive advantage
! Poor utilisation of resources due to “narrow” planning activities
! Wasteful purchasing effort due to smaller quantities
! Self-protection activities on the part of the “manager” and personnel
Most organisations tend to use a combination of the methods outlined above to form the structure
which is best suited to their activities. This is because of changes that have taken place as the
organisation and its market have evolved.
Changes which take place and can involve structural reorganisation include the following:
! The day-to-day operations become too much for the personnel employed and more people are
required
! The need to increase production to cope with demand
! The need to add different products to the range offered
! Moving from one market area to another
! Changing customer tastes
! Increased competition
! Changing technology
! Government regulations
Organisation Structures for Marketing

So far we have looked at possible structures for the total organisation. We have seen that a company
can be structured in a variety of ways according to its needs and circumstances.
For the purpose of this course, we will take the following as a “typical” structure for an organisation.
The marketing function is expanded to show further detail. Please remember that this is only an
example and is not meant to infer that this is the “ideal” structure – each company will have its own
priorities.
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Managing
Director
Director Director Director Director Director

Finance Procurement Marketing Production Personnel
Manager Manager Sales Manager Manager PR Manager

R&D & Marketing Advertising Distribution
Manager USA Manager Europe
Admin Sales Technical Admin Sales Technical

Support Support
From this structure you can see that power emanates from the Managing Director and cascades down
the hierarchy of command. The structure is based predominantly on a functional basis in that there
are people at senior level who are responsible for defined activities for the company overall, i.e.
Finance, Marketing, Purchasing, etc. With a high level and central control of these activities expertise
can be accumulated, cost savings can be made and a much greater degree of control can be achieved.
Marketing itself is also organised on a functional, or task, basis but is then split geographically into
USA and Europe and, within the two geographic areas, a task structure is used for the operational
levels.
The alternatives for grouping marketing activities are exactly the same as for the organisation overall,
i.e.
! Functional structures
! Regionally-based structures
! Product structures
! Customer-based structures
! Product/customer-based structures
Let us look at each of these in turn.
(a) Functional Marketing Structure
The organisational chart below shows the functional marketing organisation of a medium-sized
company.
Under this structure, personnel are grouped by functional specialism and their activities are
coordinated by the Marketing Director (or manager). The system benefits from clearly
designated areas of responsibility. On the other hand, it has a rather restricted outlook with
each department tending to plough its own furrow. Problems can arise if the organisation
grows into a top-heavy hierarchy of specialists, with strictly functional interests.
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Marketing Director
Sales Manager Marketing Manager
Sales Office Customer Home Sales Marketing Product Advertising,

Services Research Planning PR, Sales,
Promotion
Area
Managers
Branch
Managers
(b) Regional Marketing Structure

Most organisations will be structured at least in part on a regional or geographical basis. This is
particularly true of salesforces operating nationally, where the national sales managers
supervise regional managers, each of whom may supervise several area managers or field sales
people. The structure is typical in the case of multi-product companies, or companies with
large exporting operations.
(c) Product Marketing Structure
Companies that have broadly differentiated product lines frequently organise their marketing
activities on a product or product group basis. The organisation as depicted in Figure 1.5 is
only viable where each product/product group generates sufficient sales revenue to offset
inevitable duplications of effort. Not surprisingly it was first adopted by the large multinational
FMCG (fast moving consumer goods) companies, but has later spread to other sectors including
industrial manufacturing and financial services.
Marketing Director
Market Research Field Sales Product Group Advertising & PR

Manager Managers Manager(s) Manager
Product Manager Product Manager Product Manager

A B C
When a product group structure is used it is normal to appoint product or brand managers with
specific responsibility for the performance of a product in a market. The term “product
manager” is usually used in industrial marketing and “brand manager” in consumer marketing.
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Essentially, the duties of the product or brand manager are to coordinate all activities associated
with the marketing of a given product or brand. The product manager prepares a marketing
plan for his product and defines the sales volume, market share and profit objectives. Forecasts
and budgets are prepared and the resources required for advertising, sales promotion and
salesforce efforts determined. In addition, the product manager will make recommendations
and changes to the offer in terms of product modifications, pricing, distribution or in terms of
deleting or adding new products.
Product managers must compete with other product managers for the company’s resources.
Although they work to guidelines set by top management, who impose ceilings on their
expenditure, they have a right of appeal based on the worthiness of their marketing plans and
the objectives they seek to achieve. Once the plans are agreed the product manager is
responsible for implementing and coordinating all activities. He must liaise with other
functional specialists as well as outside agencies in delivering the bottom-line sales and profits
included in the plan. As these are the same skills required of top managers, often the product
manager’s position acts as the proving ground for senior management appointments.
The great advantage of the production management structure is that it guarantees a focus and
specialisation of management at the product/brand level, so that all the major profit earners of
the company get the benefit of a full-time champion dedicated to their well-being. The
potential drawbacks to this structure relate to the product manager having too much
responsibility and not enough authority. Problems invariably arise in terms of reporting
relationships and decision-making authority, while the healthy rivalry between product
managers may develop into unproductive competition and conflict.
(d) Customer-based Marketing Structure
Market or customer-based structures and the product-based structure are quite similar. In a
company like Unilever, which is producing a group of nearly identical products from the same
manufacturing facility, all of which are to be sold through the same distribution outlets, the
product manager system ensures that the individual brand is given the individual attention it
deserves. However, where a company is selling one product or line of products that appeals to
different segments of the market, the market or customer approach may make more
organisational sense, since it puts appropriate focus on each of the marketing opportunities.
The following organisation chart illustrates a customer-based structure for a hypothetical
manufacturer of crockery ware.
Marketing Director
National Sales Marketing Market Market Market

Manager Research Manager Manager Retail Manager
Manager Hotels Commercial
You could argue that this structure represents the closest means of implementing the marketing
concept, for it is implicit that customer requirements will take precedence over all other
activities. It is a recognition that customers often have needs for a series of related products
which may be usefully combined with a company’s product offer. For example, IBM do not
just sell computers – they sell computer systems and software tailor-made to end-user specific
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requirements. Emphasis only on the product could well result in the employment of
salespeople specialising in certain products and missing out on such opportunities.
If we were to generalise, then, where a company’s product has mass appeal across industry or
user categories, then the responsibility for marketing should be vested in product managers.
However, where there are marked differences in the needs or buying habits of separate
customer groups, then these should be regarded as separate markets and market managers
appointed.
(e) Product/Customer Structure
Where companies have many products being distributed into many markets they could choose
to use either a product or customer-based structure. In an effort to resolve this dilemma, a
composite to the two structures has been formed. The textile company Du Pont have chosen a
composite-style organisation in employing separate managers for yarns, rayon, acetate, nylon
and dacron, and separate market managers for its apparel such as men’s wear, women’s wear,
home furnishings and the industrial market. The grid line structure as illustrated below operates
across the dimensions.
The product managers plan the sales and profits of their respective fibres and seek
information or forecasts of fibre usage from the market manager.
The market managers are only interested in meeting the needs of their customer markets
rather than pushing a particular fibre and, in preparing their market plans, seek information
from the product manager on prices and availability of different fibres.
This structure appears to be suited to large, multi-product organisations in terms of greater
coordination of activities and faster decision making. Against this is the fact that the system is
costly and can lead to interdepartmental conflict.
Product Managers
Rayon Acetate Nylon Dacron

Mens’ wear
Market Women’s wear

Managers Home furnishings
Industrial markets
Comparison of Marketing Structures

There are clearly a number of advantages and disadvantages from operating either one or more of the
marketing structures we have identified. N Piercy’s book “Marketing Organisation” (Allen &
Unwin) provides a succinct summary as shown in the following table.
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Form Advantages Disadvantages Situational Indicators
Functional Specialisation in task Excess levels of Simple marketing

activities to develop hierarchy may reduce operators.
skills. unity of control.
Single pricing
Marketing tasks and Direct lines of product/market.
responsibilities clearly communication may be
defined. ignored.
Conflict may emerge.
Product/Brand Specialisation in Dual reporting. Wide product lines sold

product brands. to homogenous groups
Too much product
of customers but
More management emphasis.
sharing production/
attention to marketing
More management marketing systems, i.e.
requirements of
levels and cost. proliferation of brands
different products/
Conflict between and diversified products
brands.
product managers. requiring different
Fast reaction to product- skills/activities.
related change.
Market/ Specialisation in a Duplication of Limited standardised

Customer/ market entity – focus on functions. homogeneous product
Geographical customer needs. line sold to customers in
Coordination problems.
different industries, i.e.
Fast reaction to market-
More management proliferation of markets
related changes.
levels. each meriting separate
efforts.
Product/Matrix Advantages of Allocation of Multiple products and

functional product and responsibilities is multiple markets.
market specialism and difficult.
integration.
Duplication
inefficiencies.
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29
Study Unit 2
Markets and the Marketing Environment
Contents Page
A. The Concept of the Marketing Environment 30
B. Macro Forces 31
The Political Environment 31
The Economic Environment 32
The Social Environment 33
The Technological Environment 34
C. Micro Forces 35
The Customer Environment 35
The Competitor Environment 36
The Supplier Environment 36
Company Resources 36
D. An Alternative View of the Marketing Environment 37
E. The Marketing Audit 38

Scope and Objectives of a Marketing Audit 38
Environment (Customer) Audit 39
Competitor Audit 40
Opportunities and Threats Revealed by Audits 41
F. Market Segmentation, Targeting and Positioning 43

Bases for Segmentation 43
Market Targeting 51
Positioning 53
G. The Marketing Mix 55

The Seven Ps 55
Kotler’s Seven Cs 56
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30 Markets and the Marketing Environment
A. THE CONCEPT OF THE MARKETING ENVIRONMENT

When an organisation is structured it means that it has set itself up in an appropriate manner to carry
out its business, but that does not mean that business will be able to be done without interference.
From time to time, major events change things suddenly. Two world wars, the Depression of the
1930s and the oil crisis of 1974 are profound examples. However, companies tend to be faced with
perhaps significant, yet less drastic, environmental changes, such as, in the early 1990s, a relatively
high level of interest rates. For businesses, especially small ones which had already been forced to cut
back like many others, the future might have been ruinous. For the house buyer, mortgages became
prohibitive and the “knock on” effect hit housebuilders, solicitors, removal firms, landscape
gardeners, surveyors and others involved in the process. It even included retailers of carpets and
domestic appliances.
You can see from these comments that no organisation stands in isolation. Each is, or can be, affected
by multiple factors both externally and internally. To describe the influencing factors on marketing
we use the term “Marketing Environment” – which is another way of saying “the operating arena” –
and this comprises two elements:.
! The external environment – known as the macro environment.
! The internal environment – known as the micro environment.
Figure 2.1 summarises these two environments and shows where influences on marketing activity can
come from.
MACRO FORCES
Political Economic Social Technological
Customers MICRO FORCES Banks
Competitors Shareholders Suppliers

Directors
Distributors Managers National governments
Employees
Local communities Planning
Laws and social practices
Activities
Trading partners
Media
Figure 2.1: The Macro and Micro Marketing Environments
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Markets and the Marketing Environment 31
Taking the macro environment first, we have four distinct areas of influence, known generally by their
initial letters as PEST:
! Political factors
! Economic factors
! Social factors
! Technical factors
These factors can be best viewed as factors beyond the control of the organisation and are termed
“uncontrollable variables”. They can be contrasted with the so-called “controllable variables” which
for marketing purposes include such activities as marketing plans, pricing, distribution, product
development and promotion.
The controllable variables are surrounded and thereby influenced directly or indirectly by the
uncontrollable factors of the marketing environment. The importance of understanding a firm’s
environment is that it helps companies to plan for change. It must continually adapt its operation in
terms of its marketing activities and plans to take account of environmental changes or it will fail.
To summarise, the marketing environment can be divided into two distinct categories, termed the
micro and the macro environment. The micro environment consists of those forces close to the
company that affect its ability to serve its customers. The macro environment includes the larger
forces of politics, economics, technology and social forces and it is these we will deal with first.
B. MACRO FORCES
The Political Environment

The political environment can be influenced by three factors: ideology, the law and ethics.
(a) The Government’s Ideology Towards Business Activity
This can be an important factor in the profitability of most companies in the UK. The
Conservative government of the 1980s and 1990s created a favourable climate for business
activity. Corporation taxes were reduced and privatisation developed with state-run
corporations being slimmed down. Government controls were reduced and government
initiatives, particularly privatisation, altered the country’s business environment in a way that
the current Labour government may find difficult to reverse.
It is not only the political climate in the UK that is important, but also the political attributes of
other countries with which UK businesses have to deal. Dictatorships can be unpredictable,
and wars or civil wars can flare up, playing havoc with business. Hong Kong companies are,
for example, worried about the Chinese government’s attitude to business and how it will affect
business operations now that Britain is no longer in control.
(b) Legal Controls on Business
There are many laws that affect the trading activities of businesses throughout the world. UK
law now permits, for example, public houses to stay open longer to sell alcohol. The Sunday
trading laws have been relaxed so many of the retailers who would like to open for business on
Sundays can now do so. Companies will become more “responsible” as time goes on under the
product liability laws, which in the UK are embodied in the Consumer Protection Act 1987. All
countries have similar legislation.
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(c) Ethics of Marketing Practice

Managerial ethics reflect a code of behaviour expected of managers by the public.
Pressure groups are able to influence business ethics. The “Green” campaign is well under
way, and many retail grocery outlets sell “green” products such as washing powder.
Greenpeace are also trying to curb business activities that might have an adverse effect on the
natural environment. We all know that Greenpeace do not limit their activities to one particular
country.
Monitoring the activities of pressure groups can be a very apt way for companies to predict
future legal constraints. Pressure groups which attract a high level of popular support often
force governments to introduce laws, sooner or later, in support of their cause.
Many professions and industries have set up self-regulatory systems which aim to control the
activities of their members and avoid the need for the government to introduce laws which
might be more restrictive. The idea is good, if companies accept the control by their own
industry. However, that means by their own competitors, and some companies see that as a
difficult thing to accept.
Perhaps the most impressive self-regulation schemes in the marketing business are those which
apply to advertising, because they are so widely accepted. The Advertising Standards Authority
(ASA) was established in the 1960s, and the British Code of Advertising Practice (BCAP)
has been accepted since about the same time, for printed advertisements.
The Independent Television Commission (ITC) controls all television advertisements in Britain,
in line with the “legal, decent, honest and truthful” criteria for printed advertisements. The ITC
doesn’t alter any of the ideas – the people who design advertisements can consult the ITC
before the actual work gets to an expensive stage, and ask for an opinion. Control is usually by
agreement rather than direction.
In advertising, the controlling bodies have considerable power even though they are controlling
by agreement. If the ASA decides that an advertisement contravenes the BCAP code, they only
need to tell the publishers of magazines and newspapers of their decision, and the
advertisement will not appear again. The advertising agency could be in serious difficulties
too, because if they do not withdraw or modify the advert they could find that they do not get
paid and cannot work under normal conditions.
The Chartered Institute of Marketing also issue a Code of Conduct, covering all aspects of
marketing.
The Economic Environment

The economic environment is often bound up with the political environment, and national economies
are becoming increasingly dependent upon world economic trends.
This is particularly relevant for the UK with regard to its links with the European Union. Following
the 1992 Single European Market Act, the realities of the economic environment for companies
both within the UK and the European Union are such that, with the free movement of goods and
services, greater competition will occur within the national markets formerly assured as home
territory.
Europe is not alone in this type of activity. Trading groups abound throughout the world, e.g. NAFTA
(North American Free Trade Area) which has seen the USA, Mexico and Canada join forces in
producing a common trade area for the countries involved. Reduced barriers to importation, etc. have
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resulted in increased trade between the parties and greater protection from imports from elsewhere in
the world – all of which helps the economic situation for the member countries.
Other economic factors of direct influence on marketing include the following.
! Income Levels
Income levels must have a strong bearing, for the amount of disposable income individuals
receive needs to be soaked up by producers of goods and services.
The GDP (Gross Domestic Product) of a country is a useful indicator: this refers to the value of
goods and services produced within the country, whereas the Gross National Product (GNP)
refers to the value of domestically produced goods and services plus the country’s overseas
earnings. The GNP describes much more closely the country’s national income.
A better description of a country’s wealth can be found in its “per capita” income, which is the
total national income divided by its population.
! Inflation
Inflation erodes the purchasing power of money and causes other problems for marketers in
areas such as pricing and the accurate estimation of demand. Governments all over the world
try to reduce inflation rates in order to stabilise the economy and make it easier for international
trading to take place. The “rate of inflation” is often an indicator of how stable the economy of
a country is. For example, in the UK, where the government has succeeded in controlling the
economy, inflation has been running at approximately 2%-3% during the mid-1990s, whereas
in some countries in South America and in the former Soviet block we have seen inflation
running at upwards of 20% and much higher in some cases.
! Distribution of Income
The way income is distributed is important to marketing organisations and this will be reflected
in the segmentation part of marketing strategy. In some countries there are the very rich, the
middle classes and the poor; but in Switzerland, for example, there are few who are poor
enough to be compared to the poor of Bangladesh. The levels of income in any country will
determine the type of marketing activity that takes place there. Few people in Switzerland have
a need for basic survival products and, likewise, there will be limited numbers of people in
poorer areas of Bangladesh who have a need for luxury status products.
! Patterns of Consumption
It is necessary for marketers to establish the level of spending power of different classes of the
population.
Sales patterns may vary from region to region and from country to country. The French, for
example, drink more wine that the British, whereas the British drink more beer. Consumption
patterns can be found in such publications as Mintel Reports.
The Social Environment

The social environment in which an organisation operates can be divided into two categories:
demographic and behavioural.
(a) Demographic Aspects
Population Size
World population is increasing as a general trend but in different areas of the world the
population is actually falling. When the population of a country shows a downward trend it
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may be that the marketer will cease to see that country as a good opportunity and withdraw, or
restrict, activities. This, in turn, will have an effect on the individuals in that marketplace as
choice will be restricted and prices may increase due to lack of supply of some products.
Age Distribution
Falling trends in birth rates, coupled with advances in medical science, have meant that the
world population overall is “ageing”. To the marketer this means changing tastes and needs
and, therefore, marketing activities need to adapt over time. This is not to say that there are no
babies being born – only fewer, with a resulting shift in the age profile. The 1960s through to
the late 1980s were seen as the ages of the “Youth Culture” but as age levels have increased so
we have seen the emergence of other cultures, e.g. the growth of the number of people in the
age ranges of 55 plus has given us the “Silver Panther” market or the “Wrinklies”, which is a
more cruel description.
Changing Family Patterns
The typical family is no more. Mr and Mrs Average, both in their first marriage with two
children, the husband at work and the wife at home, now represent less than 4% of all families
in the industrialised countries. Even in the poorer and newly-emerging economies we are
seeing changes to the traditional life styles of people and, consequently, changes to marketing
activity.
(b) Behavioural Aspects
Cultural Values
People grow up in a society which shapes their beliefs. Alcohol, for example, is forbidden in
some Moslem countries. The Jews do not eat pork, nor can they mix meat and dairy products
together at the same meal.
Concern for the natural environment has led to significant changes in product development for
such items as fridges and freezers, air fresheners and deodorants, etc. Other aspects include a
growing interest in health and fitness, which has led to changes in our eating habits and
recreational pastimes. More informal dress wear for men and greater acceptance of more
flexible working hours have affected the types of products and services we seek today.
Aesthetic Values
What one society rates as attractive, another may find unattractive or distasteful. This applies
particularly to colour, design, styling and fashion.
The Technological Environment

Technology is the major driving force for change everywhere. A consequence of this is that product
life cycles are becoming shorter. No sooner has company A launched a new super product, than
company B brings out a superior model. Many commentators believe that possibly as many as 80%
of all products today will not be on sale in ten years’ time. Companies that do not invest in keeping in
touch with product developments, possible via research and development, will surely not survive.
! New Processes
New ways of doing things are constantly coming our way, e.g. satellite broadcasting involves
consumers purchasing satellite dishes; EFTPOS – Electronic Funds Transfer at the Point of Sale
– has been developed for retailers.
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! New Materials
These are gradually coming on stream. Optical fibres and carbon fibres are examples. The
laser compact disc will soon completely replace the old long-playing vinyl record.
C. MICRO FORCES
The micro environment includes not only the company itself, but also its customers, competitors and
suppliers.
The Customer Environment

All companies need to have a good understanding of their customers: who and what make up their
markets. We can identify five types of markets, although the industrial, reseller and government
markets are often grouped under the heading of “organisational markets”. These markets are shown
in Figure 2.2.
Organisational markets
Resellers
Industrial Government
Consumers International
Company
Figure 2.2: Types of Market
The consumer market consists of individuals or households that buy and consume goods. Although
several categories exist consumer goods basically fall within two broad bands:
! Fast moving consumer goods (often known as FMCGs) such as cigarettes, confectionery,
newspapers and food.
! Durable consumer goods such as washing machines, refrigerators, hi-fi equipment and cars.
Some of these goods, e.g. washing machines, freezers and refrigerators, are often referred to as
“white goods”.
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The industrial markets (sometimes called “producer markets”) are made up of organisations that buy
goods and services for further processing or conversion into finished items. Resellers are the
retailers, wholesalers, agents, etc., that buy goods and services for resale at a profit. Government
markets, on the other hand, are government units or agencies that buy goods and services to provide
for public services, while international markets include overseas buyers and consumers, producers,
resellers and governments.
The Competitor Environment

Competition forms a major part of the environment in which companies operate. Few companies do
not have competitors, and where monopolies have existed government has actively sought to force
organisations back into the competition arena, e.g. in the UK the coal industry, telecommunications,
gas and electricity.
With shortening product lives, effective planning must be carried out in the light of the competitive
situation in which the company finds itself. The competition should be assessed in several ways, such
as:
! Direct competition: those companies that produce the same type of product or service and sell
to the same customers.
! Industry competition: those companies that operate in the same broad product areas, but do
not necessarily serve the same markets.
! Indirect competition: companies who make different products or services, but which may
attract the resources or compete for the disposable income of the markets you wish to serve.
Good examples of this include the purchase decisions to buy a car or go on holiday, to move
house or pay school fees.
The Supplier Environment

This is very much more linked today to quality management and relationship marketing, in which a
partnership is forged with the supplier in the same way as that with the customer. Suppliers are
essential to the company for it to produce its goods or services. For example, the Ford Motor
Company must obtain steel, motors, tyres, fabrics, glass and other components in order to make cars.
It also requires labour, equipment, power, etc. in order to maintain full-scale production.
Supplier developments or changes in relationships can seriously affect marketing. Developing a close
relationship with suppliers can help prevent disruption to production and can make operators much
more effective through the use of such schemes as JIT (just-in-time).
The micro-environment is closer to the company, and consists of the forces, people and organisations
which operate within the immediate environment of the company. Usually the effects of changes are
easier to see and to forecast. That does not automatically make the changes easier to deal with, but it
does mean that the marketing manager can have some hope of influencing some of the micro-
environmental factors.
Company Resources
The environment within which marketing management must work involves the resources of the
company, and they are not endless. There are always likely to be conflicting opinions about how
resources should be used, and one of the jobs of the managing director is often to make the difficult
choices between equally deserving departmental managements.
Resources are often thought of as they appear in the company accounts, in terms of money – either
actual money in the bank or the estimated values of the buildings and machinery that the company
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owns. These resources are important, and if the opportunity arises to earn some extra profit the
company may be able to acquire extra resources. That is what expansion is all about.
Physical resources are a valuable asset, and the company which has access to adequate resources can
take advantage of opportunities whenever they come up.
The other type of resource is, of course, people – of all grades and types, doing demanding or menial
jobs, all of which add up to achievement of the objectives given in the mission statement.
One final resource is more difficult to define – the management skill that makes all the difference
between a successful company and a loser, with apparently equivalent other assets and resources.
D. AN ALTERNATIVE VIEW OF THE MARKETING

ENVIRONMENT
While studying the above you will no doubt have realised that influences on an organisation from the
environment will vary in intensity.
There are those influences which will have a direct impact on the operating practices of a company
and those which may have an impact on the operating practices but perhaps over a longer time period.
For this reason many writers now split the “environment” into three sectors – Micro, Proximate
Macro and Macro.
Macro
Proximate
macro
Micro
Figure 2.3
! Micro influences are those strictly internal to the organisation – staff, shareholders, production
rates, etc. which are largely controllable by the company but which will definitely affect
operating practices, e.g. if shareholders demand an increase on the rate of return on investment
it can mean increased activity in selling or even reduced numbers of people employed.
! Proximate Macro influences are those such as competition, customers, suppliers, etc. with
which the company deals on a day-to-day business and which may therefore not only influence
the organisation but may also have an immediate effect on the company’s activities, e.g. if a
competitor changes their price structure it may affect another company which, in turn, could
reduce prices or cease production.
! Macro influences are the political, economic, social and technological changes which are likely
to be beyond the control of the company, e.g. changes in legislation on safety equipment may
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not impact immediately but will eventually lead to the company either conforming to the new
legislation or ceasing production activities for certain products.
E. THE MARKETING AUDIT

Marketing activities can be expensive, so it is necessary to check that the money is being well spent
and there is at least a good chance of its producing the required results. Such checks are called
marketing audits, and they can range from intensive studies of every detail of the marketing activity to
simple checks on the results of a branch office or an individual territory.
We looked at some aspects of the auditing activity (without giving it that name) when we considered
the marketing environment, but we must now look at the formal system of auditing marketing activity,
which can be carried out at different levels.
Kotler gives the following definition of a marketing audit:
“A marketing audit is a comprehensive, systematic, independent and periodic
examination of a company’s marketing environment, objectives, strategies and activities
with a view to determining problem areas and opportunities, and recommending a plan
of action to improve the company’s marketing performance.”
If you think that looks expensive you are right, and when you add the fact that the best audits are done
by outsiders who can charge high fees for their services, you can see why some companies do not go
in for regular audits. It is often a sign of trouble when a company calls in specialists to do a
marketing audit, but that does not mean the idea of auditing is wrong. Maybe if there were more
audits, each one would be more useful and the company would prosper.
You can understand the reluctance of managers to spend money on audits, especially by outsiders,
because the results of the audit may suggest a specific department could have done better, and that
reflects badly on the manager.
The CIM definition of marketing refers to the supplying of customer requirements “efficiently and
profitably”, and the nature of marketing activity means it is not obvious at the time that the money
which is being spent will produce the right results. A more constructive view of the marketing audit is
that it might show how some activity could be done in a better way, or it might reveal a threat to our
business that we did not know about.
If you are familiar with the use of the word “audit” in accountancy, you will know that the audit of
some accounts is required by law or by the Inland Revenue. That is not the situation with marketing
audits – they are done because the company wants to know the answers to some serious questions.
There can be times when outsiders insist on a marketing audit – for example, when a company is in
financial difficulties and bankers want to know whether or not it would be wise to lend more money.
Scope and Objectives of a Marketing Audit

The range of enquiry in a marketing audit could be enormous, and it is usual to limit the enquiries to
some specific aspect of the company’s activities. Kotler lists six components of the marketing audit,
each of which could go on alone if a full audit is not needed or desirable:
! environment audit
! strategy audit
! organisation audit
! systems audit
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! productivity audit
! function audit.
Audits cost money and should be done with a specific purpose in mind. Like most marketing
activities, auditing should have a clearly defined, measurable objective. And it must be properly
funded – if the company cannot allocate staff or pay consultants to do the job properly then it is better
not to do the job at all.
The outcome of most auditing activity will be to show how some jobs could have been done in a
better way, or some results were not as good as they should have been. The snag is that you cannot
audit a plan beforehand, and it takes a good manager to accept that he or she could have done better.
Often the audit result is just an opinion anyway, because investigations cannot reproduce the actual
situation at decision time.
However, although they cost a lot of money and take up management time, marketing audits can be
very valuable if they are set up properly. A great deal depends on the attitude of the managing
director: if he or she views it as a learning operation, so that his or her team will be able to learn from
their mistakes and do a better job next time, then the audit will have been worthwhile.
Modern technology has provided companies with an alternative to some aspects of auditing – the
computer-operated modelling procedure. If suitable information about the market is fed into the
machine and then changes are made in some of the data, it is possible to see what effect that would
have had on the profit level. Such “What if?” modelling can take some of the guesswork or
judgement out of marketing decision-making.
Environment (Customer) Audit

There are several aspects that would be worth knowing about the more important of your customers,
and these might form the basis of an audit of the company’s environment.
It is always worthwhile trying to understand the way in which your products are going to be used,
although sometimes that can be difficult. For instance, a company making gearboxes could supply to
several different types of machine-makers, who in turn supply the machinery on which some
consumer products are made. If there was a reduction in the demand for those consumer products, the
effect would be felt sometime in the future by the machinery maker, then by the gearbox maker, but it
might be difficult for the gearbox company to see just why its sales had fallen off.
Some technologies change very quickly. Consider batteries – the type used in calculators and
watches. As calculators were made smaller, the batteries changed from the cylindrical type to smaller
flat discs, developed for a range of products such as hearing aids and cameras as well as calculators.
A new range of products was brought out, and the market for them grew. But within a few years
someone brought out calculators which would work from light-powered cells and needed no batteries.
If the makers of cylindrical batteries had been examining the markets in which their customers
operated, they might have been able to predict the emergence of the new technology and forecast the
effect it might have on their sales. Or it might have happened too quickly.
Sometimes a study of the markets you and your customers sell into can help to see how your own
sales will perform. I worked in an engineering company which sold components to many industries,
and we found that the car makers provided us with a good sales forecasting system. Many of our
customers were selling either products or services to the car manufacturers and we found that our
sales went up six months after an increase in the sales of cars made in Britain. Sales fell six months
after the car output went down, and we were able to use HMSO’s regular publication called “Leading
and Lagging Indicators” for guidance.
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Investigations into your customers’ markets have to be handled with great care: it is easy to give the
wrong impression, and this is a long-term investigation which will run on indefinitely. People can get
the idea you are planning to move into the market, selling direct to their customers, rather than that
you are into some long-term study of potential developments.
When you are involved in marketing research you might well find that the people with whom you
come into contact welcome a general discussion of the market trends that can be identified. Although
it is never correct for a marketing researcher to reveal information about another company, it is often
possible to refer to trends in a way that does not reveal names.
As with all marketing activities, it is necessary also to establish positive objectives for any
investigations into your customers’ markets.
In the short term you should be able to get a good idea of the future for each of your main customers
by reading their advertisements, press comments and other publicity. Even their job advertisements
can be useful. This is the sort of “investigation” that you might make a regular part of your sales-
force activity, because they can contribute bits of news and maybe comment on the strength of news
reports.
Competitor Audit
Collecting information on competitors should be a regular part of analysing the marketing
environment, because knowledge of the strengths and weaknesses of your competitors is valuable
information.
Your own marketing plans and selling activities can be improved if you know of the weaknesses of a
competitor, and if you know they are significantly stronger in one area, you can avoid a head-on
attack on their market. Many small companies survive nicely by finding a niche which their bigger
competitors do not bother to go into; small companies can manage well enough on the smaller
quantities that big companies find a nuisance.
Information about competitors should flow into your company on a routine basis, and you should not
need an outsider to carry out an audit in order to tell you the things you can see for yourself. The
value of an audit could be in bringing together many items of information. You might have a session,
as part of a sales conference, in which everyone enters into a brainstorming look at one specific
competitor, then another, and so on, going through the activities of the main competitors.
If you have an outsider doing a marketing audit you can ask for information on matters you cannot
normally get to know about. The consultant may have different sources of information, and he or she
may be skilled in the sort of detective work that deduces ideas from the minimum of facts.
However, there is a lot you can do for yourself if you study information that routinely comes into your
company. Try to think out why a particular action has been taken, and what the implications will be
for customers. A change of policy on credit terms may not be announced in a press release, and you
might find a flow of customers moving from a competitor to your company. You need to ask why this
has happened.
The process of “putting two and two together” is a valuable exercise and it is often useful to ask a few
people to get together and give their views on a specific matter. You do not need an expert to obtain
routine information, but you might get some benefit from the opinions of other people.
The matters you may not know about are the effects of competitors on your own sales and profits.
You may know of orders missed if you work in an industrial market, where many orders are based on
quotations and there comes a time when it is clear that an enquiry is dead. Your salesperson should be
able to find out whether or not the job went ahead, and if it did you will know whether or not you got
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the order or part of it. The buyer is not obliged to tell you who got the order, or why, and that is part
of the relationship your salespeople have to develop over the years.
In consumer markets there is more openness about retail selling prices – you can check just by
looking on the shelves – but that will not tell you the deals that went on between the salespeople and
the buyers. You need to know what made a store manager allocate more shelf space to a competitor’s
product, and what the store and the competitor expect to get out of this move. The store manager is
not obliged to tell you, and again such information may only be revealed if your salesperson has
developed a close relationship with the store management.
A continuing study of the advertisements used by your main competitors will show changes of policy,
and recruitment adverts can be very revealing. You could combine a study of advertisements with a
regular survey of the sales of specific products. Some companies make their business from surveying
the sales in shops at regular intervals: the best known one in Britain is Nielsen, based in Oxford.
They publish an annual “Market Information Manual” and they invite people to subscribe to a rolling
survey which reports every two months. If you studied that regularly you could see how effective a
competitor’s advertising campaign had been. The same information would enable everyone who is
interested to check on your efforts too!
The Nielsen survey reports depend on actual counts, by the researcher, of stock and invoices, and they
are split into product categories. Sales over the counter are much more revealing than company
turnover, but there are no comparable surveys for industrial products. Nielsen also operate in other
countries and are one of the leading names in marketing research in the USA.
Opportunities and Threats Revealed by Audits

(a) Opportunities
An audit which is done by an outside consultant may be very expensive, but there is a better
chance of getting an objective study of the market in which you operate than there would be if
your own staff did the audit. People working in a company have split loyalties – they know
they ought to be objective but they have friends on whom they depend for future Cupertino.
Outsiders have just the one loyalty – to their client.
We have looked at marketing opportunities, but we can quote Skinner’s definition again:
“Those opportunities that arise when the right combination of circumstances and
timing allows an organisation to take action to reach a particular market.”
An outsider might have wider experience than an internal manager, which could enable him or
her to recognise an opportunity that would not be seen as such by the insider. I knew a manager
who was quite sure there was no scope for selling his products to a particular company.
However, a consultant was called in and knew of a buying policy change which enabled the
manager to sell to that company. This was an opportunity revealed by the open-minded
approach of the outsider.
An internal manager must be deeply involved in his own department, so he might not be fully
familiar with the capabilities of other departments, especially if they are in different locations.
Even if internal politics do not come into his judgement, it is unlikely that a manager would
recommend his company to take up an opportunity that would do away with his own job.
Further, he might not have the time or knowledge to see how two situations could be brought
together to create an opportunity that neither of them created on its own.
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(b) Threats
A business can be threatened in several ways, as we’ve seen, such as the loss of markets due to
advances in technology. These are more predictable in fast-moving industries and it is often
possible to take some action so that profits do not suffer unduly.
The more subtle threats are those from new competitors, who can appear on the market without
any warning. Your salesforce might have some idea that something is about to happen, and
your suppliers may give a hint or two, but no one is obliged to tell you of new competitors.
Threats may come from within the company too, owing to inefficiency in selling or
manufacture. Markets change, sometimes in a subtle way which has to be taken into account.
Yet few managers like change – there is an inbuilt resistance to change in most of us. Most
changes are more tolerable if there is recognition at top management level of the time and effort
that will be needed.
If a marketing audit reveals a threat to the future of the company then it has served a useful
purpose.
(c) When Opportunities Become Threats
It may not be obvious but it is possible for an opportunity to become a threat to the company:
usually that happens if the management is not fully co-ordinated. An example from my
experience may help. In a company that was organised in divisions dealing with specific
product ranges, one divisional manager saw an opportunity to make some profit by marketing
the coated fabric from which another company made floating oil barriers to control oil spills in
harbours. That was fine, but the manager of another division that made assembled products
saw the opportunity differently and he started marketing complete oil barriers.
So the major customers of one division had a competitor in the other division, and they stopped
buying the products. The same situation provided an opportunity for one division and a threat
to the other.
In a different company the Research and Development Department designed a conveying
system that was brilliant and attractive. The enthusiastic R and D Manager took the product
into a full launch, even though the company had not invested in the resources to make the
product on a production basis. A major exhibition brought in hundreds of serious enquiries, yet
there was no sales force to visit the prospects.
The directors disagreed so strongly about the allocation of resources that the design was sold
off and the R and D Manager was dismissed, along with all his department which included me.
That seemed bad at the time, but I turned the threat of poverty into opportunities that have kept
me solvent.
In these two examples you can see that the element missing was the overall control of the
company’s marketing effort, and the reason for that could only be a lack of top management
expertise. Another situation which involved a big opportunity caused serious problems because
the company was too small to handle one big order, brought in unexpectedly by their star
salesman. The order was worth more than a normal year’s turnover and the management were
seriously embarrassed. They could not afford to pay the people and buy the materials, yet they
did not want to lose the order.
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F. MARKET SEGMENTATION, TARGETING AND

POSITIONING
Apart from the highly specialised companies which deal with very few customers, organisations have
to find their buyers. However, the number of people, and organisations, in the world make it almost
impossible for any organisation to reach, and serve, every potential customer. This means that there
must be some way of “splitting up” the overall market into smaller, more manageable portions. This
is done by segmentation.
Segmentation is an important element in the marketing mix and you will see in the following pages
the different ways that you can segment a market. Targeting and positioning then follow and the latter
affects all aspects of the marketing mix but in particular the communications elements.
The purpose of segmentation and positioning is:
! to establish which segments of the total market your product or service is selling to and how
efficient it is
! to ensure that the product’s position in those segments is how you are seen in the minds of the
target market.
Segmentation can be defined as:
“The act of dividing the market into specific groups of consumers/buyers who share
common needs and who might require separate products and/or marketing mixes.”
(Adapted from Kotler)
Segmentation is the single most important aspect of promotion, perhaps even of marketing today. It is
the foundation which enables promotional campaigns to be constructed effectively and efficiently.
Marketing is consumer-centred. It is marketing’s job to identify specific consumer needs, and to
satisfy those needs through the creation of a “package”, making it available to the identified
consumers and making the very same consumers (and associated customers) aware that the package
exists.
Obviously it is wasteful to make a product available when there is no consumer need; equally
obviously there is no point in advertising a service in media that are not seen by the target consumers
(and/or customers).
It follows that it is necessary to examine a potential market to identify particular parts of it that share a
common need, have a similar psychological make-up and can be reached with both promotion and
product.
When this is done one has segmented the market.
Bases for Segmentation

There are a number of ways in which markets may be segmented. The main bases are:
! Geographic – the market is divided into geographic units: a nation, a country, a city, a town.
This is more likely, now, to be a TV area – certainly an area for which secondary data sources
exist.
! Demographic – people-based segmentation, where the market is divided on criteria such as
age, sex, family size, family life-cycle, job type, income, etc.
! Psychographic – segmentation based on such things as lifestyle, attitudes, beliefs and
intentions.
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Alternative bases can be developed from behavioural issues such as:

! Occasions – when the product is used.
! Benefits – those sought by the consumer.
! Usage – heavy users are of more value than light.
There is no right or wrong way to segment a market and so marketers are always developing their
own approaches to segmentation because each market must be approached from the perspective of
their own organisation. We shall review the general criteria used for segmenting markets before going
on to consider some of the main bases applied.
(a) Criteria for segmentation
The rules for segmentation are easy to accept as they are simply common sense. Always
remember that while the marketer is trying to identify a segment which matches the product or
service being offered, a profitable outcome is also required which means that the segment must
be:
! Identifiable
It must be capable of being identified as a separate section of the overall market and must
display some common characteristic which sets it apart from the overall market.
! Recognisable
Do the members of the segment recognise themselves as being “different” and do other
organisations in the chain of distribution recognise the segment? If neither the buyers or
those who serve them recognise the segment it is unlikely to be a successful option. It is
more likely to be a “created” segment in the mind of a person who believes strongly in
the benefits of a particular product: but remember this is not true marketing – it is
“product led” marketing.
! Substantial
It must be large enough to warrant activity on the part of the marketer. In the extreme
example above, the woman with green hair could not be described as a “substantial”
segment.
! Profitable
It must be capable of achieving the desired objectives. This may not be in financial
terms. Segments can be identified and used as a means of entering a market even though
they produce little or no profit. This type of situation is often found in international
marketing if an organisation just wants to get a “presence” in the marketplace for some
reason or another. A segment, which produces little profit, can also be chosen as an
“investment” because of potential add-on sales at a later date.
! Accessible
The marketer must be able to reach the segment. It is no good identifying a potential
segment if you cannot serve it because of government regulations or location, etc.
! Measurable
You need to know the size of the segment before, during and after your activities. If you
cannot measure, you cannot assess your success. Someone once said “If I cannot
measure it, I cannot manage it” and this is very true.
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! Reliable or Stable
The chosen segment must demonstrate a history and a future. If a segment suddenly
appears, say because of a fashion fad, it may not be either stable or reliable. Unless the
organisation is able to move quickly and satisfy the immediate need, the segment may
disappear just as quickly.
! Sustainable
The organisation must be capable of serving the segment in the longer term. It is
pointless identifying a segment which is so big that it is impossible to maintain. All this
will do is to create dissatisfied customers and wonderful opportunities for competitors to
come along and take the segment over – with the resulting losses of investment and effort
for the original organisation.
Another aspect which should be considered is whether the segment “fits” with the company
image and objectives. For example, a company which sells high quality goods and relies on
brand image would be unwise to suddenly start marketing to a lower income group – they could
lose their credibility with the loyal customers they have in the higher price bracket which might
mean greater losses than the income derived from the new segment.
(b) Organisational Segmentation
Unfortunately the segmentation techniques available to those marketing to individuals are not
available to the organisational marketer. On the other hand the strictly limited size of
organisational markets is a major bonus. In organisational segmentation, groupings of
customers can be broken down:
! Using the Standard Industrial Classifications (SIC) of the UK census of production.
! By the technology of the industry, e.g. chemical or electrical, etc.; extractive, processing
or manufacturing.
! By size of organisation.
! By seasonal purchasing trends.
! By geographic location.
! By the type of product needed.
This organisational demographics approach to segmentation assumes that organisations
operating in similar industries, etc., have similar needs, and will exhibit the same kind of
buying behaviour. Unfortunately this assumption is likely to be false in sufficient cases to
warrant a serious attempt to locate a more effective method of segmentation.
Other bases for segmentation include:
! Benefits sought.
! Title/position of key decision-makers.
! The degree of formality in the buying organisation.
! The type of people involved in the buying decision.
The type of product needed is a great help in segmentation. Office equipment is in universal
demand and is almost a mass market. It can break down to users of types of machine, for
example, which require specialised support (e.g. determine the users of Macintosh computers as
against IBM and IBM clones). Medical X-ray equipment is in limited demand, and those
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requiring it can very easily be identified. New uses for X-ray equipment can also be identified,
and provided for (e.g. the increased security need at airports, and now in shopping centres,
hotels, museums – wherever the public gathers in sufficient numbers to make a target).
Additionally to the comparative weakness in segmentation criteria, we are short of information
regarding the diffusion process for new products. How quickly will they be accepted? Can the
adoption process be hurried up? How can innovative organisations be identified?
Fortunately for many selling to organisations there are major benefits that have accrued over
the years. Organisations:
! Tend to be more stable in their requirements than individuals, especially those which are
highly capitalised, and those which engage in long production runs.
! Are more visible than individuals, and can thus be individually researched.
! Are fewer in number, and thus individual sales research is cost-effective.
! Tend to congregate around trade associations, exhibitions, conferences, etc., and can thus
be identified and accessed.
The individual nature of the target audience generally precludes the use of mass media – but the
very need for highly targeted communications brings major benefits with it.
! Sales records can be highly detailed, and extend over a long period.
! Individual contacts can be fostered and developed, again over a long period.
! Trade and specialist press exist to target virtually every type of organisation.
! Direct mail lists can access virtually every individual of significance by job title, and in
many cases by name.
Note: In some cases where a supplier is marketing to individuals, it has been possible to
achieve a “double strike” in communications by transferring the retail brand into the
organisational market. Thus, when Dulux paint is advertised an important sub-audience is the
organisational buyers, who have the opportunity to decide which brand of paint they will buy in
bulk.
(c) Geodemographic Segmentation
The powerful tool of geodemographic segmentation is made possible by the computer and the
system of Post Codes (Zip codes) which it enabled the Post Office to introduce. There are over
24 million homes and businesses in the UK and every one has a post code.
The post code breaks into constituent parts to provide a lot of vital information. Let us examine
the post code MK42 8LA:
MK the Outward Code, which identifies one of 120 Post Code areas. MK is Milton Keynes.
42 a district within the area. There are 2,900 districts in the UK. MK42 is the Kempson
district of Bedford in the Milton Keynes area.
8 the first digit of the Inward Code which identifies one of 9,000 sectors. MK42 8 is a
sector within Kempson.
LA narrows down to units, which may be a handful of houses on a street or a single business.
174,000 “large users” have individual post codes.
Thus, MK42 8LA encompasses a group of houses on King’s Road, Kempson.
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By cross-referencing post codes with government Census data it is possible to identify clusters
of households that share similar characteristics. Thus “geo” from geographic and
“demographic” come together as geodemographic.
The originators of the technique have marketed it under the acronym ACORN – A
Classification of Residential Neighbourhoods. Several competitors have joined them and use
the same basic technique, but provide uniquely tailored services. MOSAIC, for example,
claims to be “the standard for packaged goods, grocery retailing, door-to-door distribution,
local media and list owners’ selection services”. Choosing between rival suppliers is a question
of matching your need to their exact provision.
Geodemographics depends for its success on the high probability that like people live together
and that like people behave in similar fashion. Thus if a grouping can be identified, labelled,
and its behaviour studied, it is probable that a similar grouping elsewhere in the country will
share similar behaviour. The Census is taken every ten years, with a sample Census every five.
The most recent was taken in 1991 and the new geodemographic data became available at the
end of 1993.
The major providers all use the same basic methodology, so we can illustrate how the database
is constructed by reference to ACORN.
ACORN take as many as 79 data items from the 9,000 items produced by the Census
authorities for each of the 150,000 small geographic areas that cover Britain. These include
significant facts such as sex, age, marital status, economic position, education, home and car
ownership. Where the small geographic areas with similar characteristics cluster in the Census
data they form the 54 ACORN Types, which are then used as a means of defining and
understanding the people in any given area – for example, “Families with Mortgages and
Younger Children”.
Choosing the right geographical area is vital. Different markets need to view their customer
base in different ways:
! Retailers are interested in store catchment areas.
! Direct marketers are concerned with postal geographies.
! TV advertisers deal in ISBA TV regions.
! Health-care marketers are interested in administrative areas.
ACORN can take individual clients’ data and include it within the basic ACORN system. It can
then be profiled in whichever geographic areas are most appropriate – from postal areas to the
abstract (such as a contour line on a map).
Additionally all geodemographic surveys provide easy cross-referencing to two major
marketing research databases. The Target Group Index (TGI) and the National Readership
Survey (NRS) allow ACORN profiles to be extended to include data on product usage,
holidays, readership, etc.
Using geodemographic data one can, for example:
! Be given an exact count of the target households to leaflet, an exact number of leaflets to
print, and road maps that specify on which houses to drop leaflets.
! Match a target segment against media (who show their readership by geodemographic
classification).
! Select sites for retail shops so that they are close to their target customers.
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ACORN data helped retailers to prove that customers choose stores by time and
simplicity; not by distance criteria. In other words being close to the customer is not
enough. If the journey is difficult – or perceived as difficult – the shopper will go
elsewhere. Shoppers will go 25 miles on a motorway rather than three miles across
town, for instance.
! Adjust stock range and levels so that the correct goods are in areas of demand.
One simple way to secure customer information is through the guarantee cards that most
manufacturers ask buyers to complete and return. In the UK there is no need to register a
purchase with the manufacturer, one’s contract is with the retailer. Yet many of the cards are
filled in and returned. You will notice that they normally ask for more data than is needed
simply to register a purchase. Every card that is returned extends the manufacturer’s database,
and provides more information about its customers.
Geodemographic data is very easy to obtain on contract. Individual prices are discussed with
those who have a serious interest, but the service is proven to be cost-effective. Another well-
established geodemographic system is MOSAIC, which we have already mentioned. This
offers 12 lifestyle groups, which in turn are split into 52 different types.
(d) Social Grade Segmentation
The UK market is divided by the National Readership Survey into six Social Grades, which are
often described as segments. The classification has become so useful that it is almost
universally known, and is in very wide usage.
Unfortunately the division is based upon the data appertaining to the chief income earner,
which means that all in a household are graded identically no matter what their differences may
be in education levels, work, disposable income, lifestyle, etc. Thus the only marketing value is
to assist, as a form of shorthand, the broad description of a market area – “This is a product for
the A/B market”.
The classifications are:
% of UK
Social
Social Status Occupation Population
Grade
(1998/99)
A Upper middle class Higher managerial, professional 2.8

B Middle class Intermediate managerial, professional 18.6
C1 Lower middle class Supervisory or clerical 27.5
C2 Skilled working class Skilled manual workers 22.1
D Working class Semi-skilled and unskilled manual 17.6
workers
E Those at lowest level State pensioners, widows, casual or 11.4
of subsistence lowest-grade workers
Source: National Readership Survey (NRS Ltd) July 1998 – June 1999
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Table 2.1: Resident Population of GB by Sex and Age: Estimate Mid-1998
Years of age Total Males Females

‘000 ‘000 % ‘000 %
0-4 3,670 1,882 7.0 1,788 6.3

5-9 3,913 2,004 6.6 1,908 6.0
10-14 3,795 1,948 6.2 1,847 5.6
15-24 7,189 3,687 15.4 3,502 14.0
25-34 9,231 4,720 15.9 4,510 14.9
35-44 8,505 4,294 14.1 4,210 13.5
45-54 7,756 3,870 11.6 3,885 11.1
55-64 5,881 2,895 10.2 2,985 10.2
64+ 9,290 3,821 12.9 5,465 18.4
Total 59,228 29,128 100.00 30,100 100.00
Sources: ONS; General Register Offices for Scotland and Northern Ireland
Note: figures may not add due to rounding.
(e) Life-Cycle Segmentation
Life cycles provide a useful basis for segmentation in some markets. The National Westminster
Bank, for example, set out the stages of the life cycle, and the financial implications, in a leaflet
focused on savings and pension plans:
! You’re born – and are reliant on somebody else for everything.
! You go to school – with 11 years to look forward to. It costs about £139,000 to educate a
child at a boarding school and £55,000 at a day school. Paying out of income is almost
impossible – take out a regular savings plan early.
! You get a job – the last thing you think about is life assurance and pensions, but
remember if you start a personal pension at 20 instead of 30 you could pay 9% less of
your salary each year and still secure the same pension.
! You start a family – a real need for protection. One in five men die before they are 65.
Take out insurance!
! You buy a house – you can choose between term assurance and an endowment plan.
! You plan time off – you will need money to live on. Banks and building societies can
help with saving and investment plans.
! You run your own business – you may need to borrow, to arrange life assurance, a tax-
efficient way to save for the future.
! You save for your daughter’s wedding – an average wedding costs over £10,000. A bit of
a shock if you don’t save for it.
! You think about retiring – the State pension is (from April 2000) £67.50 + £40.40 for a
spouse assuming full contributions. Only one person in 100 in a company pension
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scheme will receive maximum pension benefit so the sooner you think about a personal
pension plan the better.
! You’re worth more than you think – without careful planning you could leave an
unnecessary tax bill for your dependants to pay. Take out a life-assurance policy under
trust.
Sagacity grouping looks at the life cycle in conjunction with job type. The basic thesis is that
people have different aspirations and behaviour patterns as they go through their life cycle.
Four main stages are defined which are subdivided by income and occupation groups.
(f) Psychographics
Lifestyle segmentation is made possible by ascertaining the typical lifestyle of a typical
customer and then confirming that there are sufficient similar customers and potential
customers to form a viable segment. The TGI survey is an important tool in lifestyle
segmentation.
! Target Group Index (TGI)
Run by the British Market Research Bureau the TGI is a long-standing and greatly
respected continuous survey of 24,000 adults. Since 1968 it has been continuously in the
field and its reputation is well deserved. Published annually (April to March) it also
provides six-monthly figures for April to September. The TGI has 34 volumes and
provides considerably detailed information on over 3,000 brands.
The TGI works with the full range of standard demographics and offers special
breakdowns on such things as working status and TEA. It has a “lifestyle” section
consisting of nearly 200 attitude statements against which the level of agreement or
disagreement of each respondent is measured. This allows cross-tabulation of attitude
against demographics, media and brands to assist with very detailed market targeting.
! Benefit Segmentation
This is segmentation based on the consumer benefits – those of the users/buyers of the
product. A motor car can be sold on such features as economy, safety and acceleration.
It is essential to know what a potential customer wants from a purchase – will he or she
appreciate acceleration as a benefit? Should the offer be made in terms of convenience
and safety?
Sought benefits vary with lifestyle and circumstances. Thus a young man’s benefit needs
are likely to change remarkably as he becomes a father for the first time and
convenience, safety and economy replace acceleration, speed and status as priorities.
Similarly, a sufferer from chronic arthritis is likely to need an automatic car, whatever he
or she may have previously preferred.
! Attitudes
Crucially important within marketing, attitudes, beliefs and intentions can be the key to
any form of segmentation. It is possible to segment on individuals holding the same
attitudes – fans of a particular football team, for example – but more subtle is the
influence which attitudes, beliefs and opinions have over everyday behaviour.
It is important always to consider attitude when segmenting a market because individuals
will have a unique approach whatever general classification you can slot them into.
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Geodemographics coupled with lifestyle surveys comes closest to providing an

understanding of the prevailing attitudes within a segment, but an understanding of the
particular attitudes that affect a specific product/market is necessary for truly effective
segmentation.
Market Targeting
This has been defined by Kotler as:
“The act of developing measures of segment attractiveness and selecting one or more of
the market segments to enter.”
(a) Target-Market Selection
There are five patterns of target-market selection, as shown in Figure 2.4.
M1 M2 M3 M1 M2 M3
P1 P1
P2 P2
P3 P3
Single-segment concentration Multi-segment coverage
M1 M2 M3
P1
P2
P3
Market specialisation
M1 M2 M3 M1 M2 M3
P1 P1
P2 P2
P3 P3
Product specialisation Full market coverage
P = Product
M = Market
Figure 2.4: Target Market Selection
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! Single-segment concentration allows tight focus and concentrated effort. It does,

however, involve higher risks since a market change will leave one vulnerable.
! Multi-segment coverage is the selection of several segments, which may have little or
no synergy. Risk is spread.
! Product specialisation focuses on the production of a single product, which is sold to
several segments. Reputation is built on the quality and the range; the risk is that the
product itself can be superseded. Hence the focus needs to be on the task, not the
product. The classic example is the American railways which were product- and not
task-focused. Their future lay in transportation, not in railway trains.
! Market-specialisation requires coverage of a market’s needs, e.g. “All you need for
your office”.
! Full market coverage is possible only for organisations since the aim is to supply all
consumer groups with all the products they might need, e.g. IBM (computers), Microsoft
(software), Ford (vehicles).
(b) Differentiation
In undifferentiated marketing an organisation will ignore market segment differences and offer
a single product to the whole market. Note how even the mighty Coca-Cola have revised their
approach by the introduction of targeted versions of their original product.
Undifferentiated marketing is only sustainable in conditions of monopoly or where demand
greatly exceeds supply. As competition enters, and when demand slows down, it is no longer a
tenable policy.
Differentiated marketing requires the design of products to be tailored to segment needs. Thus
Ford will produce up to 18 or 20 versions of each model to cater firstly for the basic needs of a
generalised segment and then for individual needs within that segment. For example, the need
may be for a small car to use in the city. Thus the Fiesta is first choice. But then one can
choose from a range of options:
! manual or automatic transmission
! engine size
! tuning for performance or economy
! colour and upholstery options
! status additions – exclusive models, customisation, etc.
Transcending product and service are the differentiation potentials of personnel and image.
Personnel differentiation can be secured by a hiring and retention policy that attracts high
quality staff. High quality personnel more than justify their higher cost if managed correctly
within an appropriate corporate policy. Without management support from corporate level,
high quality personnel will become frustrated and leave.
Image differentiation refers to a perceived difference, part of which can be expressed as
branding. An image must convey a singular message in a distinctive way with emotional
power. Those who succeed in establishing a corporate image have immediate recognition
within their target markets. This is sufficient – it is wasteful to develop an image in markets
where there is no intention to trade.
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Image is normally encapsulated in a symbol, and an effective symbol immediately conjures up

the whole emotional appeal associated with the organisation and/or its products and services.
Thus even a split second’s peripheral glance at a Happy Eater sign on a busy main road alerts
the driver to the restaurant and provides an immediate and powerful image of exactly what type
of food, ambience, service and price are available – far more powerful than a sign for Priscilla’s
Restaurant about which nothing is known, especially when a decision has to be made in
seconds as the car speeds along at 65 mph.
(c) Target Audiences and Publics
Target audiences and target publics are defined segments that are selected to receive
promotional activity. “Audience” has traditionally been used in advertising; “public” in public
relations. Both terms have exactly the same meaning, and target audience is gradually
replacing the PR term.
A target audience must automatically be a segment. Just as segments must be specifically
identified, so must target audiences. Each of these is a specific target audience:
! The individuals within MOSAIC Type 14.
! Adult males within MOSAIC Type 14.
! Adult males within MOSAIC Type 14 within the Tyne Tees TV region.
Positioning
There need be no such thing as a commodity. Convert a commodity into a product that can be
targeted in two stages:
! Consider it an undifferentiated product.
! Identify a way to differentiate. This will come from identification of a target market – a niche
market – with consumers who have unfulfilled needs.
Developing an overall “package” of benefits that can be positioned in the minds of the target
consumers completes the transformation.
Thus positioning is the act of designing an offer so that it occupies a distinct and valued place in the
minds of the target customers (Kotler).
Note that products are not positioned – the term “product positioning” is incorrect. Positioning refers
exclusively to a mental concept. The package that comprises the offer has to be positioned –
remember that consumers do not want products, they want what products do for them. They want
their needs to be fulfilled.
Example
How is a Mars Bar positioned? Is it a filled bar of chocolate, a piece of confectionery to be found on
the sweets counter? No! A Mars, we are told, “helps you work, rest and play”. So it is positioned as
a nourishing snack that is fun to eat.
Who eats Mars? According to the adverts (the pictures, not the words) the eaters are young, healthy,
virile, active, fit, happy.
Where do we find Mars? On the confectionery counters; but also on the biscuits/snacks counters, in
vending machines, in cafés – and we now also find “fun”, “standard” and “extra large” bars as the
Mars brand is extended.
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Further brand extension has seen the introduction of Mars ice cream which carries the same packaging
and symbolism as the traditional Mars Bar.
A Mars Bar, by virtue of its wide appeal and low price, could have a very wide market at which to
aim. But it is actually aiming at several different market segments. Mars are not targeting
individuals, they are instead targeting identified groups that individuals move into and out from as
they pass from stage to stage through life.
(a) Positioning Maps
By taking two of the key variables influencing consumers it is possible to plot organisations or
offerings against one another. This gives a picture of the market in terms of competitive
position and facilitates the identification of market gaps (otherwise known as niches).
Retail Food: Positioning Map
EXCLUSIVE
Fortnum & Mason
Harrod’s Food Hall
Cullens
LOW PRICE HIGH PRICE
Marks & Spencer’s
Tesco
Kwik Save
7-11 Stores
CONVENIENT
Figure 2.5
Positioning maps are usually shown in two dimensions for simplicity but it is normal for
multidimensional mapping to be used, i.e. several key variables are plotted against each other in
order that an identified niche can be accurately defined. Thus a sequence of positioning maps
may be required to illustrate even a static position. Obviously a series of maps will be needed
to describe a dynamic situation.
Positioning maps are a very effective tool because not only do they force detailed market study,
but they also present information in a readily understandable form.
(b) Positioning statements
Positioning statements are succinct descriptions of the exact position that the product is to take
in the minds of the target market. Very great care, and considerable time, are taken to ensure
that the statement is accurate and detailed. It will become the focus for all marketing effort and
so the creative management time devoted to it will be repaid in long-term benefit. We shall
return to positioning statements later in the course.
It is difficult to challenge a competitor who holds a position; usually it is better to define,
establish and protect a position that is unique in the market.
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G. THE MARKETING MIX

Companies who follow the marketing concept will use the marketing mix to conduct their dealings
with customers.
The “mix”, as it is affectionately known, is really a combination of factors which can be amended or
adapted to suit the requirements of individual, or groups of, customers. It is the “tool-box” of the
marketer.
The Seven Ps
The term “marketing mix” covers the seven controllable variables of:
! Product
! Price
! Place
! Promotion
! People
! Processes
! Physical evidence
You will note that seven is emphasised. There is a good reason for this.
It is likely that if you were to ask someone what the marketing mix was, they would say “The 4 Ps –
Product, Price, Place and Promotion”. Until relatively recently this would have been correct.
However, the marketing mix has been extended! We now have the 7 Ps to play with: the original
four, plus People, Processes and Physical evidence.
These last three are sometimes referred to as the “soft elements” of the mix and are regarded as being
relevant to internal rather than external aspects of the organisation, although they are all relevant to
the customer.
We will be looking at mix elements later in the course, but it may be appropriate to give some
attention to the “new” or “added” mix elements at this point.
! People
This aspect covers the training and motivation of the people involved in the marketing effort –
in other words, everyone in the organisation. It is important that the correct image is portrayed
to a customer at all times and the staff are the people who deliver this image. The attitude they
have to the customer is important, and may be shown by the way in which they answer the
telephone. Are they polite? Do they understand the product range enough to help a customer?
These considerations, and many more, are important.
Because of fierce competition and the heightened awareness of today’s customers,
organisations are having to pay greater attention to customer care and it is with the internal staff
that customer care begins and ends.
The search for improvement in this element of the marketing mix has led to the introduction of
internal marketing programmes which are designed to make staff aware of the importance of
the customer, as well as to motivate them to work towards achieving customer satisfaction.
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! Processes
This element refers to the systems used in the organisation which contribute to the marketing
effort. It may seem a strange organisational aspect to include in the marketing mix but, if you
consider that the marketing mix is the “tool box” which contains the controllable variables used
by the marketer to satisfy customer needs, it makes sense.
The customer comes into contact with the organisation in many ways: making enquiries;
making a purchase; seeking advice on delivery dates; receiving invoices and statements; and
after sales. If the marketer can influence, or modify, the organisational processes in such a way
that they become customer friendly it can only add to the overall marketing effort.
! Physical Evidence
This aspect refers to what the customer “sees” surrounding a purchase. Overall the term covers
the physical appearances and ambience that collectively imprint on the customer’s mind. It
could be the appearance of the showroom, the trimmings that are in a hotel, the quality of
information leaflets, the external aspects of the building, the type of music played in the
background or any of the additional facilities that organisations provide which give additional
service to a customer.
Although marketers have always considered the above aspects, their importance was never formally
acknowledged until the 1980s and even then they were regarded as applying only to service
industries.
It has now been recognised that they are equally important to all types of marketing activities. This
recognition is helping marketing professionals to give improved levels of customer service, thereby
providing more and more customer satisfaction.
Kotler’s Seven Cs
The concept of the 7 Ps has developed from the marketer’s viewpoint of what is required; Kotler
now considers marketing’s role from the perspective of what customers and consumers need, and he
has introduced a C concept. Kotler’s 4 Cs cover the original 4 Ps (Product, Price, Place, Promotion)
but it is relatively simple to add Cs to People, Physical evidence and Process.
When we do this we see that the marketing focus is made far clearer from a Cs viewpoint. It follows
that marketers should produce as Ps only what customers and consumers value as Cs:
Seven Ps Seven Cs
Product Customer value

Price Cost
Place Convenience
Promotion Communication
People Consideration
Processes Co-ordination and concern
Physical Evidence Confirmation
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! Customer Value
Value is a combination of many factors, all of which are subjective and dependent on the
perceptions of individuals. Often what is valued is not the major benefit, especially when
branded goods are functionally so similar. Kotler says that the car he valued most highly was a
Ford because it was the only one with a gadget to hold his can of Coca-Cola.
! Cost
When judged from the C viewpoint, price becomes only one element of cost. How much time,
energy and effort have to be committed to the product? What are the status and reputation
issues? Cost is a blend of issues that far outweigh “mere money” in importance.
! Convenience
People want the function and/or the symbolic values – and they want them where they are
needed. Thus convenience is the factor that matters. Obviously a package has to be placed in a
channel of distribution, but all that matters to the customer is that it is available where, when
and how it is most convenient.
For example, when buying a new computer the cost involves such price issues as the total cost
of the CPU, monitor, keyboard, cables and VAT. But the time and effort to set up and then
become experienced on the new equipment are also cost factors. Will there be a need for new
software? Can the existing data be read directly, or easily transferred? Is the package
conveniently packaged (physically)? Is it easy to assemble? Is it delivered – complete? Is the
basic software pre-loaded?
! Communication
The customer and the consumer both have to learn about the package, and in terms that both
comprehend and, hopefully, believe. Messages must be tailored to the needs and perceptions of
the members of the target audiences.
! Consideration
Marketing is people orientated. Individuals differ and each must be provided for. Therefore all
contacts have to be established on a procedure, but with provision for flexibility where possible.
Staff must be trained to show consideration in their explanations and in showing why in certain
circumstances there can be no flexibility.
! Co-ordination and concern
This double C shows the need to co-ordinate efforts throughout the whole process. Everybody
must be focused on the need to satisfy identified customer needs. There must be concern,
demonstrated in the after market especially, to check that the package is delivering to
requirement and to promise.
! Confirmation
Everything about the package – about the offering – has to be consistent so that each
succeeding message, in whatever order they happen to be received, confirms what has gone
before. An unkempt salesperson can destroy confidence built up by superb promotion even if
he or she has excellent product knowledge.
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59
Study Unit 3
Marketing Strategies
Contents Page
A. Strategy and Planning 60
B. Corporate Strategy 61
Organisational Stance and Positioning 62
Attack Strategies 63
Defence Strategies 64
C. Marketing Strategies 65
Types of Marketing Strategy 66
D. Corporate Objectives 67
E. Marketing Objectives 68
Nature and Purpose of Marketing Objectives 68
Defining Marketing Objectives 69
Factors Influencing Marketing Objectives 70
Benefits of Marketing Objectives 72
Problems in Formulating Marketing Objectives 73
F. Models for Formulating Marketing Strategies 74

Ansoff 74
Porter’s Generic Strategy Model 77
Portfolio Analysis Models 79
General Electric Business Screen (GE) 84
Gap Analysis 87
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60 Marketing Strategies
A. STRATEGY AND PLANNING

Philip Kotler said of planning that it was deciding in the present what to do in the future. It involves
both the determination of a desired future and the steps necessary to bring it about. A market-
orientated company will seek to adapt its strengths and weaknesses in order to take advantage of any
future opportunities that arise to give satisfaction to its target markets.
Three levels of planning have been identified:
! Corporate or visionary planning that provides a mission and structure for evaluating and
allocating resources to business.
! Business planning which involves long-range planning for positioning the company and its
products to best serve its target markets.
! Functional planning including marketing planning which is generally annual planning
involving specific goals and plans over one year.
Figure 3.1 demonstrates these levels as well as the process.
The marketing plan operates at the centre of this decision-making process by providing the target by
which the company’s efforts will be measured. It should also provide the starting point whenever
there is a need to respond to changing external or internal circumstances which could affect the
company, its customers or the relationship between them.
Initial environmental and

business analysis
Develop the mission statement

CORPORATE
Detailed marketing audit
Corporate objectives and

strategy formulation
Marketing objectives and

strategy formulation
BUSINESS
Estimate expected results
Identify alternative plans and mixes
Implementation FUNCTIONAL
Review
Figure 3.1: Strategic Planning for Marketing (Adapted from Gilligan & Fifield, 1997)
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It is quite easy to confuse the words “strategic” and “strategy”, which is understandable because,
basically, the same word is being used. Like so many other words in the English language “strategy”
can mean different things. In marketing:
! “Strategy” can be used to describe the means of achieving an objective; or
! “Strategy” can be used to describe an approach, stance or long-term plans. (From this use of
the word we get “strategic planning” meaning a higher level of planning.)
Over the years marketing authors have tried to clarify this issue and they have used different ways of
doing this.
Wilson, Gilligan and Pearson in Strategic Marketing Management, readily admit that there is no
standard definition of “strategy”, but highlight three “levels” of strategy:
! Corporate strategy – dealing with the allocation of resources throughout the entire
organisation, covering all of the various businesses or divisions.
! Business strategy – which exists at the individual business or division level and is concerned
with the question of competitive positioning.
! Functional-level strategy – which is limited to the actions of specific functions within specific
businesses.
Thus we see the model shown in Figure 3.1, which demonstrates the strategic planning process.
This is all very well for a large organisation. We can see a progression from the top level to the lower
levels and, from our previous studies, you will know that as the plans move down the organisation
they become ever more focused and detailed.
But what about smaller organisations? Well, this process still works. What the authors have done is
to give a picture which will encompass any organisation. It may be that some of the levels will
“combine”, e.g. small to medium-sized companies may only have one small tier of top management
above the operational levels. The higher level will still decide on the allocation of resources overall,
but may produce fairly detailed plans for operational levels. Or, in some cases, the detailed planning
will be left to the operational level.
You should also note, from Figure 3.1, that there is no distinct section for “segmentation”.
Presumably this is because the authors consider that segmentation is part of the marketing audit
process. It is also worth noting that the authors place the “detailed marketing audit” before setting
“corporate objectives and strategy formulation”. Many companies do not undertake marketing audits
until after they have formulated their objectives. They then carry out investigations to see if the
objectives are achievable. If they are not achievable they will “revisit” the objectives and fine tune
them to fit better with the increased knowledge gained in the audit.
B. CORPORATE STRATEGY
Strategies are formulated as a response to the various factors in the company’s environment – and
these may come from both external and internal sources.
(a) External
! Nature of the competition and the products which are on offer in the marketplace.
! Political, economic, social and technological pressures.
! Needs and requirements of the buyers.
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! Changes which are, or are likely to be, taking place in the environment.
(b) Internal
! Corporate objectives
! Size and power of the company
! Availability of resources
! Current and past practices
! Expectations of stakeholders
! Position of the firm in the marketplace
! Nature of the firm’s business (leader/follower)
! Managerial stance and attitude (aggressive/or not)
To put it another way, any aspect of the internal and external environments can have an influence on
strategy formulation. In particular, always remember the internal aspects – they are very important.
Organisational Stance and Positioning

We have just noted that the managerial stance and attitude can have a big influence on strategy
formulation. Organisations can be categorised as being any one of the following:
(a) Leaders
These are innovative companies who are regularly first into the marketplace with new products.
They tend to be powerful companies who will have major market shares and the benefit of
abundant resources. They gain advantage from being first to the market, but they invest heavily
in development and face the risks attached to being innovative. They must adopt strategies
which will:
! Protect their current market share by using the mix, or
! Encourage current customers to use more, or
! Attract and retain new users and/or customers, or
! Redesign the product/service for new and existing users, or
! Introduce new products to new markets.
Companies can carry out these strategies by adopting a stance of:
! Innovation – always being in front of the competition
! Fortification – activities aimed at keeping the competition down
! Confrontation – aggressive promotion, price wars
! Harassment – pressure on distributors, criticising competition
(b) Followers
These are the companies who do not invest heavily in research and development (R & D) but
“copy” what the leaders do. This type of company will never get the initial major market share,
but they do not have to invest money in development or in making the target market “aware”,
as the leaders will have already done this. They may also capitalise on errors which the leaders
make, e.g. if a leader’s new product has a slight technical problem, followers may be able to
solve that problem before launching their own version of the product.
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If this is done, the early adopter and early majority categories of buyers may well turn to the
“following product” and the leaders will lose market share. Followers can make many different
amendments to a leader’s product (price, quality, distribution, etc.) and amendment is cheaper
than development so costs will be lower.
Followers are often referred to as “me-too” marketers in that they do not come up with original
ideas or practices. They are simply happy to hang on to the tails of the leaders and take any
benefits they can.
Challengers, or followers, may at times seek to overtake the leaders and will often adopt
methods which involve price-cutting incentives to distributors, giving improved service levels,
sharing costs with distribution channel members, etc.
(c) Nichers
These types of organisation are those that are, to one extent or another, providing a
“specialised” product offering. They will have some kind of USP (unique service proposition)
which they can offer to their customers.
Niche marketers are often left alone by the market leaders as they (nichers) are either chasing a
small market segment, or are providing something which is non-viable for the larger firm, e.g.
individual service levels may be extremely high. Nichers can gain from being seen as
“specialist” and can, consequently, often charge much higher prices for their product offerings.
Niche markets can be very profitable, despite relatively low market share.
We could not possibly expect an organisation to adopt a stance and retain that stance forever.
As we know, the environment changes, as do the circumstances of any organisation. These
changes could mean that an organisation will need to attack a leader, or defend against a
follower. The reasons for this may be a search for growth or profits, for survival, or simply
because the management culture has changed and the new management considers it safe to
change direction.
Attack Strategies
(a) Direct Challenge – Differential Advantage
This is a high-risk strategy but one with potentially high pay-off. Such a policy requires
sufficient working capital and management determination to last out a long campaign, for a
major market leader is in a very strong position and buying market share calls for marketing’s
equivalent of extensive trench warfare.
It is unlikely to work unless clear differential advantages are offered, and welcomed, by
consumers. The attack mounted by Fosters lager on the British market was a distinct success,
although many would argue that in the glass there is little to tell between Fosters and similar-
priced lagers. A decade before, Heineken succeeded in entering the market as a substantial
player. It is interesting to note that both successes came from brilliant promotional campaigns
supported by adequate products.
(b) Direct Attack – Distinctive Competence
Removing the distinctive competence from the market leader by innovation is extremely
effective providing that the advantages are valued by the target market and communicated
effectively. A classic example is Xerox, who took the copying market away from 3M by
introducing a better process.
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(c) Direct Attack – Market Share

Gobbling up the smaller firms in the market can build market share very quickly – providing
that it is possible to retain it when (or if) branding is consolidated.
Normally there will be loss of trade as old brands change to the new, but the promotional
stimulus may well shake a few percentage points from the market leader in exchange for what
is lost.
(d) Flank Attack
This involves the location of a position which is not open and which it is possible to occupy
and hold. When segmentation analysis reveals a niche that is not being served, it is first
necessary to ask why. If the answer is not “because it is untenable” then it becomes available
as an attack base from which to build market presence and share. Cadburys, for instance, failed
with a direct attack, Aztec against Mars, but succeeded with Wispa when they outflanked Aero.
(e) Encirclement
An encirclement attack endeavours to overwhelm a competitor by simultaneous attack on every
front: an expensive strategy, but one extremely difficult (and expensive) to resist. Casio’s
approach to the calculator market is a typical example of encirclement. They overwhelmed the
opposition by a constant stream of ever better, ever cheaper products until they achieved
dominance.
(f) Bypass
The most indirect assault involves broadening a resource base over a period whilst avoiding
confrontation until strategically prepared. In 1971 Colgate was underdog to Proctor and
Gamble; by 1976 it was well placed in 75% of its markets, and out of contact with P & G in the
remainder.
(g) Guerrilla
A relatively small competitor cannot attack aggressively on a broad front but can choose where
and when to hit in the knowledge that the big competitor is likely to be slow in response.
Profits are therefore taken before response comes – by which time the smaller firm is striking
elsewhere. This is unlikely to defeat the market leader but it can take a substantial amount of
profits from the market. The Hoppa buses introduced in UK cities have become a serious
nuisance to the established major companies operating traditional buses on fixed routes.
Defence Strategies
(a) Position Defence
Based upon a clear positioning that is established over years of effort (as the Mars Bar has
been), a position defence consists of flexible consolidation. A static position is untenable;
product innovation in the widest sense to include promotional innovation is needed to keep the
product alive, healthy and active in the minds of its customers and consumers. An entrenched
leader that is innovative will usually have massive cost advantages and be able to withstand
sustained attack to such an extent that, as when approaching a porcupine, you do it, if at all,
with care.
(b) Pre-emptive Defence
An attack upon a potential challenger can distract through their need to defend. The attack need
not be head-to-head – a fighting brand in another market can be made active and set to assault a
position of vital importance to the rival. Nestlé are past masters at this type of market strategy
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– from comparatively few production lines they now produce many branded versions of the
same canned milk, and not all are intended to be market leaders.
(c) Counter-offensive
This is an aggressive response to an attack in order to prevent loss of market share. Responses
involve using mix elements. When Cadbury’s attacked Mars they were immediately faced with
an overwhelming counter-offensive. They withdrew from the confrontation.
(d) Mobile Defence
This is good marketing policy even without the threat of an attacker on the horizon because it
involves constant moving, through innovation, market broadening and diversification into new
territory. It requires a willingness to “go where no-one has gone before” but the prospects of
excellent returns and safety from attackers are very tempting. Richard Branson and his Virgin
empire exemplify the entrepreneurial approach to growth through mobility.
(e) Flanking Defence
The American car giants exemplify failure in attempts to erect effective flank defences. Alert to
the threat from Japan, which was focused on small cars, they attempted to protect their overall
position with hastily designed American compacts. These were no competition for the carefully
thought through, well designed and very efficient Japanese competition, and the flanking
defence turned out to have been a major distractor which occupied time and resources that
weakened their overall position.
(f) Contraction Defence
Pulling back to a position of strength to be better able to mount a counter-attack is sometimes a
good policy. But, just as a defensive force pushed into the keep of its castle in medieval times
was usually held there under siege, so a modern company is unwise to get into a position where
it has to contract. The British motor-cycle industry contracted before each successive wave of
Japanese imports until there was no effective British motor cycle left.
C. MARKETING STRATEGIES
The marketing strategy is the means of achieving the corporate objectives. As such it lays down
longer-term goals and targets for the marketing personnel to follow.
The marketing strategy gives measurements which can be used as controls, but it also gives messages
to the stakeholders, or publics. It says:
! “This is where we are going”, and
! “When we will get there”, and
! “This is our stance”.
The fact that the strategy is longer term gives both internal and external involved parties an indication
of confidence and belief in the future.
Perhaps the most important purpose of marketing strategy is to give purpose to the rest of the
marketing activities. This means that the overall strategy should give clear guidelines on practices
and substrategies which are developed as a result of it.
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Types of Marketing Strategy

One of the most fundamental issues which a company must decide on is the type of marketing
strategy, or approach, that they will adopt.
There are three basic marketing strategies which any company can follow:
! Undifferentiated marketing
! Differentiated marketing
! Concentrated marketing
The models in Figure 3.2 show the differences between these three types.
(a) Undifferentiated Marketing
Entire
FIRM
marketing mix Market
(b) Differentiated Marketing
Segment A
FIRM Segment B
marketing mix
Segment C
(c) Concentrated Marketing
Segment A
FIRM Segment B
marketing mix
Segment C
Figure 3.2: Marketing Strategies
! Undifferentiated Marketing
Here there is a standard, unchanged product and a standard, unchanged marketing effort. The
product will be aimed at a large sector of the market. This strategy can reduce costs (e.g.
marketing, production) but will encounter wastage in promotional activity and possibly in
distribution. Not too many companies are in the fortunate position of producing a product
which is suitable for everyone in the world. (Try to think of some examples other than Coca
Cola.)
! Differentiated Marketing
Here the company segments its markets and offers modified products to different segments.
The marketing mix elements will also be modified to suit the requirements of the chosen
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segments. Using a differentiated strategy will mean higher costs, but ultimately the profit
levels could be higher as the offering has been targeted to the segments. This should mean that
there will be less wastage of effort.
! Concentrated Marketing
Here the total marketing effort is aimed at one market segment. This strategy is really aimed at
the exploitation of a limited market area and tends to be used by those companies who have
highly specialised products. It is “niche marketing” by another name.
Concentration on key markets can be very beneficial to an organisation, e.g. control is easier –
especially in times of difficulty. Market knowledge will be improved with little, or no, wastage
of resources on unprofitable segments and non-price factors, such as delivery or customising,
etc., are much easier to exploit.
It is common for organisations with a diverse product range to use a combination of all three
strategies for different parts of their product mix. There are no rules. Decisions will depend on the
prevailing conditions within the markets being approached and other influencing factors outlined
below.
Some marketing authors will tell you that segmentation is a result of the decisions made on the type of
marketing approach which is to be used. Others will tell you that segmentation is the cause of this
type of decision having to be made.
The reason for the differences in opinion is likely to lie in “when” each of the two activities is
undertaken. Some believe segmentation comes first, whilst some believe “approach” comes first.
In my opinion it makes little difference. Segmentation and the type of marketing approach are
irretrievably linked. It is the old puzzle of: “Which comes first – the chicken or the egg?” I cannot
differentiate between which causes which. If we do not know our segments, we cannot know how to
market to them. If we do not know which type of marketing we, and our offering, are most suited to,
what is the point of segmenting the audience?
I can give you no easy answer to the question of which comes first, or which creates the need for
which – segmentation or type of strategy. All I can say is that I believe they are both essential in the
marketing effort.
Remember that there are no “water-tight” boxes in marketing to keep things “tidy”, and this is another
grey area. Try to understand the “spirit” of the processes involved and don’t get bogged down in petty
issues.
D. CORPORATE OBJECTIVES
Corporate objectives relate to the entire organisation and are essentially longer term and broad in
their coverage.
There is a general maxim about the expression of objectives, as encompassed by the acronym
SMART. Objectives should be:
Specific – Measurable – Achievable – Realistic – Timed.
These overall corporate objectives will represent the expectations of senior management and other
important stakeholders, and may be expressed in either quantitative or qualitative terms.
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(a) Quantitative
Quantitative objectives (in terms of numbers) can relate to money, percentages, periods of time,
output figures, etc. Examples are:
“To achieve 5% year-on-year growth in profit after tax for the next five years.”
“To effectively reduce operating costs by a total of 20% over the next five years
and, in the same time period, to achieve growth in profit after tax by 8% each
year.”
“To achieve 15% return on investment in the next tax year.”
Sometimes the actual target figures will be given in the statement:
“To achieve £5,000,000 increase in profit in 1999, which represents a growth of
15% on 1998 profit levels.”
(b) Qualitative
Qualitative objectives (in terms of “ideals”) can relate to service levels to be achieved, image,
position, ethics, etc.
The following is an excerpt from a statement of objectives published in the annual statement of
a police force in northern England:
“Within five years, or as soon as is practicable, to have a police force which:
Is more open, relaxed and honest with ourselves and the public;
Is more aware of our environment, sensitive to change and positioning
ourselves to respond to change;
Is more closely in touch with our customers, puts them first and delivers what
they want quickly, effectively and courteously;
Is the envy of all other forces.”
You can see from all the examples we have given that a statement of objectives can be simple
or quite involved; there can be one aim or several. It will depend on the circumstances and the
nature of the organisation.
E. MARKETING OBJECTIVES
Irrespective of the nature of the corporate objectives, corporate strategies are selected as the means of
achieving the stated corporate objectives. The corporate strategies are then passed down the hierarchy
of command and communicated to the functional levels.
Accepting the fact that the corporate level has decreed what must be done, it is then up to the
functional levels to translate the corporate strategies into workable functional objectives.
For obvious reasons, we are only dealing with the marketing function from this point on in the course,
but please remember that the marketing function is part of the organisational network and, as such, is
irreversibly linked with all other functions.
Nature and Purpose of Marketing Objectives

Marketing objectives, in exactly the same way as corporate objectives, can be expressed in either
qualitative or quantitative terms, e.g.
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“To increase market share by 5% each year for the next five years.”
“To be recognised as the leading supplier of pre-packed meals to the airline industry by
the end of 1999.”
“To achieve recognition as the leading company for customer service and technical
support by the end of 1999.”
The main purpose of marketing objectives is to achieve the corporate objective(s).
Over and above that prime function, marketing objectives should give direction to the personnel
immediately involved, and send signals to the rest of the organisation as to what is being aimed for. If
people have no sense of direction or do not understand the targets which have been set, they will
never cooperate to the best of their ability.
Following on from that, if a marketing objective is not clearly defined it will be impossible to
formulate effective strategies and the whole planning process will be invalidated almost immediately.
Defining Marketing Objectives

Gilligan et al, in Strategic Marketing Management (1992) present two published viewpoints of
researchers who have identified possible marketing objectives:
(a) McKay (1972)
The authors state that McKay suggested that there were only three possible marketing
objectives:
! To enlarge the market
! To increase market share
! To improve profitability
(b) Gultinan and Paul (1988)
They also tell us that Gultinan and Paul argued that six objectives should be given
consideration:
! Market share growth
! Market share maintenance
! Cash flow maximisation
! Sustaining profitability
! Harvesting
! Establishing an initial market position
Gilligan et al then go further to suggest that the supportive thinking for both of these viewpoints can
be said to reflect the thinking of Ansoff on marketing objectives.
(c) Ansoff (1968)
Ansoff argued that marketing objectives can only ever be about:
! products, and
! markets
and that products and markets are either
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! existing, or
! new.
This means that, according to Ansoff, marketing objectives should always be expressed in terms
of existing or new products or markets – or a combination of all four factors.
Product
Existing Existing New
LOW MEDIUM
RISK RISK
Market
New
MEDIUM HIGH
RISK RISK
Figure 3.3: The Ansoff Matrix
We shall look at Ansoff’s model in greater detail later in the unit.
Factors Influencing Marketing Objectives

The influences on marketing objectives can be related to the external and internal forces we have
considered previously – for example:
The external environment:
! A rapidly changing environment
! Government legislation
! Uncertainty on competitive activity or actions
! Changes taking place in technology
! Different patterns of population or buying behaviour
! Recessionary economics, etc.
The internal environment:
! Unrealistic corporate objectives
! Poor planning skills
! Narrow viewpoint of the planners
! Lack of resources
! Fear of failure to achieve limiting creativity
! Lack of knowledge of the market environment, etc.
What often happens is that marketing objectives are only loosely defined until such time as all of the
available strategies have been considered. Then, once a realistic strategy has been selected, the
marketing objectives are “firmed up” or even re-defined.
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This process is quite acceptable as long as the final marketing objectives still fit with the corporate
objective and will still work towards achieving the corporate goals.
To illustrate this, we can work through the example of the general goal of maintaining competitive
advantage and consider the implications of this for marketing.
Maintaining the Competitive Edge
Every company that is in business for a reasonable length of time must do something better than its
competitors – at least in the opinion of a number of customers. That something better may involve
various factors, ranging from location and delivery to product performance and marketing.
The marketing audit should show what it is that the customers find the company does better than its
competitors, even if the audit is a simple internal affair.
If the product is a fast-moving consumer product there will probably be dozens of products competing
for the consumer’s disposable income. The consumer is quite capable of going out shopping for
gardening equipment and coming home with a set of pans instead. The competition is not just those
other products in the same category: they are the immediate competition, but everything else in the
neighbouring stores could be a competitor too. When the product is a non-essential purchase, the
situation is at its “worst”.
Generally speaking, food is a priority and most basic foodstuffs are only competing against similar
products, so quite modest research can reveal what consumers think about the various brands.
It is worthwhile looking at some of the factors that make one product more attractive than another. If
you are buying a personal service such as haircutting or dentistry, it is unlikely that you will travel a
long way when there are suppliers near home. Location is important for many consumer products –
the opportunity to see and touch the product, to have it delivered if necessary, and to be able to get
service quickly, may ensure that a local supplier is preferred. Speed and convenience are the two
great attractions of shopping on the net, which is growing rapidly. For others the most important
factor may be performance – if you do not like the taste of a food or drink product, it does not matter
about other features.
So what can the marketing manager do to maintain the competitive edge? Well, first he can find out
why his customers buy his products instead of others. We can go through a list of the possibilities and
suggest ideas for keeping one step ahead of the competition:
(a) Product/Service Quality
There are what can be considered “normal” standards in every product, and there can be grades
of quality, so you must position your products in the appropriate grade. Your marketing
researchers should have been able to identify the grades and you must judge which of them to
aim at. That might not be the top grade in terms of features, but the grade you choose must be
identifiable by the customers.
It is essential that different models of your product can be seen to fit into different grades, or
have different features that make them better. There are sometimes too many models to choose
from, and the customer could get confused. That makes it difficult to decide on a model, and
the decision may be deferred, which means it may go against your product. If you open a
catalogue such as Index or Argos, you will see several models of electric shavers, for instance,
all from the one maker, and it is difficult to see why there are so many.
(b) Availability
There is so little to choose between some products that if one is not available immediately, the
consumer will choose a different one. That means your products have to be widely distributed
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if they are to be highly competitive. There is more involved than just getting the goods into lots
of shops, because the retailers have their own views of what will sell and make them profit.
You have to convince them too, that the product is worth having on their shelves.
Quite often the retailers and wholesalers will want to know what promotional efforts you are
making, because they know that television advertisements help to move products off their
shelves.
There are sometimes problems in ensuring delivery, and many people can tell of having taken a
morning off work for a delivery man to bring, say, a new washing machine, then he comes in
the afternoon. Control is possible in the warehouse but as soon as the van gets on the road
some control is lost. The company may appear to have failed to keep a promise owing to a road
accident or traffic hold-up which was not the delivery van driver’s fault. If you can do better
than your competitors on this, you will have a competitive edge.
(c) Price
Price matters most where there are few product features which are obviously better than those
of competing products. You can get a competitive edge by making a special offer of some sort
(such as three for the price of two), if the retailers will go along with your policy.
Remember also that lowest price is not necessarily the competitive edge you need; buyers can
be suspicious of a low price with some goods.
(d) Promotion
If you tell people your products are the best, and you can show examples that “prove” the
claim, some people will believe you and others will test your claim. In all cases it is necessary
to tell people your product exists before they have any chance of buying it.
There are many ways to promote products – but some of them can appear excessive, making
people think that the price could be cut if the advert were more sensible.
Benefits of Marketing Objectives

Providing marketing objectives are defined clearly and communicated correctly, they can bring many
advantages:
! They give a clear direction to the personnel involved.
Everyone involved knows exactly what is expected of them and how they are supposed to be
working. People who do not have a clear idea of what it is they are working towards become
disillusioned and demotivated.
! They can create unity.
A common goal unites people in all circumstances, particularly when the goal is seen as being
worthwhile. If the objectives are seen to have been set with a good purpose, everyone will
work together to achieve them.
! They allow for measurement of achievement.
Because the objectives specify targets and time scales, monitoring can be carried out to check
progress. This allows for either the achievement of success, which creates a “feel good” factor,
or for adaptation and fine-tuning of activities to get progress back on target. The setting of
standards can become a powerful motivator for personnel as they will strive to do better.
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! They can reduce risk.

If all personnel know what it is they are working towards, there will be less risk of “mavericks”
doing what they think is best, rather than what has been laid down by the objectives.
! They can improve decision-making.
Managers at lower levels will be able to make day-to-day decisions based on their knowledge
of the objectives and the progress made in achieving them. This ability to make decisions away
from the higher level can save a lot of time which might otherwise be wasted in trying to
communicate with higher-level people. It also enhances the capabilities of lower-level
managers.
Problems in Formulating Marketing Objectives

Despite the fact that so many advantages can be gained, it is a sad fact that many organisations find it
almost impossible to define good marketing objectives. There can be several reasons for this.
! Fear of Failure
If previous objectives were not achieved, planners may be reluctant to define new objectives
and will not strive to achieve.
! Apathy
If the personnel in the company are demotivated for some reason, they will not be interested in
any new objectives as they will see them as “just another ploy to get us to work harder”.
! Success
When a company is doing well, a new objective is often seen as being unnecessary. This is the
“If it works why try to fix it?” syndrome. Unfortunately complacency of this kind can often
lead to a company losing its market share to a competitor.
! Organisational Culture
A lack of marketing orientation in an organisation can prevent objectives from being
formulated. Lack of marketing often means lack of “vision” and short-termism. Instead of a
strategic stance being adopted, only short time scales are set or activities are managed on a
basis of “as we need to do it”. The result is that the future is not taken into full consideration,
which may end in disaster.
! Lack of Knowledge
Perhaps the biggest problem in formulating marketing objectives is the fact that knowledge is
necessary.
To formulate an objective which says:
where we want to be?
Planners need to know the answer to:
where are we now?
Knowing “where we are” implies investigation and a full search for knowledge. Do you
remember the fictional example I used earlier about you going to New York? Well, if you
hadn’t known that you were in London, or how much time and money you had, how could you
have realistically planned to get to New York? The answer has to be that you would not have
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been able to. You would have had to investigate all of the factors influencing your plan before
you could even begin.
This is exactly the same for marketing. Before we can really be happy that we are setting good
objectives we have to consider our current position. This means that we need to undertake a
full marketing situational analysis in order to define marketing objectives and then select
appropriate strategies to achieve those objectives.
F. MODELS FOR FORMULATING MARKETING

STRATEGIES
To achieve marketing objectives, strategies must be formulated for each section of the marketing
function or individual SBU. (Remember, these strategies must also be Specific, Measurable,
Achievable, Realistic and Timed.)
Marketing planners have to deal with an enormous amount of information. They need to represent the
information in a way which is easy to understand – models help them to do this. A model is simply a
diagram which summarises a given set of circumstances, and is drawn up to help you, not to confuse
you. Please try to remember that. If you can accept the usefulness of models, you will soon find
yourself using them in your working life as well as in your studies.
We shall now concentrate initially on two models which can help in deciding which strategy to adopt:
Ansoff, and Porter’s Generic Strategy Model.
Ansoff
Ansoff’s is perhaps the most quoted model of all in marketing theory and practice. It is used as a
strategy choice model, in that it helps a planner to see which strategy is appropriate at any given time
and in various sets of circumstances.
Ansoff claimed that in marketing we can only ever be talking about products and markets, and that
these can only be old, or existing, and new, or potential.
Thus marketers have:
! existing products which they can sell to existing markets
! existing products which they can sell to new markets
! new products which they can sell to existing markets
! new products which they can sell to new markets
Using these combinations gives a choice, according to Ansoff, of four possible basic strategies, as
shown in Figure 3.4.
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Product
Existing New
Existing
MARKET PRODUCT
PENETRATION DEVELOPMENT
Market
New
MARKET
DIVERSIFICATION
DEVELOPMENT
Figure 3.4: Ansoff Matrix
Strategy 1: Market Penetration (same product/same market)

This strategy will be appropriate when a market is growing and not yet saturated.
Penetration can be achieved by:
! Attracting non-users of a product
! Increasing the usage, or purchasing rate, of existing customers
The strategy will often be implemented by increasing activity on one or more of the mix elements,
e.g. using more intensive distribution, aggressive promotion, pricing, etc.
Strategy 2: Market Development (same product/new market)
This strategy is often found when a regional business wishes to expand or if new markets are
emerging because of changes in consumer habits. It can also occur when a new use has been
discovered for an existing product.
Implementation of this strategy involves appealing to market sectors (or geographical regions) not
currently catered for and may mean a repositioning of products as well as, very often, new distribution
methods or channels.
Strategy 3: Product Development (new product/existing market)
With this strategy an organisation develops new products to appeal to its existing markets. It may
simply be a product “refinement”, e.g. change of packaging or taste, etc.
Product development is most prevalent when branding exists. Promotional aspects will emphasise the
added qualities of the “new” product and link it specifically to the security of, and confidence in, the
brand. This strategy builds on customer loyalty and the benefits to be gained by purchase. Other mix
elements, e.g. distribution, may remain unchanged.
Strategy 4: Diversification (new products/new market)
This strategy is sometimes introduced so that a company does not become too dependent on its
existing SBUs. It can be a form of “insurance” against potential disasters that could occur in the event
of drastic environmental changes. It can also simply be a means of growth and expansion of power,
etc.
“New” might be a totally innovative product, which has never been seen in the marketplace, or it can
be a product which is already available in the market but is new to the firm. In either case,
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Diversification means catering for market sectors which are also new to the firm. If a new product is
developed for the existing market it is Product Development and not Diversification.
Firms can diversify by producing their own new products or by taking over some other product. In
the latter case there are two main types of diversification – integration or conglomeration.
(a) Diversification by Integration
! Vertical Integration
This involves the acquisition of some other enterprise in the chain of distribution
between the manufacturer and the customer. It can be either “forward”, i.e. towards the
customer, or “backward” towards the source of raw material.
For example, a company dealing in writing stationery may vertically integrate forward by
taking over a retail outlet to sell its products, or backward by taking over a paper mill.
Although there will obviously be control benefits to be gained in either of these
examples, the company will be dealing with a product, or products, and markets which
are new to them.
! Horizontal Integration
This is the acquisition of another organisation which has a feature that is desired, i.e. the
acquired organisation may be using similar materials or components for which they have
a monopoly of supply. This is particularly relevant when materials, etc. are in short
supply. The company that is acquired may use similar production methods and have
greater capacity; or its distribution channels may be highly effective and would prove
advantageous; or it may have some other quality which could be seen as a benefit, e.g.
Johnson Brothers (china manufacturers) taking over the Wedgwood china company and
capitalising on the Wedgwood brand and reputation.
(b) Diversification by Conglomeration
This strategy moves the firm away from its existing product-market situation into an entirely
new area in order to satisfy a primary objective. Quite often this is done as a short-term activity
that will allow an organisation to recover from a temporary setback in market conditions. For
example, a company that produces ladies’ lingerie, and is faced with cash problems in the short
term, may reap instant profits if it invests in “spot-buying” and “selling-on” of oil on the open
market. This type of activity can also be part of a longer-term strategy to spread risks.
Ansoff applied
Here we shall look at Ansoff’s model as applied to Coca Cola, who use all four strategies (adapted
from Evans and Berman (Marketing, 1990)).
(a) Market Penetration
! More adults used in commercials – “You can’t beat the feeling” theme
! Price discount and promotions (fun caps) to existing customers
! Increasing sales through fast-food outlets
! Strengthened distribution network
(b) Market Development
! Greater emphasis on China, Eastern Europe, South America, Middle East, Africa
! Appeal to men with Diet Coke
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! Changing image of soda from children to “family”

(c) Product Development
! New brands/flavours
! New containers
(d) Diversification
! Manufacturer of water treatment and conditioning equipment
! Acquiring Columbia Pictures, Embassy Communications
! Licensing company name for clothing range
Conclusion
Ansoff’s model is one which is so widely used that you cannot afford not to know it really well.
There is no doubt that the model is extremely useful in deciding which strategy to adopt in a given set
of circumstances; however, you should recognise that it is not perfect as it does not cover everything.
! It takes no account of any environmental factors.
! It does not give any room for judgement on profitability.
! It can inhibit the creativity of planners.
Despite the shortcomings it is very useful. It can also be used to assess risk; the further away from its
present position a company moves the more the risk increases.
For example, a company selling the current product to the current market is in the safest position. All
factors are known – buyers, distribution, competition, etc. Once the company begins to change some
aspect, risks occur. With “new” products to existing markets there is always a danger that the
customers will not adopt the new product and, possibly, that the new product will have an adverse
effect on the existing range. Likewise, unknown market sectors, or regions, can be risky (hence the
need for market research) and, of course, the unknown variables involved in diversification make it
the most risky strategy of all. Marketers need to consider all influencing factors when selecting which
strategy, or strategies, to adopt.
Porter’s Generic Strategy Model

Michael Porter is a widely quoted authority. This model claims that there are only three main
strategies which a business can follow:
! Cost leadership
! Differentiation
! Focus
A business which followed none of these strategies would become “stuck in the middle”, and be
unlikely to succeed in the long term.
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Differentiation
Stuck
Cost Leadership With No Focus
Clear Strategy
Figure 3.5: Porter’s Generic Strategy Model
Strategy 1: Cost Leadership

Following this strategy means that the company aims to produce in large quantities, at the lowest cost
possible and sell at lower prices. By doing this they can capitalise on economies of scale and defeat
any competitor who has not got equal production capacity, or who can keep prices to a minimum.
This strategy will also attract price-sensitive buyers away from the competition, e.g. moulded plastic
garden chairs which are not seen as being “different” are often bought on the basis of the lowest price.
Strategy 2: Differentiation
This strategy involves offering some unique selling (service) proposition (USP) that the competition
do not have. Prices may not be too important to buyers of products sold under this strategy and it
often follows that customers become brand or product loyal, e.g. a whisky drinker may prefer to buy
Macallan whisky despite the fact that it costs more than Bell’s, or an own-label make from a
supermarket. Another example could be that of a fashion company producing a diverse range of
clothes to suit different requirements for different target sectors (military uniforms/workwear/leisure).
Strategy 3: Focus
The company aims at very select market sectors and will be charging higher prices or offer special
USPs. The company can concentrate on its key products for specific targets, acquire a reputation for
being “specialist”, or can simply attack sectors of the market which are being ignored by the
competition. They are, to some effect, niche marketers, e.g. Rolex watches, Rolls Royce cars or
bespoke tailoring.
Conclusion
Porter’s strategy model allows a company to decide which overall “type” of marketing they want to
adopt. If the firm is powerful and rich in resources they may well choose to follow a Cost Leadership
or Differentiated strategy. However, smaller firms may be forced to adopt a Focus strategy because
their product offering has a very specific market. For example, the car market overall is very broad
but Morgan cars are aimed at a select market sector and command high prices which give good
profits.
The strategies suggested by Porter can also be used, to some extent, in conjunction with the Ansoff
strategies. A company which is following an overall business approach of Cost Leadership may still
carry out Market Development if they wish to extend their operating area. A company which has
adopted a Focus strategy may still be involved in Product Development, etc.
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Unlike the Ansoff model, the Porter model at least takes into account market share and profitability in
relation to the nature of the market a company is operating in.
Portfolio Analysis Models

The Ansoff and Porter models can help in deciding which strategy to adopt and are easy models to
use. However, marketers need more than these simple guidelines; they need to be able to analyse
their product offering and measure progress. Because of this various models have been developed
which can be used in this way. The more important are outlined below.
(a) Boston Consultancy Group Matrix (BCG)
The BCG matrix is as well known as Ansoff and is one which you should be fully familiar with for
your examinations. Using the variables of market share and market growth rates, planners can plot
their products/SBUs onto a grid which will then suggest certain strategies that can be used. Because
analysis is undertaken on an individual basis (SBU/product) it means that firms can mix and match
their efforts in order to achieve optimum results at any given time.
High 20
Market Growth
10
Low 0
10x 1x 0.1x
Market share
Figure 3.6: Boston Consultancy Group Matrix
Note the following about the diagram:

! The circles on the grid represent the position of SBUs in one company in accordance to the
growth rate of the market(s) and the share held.
! The size of the circle is proportionate to the percentage of total income produced by that
product/SBU for the actual organisation.
! The location of the circle indicates market growth rate and relative share in relation to the
leading competitor in the field. In Figure 3.6 market share of 0.1 means that the product has
only 10% of the volume of its leading competitor. Market share of 10 means that the product is
leader and has ten times the sales volume of its nearest competitor. It is important to remember
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that the mid-point of the axis diagram represents the point where a product/SBU has equal
share to the leading competitor. Changes in proportionate share, or market growth rates, will
move the position of the circle(s) on the grid.
BCG Classification of Products
Using the BCG means that planners can classify their products/SBUs into four categories according to
their position on the matrix. This classification can also help in understanding the “nature” of the
products/SBUs, i.e. whether they are “cash providers” or “cash users”.
High 20
Stars Question marks
Market Growth
10
Cash cows Dogs
Low 0
10x 1x 0.1x
Market share
! Question Marks (sometimes referred to as Problem Children or Wildcats)

Question Marks are products which have low market share and are in high growth markets.
The product/SBU has not yet reached a dominant position in the market. Although it may be
generating funds, it still requires a lot of investment for development and the company must
decide if they want to keep investing. For example, in Figure 3.7 the company has three
Question Marks. Planners may decide that it would be better to concentrate all efforts on one
of them, in order to make it successful, and keep the others just ticking along until they have
secured the position of the most favourable. The product which is producing a greater
proportion of revenue for the company (the one with the largest circle) may be chosen for
additional effort as it obviously has good earning potential. A greater market share should be
gained as soon as possible. Decisions of this type would be based on a variety of factors
relating to the product(s) and the competitive environment.
! Stars
If Question Marks succeed they become Stars – leaders in high growth markets. Stars are the
“providers of tomorrow” and a company with no Stars should worry. The company depicted in
Figure 3.7 has two Star products – one which has the leading share in its market and one which
has only slightly more share than its leading competitor. Efforts should be made to increase the
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share of the second product in order to secure its future profitability, particularly as the market
has a very high growth rate – this could be where future earnings lie.
This, of course, means investment, which can be a cash drain on the organisation. Even Stars
with high market share may involve investment in promotion or distribution, etc. if the
competition is attacking.
Stars can therefore both produce revenue and use resources – which can mean “breaking even”.
Investment decisions must be based on the future potential of the product and its market.
Companies want to retain the share that Stars hold, but they also want the market to stabilise as
stable markets are much easier to cope with than high growth markets which can mean
difficulties in production and distribution.
In Figure 3.7 the Star with the leading share is moving down the spectrum which indicates that
growth in that market is slowing or stabilising and, providing no share is lost, the Star should
become a Cash Cow.
! Cash Cows
When market growth reaches a stable level (10% is used in our diagrams as an example but this
will vary according to the particular market) Stars become Cash Cows providing they hold a
leading share of the market. If they lose any market share to the competition they will “slip”
into either being a marginal Question Mark or, at very worst, a Dog. Cash Cows produce good
revenue, do not require high investment and often mean that economies of scale can be gained.
The money earned from Cash Cows should be used to invest in other products/SBUs which are
placed in the other classifications on the BCG matrix.
Figure 3.7 shows that the company has only one Cash Cow so is vulnerable. A loss in market
share could mean trouble, even more so if there is no Star to come in and take the place of the
Cash Cow. In this situation a company would have to pump in finance to support its Cash Cow,
thereby deflecting support from the other categories. If the company continued to support other
categories and neglected its Cash Cow, the Cash Cow could eventually become a Dog.
In our example it would be very dangerous if the Cash Cow slipped to being a Dog, as the Star
which could come into the Cash Cow category is not making as much money for the company
as the current Cash Cow. Given these circumstances it is likely that the company would invest
in its current Cash Cow to retain market share.
Sometimes Cash Cows which are losing their share can be turned into Question Marks, which
is preferable to becoming Dogs, but this situation will only really occur if something happens to
revitalise the market – perhaps a new use for a particular product may be found and the market
will begin to grow again.
! Dogs
Dogs have weak market share in low growth or stable markets. These products can often take
up more time than they are worth. They usually produce low profits and often incur losses.
They will always consume cash, even if it is just in the time taken to manage them.
Given the fact that Dogs consume cash many are often dropped by companies, but it is not
always wise to do that immediately as they may still be making money.
In Figure 3.7 you can see that the proportion of the company’s revenue for one of its Dog
products is actually higher than the proportion of revenue gained by one of its Star products. If
the company were to drop the Dog, they would have less cash coming in, which could have
serious repercussions.
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The competition must also be considered, as well as the effects on customers. Dropping a
product from a range can upset buyers who will then look for alternative sources for that
product. The alternative sources may also be able to offer other products which the buyers want
and they may place their future orders with the new suppliers – resulting in the loss of even
more sales overall. Decisions on product deletion must therefore not be taken lightly or without
full investigation.
Dogs that are retained tend to be kept because they are recognised as being a product with
“other” benefits. For example, the customer will have to come back to the company to buy
consumable supplies which are actually highly profitable for the company, or perhaps the
product has such a high image and reputation in the market that the company prefers to
maintain it.
There is also danger in keeping on a Dog if it is proving to be useless as this just wastes
resources that could be better employed elsewhere. Decisions to retain Dogs past their useful
life are usually based on someone’s great belief in, or favour for, that product – they become
“Pets”. For example, the owner of a company may wish to maintain a product which was the
foundation of the company’s current product range despite the fact that the market has changed
and technology has bypassed the original product. Sentimentality, and the power of the owner,
will ensure that the product is retained and money will be wasted.
We should also not overlook the case of products which have just been launched and the market
has not really taken off. Such products could be classified as Dogs but, given more investment,
the market might be stimulated into a faster growth rate and the Dog could actually gain more
share. Sometimes the faith of one manager in a product can turn a company’s portfolio around
completely.
As we noted earlier – product deletion decisions can be risky. They should always be
calculated for effects.
BCG Matrix: Cash Position for Products
We have seen that the various types of products or SBUs each have different characteristics as far as
revenue generated and money for investment are concerned. Figure 3.8 indicates the likely cash
position for products, etc. placed on a BCG matrix, but planners should not be too dogmatic about this
as there will always be exceptions to the rule.
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High 20
Revenue + + + Revenue + +
Investment – – – Investment – – –
Market Growth
0 –
10
Cash cows Dogs
Revenue + + + Revenue +
Investment – Investment –
+ + 0
Low 0
10x 1x 0.1x
Market share
Portfolio Strategies
After positioning all products (SBUs) on the BCG matrix, the company must decide if it has a
balanced portfolio. (Too many of any one type means it is unbalanced.) It then must allocate
objectives, strategies, etc. to each of the SBUs. Strategies suggested by the BCG matrix can be one of
four:
! Build – (for Question Marks) to increase share, even if it means giving up short-term profit.
! Hold – (for strong Cash Cows) to preserve share.
! Harvest – (for weak Cash Cows where the future is dim or for Question Marks and Dogs) to
increase short-term cash flow regardless of long-term effects.
! Divest – (Dogs and Question Marks draining resources) to sell off, liquidate or delete an SBU
or a product.
Changes in Product/SBU Position
The BCG matrix shown in Figure 3.7 indicates the life of an SBU which moves from Question Marks
to Stars to Cash Cows to Dogs. The solid arrow shows the ideal route for any product, or SBU, as far
as a company is concerned, with the dotted line showing the possible route a Cash Cow can take.
Because the BCG plots the current position of an SBU, or product, it can be used periodically to
assess any changes in position. It can also be used to project future positions, either likely or
preferred. If we keep to our original example of products on the BCG matrix, Figure 3.9 shows how
positions can change for four of them. Two are shown as “planned” and two as “forecast”. For
“planned” positions, strategists will be taking the initiative in one way or another; for “forecast”
positions, defensive or remedial action may be necessary. In either case it will be the marketing mix
which is used to achieve the desired objectives.
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High 20
Stars Question marks Planned
(1) position
(2)
(1) and (2)
Forecast
Market Growth
position
(3) (3) and (4)
10
Cash cows Dogs
(4)
Low 0
10x 1x 0.1x
Market share
Conclusion
The BCG model has the advantage over the Ansoff one in that it considers share and competitive
positioning. It is also relatively easy to understand because of its visual nature. However it, too, as
with most other models, has its drawbacks and you should always remember the shortcomings.
The main problems with this model are:
! It is difficult to plot information accurately. The sizes of circles, unless done by computer
modelling, can only ever be estimated.
! It is not fair to expect all SBUs to have the same rate of return or market share, etc. The whole
point of this method is to assess the position of each product, or SBU, and different markets
will have different growth rates. It is therefore really better to plot only one product or SBU
onto a BCG matrix.
! If the model is used as a predictor of cash usage, valuable products may be left to stagnate and
die owing to lack of investment.
! The model only uses market share and market growth as variables. Remember that companies
with a small market share can be highly profitable.
! The model ignores environmental factors which may have an impact on performance.
! Positioning can encourage planners to develop bad habits, e.g. not allowing enough funds to
maintain the Cash Cows so that they grow weak. Planners can also sometimes leave them too
many funds and fail to invest in other categories.
General Electric Business Screen (GE)

The GE matrix is an improvement on the models we have looked at so far in that it covers more
qualitative aspects. It allows for judgement on the part of the planner and takes into account not only
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the nature of the market, but also the capabilities of the company. SBUs are assessed in terms of the
Attractiveness of the Industry and the Business Strengths of the company.
Typical aspects which are taken into account are:
Industry Attractiveness Business Strength(s)
Market size (numbers/value) Differential advantages

Market diversity Share (number/value)
Growth rate (total/segment) Sales (volume/growth)
Profitability (total/unit) Breadth of product line
Competitors Mix effectiveness
Social/legal environment Innovativeness
Planners, with their knowledge of the market and the company itself, can decide how an SBU, or a
product, can be assessed in terms of the market attractiveness and the company’s strength and can
then place that product, or SBU, on the matrix. Assessment can be based on “High”, “Medium” or
“Low” or, more likely, on a basis of “weighting” where the planner will give a score to each of the
factors under consideration and then the total is taken as the point at which the SBU is placed on the
grid.
Share held by company
Figure 3.10: General Electric Business Matrix
Although this model uses circles, similar to the BCG model, it is different in that the circles represent
the overall market sales (BCG circles represent the income for the company only). The share held
by the company is then shown as a proportion of the circle.
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Looking at Figure 3.10 we can see the characteristics of various products in a company’s portfolio.
The company has major shares in three markets:
(i) A highly attractive market, with a large overall market potential revenue; the company has high
business strengths. The company is in a very strong position with this SBU.
(ii) A market which is viewed as being mid position in attractiveness but the company has high
business strengths. The overall market income is not major, in terms of the other SBUs, but
activity could generate further interest which could increase the attractiveness of the market.
Given the share held, this SBU could potentially be a future high earner for the company.
(iii) A market which is not seen as being highly attractive coupled with the fact that the company
does not have any high degree of business strength in that field. The fact that the company has
such a major share of the overall market may indicate that the competition have withdrawn
because of costs incurred, or some other reason, and the company has acquired share by default
rather than activity. It is unusual to find a high overall market income in such a market but it
can happen, e.g. the potential of selling specialist tooling equipment to manufacturers. The
market may be lucrative in terms of potential earnings but not attractive in terms of size – hence
the classification as a “medium – attractive market”. It really does depend on what planners
consider to be important when assessing market attractiveness. In the circumstances shown by
the example grid, planners may decide to develop their business strengths in order to capitalise
on the overall potential market and to keep the competition out of the field (providing the
forecasts for the market show stability or growth). The placing of the SBU on the grid would
then change in accordance with its new “classification”.
The other products on the grid in Figure 3.10 show a variation in the potential of the market(s), the
share(s) held and business strengths.
Strategic Options
Strategic options for SBUs placed on the GE matrix cover three types of marketing management
activity. Each strategy covers three of the nine cells as shown in Figure 3.11.
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Figure 3.11: General Electric Matrix Strategies
! Investment for Growth

This is a strategy for use with strong products in markets with high or medium attractiveness
(similar to BCG Stars), where the company also has high or medium business strengths. Full
resources should be used: innovations, product-line extensions, product/brand advertising,
intensive distribution, good price margins, etc. Profitability expectations would be high.
! Manage Selectively for Earnings
Strong position in weak market (like BCG Cash Cow); company uses marketing to retain
loyalty.
Moderate position in moderate market; company can identify underserved segments and invest
on a selective basis.
Weak position in attractive market (like BCG Question Mark); company must decide whether
to increase investment, concentrate on the niche(s), acquire another business or trim off
activities.
! Harvest/Divest
Here the SBUs are similar to BCG Dogs. The strategy can be to minimise marketing activities
and concentrate on selected products rather than the whole range. They can divest products
from the range, closing down or deleting an SBU which is seen as non-productive or to have
little future. Profits are “harvested” because investments are minimal.
Gap Analysis
The idea of gap analysis links up with portfolio analysis, which asks if you are offering the right
products to the specific market segment. Markets change and it is usually necessary to change with
them. You are familiar with the example of the home music industry, which has gone from records to
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tapes and then to compact discs in a fairly short time. If you run a company that is still making
records you had better do a bit of portfolio analysis – there is going to be a big gap to fill!
! New Product Development
Gap analysis and product portfolio analysis can show the need for development of new
products, so the strategy might be to go in for continuous new product development. This has
some attractions – there are many people who would much rather work on new products than
on the old-established models. There is an excitement about new ideas and making them work.
However, there can be drawbacks too, and these are usually expensive. The electronics
company Philips had a difficult time with their interactive CD player, which got off to a very
slow start. Some years ago two types of video recorders/players fought a battle for market
supremacy, and one won. (Incidentally, there seems to have been some rebellion among
consumers against the increasing complication of video recorders, and one enterprising
company has brought out a machine with simpler controls. Maybe that is the way forward?
That manufacturer must have had a strategy of taking note of complaints and then modifying
the product to suit the demands of the consumers.)
In the earlier years of computing as we know it today, IBM and Apple went their different
ways, but someone has now made it possible for an Apple computer to read IBM-compatible
programs. A lot of effort and potential profit was dissipated on the way, and a strategy of
cooperation at the start would have been better than straight rivalry.
! New Market Development
You may not need to change the product – there may be people out there who would be glad to
have your “old-fashioned” products if these would be an improvement on their present
situation. Wind-powered water pumps died out in Britain when relatively cheap electricity
came along, but the makers of the pumps found new markets in parts of Africa where electricity
was not available.
Similar examples can be found in many industries and the extra costs of developing a new
market can often be offset by the fact that there are no product development costs to pay.
However, you must check that the market segment which looks good will really take your
products. There are instances of whole market segments that want to skip a generation of
development and go right up-to-date in one step instead of three or four.
It is almost inevitable that the new market segment, if you can find one, will be overseas in a
less-developed country, so there may be a need to change a lot of the promotional activities and
maybe adapt the product slightly.
If you are very lucky, consumers in existing markets may find new uses for your existing
products and that could improve sales so much that the profit gap closes. It does happen
sometimes.
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89
Study Unit 4
Marketing Plans
Contents Page
A. Development of the Marketing Plan 91

Purpose of the Marketing Plan 91
Benefits of Marketing Planning 91
Contents of the Marketing Plan 92
B. Nature of a Marketing Plan 93

Form and Content 93
Method of Preparation 95
SWOT Analysis 96
Financial Projections 97
Marketing Strategies and Tactics 98
C. Implementing the Marketing Plan 98

Barriers to Implementation 99
Successful Implementation 101
The Value Chain 102
Relationship Marketing 103
Internal Marketing 104
Instilling a Marketing Ethos 107
D. Control and Evaluation 108

The Control Process 108
Setting Objectives 109
Measuring Performance 109
Investigating Deviations from Objectives 110
Corrective Action 110
E. Evaluating Sales Performance 111

Need to Evaluate 111
Methods of Evaluating Sales Performance 111
(Continued over)
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90 Marketing Plans
F. Evaluating Marketing Performance 112

Marketing Cost Analysis 113
Market Share Analysis 113
Awareness Assessment 114
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Marketing Plans 91
A. DEVELOPMENT OF THE MARKETING PLAN

The growth of competition and pressures on finance over recent years have resulted in a much greater
emphasis on formal planning for every area of business, not the least of which is marketing.
These formal plans tend to be for the longer term and take in the general direction which the company
and its various sections are heading towards. More detailed plans are developed to cover the shorter
term and the activities which are necessary on a day-to-day basis. The annual marketing plan is one
of the latter type. It gives details of responsibilities and programming of schedules, etc. which, when
all put together in one document, give cohesion to the marketing effort.
Purpose of the Marketing Plan

The marketing plan can be described as being both the “output” and the “input” of the marketing
effort.
It is the “output” because it is the culmination of all the planning and analysis which is undertaken by
the marketers, and it is the “input” because it gives guidance and direction for all the activities which
are needed in the marketing function.
Accepting this viewpoint, we can see how the main purpose of the plan is to integrate marketing
activities – planning, implementation, measurement and control. (This is, of course, underpinned by
the requirement to achieve the corporate objectives.) If integration of activities does not take place,
the plan is unlikely to succeed.
Many marketing managers have difficulty in accepting the word “integration” because they think it
takes away some of the specific planning aspects required for each section of the marketing function.
They prefer to do piecemeal plans and then try to match them together – all of which can waste a lot
of time and effort. This approach to planning is not to be recommended.
It is far better to plan overall and then to expand on the various parts of the plan which need fine-
tuning for specialist actions. At the very least, this will mean that the main sections of the plan are all
in line with each other and objectives are more likely to be met. The main benefit of planning overall
is that everyone knows what is happening and what is being aimed for – it helps to remove the risk of
“mavericks” who try to work outside the agreed parameters, e.g. the advertising manager who wants
to advertise in a prestigious pan-European publication every month, when the main target market for
the next six months is in Italy only.
Benefits of Marketing Planning

We have already discussed the benefits of planning in general but, more specifically, some of the
important benefits of marketing planning are that:
! Greater understanding of customers will be achieved
! Decision-making will be improved
! Motivation levels will be higher because of involvement
! Less risk is attached to actions
! Diverse activities can be coordinated
! There is less likelihood of the need for crisis management
! Measurement and control will be improved
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92 Marketing Plans
! Corrective actions can be taken very quickly

You can see that the list I have given is very similar to a list of benefits to be gained from any type of
planning – common sense should tell you that once you begin to think in terms of what is to be gained
from planning you do not have to learn “lists of benefits” by rote – you only need to understand to be
able to discuss. Always think in terms of your own experience and what have been, or are, good and
bad examples of planning in the companies you have worked for. It is always better to speak from
experience.
Contents of the Marketing Plan

You could argue that the contents of the marketing plan are: Objectives, Strategies and Tactics – the
same as any other plan. But simply saying that does not really give justice to what the plan covers.
A marketing plan is much more complex and contains a range of “sub” or “mini” plans which all join
together to form the whole document. These subplans, in their own right, may well be very complex
if the marketing function is serving a huge organisation. We have to accept that the complexity and
depth of any plan will be determined by the size of the company and the enormity, or otherwise, of the
task being undertaken. The marketing plan is no exception. Figures 4.1 and 4.2 show how marketing
plans can change as an organisation becomes more complex.
A company, with 150 employees, operating from a single base
and dealing in home markets only.
MARKETING PLAN
PRODUCT PLAN SYSTEMS PLAN PROMOTION PLAN

covers covers covers
Research & Pricing Advertising
Development Distribution Literature
Product launches Salesforce Public relations
Product deletions Order processing Direct mail
Figure 4.1
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Marketing Plans 93
A company with 3,000 employees operating from US headquarters

with subsidiaries in Europe and Asia.
MARKETING PLAN
PRODUCT PRICE SALES

DISTRIBUTION
R&D CONTROL ADMINISTRATION
USA Europe Asia

(as for USA)
Promotion Sales
Literature Advertising Direct Indirect
Business Consumer Printed Broadcast
Figure 4.2
You can see that as the organisation becomes more complex and employs more people, more plans are
needed but they all relate back to the original marketing plan. What we have is a hierarchy of plans
for marketing in much the same way as we have a hierarchy of plans for the organisation – but now
we are dealing only with marketing activities which, in turn, are related to the marketing mix
elements.
B. NATURE OF A MARKETING PLAN
Form and Content

There is no ready-made standard marketing plan, because every plan may be different as it refers to
the situation in one company at one time. Even plans for the same company can differ greatly from
year to year as markets change.
Marketing plans are often quite detailed documents and a fully comprehensive plan would include the
following elements.
! A management summary, for those who do not need to see the full text.
! Mission or business definition statement.
! Product and market background, with market shares and market size, trends, outside influences.
! SWOT analysis – a statement of the perceived strengths and weaknesses of the company, and
the opportunities and threats that are seen to exist.
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94 Marketing Plans
! Marketing objectives, properly quantified over a time-scale (which is usually, but not always, a
year).
! Marketing strategy, including target markets, product, pricing, distribution and promotion
strategies, and possibly some indication of the tactics to be used.
! Financial projections and controls, including sales and profit forecasts, budgetary control
procedures and the main budget levels.
! Operational considerations, personnel and internal communications and marketing information
system.
! Controls and contingency plans.
! Tentative ideas for next year.
! Appendices showing the supporting information for the detailed items in the plan, including
any market research results.
Various marketing authors present slightly different ideas on just what should be included in a
marketing plan.
In Marketing Management (8th edition) Kotler suggests that the strategic marketing plan should
contain the following:
! An executive summary which gives a brief overview of what the plan contains.
This is not always given as it is really a matter of practice in an organisation.
! A summary of the current position in respect of products, pricing, competition, etc.
This section may, or may not, be merged into the executive summary.
! Opportunities and issue analysis.
MAJOR aspects only – the SWOT analysis; this may also be given as part of the executive
summary.
! Objectives.
For each section of the plan (volume, share, profit, etc.).
! Strategy.
The broad marketing approach that will be used.
! Action programmes.
What will be done, who will do it, when it will be done, and how much it will cost.
! Projected profit and loss statement.
Forecasts of the expected outcomes.
! Controls.
The way the plan will be monitored and measured.
Malcolm McDonald (1991, Journal of Marketing Management) suggested that the marketing plan
should contain:
! Mission statement
! Financial summary
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Marketing Plans 95
! Market overview
! SWOT analysis
! Assumptions
! Marketing objectives and strategies
! Programmes (with forecasts and budgets)
If you consider the various suggestions here, you will soon realise that they are more or less saying
the same thing. Basically, then, the marketing plan says:
! Where we are now
! Where we want to be
! How we could get there
! Which way is best
! How to know when we have arrived
This is all very well, but does it help to structure the plan? The answer is yes, it does, because,
depending on what you think should be included in your plan, you can simply use those headings to
form your structure. There are, though, no specific rules on how a plan should be structured
Remember, plans are statements of intent and the presentation of a plan can be done in any way that
suits the presenter and is appropriate to the reader. Plans will include some, or all, of the following:
written statements; models showing projections; tables of data, etc.
If you refer back to Figures 4.1 and 4.2 which show the hierarchy of marketing plans you can see that
the common feature in marketing plans will always be the marketing mix. As long as you make sure
that you cover all of the relevant mix elements, you can present plans:
A useful system is to take, say, a four-year view of the business every year. The annual marketing
plan will have appendices projecting forward the activities of each main department, and forecasts of
sales for each product group, for four years. It will be accepted that years 2, 3 and 4 ahead will not be
very accurate, but this system does at least set out the pattern.
Method of Preparation
There are two main approaches to planning generally:
! Top-down is the type of planning in which top management sets the objectives and plans for
the lower levels. This is based on the military example, where the senior officers tell the lower
ranks what to do. It fits in with Douglas McGregor’s Theory X view of people – that they do
not like work and responsibility so they have to be directed. However, what works in a military
situation is not necessarily the best way to run a civilian company.
! Bottom-up is the type of planning in which each department puts forward what they think is
the best they can do, then top management sorts out what the whole company can achieve.
There may be differences in the level of achievement that each manager thinks his or her
department is capable of, and there may be no synchronisation of results, so there could be a lot
of wasted capability.
Neither of these methods of planning quite matches the needs of a marketing plan, and the best plans
are usually based on a blend of the two methods. As a result, marketing plans are often far from
perfect when the company starts to use them: they get better with experience and practice.
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96 Marketing Plans
Top management will set objectives based on the profit figures which they think will satisfy the
shareholders, and the departmental managers will suggest what they can achieve if they continue as at
present, or have this or that new machinery.
The planning process is usually one of iteration – ideas bounce up and down the management
structure until all levels are satisfied that they have a workable, achievable marketing plan.
There is potential for considerable conflict between managers of different functions. For example:
! The marketing manager may say he can only achieve a specific level of profit if prices can be
raised, and that would be possible only if the products were of better quality.
! The production manager may agree, if only he could get some better machines in and get rid of
the old stuff.
! The finance manager may say he could only accept that idea if more profit was coming in, or
some costs could be cut.
And so on ... Few managers will suggest that their department could be cut down, and it needs a
strong chief executive to choose a course of action that all managers will accept and support
wholeheartedly.
We now need to look in some detail at the components of a typical marketing plan, some of which
will be familiar to you from previous study units.
SWOT Analysis
SWOT = Strengths, Weaknesses, Opportunities and Threats, and every company has its fair share of
all four components. It is not easy for a manager in a company to sort out just what are the strengths
and weaknesses of the company, and it is important to allow for the fact that the perception of the
customers is what really matters. A manager may see a feature of the company as a strength, but if the
customers do not see that, the feature may be quite irrelevant. Make sure your SWOT analysis takes
into account the views of the customers.
! Strengths are what the company does better than other companies; you could rate quality of
staff as a major strength. Location could be a strength, too, and companies may gain by
moving nearer to their major markets. A strength not to be missed is the reputation of the
company – goodwill may not appear on the balance sheet but it does show in customer
relations. Other strengths may include design capabilities, money in the bank, production
capabilities and, of course, marketing skills.
! Weaknesses are more difficult to define, because they could be seen as criticisms of the
managers of the departments concerned. You must have a clear idea of what you are comparing
the company with. It may be weak compared with competitor X but strong compared with
competitor Y. It is usually only possible to know about the products, not the manufacturing
facilities of your competitors, but your MkIS may be able to tell you enough to enable you to
get some ideas together.
It would be constructive to regard identified weaknesses as opportunities for investment,
instead of criticisms of the people involved.
! Opportunities include those which can be aimed at now and those which can be seen “on the
horizon”. You will realise that all the work that may be done in a marketing audit could
contribute to the marketing plan.
! Threats may come in visible form – competition, new products and processes, and in less
obvious forms such as action by governments (local and national) and the European Union.
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You will find it useful to plot a SWOT analysis on one page, like this:
Figure 4.3
Financial Projections
The allocation of resources can be a difficult area: departmental managers will all want to show they
could do better, and that nearly always means spending more money on new machinery, more people,
better buildings and so on. There is such a logical need for all these demands that there can be real
jealousy if one demand is refused, yet the top management must choose a course of action and get the
agreement of the managers involved, because plans that are imposed instead of agreed will not work
well.
The job of the chief executive is to work out which course of action will give the company the best
chance of achieving the objectives which he/she thinks the company must aim for. Eventually, this is
achieved by judgment, because there is nothing in planning that is anything like a guarantee.
With so much investigation into the company’s activities, it is inevitable that control of working funds
will be involved, and budgetary control is, therefore, a key aspect of the planning process. Every
activity in marketing, except the selling activity, takes money out of the company, and that needs
careful control.
Briefly, budgetary control is a system in which an amount of money is allocated to each department at
the start of the working year, and that has to be used to run the department for the whole year. There
will be fluctuations in the demand for money, and there will be a need to check quite often that the
budgeted amount for each period and for the year has not been exceeded.
This control system works in well with the marketing plan, because the plan should include forecasts
of sales for each month, and that will show when the money will come into the company. On a
company-wide scale, the finance manager should be able to see when there will be a shortage of
money that will involve borrowing, or other ways to keep going.
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Marketing Strategies and Tactics

Just as every other department comes under scrutiny in the marketing plan, so the marketing
department’s plans will be written in detail. The plan will show planned profit targets for each
product line, possibly phased over the year, in some detail. How the targets will be achieved is
probably the most important section of the plan, because the company stands to lose a lot if the ideas
do not work.
It should be possible to show the marketing strategy, describing the targets such as market share
increase, market penetration, market expansion and new markets entered, if that is appropriate.
Market penetration is a matter of increasing your share of an existing market, whereas market
expansion is persuading more people to use the products to create a bigger market. If you maintain
your share of a bigger market you will increase sales just as you would if you penetrated the present-
size market more deeply.
The marketing strategy for a big company may leave a lot of the tactics to the individual brand or
product managers, and their ideas may or may not be included in the appendices to the marketing
plan.
A brand manager may have seen scope for increasing his or her market share by making some product
more attractive, and then telling customers of the change by a series of advertising campaigns. The
marketing manager must ensure those tactics fit in with the marketing activities of other brand
managers, and that production can cope with the increased work, or subcontract it.
There are other marketing tools available as well as advertisements, of course, and the appropriate
mix of marketing tools will have to be considered when the marketing plan is put together. Every
activity must benefit the whole company as well as the specific brand or product. This is the purpose
of planning – to make sure all the activities of the company work together to achieve the planned
objectives.
C. IMPLEMENTING THE MARKETING PLAN

I have, on several occasions, referred to the importance of implementing plans correctly. No matter
how good the planning is, if plans are not accepted and followed they will be of limited, if any, use to
an organisation.
Implementing a plan simply means setting it in motion. It means giving people instructions and
letting them get on with it. It should not mean that one person does everything. A plan for a
marketing department encompasses the activities of all involved people. These are the people who
carry out the implementation – not simply the planner!
The manager is the person who sets it in motion and then watches to see if it is working.
If all the managers who have to implement the marketing plan do so with enthusiasm there should be
few problems, but managers are human and it is always possible that some problems might arise. In
theory, just as the finance manager will have budgeted for the allocation of money every month, so the
marketing manager will be looking at sales figures to see if the month’s quota has been achieved.
Other managers will be comparing each department’s achievements against the budgeted figures and
against other departments.
New products will require the R and D department to provide ideas and models, and that will be
mentioned in the plan, but not in detail because that will be part of the R and D department’s annual
plan. They might also need new manufacturing processes and different materials as well as different
packaging. The new products will have to be advertised and promoted – see again the need for
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synchronisation. The company’s reputation will suffer if the new products are advertised and sold
before they are ready.
I have seen a whole range of new products, brilliant in concept and superbly made, fail to sell because
no one bothered to set up a sales force, and the existing salesforce were not encouraged to sell them.
This was a case of extreme jealousy among managers who saw a newcomer getting more and more
money allocated, whilst their budgets were being cut. A stronger chief executive would have seen the
problem and done something about it.
Above all it is important to realise that the market is not static – it is constantly changing and the
marketing plan must take note of the changes. All the ideas mentioned on marketing audits must be
applied and the reactions of customers, wholesalers, retailers and competitors must be analysed.
The benefits of such activity can be seen in the example quoted by Sally Dibb (in “The Marketing
Casebook”) of JCB, which grew from a small lock-up garage in rural Staffordshire to become the
dominating company in the world market for middle-sized earth-moving machines. Sally writes:
“Planning and analysis have enabled JCB’s marketers to better understand their
marketplace. The company has invested heavily in researching its core customer groups
throughout Europe, utilising well the strengths of its subsidiaries’ personnel in the field.
Extensive evaluations of their competitors’ strengths and weaknesses, their competitive
positions and likely strategies have led JCB to pre-empt successfully competitors’ thrusts
and to establish new product launches in target markets very quickly.”
It is essential, in all this planning, to keep in mind the impressions made on the customers by any
changes. What looks good on your plan might be disastrous to a customer, yet if he is told of the
plans before they are fully implemented, he may be able to adapt to fit in with your new schemes. If
not, you will lose him to a competitor.
When I was a sales engineer for an engineering company, we did a major study every year of the
important customers for each product. If a product had a falling demand for a series of three years, it
was considered for deletion from the range. However, we always had the chance to talk to our main
customers before a decision was made, and quite often we found that customers were willing to
predict how long they would need that product before their own development plans made their
machines obsolete. On some occasions we found the customer could estimate their three-year needs
and our company would supply them all at once, before ending production of the product. Our
customers appreciated the consultation and we seldom lost out by this tactic.
The same applies to other elements of the environment with which the company must cooperate, such
as the suppliers of materials and services like transportation. Friendly discussion should not go so far
as revealing information that would be useful to a competitor, of course, but there is some merit in
treating your environmental partners with consideration.
Barriers to Implementation
Reasons for poor implementation will be caused by environmental barriers either within, or outside,
the organisation. At various times during this course we have considered these environmental factors
to one degree or another. But, to summarise, barriers can be caused by a number of different aspects:
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Internal External
Management culture Political intervention

Leadership skills Competition
Organisational structure Distributors
Resources Suppliers
Attitude to planning Customers
Measurement procedures Economic conditions
Communications Changes in technology
We should perhaps recognise that while external factors are likely to result in changes to the
marketing plan, it is the internal factors which bring most pressure to bear upon successful
implementation.
No-one can doubt that the support of top management and the involvement of staff in the planning
process are the main keys to successful implementation of any plan. Successful implementation of
the plan will vary in accordance with how the two variables are balanced, as you can see in the model
in Figure 4.4.
Senior Management Support
High Low
Successful Staff will struggle

High implementation implementation will
Staff Involvement
will occur. be impeded.
Plan resisted in all

Staff are likely to
ways.
resist the plan.
Low Implementation
Implementation
stage unlikely to
will be impeded.
succeed.
Figure 4.4: Implementation Variables
Gilligan and Fifield (1996) refer to the same variables of senior management support and staff
involvement as being necessary for good implementation of the plan. They have used the variables to
produce a matrix which gives an indication of the potential outcomes for a company trying to achieve
customer focus – which we know is essential in any marketing organisation.
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Senior Management Customer Focus

High Low
High Anarchy Collaboration

Staff Involvement
Compromise
Low Apathy Bureaucracy
Figure 4.5: Achieving Customer Focus
Successful Implementation
No matter which terminology we use to identify key factors, or how many models we reproduce, we
are really referring to organisational integration, synergy or any other name you wish to apply, i.e.
everyone working together and everyone being linked.
McKinsey’s Seven Ss model (Figure 4.6) is a good way of representing the factors which are
essential in marketing and which can affect the successful implementation of plans. This shows the
links which, when present in a balanced format, will allow a marketing plan to be developed and will
aid in its implementation.
You could, if you choose to, also use this model as a representation of where barriers to the
implementation might come from.
Structure
Strategy Systems
Shared
values
Skills Style
Staff
Figure 4.6: McKinsey’s Seven Ss Framework
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The Value Chain

Michael Porter, who has produced so many marketing models and concepts, has given us yet another
concept which we can apply here. He suggested that the overall activities of the company are
performed to:
“ .... design, produce, market, deliver and support its product...”.
He identified key areas which create value and cost in any business. Four of them are seen as being
“support” – the company’s management structure, personnel management, purchasing, and
technology. The other five are seen as being “primary” activities – incoming materials, production,
despatch, marketing and service. (Note that we are using the more common English names for these
activities whereas Porter used the American ones. Porter’s descriptions are shown in the model given
in Figure 4.7.)
Figure 4.7: Michael Porter’s Value Chain
Porter maintained that it was not only important for each department to do their own work effectively
and efficiently, but that success also depended on how well the departments reacted to and related
with each other. He claims that if departments are only concerned with their own activities delays
will occur and customers will not be satisfied.
This is another way of saying:
! Synergy is required – the whole becomes greater than the sum of the individual parts.
! That the marketing concept must apply – organisational integration, customer satisfaction
and mutually profitable exchange.
All we are doing is saying the same thing in different ways. Each part of an organisation can add
something to the activity of satisfying the customer and they must work together or they will fail.
United we stand, divided we fall!
It is only by having good systems and processes that this will work.
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The addition of these soft elements to the mix and the acceptance of the value chain concept has led to
development of both relationship and internal marketing.
Relationship Marketing
On several occasions throughout this course I have referred to the importance of building and
maintaining relationships in marketing. You can see that no company can be completely independent
and stand alone; every organisation obtains supplies from somewhere and provides something to
someone.
This means that there is a reliance chain linking organisations into multiple relationships. If the
relationships are transient they may never need to be made secure and strong, e.g. when you buy a
souvenir of your holiday you are unlikely to repeat that purchase so the seller has no need to develop
you as a long-term customer.
However, if the relationship involves repetitive contacts it needs to be worked at. Trust must be built
up and each party must feel secure in the knowledge that they can rely on the other. Although this
works at every level in both consumer and industrial markets, it is really between business
organisations that relationship marketing is seen as being valuable.
In pure marketing terms the value of a customer over a life period is difficult to calculate, but the
value financially can be estimated. If a customer buys on average twice a year and spends £50,000
each time – it means approximately £1m in ten years from that one customer alone. If the customer is
satisfied with every transaction, they could buy more, or more often, and it could mean even more
money. The financial value of a customer will vary with the nature of the product and its value, but
long term a customer is valuable and they should be kept satisfied.
Marketing companies have always tried to take care of their customers but now they are also likely to
be getting involved in the customer’s planning activities. It makes sense. If a company knows that a
customer is intending to have a special promotion, or to run a special production batch, they can plan
their own activities to match the customer’s time and material needs. Likewise, if a customer gets to
know that a supplier will have a certain product available at certain times, they can plan their
activities to match. So, by each party talking to the other, plans become interlinked and a degree of
interdependency is created.
The very fact that each party is depending on the other means that the relationship becomes stronger
and harder to break. This, in turn, means that there is less likelihood of losing a customer to the
competition, or less possibility that another customer will be given preferential treatment over you.
It is not uncommon for joint planning meetings to take place with several organisations being
involved. Long-term plans are made which enable each organisation to schedule activities and save
costs by reducing risk.
The benefits of relationships can be immense. For instance, one example which has been quoted by
Kotler and other authors is the relationships linking Levi Strauss, the jeans manufacturer, to its
suppliers and customers, using EDI. At the end of each trading day Sears, one large company which
retails the Strauss jeans, sends in details of which styles, sizes and colours of the jeans they have sold.
This triggers off a replacement order from Levi. Their picking of the replacement order triggers off
an order from Milliken, who supply the material for the manufacturing. Milliken, in turn, reorders
fibre from Du Pont. Not only is this a good demonstration of the uses for EDI, but it also serves to
show how major companies can work together to keep their systems operating and successful.
Even though initially the efforts in forming relationships may be done for security reasons, eventually
other benefits will be seen. Suppliers and buyers will pass on information they have heard about new
developments which are more suitable for a product, or cost less to buy, etc. Warnings about
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competitor activity will be passed on and taken note of. Anything like this can be invaluable in
carrying on day-to-day business.
Relationship marketing can only take place after a strategic decision has been made. There may be
good solid relationships between people at lower levels in two different organisations, but to involve a
company in the activities of another is a serious step which will be taken only after full deliberation.
How far to become involved is another aspect which needs to be decided. Occasionally there may be
danger in locking yourself in to one supplier or too close to a customer who is not on a sound
financial footing.
Establishing a Programme of Relationship Marketing
Recognising the need for a relationship marketing programme is not sufficient in itself; there must be
logical system or the whole process could fail dismally. Steps to achieve good business relationships
are:
! Identify the key customers, suppliers, etc. who are likely to produce beneficial relationships.
! Present your proposals to the identified parties.
! Each party to select “managers” who will be responsible for monitoring communications and
be recognised contact points for each other.
! Set up a regular programme of meetings, forums, etc.
! Each party must understand the needs and problems of the other, and be prepared to adapt, and
make allowances for each other.
I may be stating the obvious here, but it is essential that relationship marketing is carried out carefully
– companies should commit themselves to the concept but be cautious. Just as relationships between
individuals will grow if they are nurtured so, too, will relationships in marketing. The underlying
principle of relationship marketing is loyalty which comes from trust. Trust is gained only when
reliability is assured. Reliance takes time to build.
The implications of relationship marketing are very simple – time and effort need to be spent in
forming, building and maintaining the relationships, but perhaps the biggest implication of all is that it
may involve a change of culture within the organisations concerned. This is where internal marketing
comes into being.
Internal Marketing
Imagine that you are a non-technically-minded customer who is thinking of buying a new camcorder
camera.
! First of all you need literature to help you make your choice. If one company has produced
literature with the customer in mind and another has produced literature with only technicians
in mind, which literature is likely to influence you the most?
! Next you may need to go to an outlet where you can look at the products, ask questions and
perhaps buy. If one outlet has pleasant, helpful and knowledgeable staff and another has
untrained staff who are dismissive of your problems, where are you likely to buy?
! If your friends and family tell you that one company never delivers on time but another does,
where are you likely to place your order?
! Likewise, if your friends and family tell you that one company is very good for after-sales
problems and another isn’t, which company will you have more confidence in?
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And so it goes on. You will only gain satisfaction if your needs as a customer are understood and
catered for.
From the above example you can see that at each and every stage that a customer comes into contact
with a company, there is a potential danger zone. Only by making sure that internal staff recognise
the dangers and understand how their own efforts can help avoid the problems will true customer
satisfaction be gained.
Importance of Internal Marketing
Most companies in the world readily accept the idea that they are dealing with “the market”. What
they really mean is that they are dealing with external factors such as customers, suppliers,
distributors, competitors and other environmental aspects. Many often fail to recognise the
importance of another, equally important, market, i.e. their own “internal market”.
The internal market of an organisation consists of every employee from the chairman of the board to
the maintenance personnel who change the light fittings. Although some members of the company’s
personnel may be more “visible” to the buying customers, every employee in his or her own way is
important in the process of satisfying the customer.
Therefore, it follows that if the company is to succeed in its search for giving customer satisfaction, it
must give due consideration to these internal people, to understanding their needs, their training and
their motivation. This can only be done by having effective processes of internal marketing.
Suppose, for example, that a marketing department decides to have a promotional push on certain
products by giving a price reduction. They go ahead and advertise without giving advance warning of
the promotion to internal personnel. What is likely to happen is that telephone staff will give
conflicting information to callers, showroom staff may well dispute the fact that there is a price
reduction, the production department will be unable to cope with increased demand, distribution may
have vehicles off the road for servicing and be unable to meet deliveries, etc. The marketing
department simply failed to recognise the needs of the internal market, i.e. information and time to be
prepared.
What a difference there would have been if everyone had known about the “plan”. Activities could
have been co-ordinated and not only would a more professional image have been projected by
company personnel, but the personnel themselves would have felt more involved and would have had
more job satisfaction.
This could be described as the “core intention” of internal marketing – to keep everyone informed of
the “plans” within the company, so that everyone knows what is going on and what is being aimed for.
Underlying this, of course, is the commitment to customer satisfaction which the company is trying to
achieve.
Establishing a Programme of Internal Marketing
Kotler has described internal marketing as:
“The task of successfully hiring, training and motivating able employees who want to serve the
customers well...”
If we take Kotler’s definition in stages, we can see how an internal marketing programme can be
implemented.
! Successful Hiring
Careful recruitment of people who are capable of doing a job is vital. This means clear job
descriptions and good interviewing on the part of managers. If an interviewer is not absolutely
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clear on the “right” kind of person for a job, there could be problems in store. The “right”
person may be someone who, with training, could be ideal. The main requirement is that he or
she will fit with the ethos of the company and recognise the importance of customer
satisfaction.
! Successful Training
A programme needs to be set up whereby ongoing training and awareness is established within
the organisation. Accepting that training for internal marketing is to create awareness of the
need for customer satisfaction, and the importance of following the marketing concept, this
training is often led by the marketing department.
The training may take the form of meetings within various sectors, or workshops on certain
issues, e.g. new products being developed, new objectives being set.
Awareness is achieved by keeping everyone informed of what is going on. This can be done by
notices, newsletters, e-mail, etc. Any form of internal communication can be used. The point is
that it is really the marketing concept and plan which is being “sold” to the internal customers.
Convincing the workforce of the importance of customer satisfaction is one of the first steps in
achieving it.
! Successful Motivation
Motivation is often linked with money, and it certainly helps in many cases. If staff are given
incentives for their efforts, they will respond accordingly and try harder to achieve their targets.
This type of incentive can be a bonus or commission and can be based on any aspect of the job
that the company chooses. However, money is not the only type of motivation that can be used
and, in some cases, can actually cause problems, e.g. the salesperson who is more interested in
his or her commission than actually satisfying customer needs.
Personal motivation can often be much more effective than money. Motivating factors vary
from person to person. For some people a sense of achievement is important, for others it can
be recognition, status or authority. But everyone likes to feel involved and important and this
type of motivation is easy to achieve.
Organisations who give people responsibility for their own actions, involve them in discussions
about future plans and are receptive to comments and ideas brought forward, soon find that the
workforce becomes motivated into doing a better job of working together to achieve the desired
objectives. This is sometimes referred to as “ownership of the plan” or letting people “buy
into” the plan. It is quite simply “involvement”.
The real aim is to try to turn the workforce into a united group working together. Simple things
like social events, family fun days and so on all help to create unity and to foster a feeling of
being proud to work for the company.
Successful Internal Marketing
Success will only be achieved by an organisation when there exists:
! Support by senior management for the programme
! Clear objectives and strategies
! An understanding of customer needs, both internal and external
! A desire to achieve customer satisfaction
! Interdepartmental Cupertino
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! Good communication links within the organisation

Basically, internal marketing can be summed up as “respect and recognition”.
! Respect for the People Involved
External customers should always be listened to and treated with respect and it is no
exaggeration to say that suppliers need to receive clear instructions from a customer. If,
internally, everyone respected each other as a “customer” or as a “supplier”, there would be
immediate benefits in a reduction of internal conflict and rivalry.
! Recognition of the Importance of the Customer
Everyone has heard the expression, “the customer is king”, but that implies subservience which,
sometimes, is simply not possible. It is much better to say “the customer is the core of our
business”, or “without the customer we cease to exist”. It is even better to believe this and act
accordingly. If everyone in the company knows and recognises the importance of the customer,
both internal and external, the service levels given will be that much higher and customer
satisfaction will be achieved.
Instilling a Marketing Ethos

To get a marketing ethos accepted into a company may not be the easiest thing to do.
Referring back to the section on internal marketing, you will recall that I gave a list of criteria
necessary for internal marketing to work. Look at this list again, because these criteria are also
necessary for the development of a marketing ethos.
If those criteria are not met there can be no chance of a marketing ethos being accepted successfully
into a company. It is as simple and as basic as that. Management may say they have adopted the
ethos but it will not be true. Full support from senior management and firm belief in the value of
marketing, by everyone, is the only guarantee of success.
Accepting this, we then have to establish how we can get a marketing ethos accepted.
Well, the first thing is to have a marketing plan which is very carefully designed covering all elements
of the mix – including people. The plan gives a structure to work to. It outlines when activities will
take place and who will be responsible for those activities. If planning has been done by involving
people they will be more receptive and will work with the plan rather than against it.
If that step is achieved, the marketing ethos is already beginning to be accepted. If it is not, you need
to start at the top – convince the higher-level management of the benefits that can be gained;
demonstrate the outcomes and how easy they will be to achieve. Once the senior management are
convinced, the belief in marketing will cascade down through every level.
After that, a concerted programme of education and motivation is needed. Persuasion from higher
levels will soon ensure that lower levels begin to look seriously at what is being proposed. If training
days can be added to this, the transformation will be that much quicker and, very soon, suggestions
will be offered by staff as to how systems and procedures could be improved. Motivation will have
begun.
Motivation has its own force – it grows if it is allowed to. Once people become motivated they
should be encouraged by some form of incentive. Remember that this need not be money – other
rewards are important, too, e.g. “best cost-saving idea of the month”, “top salesman of the quarter”,
“most efficient department”, etc. I would not deny that money is important, but it is not the only
way!
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The main difficulties to be found in instilling a marketing ethos into the company may well come
from the senior management who do not think it is necessary. Some may see the new way of thinking
as being a “threat” to the established systems which have proved relatively efficient. New thinking is
often seen as being radical and, especially if the company has been established for a long time, there
will always be people who resist it. People fear for their positions and the status they have acquired.
They worry that people with new ideas will take over and that they will lose their jobs. If they can see
that to accept the validity that the customer is important and that everyone should be working together
is so significant they will eventually change their opinions.
Once the marketing ethos is accepted and functioning properly, the company will have an “open”
culture. Innovation will be encouraged which will help in new product development and in improved
customer care. Staff will be retained as they are happy in their work. Costs may be reduced because
people find better processes. I could go on but I am sure you can see the benefits, too.
The marketing ethos of a company is the same as anything else – it needs to be taken care of if it is to
survive. You cannot just convince the entire organisation of the benefits of marketing and then leave
it at that. Follow-on training on new products, new systems or anything else that is appropriate should
be undertaken. Regular communications are essential or the old order will soon return where
departments are isolated and people do not know what is going on, or what they are trying to achieve.
Even company newsletters are important as they show employees that the company is at least
communicating with them. Including comments in a newsletter about the success of various members
of staff, or competitions, etc. is a good motivational tool.
D. CONTROL AND EVALUATION

We have seen how marketing can be organised, and it is clear that there is often a substantial
delegation of authority from the chief executive, down to managers, section heads, salespeople and
clerical staff.
Delegating authority does not remove responsibility for the results, so the chief executive will wish to
see how well the team is performing. That would be reason enough for the control system that is
needed in marketing organisations, but the more significant reason is that the chief executive is
responsible for the owners’ investment in the company. It is easy to lose sight of the fact that the
shareholders own the company, and the whole management team is in place to serve the interests of
the shareholders.
It is usual for the shareholders to have profit, dividends and growth as their key interests, so we can
take it that the chief executive is also aiming for these.
In order to keep some check on the way in which managers use their delegated authority the company
must have a system of controls, and that is what we shall look at next.
The Control Process

The control process consists of:
! Setting objectives
! Measuring performance
! Investigating deviations from the objectives
! Corrective action.
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This process is iterative – it is repeated continuously and the corrective action should make the results
come nearer to the objectives. We need to look at the four activities in more detail.
Setting Objectives
If the company is family owned, or owned by a small group of shareholders, it is usually easy to see
what they want to achieve, which is often a balance between making profit and enlarging the
company. Owning shares is an alternative to having money on deposit, earning interest, so the
minimum objective is usually to make enough profit to enable the company to pay out a good
dividend.
In a chapter of “The Marketing Book”, edited by M.J. Baker, there is a section by James R. Bureau in
which he asserts that most marketing policy decisions are made on the basis of speculation rather than
facts, because of the cost of acquiring the facts.
He goes on to add that marketing is so speculative that failure is a normal part of the activity: whilst
the R & D people can go on correcting faults in the design of a product until it is near perfect, faults in
the marketing of it are difficult to correct and are more visible, so they could grow like a snowball.
The Sinclair C5 tricycle is mentioned as the ideal example, and the inventor, Sir Clive Sinclair, is on
record as saying that inventors have to accept failure as part of the price of success.
So the objectives are set with a background of uncertainty and hope, but they must be set as well as
possible, so they must be in terms which enable management to see whether or not they have been
achieved. You may see objectives no more precise than: “To earn 15% on the capital employed this
year”, or “To make 10% more profit this year than last year”.
From such simple-looking statements the management team has to prepare complete marketing plans
which include targets for each salesperson or branch office, performance targets for deliveries and
customer care, etc.
Measuring Performance
We will look into specific performance measurements later, but we need to take a general look at the
subject first. You could compare a marketing plan with a journey plan:
! Objectives equate with destination.
! Strategy equates with method of travel.
! Tactics equate with the route taken.
When you have an objective you can decide your strategy, taking in all the resources and limitations
that apply in your specific company, and you can then pass that down to lower ranks who can decide
the tactics.
You could view this in the same way as the organisation chart, with the tactics at the lower levels and
the objectives at the top.
Whilst the directors may understand such objectives as “make 10% return on capital employed”, there
is little chance of the machine operator in the factory understanding how that could be related to his or
her work, and it is necessary to break down the objectives into understandable targets for all the
operational people in the company.
The marketing manager may suggest that a specific market segment is the one to aim at, and the
branch managers will each be invited to agree to a target for their sales team. They, in turn, will ask
each sales representative to agree on their individual targets and the total of all the targets will, of
course, be enough to meet the objectives.
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110 Marketing Plans
The decision that then has to be made is how to achieve the sales or profit levels needed, and that will
be reckoned on a monthly or weekly basis, using the knowledge of the sales representatives and
manager.
Investigating Deviations from Objectives

An annual target must be split into shorter periods, whatever its subject matter, and this needs a
common sense approach. Demand fluctuates for many reasons, the obvious ones being holidays and
local prosperity.
It is important to know why a target has not been achieved, since it will be necessary to alter
something to make up the deficiency. However, it is equally important to find out why a target has
been exceeded, because the circumstance may be something that could be repeated and may be useful
to other branches or individuals.
The work of checking every fluctuation from target in detail would be too time-consuming, so it is
usual to set a range of figures round the target and to accept any variations that lie within the range.
After all, the starting point was not a calculated fixed figure, so there is little point in trying to be too
precise.
You may see this technique called variance analysis in exams and textbooks, and this type of analysis
can be applied to many different factors.
Corrective Action
When a serious deviation from target is identified, it is essential that a fairly detailed investigation is
made, in order to find out why the target was either not reached or exceeded. There is no way that
corrective action can be taken if the manager does not know the fault.
Corrective action may involve making up the sales or other total that was missed, for example by
doing something differently, or it may be necessary to accept that the target was missed and then make
adjustments to the total objectives. Reducing the objectives may be necessary if the reason for the
failure to meet the target was due to the loss of a major customer, for instance.
At the marketing management level the corrective action may be a change in the advertising message,
or a total rethink of the marketing strategy, and it is better to know about that early in the year rather
than to wait until near the end.
The whole process of control is easier to understand with the help of a diagram such as Figure 4.8.
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Marketing Plans 111
Objectives
Forecasts
Plans Activity
Objectives
Comparisons Results
achieved
Corrective
action
Figure 4.8: Planning and Control Feedback Cycle
E. EVALUATING SALES PERFORMANCE
Need to Evaluate
As in the case of job specifications, performance standards are usually associated with the production
department. In the field of production it is much easier to measure work done, e.g. so many tons of
raw material enter the production department and a given number of completed items should emerge.
The production department is dealing with material which can be seen and measured.
The salespeople’s activities, however, can neither be seen by head office nor, in some cases, can they
easily be measured. In a simple sales operation such as van selling, the number of calls made, the
number of orders obtained and the value of the orders can be ascertained with reasonable accuracy;
but with more complicated sales contacts, it is much more difficult.
The kind of performance standards which will apply must be relevant to the kind of sales operation
conducted. Performance standards are necessary in order to ensure that the salesforce is operating
efficiently, but they need to be applied with considerable forethought and the salespeople must be
consulted from the outset. Salespeople are often suspicious of quotas, performance standards and
targets which are imposed unequivocally and without consultation. We shall look at some examples
of the kind of performance standards which can be applied below.
Methods of Evaluating Sales Performance

! Simple Methods
The simple methods are as maintained above, i.e. recording of the number of calls made;
number of orders obtained; value of the orders both in total and on average; number of new
accounts opened; average number of lines sold per order; order/call ratio; number of new lines
introduced; and the general increase in business on the territory.
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112 Marketing Plans
! The Transfer Order Problem

The methods in (a) can only be applied when the salesperson is selling his or her products
direct to customers. Many salespeople do not operate in such a simple manner. Many junior
salespeople spend all their time booking transfer orders which are taken to wholesalers. The
wholesalers are then expected to deliver the goods to retailers. This system means that the
manufacturers’ salespeople are working for the wholesaler as well as for their own employers.
However, some of the orders may be from uncreditworthy customers and the wholesaler may
be unwilling to accept them.
The problem of measuring performance in such cases is much more difficult. Copies of
transfer orders may be sent to head office but there is no sure method of knowing how many of
the transfer orders have been delivered. Few sales managers are willing to interrogate their
wholesale customers about the precise success rate. The best method of dealing with the
transfer order problem is to audit the wholesalers’ purchases before the transfer campaign
commences and then to audit them both during and after the campaign.
! The “Expense Ratio”
We have mentioned profitability as a necessary factor in evaluating the salespeople’s
performance. This can be done by the cost accountants in the company but it is a difficult task.
Profitability, in any event, is a nebulous term.
Most companies usually settle for the more easily calculated and understood expense ratio.
This is the relationship of expenses to turnover. In most companies the total sales expense as a
ratio of the turnover is known. This ratio is used as a standard to which individual territories
may be compared. Expenses will, of course, be higher in sparsely populated areas where the
salespeople have to travel long distances between calls, but the ratio does give a rough and
ready yardstick.
! Other Yardsticks
Other performance standards may be applied through the analysis of salespeople’s expenses
such as hotel bills, car running expenses, and telephone calls. An experienced sales manager
has a shrewd idea of the kind and amount of expenses which are incurred by salespeople.
F. EVALUATING MARKETING PERFORMANCE

There is not the same clarity of outcome with marketing activities – the salesperson can evaluate the
customer’s reception of his or her sales efforts because he or she is there to see the results, but the
marketing manager cannot see the reaction of people when they read the advertisements, or when they
open and read (maybe?) a direct mail shot.
A potential customer may walk into a store and out again without anyone ever knowing what the level
of interest was. On a local out-of-town shopping estate there may be three shops selling some
electrical equipment, and it is normal for potential customers to compare prices by walking into each
store in turn. The marketing managers responsible for the products on sale have no chance of
evaluating their promotions at this level.
Evaluating the marketing performance is, therefore, more likely to be done on a company-wide
statistical assessment, such as a continuation of last year’s sales graph, or using a break-even chart, or
a market share analysis.
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Marketing Plans 113
Marketing Cost Analysis

Kotler suggests that it is wise to check on the ratio of marketing expense to sales achieved, and he
specifically refers to the ratio of advertising expense to sales, plotted against time. Experience will
show a “normal” level for this ratio, and that can be plotted as a horizontal line. Monthly
achievements are then plotted and they ought to fluctuate around the line, as in Figure 4.9.
11
10
Upper limit
9
5
Lower limit
4
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Time 14
period15
Figure 4.9: Marketing Evaluation Chart
Kotler points out that the continuous rise in the ratio in the last few periods is a cause for alarm, and
the marketing management should investigate the matter.
This technique has been used for many years in production control, where the upper and lower limits
were the tolerances on the dimension being machined. Physical measurement and plotting used to be
the inspector’s way of checking that the cutting tool needed changing: now a computer can ring a bell
or even arrange for the tool to be sharpened.
The upper and lower limits for the marketing evaluation chart must, of course, be set with the benefit
of experience.
You will be familiar with break-even charts and sales graphs, so there is no need to go into them
again, but you should note that most of the statistical techniques can be adapted to suit small
companies – for a one-man business you could use the “cost per enquiry” to evaluate magazine and
newspaper advertisements, and a moving annual total to see how the business is going. Knowing the
conversion rate for enquiries to orders, you would be able to work out the cost of acquiring each
order. A monthly bank statement would tell you the immediate cash situation.
Market Share Analysis

Many authorities believe that market share is the single most important indicator of the company’s
performance, and it is a matter of considerable concern to many managements because the market
share analysis relates the performance of the company to that of the competitors.
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114 Marketing Plans
However, before a management can use this as a control factor they must be able to calculate the
market share on a steady basis. It is not always easy to find out the size of the total market, so you
must find some reliable statistics, published regularly, from which you can estimate the size of the
market in which you operate.
Reliable and regular statistics are published by the Office for National Statistics (ONS) and you might
find them in your local library: usually it is best to get them on subscription. Business monitors are
published monthly or quarterly and they use information supplied by companies in the specific
industries.
ONS have a definite policy of publishing statistics which cannot reveal the activity of any individual
company, so some of the product classifications are deliberately quite wide. You may have to do
some statistical detective work to find just what the market size is for your product.
The value of the market share analysis is that it removes the influence of the general economic
environment: the share that is gained is from other companies, so changes in the economy and in total
market size are left out of this reckoning. This is not infallible, of course, and if your company has
just invested a lot of money in promotions you should see a gain in market share – or your promotions
may be ineffective.
If a new competitor enters the market successfully, it is clear that the sales they achieve will reduce
the market share of all the other companies, unless the advertising done by the newcomer raises the
general interest in the products.
You may decide to go up-market and that will certainly reduce your market share but may well
increase your profits, so you could be better off but more vulnerable to changes in the customers.
If you sell food products you can buy surveys of the retail business, such as those supplied by Nielsen
and others, which will tell you the sales over the counter for many products. From these you could
calculate your share relative to competitors, and plot that periodically.
There is a lot to be said for comparing your company’s performance with that of other companies in a
similar line of business, and that is usually possible by using ICC (or similar) publications. ICC
produce inter-company comparisons and other similar analyses, which show the financial and other
ratios for companies in specific industries. The information is from company accounts, lodged each
year with the Registrar of Companies, so there is often a time-lag in obtaining the information, and
there may be very little available about some companies. You may be able to find an average for
some statistics which could be a starting point.
There will always be gaps in the information which is available to help you to evaluate your
company’s marketing performance and there are some outside influences that we must also look at.
Awareness Assessment
When you spend a lot of money on the advertisements for a product or service it is natural to want to
know how effective they were in telling people about the product. The measurement of awareness is
one of the specialisms of some marketing research companies and some textbooks would have you
believe that everyone should do this.
Well, yes, everyone should measure awareness – you just need to get the salespeople to check with the
wholesalers and retailers to see how enquiries and orders are going. However, if you are going to pay
a lot of money to measure awareness just to evaluate your advertisements it may be a very expensive
business.
Ideally, every marketing manager should be able to relate “awareness” of a specific advertisement to
sales of the product, and that would make it possible to estimate sales in the near future. That
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Marketing Plans 115
situation will only come with long experience and it is worth thinking about other ways in which you
could judge the quality of the advertisements before deciding that an awareness survey is needed.
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116 Marketing Plans
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117
Study Unit 5
Research for Marketing
Contents Page
A. The Research Process 119

What is Research? 119
Why Research? 120
The Research Plan 121
B. Types of Research 123

Desk or Secondary Research 123
Field or Primary Research 123
Market and Marketing Research 124
Quantitative and Qualitative Research 124
C. Sources of Information 126

External and Internal Sources 126
Macro-statistical and Micro-statistical Information 127
Government Sources 128
External Databases 129
D. Research Methods 129

Interviews and Discussions 129
Observation 130
Questionnaires 131
Test Marketing 132
Sampling 132
E. Using External Research Agencies 133

In-house or External? 133
Finding, Selecting and Recruiting an Agency 134
Briefing 135
Controlling 136
(Continued over)
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118 Research for Marketing
F. Information Systems 136

Management Information Systems (MIS) 136
Marketing Information Systems 138
Content and Purpose of MkIS 138
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Research for Marketing 119
A. THE RESEARCH PROCESS

If you think back to the CIM definition of marketing you will recall that marketing is a need-
satisfying process and it is necessary to identify and anticipate the needs and wants of the customer.
What better way is there of identifying the needs and wants of customers than by asking them? It
would be fine on a small scale, but the nature of consumers and manufacturing industry is such that it
is not possible to satisfy the specific needs of each individual customer. It is necessary to get to know
what a majority of customers want and then market products which suit them.
Unfortunately, life is not so easy – most customers do not seem to know what they want! This is the
basis of the risk which exists in all decision-making; managers will always want to reduce the risk in
every decision they take. Sometimes it is easy – any manager will know the basics of life, such as
“don’t try to sell pork to Jews or Moslems” or “if you make cars for sale in the European mainland,
they have to be left-hand drive”.
The problem is in knowing just how customers prefer the style of a designer-product, or the pack size
of a grocery product, or the colour of a suite of furniture and so on.
If the manager can reduce the risk by using marketing research, then he will be more successful in his
marketing efforts. However, the improvement in marketing success must be real – marketing research
costs money and it is essential that the extra knowledge can be used to earn more profit than the cost
of the marketing research. It is clear and simple to read about in a course, but not always so easy to
achieve in practice.
What is Research?
“Research is the gathering, recording, analysing and reporting of all facts relating to the
transfer and sale of goods and services, from products to consumer. It is usually based
on statistical probability theory and always uses scientific methods”.
(Max Adler – “Lectures in Market Research”).
The process of research describes the steps taken in the research activity:
! Gathering
! Analysis
! Storage
! Retrieval
! Dissemination
We can represent this diagrammatically as follows:
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RESEARCH
is the
GATHERING
ANALYSIS
STORAGE
RETRIEVAL
and
DISSEMINATION
of information to aid decision making
Figure 5.1
Understanding the process of research is very important to marketing students.

To illustrate the concept I sometimes describe the research process as being similar to that of a
primitive fisherman using an open boat and a net to catch fish for food. He would cast his net upon
the water wide enough to allow the fish to enter. Once fish had entered, he would gather in his net
and look at what he had caught. He would discard or throw back any that were no use to him, but
store those that he could use. If he had enough he would stop fishing; if he did not he would cast his
net again and repeat the process. This would continue until such time as he had met his immediate
needs, then he would stop. He would then retrieve the fish he had stored and use them for his
required purpose – eating.
This is exactly what happens in research – gathering in information, analysing it, storing it, discarding
it, and using it.
The main understanding of the research procedure must be that information is gathered and assessed –
decisions are made on the basis of the assessment either to eliminate options or to proceed with
further research until such time as a final choice can be made.
Research is a systematic process, as you can see by the model above, and is one of the most common
and oft-repeated activities to be found in the marketing discipline. There are very good reasons for
this.
Why Research?
If we accept that planning is a necessary activity for marketing effectiveness, it follows that we need
to be as certain as we can of any decisions that we make. This certainty will only be present if we are
confident in what we are doing.
! Confidence comes from knowledge.
! Knowledge comes from investigating.
! Investigating means research.
There could be thousands of answers to the question as to why research should be carried – for
example:
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! To find out costs involved in advertising

! To find out what customers want to buy
! To determine which distribution methods are more efficient
! To analyse what the competition are doing
The reasons shown above, and thousands of others, could all be described as very valid reasons for
researching. However, they are primarily “research objectives” in that they actually outline the task in
hand. They highlight a problem which needs addressing and a proposal is then made to carry out
research as a component of some form of assessment.
The main reasons that lead to research being carried out are:
! To reduce risks
! To help in planning and forecasting results
! To aid “mix decisions”
! To improve decision-making capabilities
Thus, research is necessary in marketing if the organisation is to reduce risks and carry out its plans
successfully and with minimum effect. To put it another way: research is a management tool which,
in tandem with other available management techniques, can help a much more effective outcome to be
achieved.
The Research Plan

Do not confuse the research process with the research plan. The process and the plan are related – but
they are not the same thing! The benefits of research can be improved in two ways: by designing it
properly, and by conducting it at the right time. This means planning the process.
A plan for research is not really any different to any other plan. It should include all the normal
elements of objective, strategies and programmes and, above all, it should be logical and
structured.
The key elements are as follows:
! Outline the problem: could be investigation into new markets; research into buying patterns;
trends in market size, etc.
! Define the objectives: obviously based on what the problem is.
! Determine the target to be researched: crucial in a research plan.
! Decide HOW the research is to be carried out: questionnaires; panels, etc.
! Decide WHO is to carry out the research: in-house or external agency.
! Determine the time scales.
! Set or agree the budget: this may be done initially in order to help in making other decisions.
! Implement the plan: set everything in motion. This is where the PROCESS comes into
being.
! Monitor and control: constant checking to make sure that all activities are being done and
time targets, budgets, etc. are still on course.
! Reach conclusions: report; action.
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And, just as in every other plan, there may be amendments made owing to changes which take place.
A plan always needs to be flexible enough to cope with adaptations to meet the current situation.
Having said that, if the planning activity is carried out correctly environmental conditions will have
been anticipated and amendments should be minor.
Some respected authorities reckon the acronym CATS should be applied to every proposal for
marketing research and should underlie the research plan. The initials stand for:
Cost
! Secondary information already exists and is less expensive to use than new research
! Some secondary information can be bought in standard, regular forms which can show trends
! The cost should not exceed expected benefits and benefits should preferably be much higher
than costs
Accuracy
! How accurate will be the information you collect?
! How accurate do you want it to be?
! Greater accuracy costs more money – do you really need it?
! How good are the researchers and their methods?
Time
! Research takes time – can you wait?
! Whilst you are waiting, could a competitor be taking your market?
! Research can reveal your plans, or at least your intentions, so can you afford that?
! Will your decision be any better for being delayed?
! Will the research have to be repeated at intervals so as to keep up with changing trends – and if
so, does the cost/benefit analysis justify the expense involved?
Security
! Some marketing decisions are best kept secret; marketing research may alert your competitors
and may even encourage customers to hold back orders
! New products particularly may suffer from being revealed too early
! Even your own salespeople may slacken off if they suspect that a new product is coming soon
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B. TYPES OF RESEARCH
The costs of researching can be very high – even if the organisation uses its own staff to carry out the
entire process – so it must be done in a structured and logical way, with clear objectives and an
appropriate strategy related to those objectives.
There are a number of approaches to consider in this.
Desk or Secondary Research

Desk research is carried out by using information which has already been published by another party,
(i.e. it is secondary). The information can be obtained from:
! Internal information available in-house (past enquiries/sales records, etc.)
! External information available from sources which have reasons to publish information (market
surveys, annual reports, etc.)
Desk research is so called because it can literally be carried out from a desk in an office. Using
published sources – books, journals, articles, statistical information services, the Internet, etc. –
researchers can obtain a vast amount of material which can help in making initial assessments of a
market.
Remember, though, information collected in this way is secondary – i.e. it is not new, but second-
hand. Further, such information will have originally been prepared, in its published form, for
someone other than the organisation wishing to use it. This can present problems:
! It may be out of date.
! It may be irrelevant to the needs of the organisation.
! It may not be accurate (e.g. if collected for tax purposes).
! It may be based on a different statistical basis to that used in the home country, which will make
nonsense of the information.
Desk research can, though, help in eliminating unsuitable markets or segments, which can mean
reduced costs and certainly reduced risk factors.
It is only when researchers are satisfied with the results of their desk research that an organisation
should consider moving on to more specific field research. Insufficient or incorrect information can
lead to unnecessary costs and expenditure as this may mean that an entirely unsuitable market/sector
was not eliminated at the appropriate time.
Field or Primary Research

Field research is new (primary) research done by, or for, the organisation itself. It relates directly to
the problem in hand and should never be undertaken until desk research has been completed
satisfactorily.
Field research can be carried out by an assortment of means – including visits, questionnaires, and
surveys – all of which will involve some form of sampling. The size of sample researched will
depend on the nature of the product and market being investigated, but the sample must always
represent the whole target market. If it does not it will give an inaccurate picture of the overall
outcomes which can be expected.
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Field research should be carried out by people who have good knowledge and experience of both the
product and the market itself. Failing this, they should at least be experienced in undertaking
research.
Field researchers should be capable of producing unbiased reports and recommendations. A major
problem to overcome in field research is personal bias on the part of a researcher, or the “self-
reference criterion”, as it is sometimes called. This simply means that people hold such strong
opinions that they superimpose their own ideas on what they hear or see – thus negating the results of
the research activity. This is more common in international research in that, very often, researchers
think that methods used in their home market will work in foreign markets and they do not “hear”
what is being said to them by the people being sampled.
Apart from aspects of interviewer bias which may occur, field research has two major problems –
money and time:
! Field research can be expensive in that external agencies need to be engaged to conduct the
research or, if personnel from the organisation are being used, time will be lost while
researchers are “away” from their normal duties.
! As field research is based on people finding out about people – their likes, dislikes, etc. – it can
inevitably mean delays. People being researched may not be available; people undertaking
research may be ill or tied up with too many projects; people who are responsible for analysis
may have too many projects, etc. When planning field research, potential delays should be
considered and, where possible, some time allowed accordingly.
Market and Marketing Research

It is easy to get “market” and “marketing” research confused. However, the difference between the
two terms is important to a professional marketing manager, so let us clarify the terms now, so there
will be no misunderstanding in the future:
! Market research is an investigation into aspects of the market – the size, trends, competition,
legislation, barriers to entry, etc. Market research assists in the audit stages of marketing
planning. It is a general view of the market and is used as a basis for decision making. It is
really concerned with the comparative analysis of markets and market sectors.
! Marketing research is the investigations into how to reach, or serve, the customer and/or the
end-user in the best way. Marketing research is concerned with the marketing mix elements –
product, price, place and promotion and, in most circumstances, will include the “soft”
elements of people, physical evidence and processes. This type of research is undertaken by an
organisation to make sure that it is offering the best possible mix to its target audience.
The confusion between the two may well be because of the fact that, when researching markets, the
researcher will take into account such aspects as the level of pricing which is being charged in the
market, the type of distribution which is preferred by the current market, the nature of the promotional
activity undertaken by the competition, etc. The researchers must do this if they are to form reasoned
opinions – they then move on and carry out their own individual research to see which is the most
appropriate mix to offer, to the chosen segment, and whether the organisation has the resources to
cope with the ideal mix. If the organisation does not have the resources, further research may be
carried out to see where costs can be reduced, etc.
Quantitative and Qualitative Research

“Quantitative” comes from quantity – meaning numbers. Results can be in the form of numbers or
percentages. This type of research is used to assess trends, potential and actual growth or decline, etc.
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Data is relatively easy to collect and analyse and, because of this, can be done by people who are not
completely familiar with the product or market. However, researchers do need to understand what
they are doing if they are to be effective.
Qualitative research is all about ideas and opinions, or likes and dislikes. Because opinions are
involved it requires greater skills on the part of the interviewer and the analyst.
The results from qualitative research are often extremely difficult to analyse in a systematic way. It is
common, therefore, to construct questions which can be answered using some form of scale – such as
the Likert scale or a semantic differential scale. This allows qualitative responses to be quantified.
For example, questions are posed and the interviewee is asked to give the opinion which is nearest to
their own – ranging from “very true” through a possible of five minimum options to “very untrue”
(see Figure 5.2).
Strongly Agree Neither Disagree Strongly

agree agree nor disagree
disagree
The service is good.
The showroom is
spacious.
The literature is well-

produced.
The product is good

value for money.
Figure 5.2: Semantic Differential Scale
Although I have shown five possible responses in Figure 5.2, it is better if there is an even number as
this forces the respondent to make a decision. When there are five choices it is easy for respondents
to choose the mid-option and opt out of giving any real opinions, which can produce a very bland
result for the investigator. Of course, many companies use five boxes as they are happy to learn that
people have no strong opinions either way as this means that the service offered is “acceptable”.
Brave researchers are not averse to receiving adverse comments!
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C. SOURCES OF INFORMATION
The information we are concerned with here is that which forms the basis of desk research. As we
noted earlier, this will be published information and will come from a wide variety of sources and in a
wide variety of forms. It will need careful sifting and analysis to establish its relevance to the specific
research being undertaken.
(In respect of field research, the source of information is the market itself – or more specifically,
consumers themselves, whether existing customers, potential customers, individuals or organisations.)
External and Internal Sources

One method of characterising the sources of published, documentary information is in respect of
whether they are external or internal to the company.
External sources include:
! Government departments
! Employers’ federations
! Trade associations
! Private firms
! Professional institutes
! Public and private research agencies
! Newspapers
! Magazines
! TV and radio
! Banks; embassies
! Chambers of Commerce
Internal sources include:
! Past history of customer buying
! Sales results
! Return on investment
! Money spent on promotional campaigns
! Details of enquiries received from unserved markets
! Production capabilities
! Personnel details, etc.
Two external sources are worthy of additional comment here since they are rarely considered as
specific sources in the research process.
! Suppliers
Information from suppliers may be less formalised than the published documents or, indeed, a
company’s own internal records, but small items of information about industry trends can come
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out of discussion between sales representatives and buyers. It depends, of course, on the buyers
understanding the need for information and their adoption of the marketing concept.
It is often in the interests of suppliers to help keep their customers profitable and exchanging
useful information may be to the advantage of both sides. The people involved must be aware,
of course, of the necessity to comply with the professional codes of conduct and avoid giving
information about any specific company.
! Competitors
They may seem to be an unlikely source of information, but if you study the activities of
competitors you might be able to deduce what their marketing policies are and how they will
affect your business.
I mentioned a conveyor belt manufacturer earlier, part of whose demise was due to the fact that
their sales people only ever visited the head office of their largest customer. The sales manager
thought his team would be wasting their time talking to people who did not have authority to
make decisions. (He had read that in textbooks on selling.)
However, the principal competitor ensured that his sales engineers visited every maintenance
engineer involved with conveyor belting, because he knew the engineers were “influencers”
contributing to the choice of supplier. Competition was so severe that prices were always very
similar, so the fact that people asked for a specific brand ensured the competitor got most of the
business.
Watching job advertisements put out by competitors may give some ideas on how well they are
managing to keep their sales staff; and the odd comment from customers should be reported by
your sales people. Several small items of information which look insignificant individually can
add up to a trend when put together in a Marketing Information System.
Macro-statistical and Micro-statistical Information

This is an alternative way of looking at the information needed for desk research.
(a) Macro-statistical Information
This is the data produced by external organisations which relate to a country or a market as a
whole. All governments produce this type of information, as well as many other public
authorities and organisations covering whole industrial sectors (such as employer federations,
professional bodies, etc.
Macro-statistics can help marketing organisations to:
! Assess the market share trends
! Monitor the size/growth of markets
! Count the numbers of potential customers
! See who the main competitors are
! See which countries are dealing with which
! Monitor regional patterns
(b) Micro-statistical Information
This is data which is specific to the organisation. This type of data is compiled by monitoring
the activities of the business itself, e.g. production; sales; labour supply; return on investment.
In effect it is the result of the internal records system of the company.
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Every company has to keep copies of orders, invoices and payments for normal management
purposes. If these records can be analysed in detail, they can provide a lot of useful
information about which customers buy which products and when. With small additional
inputs the analysis may be made more useful; if the system is computerised it will be fairly easy
to relate details to other information collected from different sources.
It is important for records to be kept in the same way for long periods for them to be useful.
Consistency is very important in the analysis of information.
Micro-statistics can help organisations to:
! Plan for the future
! Adapt their activities to meet changing market conditions
! Attack competitors who are missing opportunities
! Defend market share in the face of increased competitive activity
! Grow in market share or size as and when conditions dictate
! Shrink activities to defend themselves
! Consolidate forces before renewed action
It is arguable as to which type of information is most useful to a marketing planner, but you should
remember that information is the lifeblood of the planning system and, as such, should be kept
“flowing” into the company. To keep it flowing, research is needed.
Government Sources
Most governments collect information about consumers and industries, then publish summaries in a
standard format at intervals.
Clearly, the statistical offices must avoid publishing any information which could reveal the sales of
any specific company, so there is often quite a lot of processing and amalgamation of categories.
Even so, regular analysis of appropriate statistics will enable the detection of trends and maybe the
identification of the causes of variations in company performance.
In Britain, most government statistics are available on subscription from Her Majesty’s Stationery
Office (HMSO) and include:
! Business Monitors, which show imports, exports, production and sales of specific industry
groups, usually on a quarterly basis. Some production monitors are divided into product groups
which can be quite specific and the Service and Distribution Series deals with the activities of
shops, catering establishments and finance houses.
! Census of Population, which is carried out every 10 years and gives a comprehensive analysis
of the population of Britain. Every individual is required by law to provide quite detailed
information about their status on a specific date. There are provisions for personal secrecy for
people who live in lodgings and computerisation has speeded up the analysis, so some
information can be available within two or three years of the census date.
A 10% sample census is also taken halfway between the main censuses. The statistics are used
extensively by organisations attempting to evaluate potential markets. Information is analysed
for over 100,000 enumeration districts, each one having about 150 households, so you can see
that the information collected is quite detailed.
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! Employment Gazette, which publishes monthly statistics of people working, by industry

groups; also movements in wages, hours of work and retail prices.
! Economic Trends, showing activity in terms of prices or volumes of imports and exports, retail
sales, new car registrations, savings and borrowings and a lot of other information about the
British market.
! Monthly Digest of Statistics, probably the most useful starting point for many marketing
researchers because the latest information is published on a wide range of items.
External Databases
There are many organisations which collect and interpret information regularly and provide a variety
of statistical and other data to subscribers. Many industries have a trade association which may
collect statistics from members and publish extracts. There are also many trade directories published
which can give useful information. You will find that most large libraries have a “directory of
directories”; many of the more important directories will be on the shelves.
There are also several regular publications which can be useful, such as:
! Kompass Register, which is published annually for several countries and usually shows
companies of any importance, listed by area, industry, turnover and employees. Names of
directors are usually given, along with any associations with other companies or groups. Some
businesses also take advertising space to add more information.
! Key British Enterprises, published annually, shows ownership, directors, turnover and number
of employees for about 20,000 companies, arranged alphabetically. There are also indexes
based on geographical location and on industry.
! Times 1000, gives details of the top 1000 companies in Britain and some other information.
! Who Owns Whom shows the ultimate owners of companies in groups. Sometimes group
affiliations are difficult to trace and if this publication is kept up-to-date by the librarian it is a
big help.
! Extel Cards provide brief details of annual reports and statements.
! Research Index, published every two weeks, shows what has been published in a number of
major newspapers and journals about specific topics and selected companies.
! Marketing Surveys Index, a publication supported by CIM, shows references to various
market surveys published by a wide range of companies.
D. RESEARCH METHODS
Once you have a clear idea of the nature of the information you want to collect from field research,
you can decide how to obtain it economically and at the right time. There are a variety of methods
available, and the main ones are described below.
Interviews and Discussions

Interviews – generally with one individual at a time – can be structured or informal:
! Structured interviews are easy to analyse as there will be a definite pattern to the questions
put to respondents and to the type of answers received – usually based around the use of
standard questionnaires.
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! Informal interviews are much more difficult to handle and analyse and require highly skilled
interviewers.
Group discussions – often referred to as “focus groups” – are conducted with small groups of people
who have been chosen as a representative sample of the target population. They can be “led” by an
observer or be more formal in that the group undergoes tests at the same time. Often groups are kept
together and re-interviewed several times over a period to monitor changes in attitudes and opinions.
Such matters as new product research, for instance, often involve discussion of future developments
of a company’s product range. It is necessary for the researcher to have a good product and industry
knowledge, so as to be able to recognise useful information when it appears in conversation. It is also
helpful to be able to ask questions spontaneously and give some information to the respondent, so
discussion does not get down to a newspaper reporter-style question and answer session.
Observation
Watching people can be an effective means of collecting information – not the “private eye” type of
watching you may see on television, but more likely the automatic watching provided by the machine
which counts the number of people who enter and leave a shop. This is simply a beam of light broken
by the passage of feet, the break in the ray of light operating a counter which can then be used to
ascertain shopping flows, movements and behaviours.
Observation may also be used to examine behaviour in respect of, say, the attractiveness of colour
options or to monitor patterns of interaction – for example, the way a child plays with a toy, or the
impact of different physical surroundings on customers in a shop.
You may see occasionally a person with a hand-operated counter, clicking as he or she records some
sort of activity, but it is not a frequent happening these days, often due the cost and time involved.
Two particular forms of observational techniques are “hall” and “laboratory” testing.
! Hall tests
These are where members of the public are invited to take part in a product test, in a location
large enough to handle the number of people to be “tested”. For example, an airline might use
this method to test out new seating in an aeroplane. The company would hire a hall and have a
“mock-up” of a plane with seats in it. They would then ask people to undertake certain
activities – put the seat back into reclining position, switch on the seat video, reach for the bell
to call cabin staff, etc. They would also have cabin staff serve meals and drinks to the
“passengers”. These activities would allow the company to assess such factors as passenger
comfort and convenience, safety issues, ease of access for cabin staff and so on – all of which
are vital to ensure safe and economical use of limited space.
Respondents can be recruited by invitation or by simply asking them in off the street. Usually
for this kind of test there is an incentive offered – perhaps a small fee, free meal or something
of that nature.
The point of a “hall test” is that all respondents are tested at the same time and results are
recorded immediately. Not all tests touch the entire target population at the same time.
! Laboratory tests
These are where representative members of the target audience are asked to look at, for
example, certain adverts, products, etc. Instruments are available which can be used for
measuring the reactions of vision to colour, cameras which will record the speed with which the
eye is attracted to certain aspects of an item, instruments which will measure the changes in
activity of the sweat glands (psycho galvanometer) etc. The problem with this type of test is
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that it is held in artificial conditions and may not be accurate in reflecting the individual’s
responses under normal conditions.
Questionnaires
Questionnaires are the most frequently used research method, mainly due to their flexibility – they
can be as simple or as complex as required, and may be conducted in a variety of ways. They also
ensure standardisation and consistency in both the questions asked and the responses.
There are a number of general principles about the use of questionnaires – they should:
! Be well planned, with strict objectives
! Be based on obtaining the required results
! Not be too difficult for the respondents – if they are complex they may deter the respondent
from answering fully
! Avoid leading questions
! Contain unambiguous questions
! Follow a logical sequence
! Include some control questions
If you are planning to use questionnaires, it makes good sense to get the details checked before the
formal process starts. There are two ways to do this: either send questionnaires to a selected test
sample and wait for replies; or visit them (by appointment) and watch them fill in the questionnaires.
This can be a very useful activity – if you can stand the comments on your masterpiece!
There are various ways of using questionnaires. They may be used as the basis of individual
interviews – for example, the surveys conducted by stopping people in the street – but we tend to
think of the main types of questionnaire as being those conducted by post or by the telephone.
! Postal surveys
These are questionnaires sent to representatives of the market in order to clarify items being
researched. Although these are relatively inexpensive to issue, there can be a great deal of
wastage unless some form of incentive is offered to the respondents. Of course, once an
incentive is offered it can cause bias to the results in that respondents may answer in a manner
which they think will “please” the researcher.
The one big advantage of the postal questionnaire is that you can reach everyone in the postal
system, usually at the same predictable cost. If you enclose a reply paid envelope you can raise
the response rate considerably. Since it is possible to do so for many overseas countries now,
you can operate almost worldwide. However, you do have to be careful with translations –
when my boss decided to send a questionnaire to companies in Belgium and France he thought
the French questionnaires would be good enough for the French-speaking part of Belgium, but
our Branch Manager in Brussels insisted on altering some of the phrases. There were many
more examples of that type, too.
! Telephone Surveys
Modern telephone systems connect so quickly that it is tempting to use the telephone for
questionnaires and there are some advantages in doing so. The main advantage is speed and it
is possible to gather a lot of opinions in a short time.
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It is essential to keep the questionnaire short and simple to ensure the respondent is likely to be
able to give an opinion without searching through records. On a specific survey I collected
over 200 useful answers in 2 days of intense telephoning, from an office with no windows and
no other distractions except a clock and a classified telephone directory. A dedicated, well-
trained telephone interviewer could do even better and might well enter the responses direct
into a computer data base.
There is a danger in such intensity – one of the people asked “Is that a machine or are you
real?” and I realised my presentation had become rather mechanical and boring. It was time to
stop for a break. It is also helpful if the interviewer tries to avoid giving the impression that he
or she is simply working through a pre-determined questionnaire. If telephone interviewing is
not handled correctly it can become a nuisance to the person being interviewed which will
result in answers being given which may be untrue (or given to “get it over with”) and the
whole purpose of the exercise will be lost.
It is sometimes useful to follow up a postal questionnaire with a phone call to clarify some
point or to ask for more information, or to provide some reassurance to the respondent.
With itemised telephone bills, it is now much easier to check on the costs involved in
conducting a telephone survey.
The response rate from questionnaires may be increased if the respondent can be guaranteed
confidentiality of any replies, which must be assured if the claim is made. There can be difficulties
when the research is done by in-house staff, so the researcher must be sure of management support on
this delicate matter. Some salesmen find it very difficult to accept they should not be given names
and addresses of respondents. However, the information provided should be used only in such a way
that it cannot be traced to the source. Professional researchers would automatically take care of the
matter.
Test Marketing
Test marketing is a much more extensive type of research in which the product is launched in a
selected area; thus the product and marketing methods can be tried out in real life situations. It is then
possible to judge whether or not a substantial amount of money and effort should be committed to a
national launch. If the test marketing programme shows serious faults in the products, the costs of a
full launch will be avoided.
Test marketing requires very detailed preparation and analysis of results. There are lots of
opportunities for false results to be received, indicating a successful product which may not turn out to
be profitable. Also, the test must go on for an appropriate period – long enough for consumers to buy
a second time if they like the product. That gives your competitors a chance to see what your ideas
are and perhaps launch a similar product without waiting to test their version.
Sampling
All of the above methods of gathering information are based on some form of sampling. This
involves selecting part of an entire group (a population) which is representative of the whole group,
since it is easier to take information from a small number of people than from an entire target market.
Providing the sample is truly representative, the results gained will provide a relatively accurate
prediction of the way the entire target market will react in any given situation.
There are several types of “samples”:
! Random – any one item/person can be included
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! Purposive – based on the choice of the selector (18-25 year olds)

! Systematic – definite system used (e.g. every 10th house in street)
! Stratified – sample divided into groups (age, etc.) and then random selection
! Quota – interviewer given basis of selection (50% male/50% female)
! Cluster/area – breaking area into sub-divisions and then random sampling
! Multi-stage – e.g. country, then county, then town, district, street
! Panels – groups who are interviewed at regular intervals on various topics
E. USING EXTERNAL RESEARCH AGENCIES

Marketing research is a task which can, to some extent, be carried out by almost anyone, but it is
really a specialised activity which needs careful planning and control if it is to achieve the outlined
objectives.
The basic question for any organisation wishing to undertake research is: “Who is to do the work
involved?”.
It can be done in-house or by an external agency which may be specialised in certain areas of skill or
knowledge depending on the prevailing circumstances.
In-house or External?
Decisions on who is to carry out research can be difficult to make but, in actual fact, it is simply a
question of asking:
! “What do I want done?”
! “Can I do it myself?”
! “Can someone else do it better, quicker or cheaper?”
! “Can I afford to pay them?”
! “Will they follow my instructions?”
! “Will they cooperate with me on reporting and measuring results?” etc. etc.
By answering these questions a manager will soon be in a position to decide on who should carry out
the research. Aspects which need to be taken into account are:
! The degree of security needed for the research project
! The level of technical knowledge needed by researchers
! The experience the agency has with the type of product or target audience
! Whether the agency is already working for the competition
! The reputation and stability of the agency operations
! The available resources in-house
! The time available
We can summarise the advantages and disadvantages of each approach as follows.
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In-house Research
Advantages Disadvantages
Knowledge of personnel Time away from normal duties

Tighter security Possible “biased” views
Instant access to information Lack of research skills
Can be less expensive
Agency Research
Research skills Possible lack of control

Access to target sector(s) Lack of knowledge of product
Brings objective viewpoint Agency dynamics may cause bias
May be quicker Cost
Finding, Selecting and Recruiting an Agency

The selection of any agency follows a similar pattern:
! Define organisational needs.
This is quite simply a matter of drawing up a list of your actual requirements or, in other words,
outlining criteria for agency behaviour. It may be that you require an agency to be able to work
in a very short time scale, that you need a particular type of report issued, etc. Defining your
own needs means that you are more certain of getting exactly what you want from your agent.
! Desk research.
You need to investigate which agencies are available. This information can be obtained from
magazines, trade directories, professional associations, etc. but it may be available in-house if
your company has used agencies before. You should never overlook the information already
held in a company – it can save a great deal of time and effort.
! Compile a short list of possible agencies that meet your requirements.
! Select the best agency/agencies.
Depending on the power of the client, a number of agencies may be asked to bid or “pitch” for
an account. This means that they give a brief outline of how they would approach the task and
show how the results will meet the requirements of the investigating company. The “pitching”
will enable the client to assess how effective the agency will be and to analyse the costs
involved, etc. “Pitching” is more common when dealing with advertising agencies but if the
research task is complex, or very big, several research agencies may be asked to give quotations
before a final choice is made. The selection criteria are as we outlined earlier – time,
confidentiality, experience, etc.
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Recruitment of agencies is exactly the same as any other form of recruitment – you find the best
agency for the job and then hire them. However, this is not an internal relationship and, as such, will
require careful handling. The main way of ensuring good agency relationships and that satisfactory
work is completed is through the use of a Research Brief which, in most cases, is actually issued
before a final agreement is made between a client and an agent.
Briefing
This is basically the means by which the client tells the agency what they want. The process is logical
but managers need to be quite clear on exactly what needs to take place:
! Lines of communication are defined between the client and the agency
! The client gives a formal briefing to the agency in writing
! The client outlines the time/money constraints to the agency
! The agency/client agree on special requirements
! Agreement is made on how/when the agency will report back to the client
The Research Brief is a critical document as it sets the parameters of the relationship between the
client and the agency. Many client/agency relationships have been soured because of a poor, or
inadequate brief; but, even worse, if a brief is inadequate in some respect it can lead to work not being
done correctly and, in some cases, to expensive litigation when client or agency sue one another for
costs incurred.
If we consider the brief as being the foundation of an agreement we can see that it must contain
precise and clear information on exactly what is required as part of that agreement. A typical example
would contain:
! Names of the client/agency
! A brief background of the client company/product, etc.
! The reasons for the research being undertaken, e.g. finding new markets in an overseas
territory/identifying how many buyers are likely to take up a new product
! Details of the target population (audience to be researched)
! The agreed methods and techniques to be used
! The time scales involved, with start and finish dates
! The manner in which information is to be reported
! The timing of reports
! The member of staff (client) who is to receive the reports
! The financial details such as cost and penalty payments
We must not forget that an agency has the right to reject work if the task is not suited to their
resources or is not a viable proposition for them. Agencies are businesses which must also make
money to survive. Occasionally it may be necessary for a client to adapt requirements in order to
make the work more acceptable to an agency but, in today’s competitive market, it is more likely that
it would be the agency which would make adaptations.
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Controlling
Assuming that an agency accepts a brief and is engaged for the project, the work should begin in the
time scales agreed, with relevant personnel carrying out their duties as and when required. However,
it is the client who holds the responsibility for seeing that everything is going according to plan.
Although we say “control” we actually mean “monitor and measure”. Any client who is lax enough
to allow agencies to work without regular reporting or supervision deserves to have something go
wrong. If the brief has been done correctly there will be clear parameters for the agency to work
within and it is simply a matter of the client allocating responsibility to someone in their organisation
to keep an eye on things.
Control can be achieved by:
! Making sure that contracts are issued and understood
! Insisting on regular reports
! Setting clear objectives and parameters
! Checking that agreed schedules are being met
! Checking that budgets are being adhered to
! Checking that required results are being achieved
Dealing with an agency can become a nightmare if control is not exercised. Spiralling costs, added to
a “loose control contract” have caused many headaches for managers who often find, when something
is going wrong, that a research project is too far down the road to change agencies. This is one area
that must be handled with care by any manager – marketing or otherwise.
F. INFORMATION SYSTEMS
As we have seen the process of research is the gathering and storage of information for analysis and
decision making. Depending on the nature of the research task, there may be vast amounts of
information gathered which need to be retained until such time as it can be analysed or translated into
a suitable format for analysis. Storage needs to be secure so that valuable data is not “lost in the
system” or destroyed accidentally. Such storage systems are in common use and are known as
Information Systems.
Management Information Systems (MIS)

In an organisational context, information which will aid decision making will be placed, by some
process, somewhere which caters for:
! The storage of information
! The interpretation of information
! The transforming of information into intelligence
! The retrieval of intelligence (and information)
! The transmission of relevant intelligence in an appropriate format
The “place” where the information is put is called the Management Information System (MIS).
The system may be manual or computerised, according to the size of the business and the resources
available.
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It is often the case that when people talk about a Management Information System they are thinking in
terms of computerised systems. This is because of the number of very large, and influential, firms
which have access to networked computers – many on a world-wide basis. However, not all
companies have the benefit of expensive technology and there are times when an MIS consists of
pieces of paper stored in a filing cabinet.
Management Information Systems are not exclusive to large companies. There are many individuals
who work at their own trade (jobbing carpenters, plumbers, etc.) who would say that they do not have
a Management Information System, but they do!
With any information system information is fed into it, transformed into a format that makes sense,
and then stored. It can stay stored for short periods of time, or for relatively long periods of time,
depending on the nature of the information and the purpose it serves.
The self-employed carpenter or plumber is constantly gathering information on his own particular
markets and potential customers, etc. He may keep this information in his head, but the information
will be recalled as and when appropriate.
The principle also applies to you. You take in information on numerous things. At various times,
information will be given to you that you do not understand and you set your brain to work and think
about it. Eventually you come to terms with it. You then convert the original information into a
format which you can understand and you retain it in your memory.
Some information you will only need for a very short time and you will then forget it, but some
information you will retain in your long-term memory until it might be useful to you. When the
occasion comes that you need that information, you delve into your memory to retrieve it.
Your brain is your own personal information system. You may have further sources of information –
a diary, a filofax, an address book, etc. Any way in which you organise information that is useful to
you is part of your “system”.
Exactly the same principle is used in terms of business organisations but, of course, the systems used
are usually more complex than a personal system.
Therefore, accepting the above, you could argue that a Management Information System is always
present – irrespective of the size, or complexity, of the organisation.
The effectiveness of the system, or otherwise, lies in the planning and organisation which is
undertaken to make sure that the system meets the required standard.
Information which might be held in an overall Management Information System includes:
! Financial records
! Details of tax and dividend payments
! Personnel details
! Purchasing costs
! Production schedules, etc.
For an organisation, the overall Management Information System should cover every section. The
system needs to be designed so that it is multi-purpose and of use to everyone in the organisation. If
one section of the organisation is left out the system is failing to cope.
Each individual section of the organisation will have different information requirements but,
ultimately, all of the systems need to be inter-linked in some way, so that information can be used to
best effect.
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The production department, or function, will have its own information requirements but there may be
others in the organisation who will need access to it, e.g. the person who is checking an order for a
customer may need to see which batch of a product is currently completed or in progress.
The Marketing Information System (MkIS) will have information relating specifically to the
marketing effort but other people in the organisation may, at times, need access to some of that
information. Hence the necessity for the inter-linking of systems across the whole spectrum of the
company.
If the systems do not link in together, there is a possibility that the corporate objectives will be
confused and diluted and, consequently, will not be achieved.
Marketing Information Systems

The MkIS is a sub-section of the overall management system. It will contain information which is
pertinent to the marketing effort but, as we know, it must fit into the overall Management Information
System.
In a similar fashion to the way that the overall Management Information System is made up of a
number of smaller information systems, so the Marketing Information System itself is said to consist
of sub-systems.
The sub-systems are:
! Internal records system: the day-to-day recording of marketing activities
! Marketing intelligence system: the sources and methods used to collect information
! Marketing research system: the systematic and planned gathering of information
! Marketing support or analysis systems: the statistical systems used to analyse the
information
Collectively these sub-systems combine to produce an effective method of gathering and handling the
necessary information for the marketing effort (see Figure 5.3).
Content and Purpose of MkIS

It has been said that managers are only as good as:
! The information they receive
! How well they interpret it
! How well they act upon it
This may, or may not, be a truly accurate statement, but we have to accept that information gained
does help make life easier. Thus, the purpose of the MkIS will be to make available any information
which will help in the marketing effort.
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Figure 5.3: Marketing Information System
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So, by providing:
! the right information
! to the right people
! at the right time
! in the right format
! from the best source
! at an acceptable cost
a marketing information system should:
! reduce uncertainties in adopting certain courses of action,
! improve decisions on which course of action to pursue,
! help in setting standards and measuring performance, and
! help managers to fulfil their responsibilities to the organisation.
Having already identified the numerous factors which are studied during a marketing audit it seems
inappropriate to repeat exhaustive lists of the type of information which can, and will, be held in a
Marketing Information System. However, do remember that the Marketing Information System will
include details of:
! Customers
! Competitors
! Market share
! Market conditions and trends
! The general environment
! Marketing mix elements (all seven)
Information gathered and held in the system can be used for a wide variety of purposes:
Customer analysis Forward purchasing
Profit analysis Planning and decision making
Salesforce control Sales forecasting
Competitor analysis Improved data retrieval
Cost savings Preparing product launches
The benefits are the same as those to be gained from planning of any kind, e.g. reduced risk, cost
savings, better decision making, improved performance and commitment, etc. Each and every one of
the above examples of how an information system can be used is important in its own right.
The uses for information actually bring us to the last stage in handling data from research, i.e. the
dissemination of information, which is simply the circulation of information among those who need it.
Throughout the organisation there will be multiple uses for any piece of information which is
received, whether it originates from internal or external sources. It is the responsibility of those who
use the Management Information System to see that information is available as and when required by
the people who need it. Hence the necessity to design user-friendly systems which meet the needs of
several functions.
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If we take examples of two pieces of information, one internal and one external, we can see how
information can be of different use to different functions.
Information Used by For
Internal source
Orders received Marketing Control and checking
Finance Cash-flow planning
Purchasing Forward planning
Production Scheduling
Despatch Storage and logistics
External source
New legislation Marketing Changes in promotion
Finance Cost in plant changes
Purchasing Sourcing new supplies
Production Changed processes
Despatch New handling procedures
You can see from the above that any single item of information can have repercussions throughout the
company and because of this it is important that information does, indeed, get to the right people, at
the right time, in the right format, etc.
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143
Study Unit 6
Understanding Consumers and Consumer Behaviour
Contents Page
A. The Buying Process 144

A Rational Decision-making Model 144
Who Buys? 146
Types of Purchasing 147
B. Influences on Individual Buying Behaviour 150

Cultural 151
Social 151
Personal 151
Psychological 152
Personality and Environmental Influences 152
C. Classifications of Consumers 153

Socio-economic Groupings (Class) 153
The Family Life Cycle 153
SAGACITY 155
Geographic/Residential Groups 155
Life-style Groupings 156
D. The Social Psychology of Consumer Behaviour 158

An Initial Model 158
Fulfilment of Needs 159
The Influence of Groups 164
Cognitive Dissonance 169
Decision-Making Sets 171
“Hierarchy of Effects” Theories 172
E. Organisational Purchasing 173

Types of Industrial Purchases 174
Influences on Organisational Buying 176
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144 Understanding Consumers and Consumer Behaviour
A. THE BUYING PROCESS

The buying process is not just “the purchase”. The process covers all the stages that a buyer goes
through when making a purchase.
As marketers we need to understand the process fully so that we can help the buyer through every
stage. If we can do this, we are more likely to get a successful sale and the buyer is more likely to be
satisfied at the eventual outcome.
A Rational Decision-making Model

The process itself may involves the following stages:
! A need is felt which creates a problem to be solved.
! A solution is sought for that problem.
! Alternative solutions are analysed and assessed.
! A decision is made as to which is the best solution to the problem.
! The decision is implemented.
! A review is made of the decision.
At any stage it may be necessary to go back to a previous stage and review earlier thinking. This is
known as a feedback loop.
This basic process can be shown as a very simple model as follows:
Need Review/Feedback Decide Act
Search/Evaluate
Figure 5.2
Remember that review and feedback are also important in this process.
Never forget that we are talking about a process – which involves a sequence of stages. As marketers
we need to be able to understand the processes our customers go through so that we can overcome any
barriers that may make them decide not to buy, or to buy from the competition.
We want to establish ourselves as the preferred provider. Not many companies are in the enviable
position of being the sole source of supply.
To demonstrate the process, let us take a simple example of the buying process of an individual
consumer – YOU.
Example
Imagine you have been kept late at the office and do not have an evening meal prepared. You are
feeling really hungry and know that you need to eat pretty soon.
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Understanding Consumers and Consumer Behaviour 145
! Stage 1
You have a problem – you are hungry. You need to eat so you must find food. You move into
Stage 2.
! Stage 2
You have no meal prepared at home. Your first choice involves deciding on whether or not you
will cook when you get home.
! Solution 1: You know that you have a nice steak in your refrigerator, so you decide you
will cook when you get home. The search stops there – your problem has been solved.
! Solution 2: You decide you are too tired to cook and want to have food provided for you.
You remain at Stage 2 – your problem still exists but it has changed slightly – it has
added dimensions.
The first added feature involves deciding where you want to eat:
! Solution 1: in a restaurant?
! Solution 2: at home?
You consider the alternatives and decide that a restaurant will be expensive and take too long.
(You have assessed your resources of time and money.) You decide you will eat at home.
You remain in Stage 2. You now reconfirm your problem and assess your decisions to date.
Yes, you are hungry and you need to eat. Yes, you are too tired to cook for yourself and yes,
you don’t want to go to a restaurant. Your decision is “firm” – your problem still exists but has
moved into another decision phase.
You are still in Stage 2. You now have to decide what kind of fast food you want to eat. You
consider all solutions available to you, which may vary from fish and chips or beefburger to
Chinese or Indian meals. You assess each option against various factors – time, convenience,
money and preference. When you have finished your assessment you will make your decision.
You decide on an Indian meal.
You could move into Stage 3 immediately because there is only one outlet to buy from; or you
could have further decisions to make on where to buy from before you finally choose.
Your final decision might be based on the fact that there is an Indian take-away restaurant near
your home. You’ve used it before and know the food is good. You also know that you can
order by telephone and it will be ready for you to collect when you arrive. The end result will
be that you can eat as soon as you arrive home. You are happy with your decision and you
move into Stage 3.
! Stage 3
You telephone in your order stating your requirements and giving the time when you will be
collecting. You leave the office, collect your food, go home and eat it. The purchase is
completed and the product has been “consumed”. You now move into Stage 4.
! Stage 4
After you have eaten your meal, you feel a little ill. You blame the food and think about the
other options which had been open to you. Would they have been better? You might not be
feeling ill if you had bought fish and chips. Maybe you should have gone to a restaurant or
tried a different outlet.
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You are now doubting the wisdom of the decisions you made earlier. You are experiencing
dissonance – an interference with, or “jarring” of, your knowledge and experiences.
You think back over the process. You compare the options you had available but still think
your decisions were right. You wonder why you are feeling ill.
Suddenly you realise that you are really only feeling ill because you have eaten too much. You
feel reassured – it is you that is at fault, not your decisions, the food or the outlet. Your
confidence in, or “loyalty” to, the outlet is restored and your preference for Indian food is re-
established – you did the right thing! You are likely to repeat the process at another time in the
future.
Although the decision making in this example is on a very simple level, it clearly indicates the stages
in the buying process and the decision loops which will be taken.
At each stage, whether consciously or not, all decisions are “checked and verified” before moving into
the next phase. Resources are monitored to see if the decision is viable, etc. The process will be the
same, whether it is for an expensive item or for something which costs very little money.
What can vary is:
! The strength of the initial problem
! The nature of the product being bought
! The value of the item being bought
! Who is involved in the buying process
! Who will use the item being bought
! The length of time that will be taken in the search process
! The ease of the actual decision making
! The convenience of the actual purchase
! The after sales confidence of the buyer and the user
If you consider these possible differences, you will see that some of them will be a direct outcome of
another. For example, for a high value purchase it is likely that more time will be spent in the
searching stage. The level of reassurance necessary after the sale will also be greater. It is also
possible that more than one person will be involved in the process. This brings us, as marketers, to a
very important question – who is buying?
Who Buys?
You will note that in the section above I have introduced the term “the user”. This is because we often
sell things to people who are buying on behalf of others.
The customer buys. The user is the consumer. A person can, of course, be both at the same time, but
we should never forget that we may be dealing with multiple levels in the buying process and we have
to cater for all needs. To simply make it easy for an intermediary to buy without thinking of the
impact on the user is most unwise. Conversely, to concentrate on the needs of the user at the expense
of the intermediary is equally unwise.
We should be looking for a balance which most closely matches everyone’s needs. This matching can
be easy or it can create a number of problems. Problems often increase in direct ratio to the length
and complexity of the distribution channel and the nature of the item being bought.
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The Decision-making Unit

Buying can be done by an individual or by a group of people. We call the individual(s), involved in
buying, the Decision-making Unit (DMU).
We have to accept that often purchasing is carried out to meet the requirements of more than one
person, which can mean that more than one person will be involved in the purchasing decision
processes. This applies equally in consumer and industrial purchasing.
When more than one person is involved, the individuals may have a definite “role” to play in the
process. The roles have been identified as follows:
! The initiator: the person who comes up with the idea of buying an item.
! The influencer: the person, or people, who will shape the outcome of the decision.
! The decider: the person with the power or authority to make the decision.
! The buyer: the person who makes the actual purchase.
! The user: the person who will eventually use the product.
And, of course, in many purchases there will also be:
! The gatekeeper: the person who can prevent the decision from being made or make it more
difficult, e.g. a receptionist who prevents a salesperson from seeing a buyer, or a friend who
tells someone that a product is a waste of money – simply because they do not see the need for
it themselves.
Although these descriptions are more often used to describe group purchases, the individual purchaser
can also be playing a lot of the “roles”. For example:
! A father might think of the idea of buying some painting materials which would keep his
children occupied while he is busy (initiator).
! He allows his own tastes to influence his decision as he enjoys painting (influencer).
! He goes ahead and decides to buy a set of water-colour paints (decider).
! He goes to an outlet and buys (buyer).
! Of course, he may decide that his children don’t deserve the present and not buy (gatekeeper).
The only “role” not being covered in this example is that of the user.
Types of Purchasing
One way of considering the decisions which you, and most other consumers, take is to classify them
broadly as either “new buys” or “repeat buys”. It is worthwhile looking at these two categories in
some detail, because many organisational decisions follow a similar pattern.
! New Buy Decisions
Your new buy decisions may be for items of small value, such as changing your toothpaste or
choosing a different food; they involve small amounts of money, so the risk of being
dissatisfied is there but the outcome is not disastrous. You may throw away an item you dislike
and accept you have wasted a tiny part of your resources.
Some new buys are more serious because they involve products which cost more money and
would not be thrown away so easily. There are many grades of this type of buying and you can
easily put your buying into an order of importance. You might think of clothing, then kitchen
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equipment, furniture, a car, a holiday; and for some of us, a house is the most expensive new
buy item.
! Repeat Buy Decisions
When you buy something you have used previously, you have the benefit of experience to help
you, so you have less difficulty in choosing the product. There will still be different levels of
decision-making, because the products you buy may range from low-value items such as
toiletries or foodstuffs to a second car or another house. In all these categories, the experience
of previous deals will make the decision to buy or not to buy less difficult.
This is, though, a rather simplistic analysis for marketing purposes, and more light is shed by using a
model which was originally introduced by Assael (1987).
This asserts that the type, or nature, of purchasing is affected by two variables:
(a) The involvement of the buyer with the product, and
(b) The differences available (between products/brands).
The following diagram demonstrates the interaction between these variables:
Degree of Buyer Involvement in the Purchase

Low High
Few
Habitual buying Dissonance reducing
behaviour behaviour
Significant e.g. basic foods e.g. furniture
Differences
Between
Brands Variety seeking
Complex buying
behaviour
behaviour
Many e.g. chocolate bars,
e.g. computers
breakfast cereals
Figure 6.2: From Assael – Four Types of Buying Behaviour
! Habitual Buying
This is repetitive buying which takes little thinking about. Few differences are apparent
between products and brands and the customer allocates little, or low, importance to the
purchase. It may be that the customer has, in the past, considered alternatives and has found
“the ideal”. The customer is happy to stick with their decision and has, in fact, become “loyal”.
! Variety Seeking
This type of purchase will still involve relatively low importance in the mind of the purchaser,
but there will be lots of choice and variety, e.g. biscuits, sweets, newspapers, magazines. If a
product is tried and found to be lacking in some aspect, the buyer will simply try another one
the next time they buy, or they may actively decide to keep trying different brands to see which
is best, e.g. people who drink beer often try different types just as an experiment.
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! Dissonance Reducing
Dissonance reducing purchasing is the kind of purchasing which is designed to reduce post-
purchase “doubt”. Because the degree of involvement is high, usually because of value and the
item being something which is only bought rarely (e.g. an electric bed), the buyer may have no
previous experience to use as a base for comparison in the search process.
If you add this lack of experience to the fact that there are only minor differences between the
types of product available, it is easy to see why the buyer needs to ensure that the item he/she
buys is good. The search process may therefore be extended. This type of purchasing can also
mean that, because there are so few differences in the models or brands available in the market,
the actual purchase itself may be made relatively quickly.
! Complex Buying
High product involvement and lots of choice make this an extremely hazardous type of
purchase for a buyer. If we take buying a computer for home use as an example, you can
understand the problems. You may have already had one make of computer and been quite
happy with it, but now you have outgrown your machine and need another. It is going to be
expensive so you have to make sure you get good value for money.
There is such a wide range of computers on the market that your choice will not be easy. You
have to consider machine capabilities, software, compatibility with your existing floppy discs
and printer, etc. This type of decision can take a lot of time in the search for information and
assessment of alternatives before a purchase is made.
Impulse Buying
Although this type of buying is not mentioned in the Assael model, we must consider it as it certainly
happens.
Producers are aware of the existence of impulse, or non-rational, purchasing which is why so much
money is spent on promotional literature and point of sale displays.
There is really no accounting for this type of purchase and yet we all do it from time to time. We are
attracted by an advertisement, or a point of sale display and we leap in and buy without thinking about
it. Sometimes impulse buying works and sometimes it doesn’t.
If it works that is OK. We acquire confidence in the manufacturer, or the outlet, and feel quite happy.
If it doesn’t we have all the time in the world to regret what we have done. We may think “Never
again!” and blame the manufacturer, or the outlet, for our own error.
The effects of this “blame” can last for a considerable time and can actually influence our more
rational purchasing – with the organisation which was blamed losing custom.
You may think that impulse purchasing does not meet the recognised stages in the buying process. In
my opinion it does. All that has happened is that the process has been gone through very quickly or
some stages have been more or less by-passed:
! When you buy something on impulse you will be thinking it is a good idea as it will be useful
for some purpose or another – you are solving a problem. You may not have been aware until
then that the problem existed, but some factor makes you recognise it.
! Circumstances shorten the search phase – maybe it is because you know you can’t get back to
the outlet, or there are only a few of the items available.
! You still make the purchase decision and complete the purchase.
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! You still carry out the post-purchase evaluation.

Therefore you have still gone through the purchasing process.
B. INFLUENCES ON INDIVIDUAL BUYING BEHAVIOUR

Marketing managers are in the “people” business. Even though they may be trying to make profits,
they must understand individual and group behaviour both from the internal (supply) and external
(demand) points of view.
Behaviour stems from:
! Needs (requirements), and
! Wants (desires).
It has been said that today’s wants are tomorrow’s needs and a great deal of marketing effort is put
into trying to make this the case where buyers are concerned.
! Needs can be basic (physical) or higher (psychological).
! Wants are “desires”.
For example, I “need” to earn enough money to live – but I “want” to earn enough money to buy a
speedboat.
Internally, within the organisation itself, managers need to ensure that basic needs are met and that
personnel are satisfied with pay, conditions of work, involvement, style of leadership, etc. and that the
personnel are not demotivated by any activities taking place. They should also take into consideration
the wants of the staff as a means of motivation. Knowing the aspirations of a member of staff, or
what will motivate them, can be of considerable help when trying to achieve their cooperation.
It could be said that if behaviour is not understood, marketers are unlikely to be successful in
obtaining their objectives and in overcoming conflict.
It would be every manufacturer’s dream to produce products that every buyer in the world wanted to
buy, but we know that is impossible simply because buyers are people, and people differ in many
ways. Marketers therefore have to understand what makes people different from one another, if they
want to help the customers to satisfy their needs.
These differences are caused by various influencing factors, as the following model shows.
CULTURAL PERSONAL
The Buying
Consumer
SOCIAL PSYCHOLOGICAL
Figure 6.3: Influences on Consumer Buying Behaviour
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Cultural
The influences under this heading can be sub-divided into three sections:
! Culture
Culture includes both abstract ideas, and beliefs, as well as physical artifacts which are
important to a society. It summarises the learned values and attitudes of a society as a whole.
It is while we are growing up that we acquire expectations and standards that fit with the
society in which we live, and these acquired values and expectations stay with us throughout
our lives. For example, the different standards between the Muslim and Christian religions
impose different levels of acceptance on certain behaviour and, therefore, on purchasing habits.
As an individual grows, they will absorb and acquire behavioural norms which are acceptable
to their particular society; these inbred beliefs will be very strong. It is an accepted fact that the
society in which a person lives and has been reared is one of the greatest influences on the final
character of that individual.
It is relatively easy for any marketer to understand the culture in their own country as they will
be part of it, but understanding cultural influences in foreign markets takes a little more care. It
is therefore particularly important that, when dealing with markets different to the home
market, time is taken to identify and understand the cultural norms of acceptability in the
foreign market, as these may vary dramatically from those in the home country.
! Sub-culture
Cultures of all kinds will contain smaller groups or sub-sections. The differences may be based
on life style, religion or on belief in some ideal, e.g. in Spain you will find the Basque
separatists, who are part of the overall culture of Spain but can be regarded in their own right as
a sub-culture.
! Social Class
Despite the claims for “classless societies” which we hear from politicians, class systems still
exist around the world. Social classes are the “divisions” which a society accepts and they may
be based on status, money or education. In the UK the social class system (A, B, C1, C2, D and
E), which is still widely used, is defined on the job of the head of the household but, because of
the changes which have taken place in the UK society, this method may not always be an
appropriate measure.
Social
Influences under this heading can come from family and friends or other reference groups, such as
clubs and interest societies. The individual role and status of the buyer is also another influence –
how we want other people to see us!
For example, if your father has always bought Rover cars, you may be influenced into buying a Rover
when you make your first car purchase. However, should you be part of a group that has adopted
another make of car, e.g. university students who buy Yugo cars as a status symbol or statement, you
could be influenced by that attitude in your wish to conform to the “norm” of the group. Once you get
your first major job as a manager, though, you may realise that a BMW car would fit your status better
than a Yugo and you will make another change.
Personal
Personal factors relate to the individual, e.g. age, life style, occupation, wealth and character.
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For example, a young man of 21 who enjoys danger is more likely to be attracted to a motor cycle,
with flames painted on its side, than another wealthy young man, of the same age, who enjoys the
theatre. A lady of 45 will want different clothes from a lady of 25. A company director will have
different purchasing expectations from those of a mechanic in a garage. As we move through our
lives, we change our purchasing habits according to the prevailing conditions.
Psychological
Wilson, Gilligan and Pearson (in “Strategic Marketing Management”, 1992) identify four
psychological characteristics as being important: motivation; perception; learning; and beliefs and
attitudes.
! Motivation
This is what drives us to do or want something. It stems from a range of human needs, from
basic to higher, as identified by Maslow in his “Hierarchy of Needs” model (see later in study
unit).
! Perception
This is how we “see” things. We are conditioned to expect certain things and this conditioning
means that we take in images but convert them to what is acceptable to our minds. It is our
own way of organising the information we take in each day. Two people who are subjected to
the same advertising message, at the same time, may “see” the message in completely different
ways. For example, one person at a holiday time-share demonstration may see the salesperson
as being very good and knowledgeable on the subject, but another person at the same
demonstration may see the same salesperson as being a “slick fast-talker”, who is just interested
in taking money.
! Learning
This comes from experience. As we learn, we change our expectations to meet with the newly
acquired knowledge. For example, if you enjoy working or playing with computers, you
gradually build up your knowledge until such time as your present machine is not good enough
for you. You then move up into another category and begin the cycle all over again.
! Beliefs and Attitudes
The dictionary definition of “belief” is “principle, proposition or idea accepted as being true
without positive proof”. From this you can see that “belief” will be personal to each individual.
If we are convinced through our socialisation, learning, etc. that one particular brand is better
than another, we will buy that brand until something happens to change our belief.
“Attitude” is defined as being “the way a person views something or behaves towards it, often
in an evaluative way”. Therefore we will be influenced in our buying by how we regard the
item being purchased. For example, you may see an item as being “good value for money” or
“cheap and nasty”.
We shall examine these various factors in more detail in Section D below.
Moving on from this simple model, there are other influences that the marketer must take into
consideration.
Personality and Environmental Influences

People are influenced in their buying behaviour both by their own opinions and attitudes and by the
opinions and attitudes of various groups.
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Personal Group
Family Work
Education Leisure
Residential area Hobbies
Acquired knowledge Protest groups
Likes/dislikes Support groups
It is these types of influences which give rise to the broad classifications of consumers which are used
extensively in marketing and are examined in the next section.
Note that group attitudes may be acquired from formal (structured) or informal groups.
The influence from peer groups and opinion leaders is very strong indeed – particularly so in the
young. In any kind of marketing these influences must be considered by the planner as they can,
ultimately, have an effect on the outcome of the entire marketing effort. If opinion leaders can be
captured, the “followers” will also adopt the product on sale.
C. CLASSIFICATIONS OF CONSUMERS
Socio-economic Groupings (Class)

Perhaps one of the oldest and most recognised ways of splitting people into categories is based on
“class”. Every country in the world has “upper” and “lower” classes. The differences may be based
on the position of a person, or their family, in society or on wealth but it is still a division recognised
and accepted by all – even though some may fight against it.
In the UK, social classes are recognised as:
A Upper middle class: higher managerial or professional levels
B Middle class: middle to senior management, rising professionals
C1 Lower middle class: junior and supervisory managers, clerical grades
C2 Skilled working class: manual trades involving individual skills
D Working class: semi and unskilled workers
E Benefit takers: pensioners, widows, anyone using state benefits
“Class” has been, and still is, well used in the UK. The whole premise, though, is based on the job
and income of the “head of the house” which is often taken to mean the “male”. Times are changing.
Many women now earn more than their partners which, in effect, could mean that together the couple
should really be categorised in a different class. Time has also eroded the perceived differences
between those born to “upper” and “lower” classes.
The Family Life Cycle

The “family” is arguably the most important purchasing unit in any particular country because of the
total value of sales which are generated in the domestic markets. The theory of the Family Life
Cycle (FLC) is meant to show that purchasing motivations can be predicted and that they will change
over time. The basic concept makes an assumption that every adult, as they age, will move through
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various stages of life, demonstrating certain purchasing preferences at each stage. These are
illustrated in Figure 6.4.
Stage Description Purchase Preference
Bachelor Single young people not living at Leisure interests/clothing/alcohol/

home. At start of career. Low eating
income – main aim to find out/holidays/stereos/cars/cheap
house/have good time. accommodation.
Newly married Young, no children, financially OK Domestic appliances/furniture/

couples if both working. durables/holidays/financial
services.
Full nest 1 Mother at home with one child Children’s clothes and toys – few,
while father works. Reduction in if any, holidays. Home purchasing
income. may be limited to durable goods
Full nest 2 Now with two children under five. More expensive children’s toys.
Father improved salary but costs of Still little money spent on the
family higher. parents. Maybe short, inexpensive
holidays
Full nest 3 Family growing up. Mother Replacing worn-out furniture and
returns to work. Increased income durables. Better class of holiday –
but also increased costs for more purchasing for the parents.
household. Wider interest in food and
entertainment
Empty nest 1 Some of family have moved away Luxury purchasing. Maybe home-
from home. Parents now “help improvements
out” on living costs for children
living away.
Empty nest 2 All children left home. Parents “Reckless” purchasing on

back to “new married” stage. unnecessary items. Interest
Home will be fully furnished and holidays, cruises, etc.
group interests formed.
Solitary survivor 1 One partner dies but other is still “Insurance” purchases to secure
active and working. House is now future. Buying for grandchildren.
paid for. Little, if any, home purchases
Solitary survivor 2 Last one living – not working. Medicinal and health aids.
Security purchasing for safety in
the home. Most spending done on
children and grandchildren
Figure 6.4: The Family Life Cycle
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Problems with using the FLC

In many areas of the world it is accepted that it is usually the woman of the house who will make the
purchase decision in low cost/often repeated purchases. For more expensive items (e.g. consumer
durables) it will be either a joint decision or a decision made by the controller of the finances within
the family – often still the woman! For major purchases it is likely to be the male in the family who
will be the ultimate decider (e.g. new car).
However, this attitude is changing, particularly in industrialised nations, as more and more women
either remain in, or return to, work after having children. Not only are women more likely to have
money of their own, but they also have more self-assurance and power to influence family buying
decisions.
This, and other changes that have taken place in society, has led to the opinion that the “accepted”
version of the family does not cover everything in the modern world. For example, many young
people choose not to marry at all, or to wait until such time as they have amassed enough money to be
secure. Their purchasing behaviour will be changed because of these decisions.
There are also many young people who take a conscious decision not to have children, which means
that as they become more established and have more disposable income they may retain their initial
purchasing characteristics or be in the market for high status purchases.
The increase in the divorce rate, world-wide, as well as in the number of non-married people living
together as couples has meant that there can be “double families” with two sets of parents, and
grandparents, buying for children.
Despite this changing aspect, the “reasons for buying” are unlikely to change in the normal type of
nuclear family of parents and children, and the marketer is still largely able to design campaigns
accordingly. But you should remember that, as with Maslow’s model, although this model can be
used as a guideline it does not give a perfect picture.
SAGACITY
The inadequacies of the FLC and social classifications led to the introduction of this model of
influences on behaviour.
The model uses life cycle as its main base and suggests four stages of life: Dependent, Pre-family,
Family and Late.
It then splits up each stage in accordance with income and then income is split up according to white
collar (managerial/higher) or blue collar (skilled/lower) occupations.
The underlying suggestion of this model is that people will have different hopes and buying behaviour
as they move through their lives and will be influenced by their current situation. This is, in fact, a
very similar concept to the Family Life Cycle.
Research work has taken the viewpoint of SAGACITY further and suggests that it is not necessarily
true that age and progression through the accepted life cycle are the most important influences on
buying behaviour. The suggestion is that influences on behaviour will be psychological, and that it is
attitudes and expectations which will be more significant.
Geographic/Residential Groups
There are several types of classification based on geographic or residential factors –for example,
MOSAIC or PINPOINT. However, ACORN is the most quoted of these systems and is widely used
in the UK by analysts and planners. ACORN stands for “A Classification of Residential
Neighbourhoods”. Similar types of systems are used in other parts of the world.
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In the UK, the ACORN system uses categories of housing, i.e.

A Modern family housing for manual workers
B Modern family housing for higher incomes
C Older housing of intermediate status
D Very poor quality older terraced housing
E Rural areas
F Urban local authority housing
G Housing with most overcrowding
H Low-income areas with immigrants
I Student and high-status non-family areas
J Traditional high-status suburbia
K Areas of elderly people
The premise of this type of classification is based on the assumption that people who live in similar
areas will portray similar buying preferences, allowing marketers to target on a geographical basis.
The problem with this model is that although, in general, residential areas will house people earning
similar salaries, etc. this will not always be true:
! There may be a family living in urban local authority housing that has quite a lot of money –
which puts them in the market for high status purchases – but they choose to stay living where
they are because they like the area or the neighbours.
! There may be a young couple who have extended themselves to buy a really expensive house in
a high status area – but they may have no money with which to buy furniture and carpets and
may be struggling to survive.
Again, we have a model which can be useful in general terms, but is not perfect.
Life-style Groupings
The changes which have taken place in levels of affluence and consumer awareness overall, coupled
with increased competition for markets, has led to an increasing interest in analysing and
understanding individual life styles. These include:
! AIO – Activities, Interests and Opinions
Customers are tested by questionnaires which are analysed and the customer is then
“categorised”.
! VALS – Value and Life Style
Arnold Mitchell produced this model of understanding individual behaviour. He suggested
that people can be classified as one of four types:
! Need-driven: “survivors” and “sustainers”
! Outer-directed people: “belongers”, “emulators” and “achievers”
! Inner-driven people: “I am me”, “experientials”, “societally conscious”
! Combined (outer/inner): “integrated”.
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In much the same way as Maslow suggested people move through a hierarchy, Mitchell
suggested that people move through the four stages, from being a “survivor” until they become
“integrated”. Mitchell, however, added the possibility that people can achieve “integrated
status” by two possible routes.
All people are survivors, then sustainers, and then become belongers.
At this point Mitchell suggested that, depending on the basic nature of the person, one of two
routes could be taken:
! Outer-directed people will become either emulators, or achievers;
! Inner-directed people will become I am me, experientials, or societally conscious.
Following from this each individual will become “integrated”.
The “emulators and achievers” route is more akin to the traditional path through Maslow’s
hierarchy, but the greater awareness of individual rights and choices, together with increased
awareness of environmental issues has, in fact, meant much more “individualism” on the part of
the buying public. Marketers can capitalise on this and target very precisely.
! Cross-cultural Consumer Characteristics (4Cs)
This classification was devised by the Young and Rubican advertising agency and classified
people into one of three overall groups which could then be sub-divided:
The Constrained The Middle Majority The Innovators
Resigned poor Mainstreamers Transitionalists

Struggling poor Aspirers Reformers
Succeeders
! Other life style groups

Following the universal acceptance of the identification of the “YUPPIE” (young upwardly
mobile professional), there have been various other attempts to place consumers into groupings
in accordance with their life styles. The following list adapted from an article “Goodbye
Yuppies, Hello Yaks” written after a customer research project carried out for a major credit
card company in the UK:
(a) YAKS (young, adventurous, keen and single): 18-24; living at home or in rented
accommodation; fashion followers; live well; high entertainment expenditure; often little
regard for savings; often high credit card users.
(b) EWES (experts with expensive styles): 24-35; trained/skilled in highly paid job; often
married but usually two incomes; some in rented, some in mortgaged accommodation;
ability to meet payments; fashion-conscious; disposable income to keep up with latest
trends; 2-3 holidays per year (Mediterranean in summer/USA skiing in winter); high
credit card users.
(c) BATS (babies add the sparkle): 24-35; married or living together, rented/mortgaged;
previous (or latent) fashion-consciousness suppressed by other priorities and loss of
second income; 1-2 holidays per year often with friends or camping in UK or France.
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(d) CLAMS (close check against money spent): 34-44; married but children growing;
mortgage commitments at their peak; often paying school fees; some in mid-life crises –
divorcing or re-marrying; 1-2 holidays per year either package or visiting friends and
relatives in UK; budget carefully; pay credit cards on time or leave very small
outstanding balance.
(e) MICE (money is coming easier): 44-54; children grown – some left home; often
inherited property giving financial security and ability to purchase luxury items; 1-2
holidays per year – often now without children – usually in UK but often “special” places
they have always wanted to see or visiting old friends who have moved abroad.
(f) OWLS (older with less stress): 55+; children grown and left home; financial security;
2-3 holidays per year – maybe visiting friends abroad in similar life situations; still
conscious of money but determined to enjoy themselves; major expenditure is on
holidays and presents for children and grandchildren; use credit cards but often sparingly
and always pay in full and on time.
These classifications were pertinent to the company which undertook the research, and
demonstrated the life styles of their customers at that given time. Other companies may devise
their own classifications in accordance with their specific needs, and categories will change
because of environmental aspects – there will always be the “latest method” which will outdate
previous categories.
Ultimately, though, it makes little difference how consumer groups are identified or categorised; the
various methods are really a way of understanding why people buy, and what influences the buying
decisions.
D. THE SOCIAL PSYCHOLOGY OF CONSUMER

BEHAVIOUR
It is difficult, if not impossible, to plan marketing activities without some understanding of how
ordinary people behave when they are in the marketplace as consumers and as customers. In this
section, then, we shall look at some simple models of human behaviour, in the hope that this will help
us to understand it better, and help us plan more effective activities.
An Initial Model
Engel, Kollatt and Blackwell (1978) proposed a development of the systems approach to apply to
the decision-making process as a framework for highlighting aspects of the influences which bear on
the process. This can be shown in a simple diagram (Figure 6.5).
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PERCEPTUAL EVALUATIVE MOTIVATING

SYSTEM SYSTEM SYSTEM
CENTRAL CONTROL
UNIT
DECISION PROCESS
CHOICE
SATISFACTION
OUTCOMES
DISSONANCE
Figure 6.5: Simplified Version of the Engel, Kollat and Blackwell Model
As you can see there are many inputs into the central control unit and only one output, the decision.
This is a simplified version of the model and the full version has much more detail.
The block shown here as the “perceptual system” can include such items as past experience,
advertising, recommendations, perceived need, funds available and even “wishful thinking”.
Similarly, the block shown as “evaluative system” could include such items as attitudes, hereditary
beliefs, knowledge, advice, information search, motives, life-style, group compliance.
Note that the outcome can be satisfaction or dissonance; you do not know how good a product is
until you try it and you may be pleased or not. Your knowledge will feed through a loop into the
evaluative system, ready for the next buying decision. Such feedback loops can be added to all the
items in the model, making it much more complicated.
Fulfilment of Needs
The two classic theoretical models on the nature of needs as a influence on behaviour are:
! Maslow’s Hierarchy of Needs, and
! Hertzberg’s Two Factor Theory.
These provide the underpinning for our first area of study.
Maslow’s model can be very useful in demonstrating the changes which take place in the individual
over time (see Figure 6.6).
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Self-actualisation
Ultimate
satisfaction
Esteem needs
Social – affiliation – love
Safety and security needs

Basic need
Physiological needs
Figure 6.6: Maslow’s Hierarchy of Needs
Maslow suggested that each individual has certain needs, basic and higher, and that only when one
level of need has been satisfied will the individual move up into the next level.
This model can be very useful for marketing purposes as marketers can target activities at people who
are seen to be at one “level” and help them to reach the next “level”.
The problem with this model is that it is very difficult to know exactly which level someone is at at
any given time. People may be at several levels at the same time for different reasons. For example,
someone who has a high powered car, to impress people, may not have a permanent and secure home
base; someone who is held in high esteem as being an expert in a certain topic or skill may not have
enough money to go on the holiday he/she wants to.
All that marketers can do is to accept the overall meaning of the model and use Maslow as a guideline
for general targeting purposes.
Maslow’s Hierarchy of Needs is a fascinating and useful theory for all kinds of people, but
particularly for marketers since it explains to us why people want different things at different times.
In particular, we gain from it an understanding of the strictly hierarchical order of human desires. So
there would be no point, for us as marketers, talking to people about the satisfaction of aesthetic (level
five) needs, when our potential customers are still feeling their physiological (level one) needs have
not been met.
The reverse is also true, however, that once a particular level of need has been satisfied, a new level
comes to the fore and it is a waste of effort to dwell to any great extent on those below. So, for
instance, if you are in the fashion business, it would be folly to try to appeal to your customers on the
basis of warmth and comfort.
It has also long been recognised that the way people move from awareness of a need to the point
where they act to satisfy it is by no means necessarily simple. For instance, we can say with some
certainty that everyone who goes without food for a day or two will begin to feel hungry (at least,
under normal conditions). What we cannot say with the same degree of certainty is that the person
will act to satisfy that hunger. A religious ascetic, for instance, may deliberately induce hunger
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because he believes it is a good thing to deny his own appetites in the interest of strengthening his
spiritual discipline.
Psychologists have for most of the twentieth century tried to discern a relationship between felt needs
and actions intended to satisfy them. There has been no great agreement on the subject. However,
most writers on the subject have recognised certain mental states or movements that may be
components of the process.
Herzberg’s work indicates that satisfaction of needs is not always of the same kind. In his research
about what motivated people to work for a particular employer, he discovered that there were several
factors that needed satisfying (like good wages and pleasant conditions) but which of themselves did
not motivate. In contrast, other factors were powerful motivators, causing people to put themselves
out, sometimes greatly, for the opportunity to work. These were things like job satisfaction,
responsibility and a sense that one’s work made a difference to the world.
Herzberg proposed what he called his Two-Factor Theory, in which he stated that factors of the first
kind were hygiene or maintenance factors (they needed satisfying, but they did not, of themselves,
motivate) and those of the second kind were satisfiers. So a worker who was badly paid but had a job
where he felt he was making an important social contribution, might well stay despite being offered
the opportunity to work elsewhere, for better wages, but in a job which seemed pointless or
unimportant.
This theory translates well into the world of marketing. It seems that consumers have certain needs
(hygiene factors) that require satisfying, whose absence will cause dissatisfaction, but which are not
so strongly felt as to attract a buyer from another product to this one; there are others (satisfiers) that
are so important that their absence will cause the consumer to engage in a search for an alternative
product. In the context of work, Herzberg summed up this theory by saying that hygiene factors
affected the decision to work here, whereas satisfiers affected the decision whether to work at all.
In a marketing context, we can imagine a washing-up liquid that smells strongly of carbolic but which
cuts through grease like a knife, and another that is perceived to be less efficacious in cleaning but
which smells sweetly of pine-needles. If the consumer is really keen to keep his pots and pans
sparkling, he will stay with the unpleasant-smelling brand because, although he would prefer a
sweeter smell, it is not the main benefit he is seeking. The smell is (in this case) the “hygiene factor”;
the powerful de-greaser is the “satisfier”. If he is not already a user of the strong product, he may
well switch to it from the nicer-smelling one but if he is a current user, he will not switch away from
it.
We shall now consider three aspects of behaviour designed to fulfil needs and their impact on
consumer actions.
(a) Personal Roles and Self-image
When we examine people’s attempts to satisfy their needs, it is all too tempting to assume that
all people are alike and that any given individual is always the same person. Unfortunately,
neither supposition is true and people vary widely in their behaviour. What is important to me
may be sublimely unimportant to you, so the purchase decision I agonise over for days may be
accomplished by you in less than half a minute.
Less easily recognised is the idea that within each individual there are several “persons”, one of
which will be dominant and the others hidden, at any given time, depending on what you are
doing, with whom, and who is watching. This multiplicity of personality has two sources; one
social and the other psychological. Socially, we may be said to be “more than one person”
because adult people are required to adopt more than one role from time to time. For instance, I
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am a writer, a teacher and an administrator in my job and I am a husband, a father, a son and a
brother in my family life; I am also a friend, a fellow-member of a voluntary society and a
neighbour among my social contacts; and I am a ratepayer, a taxpayer, a voter and a
householder within civic life. The “me” who takes seriously his responsibilities when voting,
who believes that we should all share equally the burden of bringing up the community’s
children, may well behave much more selfishly when my neighbour’s children run over my
carefully mown lawn and break down my flowers with their ball. The “me” that seriously
counsels commonsense and gravity when lecturing the children on their choice of career is the
same “me” that once threw up a good, well-paid job to go off and work as a self-employed
gardener, for the sheer joy of being out-of-doors among living things.
Psychologically, we are “more than one person” because our perception of ourselves is a
source of considerable anxiety. Malhotra has postulated three different “self-concepts” or self-
images:
! the actual self-concept (my picture of myself as I really am),
! the ideal self-concept (the “me” I would like to be, were it not for my faults and flaws),
and
! the social self-concept (the “me” as I believe others see me).
(There is, of course, the possibility that the “real” person is different from all three of these,
since all three depend upon the biased self-perception by an individual of himself.)
For the marketer, this idea is important, since different purchase decisions will be made on the
basis of different motivations arising from these pictures of the self. If I am buying a small
pack of peanuts in a shop miles from home, where there is no chance of my being recognised
and if the person serving in the shop is someone I feel no desire to impress, then I may well
choose the cheap packet of salt roasted peanuts. On the other hand, if I am buying in a bar,
when my friends are present, I may well choose the expensive, foil-wrapped, dry-roasted
product, either because I want to be seen as generous (the ideal self-image) or because I believe
that is what a health-conscious, “green” consumer should buy, this being my social self-image
(although I may be completely wrong about how others see this aspect of me).
Ever since Veblen floated the idea of “the symbolic value of possessions” at the end of the
nineteenth century, marketers have been fascinated by the evidence that seems to show that
people buy things not just because of what the things are or what the things can deliver as
material benefits, but because of what the purchase says about the purchaser; what is often
referred to as “conspicuous consumption”. We buy to conform with, or to enhance, our self-
image. And since, as we have mentioned, there is a degree of anxiety associated with self-
image, the notion of risk is inextricably tied up with the act of purchasing. If we buy the wrong
thing, it may damage our image or our lifestyle.
(b) Purchase Risk
The idea of purchase risk needs disentangling from objective (or “real”) risk. Undoubtedly,
when I make a purchase, there may be a physical, tangible, objective danger of the purchase
being unsatisfactory. When I open the box, there may be a piece missing; if I am unlucky, I
may have bought the loaf upon which the baker sneezed. That is actual risk; the chances of the
bad thing happening can to some degree be estimated and quality control procedures can in
some measure prevent it happening.
What we are talking about here, however, is perceived risk – the risk that the purchaser feels is
attendant upon his own act of choosing. This has two sources: lack of information (the less
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information is given about the produce, the more the purchaser feels he is taking a risk in
buying it), and the possible consequences of the purchase. The consumer may feel little
anxiety and that he is running only a very small, acceptable risk, when buying certain products.
If the product is one on which he does not feel the need for much information (buying a new
handkerchief does not require an extensive information search) or one where the consequences
of making a mistake are not severe (the handkerchief, if it turns out to be faulty, can be thrown
away without much loss in money or time), then the perceived risk will be low. If, on the other
hand, the purchaser feels that the purchase is a complex one, demanding a great deal of
information in order to avoid the wrong decision, and if the consequences of a mistake are
likely to be severe (buying a house, for instance) then he will perceive the purchase as
involving a high risk. Marketers characterise their products as low-risk or high-risk products
and obviously certain strategies are necessary for high-risk products which are not needed for
low-risk ones.
For most marketing managers, strategies are needed that reduce the perceived risks associated
with purchase. (We say “for most managers” because there may be a category of products
where risk is actually a desirable state, such as some forms of investment products, gambling
products, “adventure” holidays and personal services such as dating agencies.) Such strategies
to reduce risk may be functional or psychological.
! Functional strategies would include mechanisms that reduced the down-side
consequences of the “wrong” decision, such as money-off promotions, guarantees and
warranties, free samples, offers of a test drive of a new motor car, detailed instructions
and manuals, and promises of free after-sales service, help and advice.
! Psychological means of reducing perceived risk would include advertisements that
showed how easy the product was to use or how socially acceptable it was or
endorsements by people who are seen to be opinion-leaders among the group being
targeted. A stair-lift manufacturer, aware that many of the old people for whom their
product is designed are very resistant to purchase because they fear the physical risk
associated with being carried upstairs, has used the actress Thora Hird in its
advertisements. She is seen as an “ordinary woman” who can be relied upon to speak
truthfully about fears. She is seen in the advert saying how easy the product is to use and
how safe it is.
(c) Problem-solving Behaviour
Mental discomfort associated with risk or lack of information is not, apparently, a steady state
in consumers. There is quite a lot of work that seems to show that people move through a cycle
of purchase behaviour and that different people have different levels of tolerance of risk and
uncertainty. Let’s look first at the idea of cyclical behaviour.
! Extended Problem-solving (EPS)
When a person is faced for the first time with a new product (new to him, not necessarily
new on the market) it seems that he may exhibit a particular kind of behaviour. This
involves:
(i) Searching for information (perhaps talking to other consumers, reading articles in
newspapers or magazines or searching for reports by consumer associations)
(ii) Processing that information in order to categorise the product, i.e. to fit it mentally
into a grouping of similar products
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(iii) Considering his own attitudes and preferences (“am I the sort of person who would
want want/need/use this?”)
(iv) Consulting the social and fashionable pressures that are evident (“everyone else
I’ve met this week seems to be buying one of these”)
(v) Assessing such factors as price, availability and all the risks associated with the
purchase.
As a result of this, an intention may be formed, either to buy the product now, to defer
purchase until later, not to buy it at all or to re-engage in the information search.
! Limited Problem-solving (LPS)
Once the product has been purchased and tried out, it may be that the consumer’s
experience leads him to feel much more comfortable with the product than he was before
(or at least with the product category – he may not necessarily stay with the brand he first
purchased); so much so that the mental factors needed for subsequent purchases are
fewer. The information search is much more limited, the sources consulted fewer, the
sense of risk may be reduced and the consumer may feel that he now “knows his way
around” when looking for the product – he knows what to look for, what kind of outlet
stocks the product and how to use it and gain full enjoyment from it. Now, therefore,
subsequent purchases might involve consideration only of the price of this brand against
that, the social cachet associated with this shop over another or whether to change the
colour or specification of the article.
! Routine Problem-solving
After a while, the consumer may become habituated to buying the product and
knowledgeable about where and for how much it may be had. He may even have
established a firm and unshakeable preference for one particular brand or conversely may
have decided that there is really no difference between any of the competing brands. In
this state, he picks up the product hardly thinking about it at all.
There is some evidence that consumers may become so bored with their RPS state that
they actually engage in brand-switching behaviour, simply to alleviate the tedium of
repeatedly buying the same product time after time.
The Influence of Groups

The interactive way that some groups of people influence others is of great importance to marketers.
A good deal of research has been done in this area and we shall examine three of the key concepts
here.
(a) Diffusion of Innovation
The cycle of behaviour from EPS to LPS to RPS is fairly well-documented in most, if not all,
consumers. But it does seem as if different people move at different speeds through it and that
there is some interaction between different types of people in their movements through it.
It seems that there are people who greatly enjoy consuming new things (here, as elsewhere,
when we talk about products we mean all kinds of products, including intangible ones and
services). They are the kind of people who readily discount the risks associated with newness
(will it come down in price? will it soon be obsolete? will I quickly become tired of it?) for the
pleasure they feel in being seen as leaders among their friends and associates. They are usually
also quite prepared to pay a premium price for something that is new, where other people might
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be more cautious and wait until price competition has brought the price down to a level they
are more comfortable with. These people are referred to commonly as innovators and people
like this are thought to constitute only about 2.5% of the population.
Innovators are also important, not just as initial buyers of a new product, but as opinion-leaders
for people of other psychological types. Whilst they themselves may move quickly through the
EPS-LPS-RPS cycle, there are lots of other people who move less quickly. For these slower
types, innovators often become one of the sources of information to be consulted during the
information search phase of EPS.
The model of the “diffusion of innovation” – developed by Rogers – continues with the idea
that people move through the decision-making process at different speeds.
! Following the innovators in taking up products are the early adopters. These (perhaps
13.5% of the population) are people who are not temperamentally inclined to take the
risks associated with discovering and trying out new things for themselves, but who are
keen “followers of fashion”. Early adopters are often readers of magazines like Vogue.
They watch television programmes about design, the home and garden and new cars and
they are more likely to be watchers of commercial TV than public-service (non-
advertising) TV. All of this behaviour is so that they can feed their need to be up there
with the leaders. It matters to them to be “in fashion”, though as we have seen, they are
not themselves leaders of fashion. Instead, these people watch closely what the
innovators are doing, and tend to follow them. They too are quite likely to pay fairly
high prices for articles that are seen as new and fashionable. Their EPS is likely to be
heavily influenced by their observation of the innovators. They move quite quickly, as a
result, through the EPS-LPS-RPS cycle, though not as quickly as innovators.
! The next group is the early majority. These (34% of the population) will generally not
try a product until it has been well tried by others before them. They are not inclined to
search hard for a product so if it is not on the shelves of their regular shops and stores,
they will not go to the trouble of seeking it out, as innovators or early adopters would.
These are people in whom the EPS is short-lived as they rely quite heavily on others
having done it for them, as it were. They are also unlikely to come into the market until
the prospect of large-scale sales has prompted a reduction from the original premium
price.
! Another 34% of the population are the late majority, who do not feel comfortable with a
new product unless there is clearly little risk associated with its newness. They prefer to
choose between several competing brands and they need the low prices associated with
fierce competition to tempt them into the market. They exhibit practically no EPS
behaviour at all.
! Finally, there is a group of some 16% who are known as laggards. These people are
distrustful of anything that is not seen as traditional, well-tried and tested, familiar, even
old-fashioned. Curiously, although these come very late to market for products, they are
among the most loyal of consumers. Once a product has established itself in their minds
as having some measure of tradition, they will buy it and continue to buy it for as long as
it is available, often going out of their way to discover remaining sources when
mainstream outlets have de-listed it and moved on to newer products.
We can represent Rogers’ theory of Diffusion of Innovation diagrammatically as follows
(Figure 6.7).
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Figure 6.7: Rogers’ Model of Diffusion of Innovation
(b) Reference Groups

People often see themselves as members, potential members or aspirant members, of particular
groups. When we make every day decisions about how we should and will behave in various
situations, we seem to do so by reference to what people would expect in the groups that matter
to us. Psychologists call these groups reference groups.
One of the most common reference groups in early life is the family. We learn a good deal of
behaviour from the expectations of the people to whom we are closely related. We are also
subjected to a good deal of socialising in environments such as schools and colleges and it is
here that we learn to value certain character traits and to depreciate others. As adults, we are
more mature and able to think for ourselves, but it seems that our wish to belong to reference
groups and our willingness to be influenced by them remains strong throughout life.
Three broad types (or functions) of reference group have been identified.
! Normative groups
These are groups to which we would like to think we belong and so we behave in ways
which we think appropriate to membership. So, for instance, if I like to think of myself
as middle-class, I will read a broadsheet newspaper, wear a collar and tie, encourage my
children to think of going to university, work in a professional or near-professional
occupation and so on. The family is the first normative group for most of us but
regional, class and occupational groupings are common normative groups in later life.
Normative groups reward us when we behave as they do, by accepting us into
membership, and punish unacceptable behaviour by denying membership or ostracising
us. Marketers use this tendency, for instance, by showing advertisements that suggest
that failure to buy or use the product will lead to ostracism by a particular group (“good”
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mothers, “good” cooks or fashionable youngsters) while buying the product allows
membership of the desired group.
! The comparative function
Here the members of the group we now belong to influence our behaviour by approving
of certain choices we make and making clear their disapproval of others. So if I feel that
the group I find most attractive is more likely to drink filter coffee than instant, I too will
be powerfully influenced to do the same. A marketer will work on this tendency by using
some channel that is appropriate to those who feel they belong to a particular group.
Thus, if the marketer has discovered through research that there is a sub-group of the
middle class that aspires to “the good life”, in which high-quality products with a high
degree of “naturalness” are valued, and that many of this group are readers of the
Guardian newspaper, then the marketer will use advertisements in the Guardian showing
typical members of the group choosing and using filter coffee. This influences my
choice accordingly (“People like me choose this rather than that”).
! Expert groups
This third group are seen as, either by virtue of their own natural, inherited or acquired
knowledge, or because by having already bought and used the product they have become
expert in choice and use. So, for instance, if we were wondering about how effective a
particular mouthwash was in killing bacteria, the opinion of a dentist would carry a good
deal of weight. Equally, if we want to choose the “right” washing liquid, the opinion of
an experienced housewife who has been washing clothes for years would be seen as
highly influential. We have all seen advertising that makes use of this kind of reference
group.
(c) Credibility
Marketing activities aim to change people’s feelings and attitudes towards various products and
often to persuade people that a product fits well with a particular reference group or lifestyle.
However, an important consideration in this respect is the credibility of the person (or other
source) from whom the message is received.
One of the reasons for the growing use of public relations, where a decade ago advertising
would have unquestioningly been chosen, is the belief that most consumers nowadays distrust
advertising. It is thought that they tend to discount the message of an advertisement, whereas
an article in a newspaper written by an independent journalist is seen to be a credible message
source – the reliable opinion of an apparently disinterested opinion former.
The same principle is being increasingly applied in advertising itself. Here, great emphasis is
placed on using trusted personalities to provide credibility to the messages – the use of Thora
Hird in stair-lift adverts is a good example of an actress chosen for her credibility, and TV
personality Carol Vorderman (whose background is thought vaguely by most people to be in
science) advertises many “scientific” products, from hair conditioners to technology magazines,
on the basis that, if a scientist says so, the products can be relied upon to work.
The reverse effect, of course, can happen when a figure used as an “advocate” falls out of
public favour. Pepsi-Cola are still trying to recover from the embarrassing publicity arising out
of the fall from grace of the rock musician Michael Jackson.
This raises the question (or should do, in marketers’ minds) how credible a spokesman is and
what benefits this kind of association with a well-known figure can provide.
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In the field of consumer psychology, the work of Osgood and Tannenbaum has been valuable.
In the formation of their Congruity Theory, they examined the relationship between an idea
(such as a brand value) and the person who advocates it. They concluded that where the
audience’s feelings about the idea and the advocate start out at different points on a scale of
approval, those feelings will move toward each other, arriving at a point where they are equal –
the point of congruity. So, if I disapprove of bungee-jumping but I approve of Fred, then when
I hear Fred speak approvingly of bungee-jumping, both my feelings about Fred and my feelings
about bungee-jumping move towards each other until they are at the same point of my scale of
approval – the point of congruity. The question is, how far and how fast do those feelings
move? And where do they end up?
Osgood and Tannenbaum concluded that in such situations, strong feelings in either direction
(i.e. either towards favourability or unfavourability) move less readily than weak feelings. So if
I begin strongly approving of Fred, but only mildly disapproving of bungee-jumping, then my
feeling about bungee-jumping will move more readily (since it is the weaker feeling). The
point of congruity will be found at a position of mild approval. However, if my approval of
Fred is only weak, but I strongly disapprove of bungee-jumping, then the point of congruity
will be on the disapproval side of the scale; I shall finish up still disapproving of bungee-
jumping, but less vehemently, while my opinion of Fred will have moved from mild approval to
slight disapproval. Only when feelings start out equally strongly-held, said Osgood and
Tannenbaum, will they move equally readily and meet at a point midway between their starting
points.
Disapproval Neutral Approval

–4 –3 –2 –1 0 1 2 3 4
distance moved: 3 distance

moved: 1.5
Bungee-jumping Fred
(weaker feeling) (stronger feeling)
Point of congruity
Disapproval Neutral Approval

–4 –3 –2 –1 0 1 2 3 4
distance distance moved: 2.5

moved: 1.5
Bungee-jumping Fred
(stronger feeling) (weaker feeling)
Point of congruity
Figure 6.8: Osgood and Tannenbaum Congruity Theory
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For the marketer, it is clear from this that the credibility of the source of any message is of great
importance and careful research is needed before use is made of reference figures (or
“advocates” to use Osgood and Tannenbaum’s term).
Cognitive Dissonance
All the foregoing makes it evident that our actions as purchasers and consumers in society (either
individually or as part of a decision-making group, such as a family or a work-group) are fraught with
all kinds of anxieties. It is therefore worth spending a minute or two in considering what people do
when, despite all the attempts and strategems to make the “right” decision, anxiety persists after the
decision has been made. It seems that it often does. The psychologist Leon Festinger did extensive
work on this question and, although his model is by no means uncritically accepted, it is another of
those landmark ideas that has helped to shape marketers’ thinking – or at least to raise worthwhile
questions in their minds when strategy is being planned.
Festinger formulated the theory of Cognitive Dissonance. “Dissonance” is a musical term that
signifies the unpleasant effect of two or more conflicting sounds being produced together, as when
you strike two neighbouring keys on the piano. The resulting discord is painful and requires
resolution by moving one finger to play a note further away from the other (at a greater interval apart).
This creates harmony. Festinger recognised that people are happiest when they have to deal either
with only one, unchallenged idea (like playing a single note on the piano) or with ideas that do not
conflict and are widely separated (like playing an interval of a third or a fourth on the piano). What
makes us uncomfortable is having to cope simultaneously with two ideas, or sets of ideas, that are so
close to each other as to seem to conflict. Once again, an example may be useful.
I buy a new car. I am moved to make my choice principally by the sexy red colour, the reasonable
price and the car’s great comfort. I leave the showroom a happy man. I return home and get out of
the car. The man next door looks over the fence and compliments me on my new possession. He asks
what it is like for speed. He asks what its consumption of fuel is like. He asks how often it has to be
serviced and how much parts cost. Having gone indoors with the manual, I look up information on
the points he has raised. Within ten minutes I am downcast. The car seems to be built for comfort,
not for speed; its greater weight and lack of aerodynamics means that it uses a lot of fuel; being a
foreign make, parts are difficult and costly to get hold of; and it requires a routine service every four
thousand miles, where six thousand is the more usual requirement.
Festinger suggests that when a person makes a decision (any kind of decision, not just a purchase) the
mind is rather like a weighing-scale or balance. On one side of the scale are the positive factors that
make one tend towards a particular decision and the negative factors that make one tend away from
the alternatives. On the other side of the scale are the negative ideas about the chosen option plus all
the positive things about the alternatives.
So in our example, my mental weighing-scale contains, on one side, the colour of the car and its
comfort (positive factors about the choice I made) and the high price of other cars I could have chosen
but didn’t (negative factors about the alternatives). On the other side are the negative factors about
the chosen option (I’ve now discovered the expense of the fuel and servicing) plus the positive factors
about the alternative options (other cars are speedier and more stylish). What will happen to the
scales, loaded with these factors on each side? There are three main possibilities, with infinite
gradations in between. Either the scale will tip sharply this way, or it will tip sharply that way, or it
will be in perfect balance.
This is illustrated in Figure 6.9.
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Positive aspects Negative aspects

of the chosen of the chosen
option option
Negative aspects Positive aspects

of the rejected of the rejected
option option
Satisfied with the Cognitive dissonance; in Dissatisfied; attempts to

decision balance, or nearly so change or rationalise
Figure 6.9: Festinger’s Theory of Cognitive Dissonance
Festinger demonstrated that when the scale tips sharply in either direction, we are mentally
comfortable (we experience “assonance” or harmony) and we feel that the evidence shows we made
the right decision or that we definitely made the wrong decision and so we act quickly to reverse it (I
take the car back to the dealer’s and swap it for another one). What makes us uncomfortable is perfect
balance or near-balance, as this means the evidence is inconclusive so we are unable to decide
whether we did the right thing or the wrong thing. A decision too close to the point of balance is like
those two neighbouring notes on the piano; it produces dissonance – an unpleasant conflict of closely-
related ideas.
In the modern commercial world, many purchase decisions are difficult because, as a manufacturer
becomes more knowledgeable about people’s needs and wants, he works hard to make his product suit
us but so too do all his competitors. It becomes harder and harder to make a product that is genuinely
different from all its rivals. This means that when we make a purchase decision we are very likely to
experience cognitive dissonance because, as sophisticated, knowledgeable consumers, we are unlikely
to make very obviously “wrong” decisions and, as we have said, there are very few incontrovertibly
“right” ones, so closely similar are the goods on offer. The scale, in other words, is unlikely to tip
sharply one way and, unless we have been uncharacteristically careless, it will not tip the other way.
Most decisions will be at or near the point of balance.
Marketers value Festinger’s ideas for two reasons. One, it reminds them that in a world where
competing goods are so closely similar physically, they need to build brand values that make the
consumer, before the act of purchase, recognise their brand as positively different from the near
competitors. Two, it reminds them that the mental state of the consumer after purchase is equally
important. Someone who experiences cognitive dissonance is unlikely to be a repeat purchaser and
that, after all, is the goal of every serious marketer. Much of the advertising you will see, especially
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for high-risk, high-involvement goods, is aimed less at persuasion to purchase than at reducing or
eliminating post-purchase dissonance.
Decision-Making Sets
Some people may disagree with what we have just been discussing, on the grounds that goods do vary
widely in all kinds of ways and therefore there is ample opportunity for us to make very wrong
decisions. For instance, a BMW sports saloon is a very different purchase from a Reliant Robin three-
wheeler. This is, of course, true but it does not invalidate Festinger’s theory. The reason lies in the
idea of “decision-making sets”. Most consumers, in a sophisticated market, mentally separate
products or brands into discrete sets. Rather like Russian dolls, each set is smaller than its
predecessor and they fit inside each other.
When a consumer is in the market for a particular kind of product, there are several competing brands
she could buy. Some she knows, others she has never heard of and probably never will. Put them all
together and you have the total set of brands from which she might choose. Out of the total set can
be distinguished this particular consumer’s awareness set; she does not, as we’ve said, know all the
brands on offer and she will not therefore choose something she does not encounter. (An extensive
information search, if she embarks upon it, may enlarge her awareness set, but it is still unlikely that
she will ever know absolutely every brand of computer, car or instant coffee that exists.) So, within
the total set lies the awareness set.
Among the awareness set are those brands she is prepared to think about buying – the consideration
set; the rest are brands that for some reason or another she excludes from her choice-making process.
For instance, she may decide that some are just too expensive for her budget, not sufficiently stylish
or not easily available. Among her consideration set there may be one or two brands she quickly
decides against, again for a variety of reasons. Perhaps one is a foreign make which, though she
admires it as a product, she is not prepared to buy because she is going through a period of intense
patriotic fervour. The ones that are left, after these casualties have been removed, constitute the
choice set. It is from these few that she will make her final decision.
Mars Mars Mars Mars

Bounty Bounty Bounty Snickers DECISION
Wispa Snickers Snickers Twix
Snickers Topic Twix
Snack Twix
Topic Milky Way
Twix
Double Decker
Time Out
Milky Way
etc
Awareness Consideration
Total set set set Choice set DECISION
Figure 5.6: Decision-making Sets
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You can see fairly easily that a sophisticated consumer who has this mental landscape about a product
is unlikely to make drastically wrong decisions. The brands that would cause Festinger’s scales to tip
sharply in the negative direction may be in her awareness set but they get no further than that. As we
have seen, modern brands are so carefully researched and designed that the final “choice set” is likely
to include brands that are very similar indeed so there will probably be no single brand that would tip
the scales sharply in the positive direction.
The idea that people choose to purchase from “sets” is also confirmed in work by Andrew Ehrenberg,
who looked at the evidence of brand loyalty among supermarket grocery shoppers. He discovered
that, in the main, shoppers do not fix on one single brand and remain faithful to it. Perhaps because of
the boredom of consistent repetition that we mentioned earlier or perhaps because they like to
convince themselves that they have some control over their choices and actions, it seems that
consumers establish a “repertoire” of brands in each category. So if I am buying floor cleaner, I will
sometimes buy Flash, sometimes Jif and sometimes the supermarket’s own brand. I move cyclically
between these three (perhaps more).
What is even more interesting in Ehrenberg’s work is his finding that when a new brand comes onto
the market where there are already several established brands in the same category, the new brand
must be tried and accepted into the consumer’s repertoire within twelve months from launch. If it
fails to do this, it will probably never be accepted by that shopper.
“Hierarchy of Effects” Theories

Generations of marketing students have been presented with various models of the route by which the
consumer comes to an act of purchase; each purporting to guide the executive in how the process of
marketing – particularly marketing communications – can be used to assist the process. Strong’s
model, dating from a book in 1925 and universally known as the AIDA model, is one of the earliest
(and still influential today).
Strong suggested that the person who may become a customer must be moved through successive
stages:
! Attention You cannot get a message to someone until you have arrested his attention; hence,
for example, the need for advertisements to have large and striking headlines and
involve illustrations.
! Interest Once you have got the attention, you must convince him that the message is
actually relevant to him. Your message might be beautifully crafted, but if I
cannot see what it has to do with me, I shall ignore it and pass on to something of
more relevance.
! Desire Having persuaded me that the message is about something that concerns me, for
instance, my health, you must now awaken a desire in me; perhaps the desire to be
less likely to catch cold. Only when you have aroused my desire for something
am I likely to feel the need to assuage it.
! Action Now that I know what you are offering and that it is something I have a need for,
you must show me how I can go about getting it. Hence, the popularity of cut-out
coupons or reader-response mechanisms in press advertisements. Alternatively,
you might tell me who stocks your product so that I can go and enquire for it
myself.
This model has spawned many others, as various scholars sought to improve upon it. The generic
name for all these models is “hierarchy of effects” models, since they all postulate an ordered process
of successive mental stages. Here are just a few:
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! Colley (1961)
Unawareness → Awareness → Comprehension → Conviction → Action
! Lavidge and Stainer (1961)
Awareness → Knowledge → Liking → Preference → Conviction → Purchase
! Rogers (1962)
Awareness → Interest → Evaluation → Trial → Adoption
! Howard and Sheth (1969)
Attention → Brand comprehension → Attitude → Intention → Purchase
! Engel, Blackwell and Kollat (1978)
Perceived information → Problem recognition → Search → Evaluation of alternatives →
Belief → Attitude → Intention → Choice
From our discussions in this section, you will by now be extremely wary of any model that seems to
offer a comprehensive understanding of how people behave in markets or of what is happening in
their minds at any given time. None of these, of course, can be entirely satisfactory. But they are
commendable attempts to model a complicated process so that marketers can at least think about what
is going on and perhaps avoid some elementary errors of practice.
In particular, their usefulness lies in perhaps two simple but important observations. Firstly, that the
link between making someone aware that you have something to sell and their buying it, is by no
means a simple one. Several things have to happen on the way and at any one of those stages the
process can break down. Secondly, that there is an order in which communications should be
managed. Trying to arouse interest before awareness exists or desire before interest has been kindled,
is almost certainly not going to work. We may quarrel with the stages that must be gone through and
over what we call them, but we should none of us doubt that the process should follow a logical order.
One last observation should be made. Throughout this section, we have spoken of the process of
marketing communications being directed at the individual consumer as a purchaser. This is not,
however, the only situation in which these ideas are applicable. They are equally applicable to group
decision-making (as in a family planning where to go on holiday or a commercial firm planning to
buy a new production line) as to individuals. They are equally applicable to the marketing of services,
as to that of tangible products. They are also equally applicable to the marketing of non-profit-
making organisations, such as Government departments or charities, as they are to commercial
companies. It is to these organisational purchasers which we turn to in the last section of the unit.
E. ORGANISATIONAL PURCHASING
So far we have been looking at general factors in the purchasing process. The process applies equally
in both consumer and industrial markets, but we have to accept that there are differences between the
two markets. Organisations buy differently from individual consumers for a number of reasons:
! Purchases tend to be of higher value.
! Purchasing tends to be for higher quantities.
! Purchasing will tend to be better documented.
! Buying will tend to be done in a logical manner, etc.
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The main difference between industrial purchasing and consumer purchasing is that industrial
purchasing is predominantly done by people on behalf of others and that, apart from the one-man
business, there is nearly always more than one person involved in the buying process.
Types of Industrial Purchases

Industrial purchases have been well documented as being one of three types:
! Straight re-buy: simply repeat purchasing without changes of any kind.
! Modified re-buy: where some aspect is changed, e.g. specification or supplier.
! New buy: involving new specifications, new supplier, etc.
As the degree of change increases, so does the complexity of the buying process and the time taken.
More people may need to be involved in a new buy than for a modified re-buy, e.g. it may be a
purchase of new plant for an entirely new production purpose which will involve a great deal of
technical input from design engineers.
On the other hand, a modified re-buy may simply involve a change of supplier which the Purchasing
Department can deal with quite effectively on their own.
Needless to say, straight re-buys are the easiest of all and need no specialist input; all they need is a
repeat order to be raised.
There are three broad categories of organisations making buying decisions – industrial,
wholesaler/retailer, and non-profit organisation (NPO) – and different considerations apply to each.
! Industrial Buying Decisions
The buyer in a factory will purchase three kinds of things:
(a) “Housekeeping” supplies such as cleaning materials, brushes, dusters and so on;
(b) Machinery with which to make the products which the company markets for profit;
(c) Raw material which will be made into products.
The “housekeeping” supplies will often be repeat buys and similar in many respects to the
repeat buys of the consumer. The difference will be in the suppliers, terms of trade and
quantities involved. None of them will make the repeat buy decision significantly different
from that of the consumer for similar products.
The decision to buy machinery may involve past experience of similar machinery, or at least of
the suppliers of previous machinery. However, it is likely to be a much more serious decision
than for housekeeping supplies. A decision to buy machinery will often involve several people,
as well as the buyer; the group of people will often be called a decision-making unit (DMU).
Because buying machinery is an important decision, it is likely that the production manager
may be asked to comment on the suitability of various machines. The finance manager will
probably be asked to arrange a loan or other scheme to make sure that cash flow in the
company is not badly affected by the scheme. The personnel manager may have to arrange for
training, extra insurance, shift working and a whole range of matters concerned with worker
safety, if the machine is bought. The managing director may have the final word on important
decisions.
Similar ideas can be applied to buying services such as advertising and other publicity matters,
all of which decisions are complicated by the fact that, in the long run, industrial purchases are
due to derived demand, which is more difficult to anticipate.
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! Wholesaler/Retailer Buying Decisions

The wholesaler and retailer share the same purpose – to make profit by buying products from
manufacturers then selling the same products to other people. It renders their decision-making
process quite different from that of the industrial buyers. Usually, the wholesaler buys in bulk
from the manufacturer and sells smaller quantities to the retailer, who then sells individual
items to the consumer.
There are long-term and short-term aspects to the supply business which must be considered.
Short-term aspects are fairly straightforward; the purpose is clearly to get goods to the places
where consumers will buy them and to make a profit by doing so. The products concerned may
be anything consumers buy and also many of the repeat-buy items which industrial buyers have
to get in, so as to keep their factories running.
In the long term, wholesalers have the obvious function of supplying retailers, thus saving
manufacturers the job of delivering to thousands of shops and then dealing with numerous
accounts.
However, wholesalers have another function – they disconnect the production line from the
consumers. By taking goods into stock, wholesalers enable factory managers to run their
production lines at the best speeds for efficiency. Production lines depend on continuity – they
are set up to produce identical items for long periods. The products have to be moved away
from the end of the line so as to keep the line going. Consumer demand is very variable and it
would be difficult to make most of the products just when they were about to be bought.
So the wholesaler sometimes provides a useful buffer between the demand and supply aspects
of business.
The decision-making process will have short and long-term considerations, which for the
retailer will be concerned with potential demand for a product in the immediate future. In his
operation, demand can be turned into profit; he has to judge what to buy so as to maximise the
profit level.
For the wholesaler, there are other considerations – he is providing a service to the
manufacturer as well as to the retailer, so he must expect to be paid for that service. His
decision-making is complicated by the service aspect of the business.
! Non-profit-making Buying Decisions
There are many organisations which do not fall into any of the above classifications and they
are generally called non-profit-making organisations (NPOs). Such organisations need
supplies just like others, but they do not buy them with the purpose of consuming for their own
benefit in the same way as domestic consumers, nor do they buy products with the intention of
selling them for profit.
The most obvious examples are the many local services, such as the police force, refuse
disposal people, hospitals, ambulance and fire services. Then further afield there are the armed
forces, mountain rescue services, lifeboats and coastguards.
Less obvious are the charities, who usually buy products to use for someone else’s benefit, or to
send on to people who are disadvantaged for some reason. Some charities, of course, work for
the welfare of animals or the countryside, and they all have the characteristic of being non-
profit-making.
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Influences on Organisational Buying

Organisations buy differently from individual consumers, for a number of reasons.
(a) They have multiple objectives/needs.
! Profits
! Reduced costs
! Meeting needs of employees
! Legal and social restraints
(b) A lot of people may be involved in the purchasing decision.
The “roles” of the DMU may be fragmented around the organisation, which adds to the time
taken to reach any decision. Some people may think they have power when, in reality, the
power lies with someone else.
(c) Buying patterns may be formally set by the organisation.
The buyer may have to buy in bulk, or buy from only one source, or buy at the lowest price, etc.
(d) The value of the purchase is often high.
The buyer is spending money on behalf of the organisation. They need to be sure that they do
not waste it or their job could be in danger.
Add to this the stress of internal organisational politics and you can appreciate just how difficult
industrial purchasing can be.
The influencing factors on buying will vary from organisation to organisation and it would be an
impossible task to produce a comprehensive list of all of the variables that might influence industrial
purchasing. However, factors might include:
! Market
Availability and choice of products
Legal aspects
Competitive position
Recession or boom
! Organisational
The attitude to risk
The availability of resources
The policies regarding trading/not trading with other parties
The nature of the DMU (few or many people)
! Personal
Status and power
Internal conflicts and politics
Individual morality and ethics
Knowledge or lack of it
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If we say that influences on organisational buying behaviour are a combination of influences from
both the internal and external environments, you will realise just how difficult it can be to understand
organisational buyers. Add to this the fact that these buyers are also “people” who are subject to all
the individual consumer influences, and it gets even more complex.
It is often said that industrial buyers are difficult to approach because they are very loyal to their
suppliers. Marketers or, to be more specific, salesmen, should always be aware that this “loyalty”
may simply be because the buyer is complacent and has not investigated other sources of supply, or
even that salesmen have not tried an approach because they have been put off by the response
“...... we are happy with our present suppliers .....”.
Good industrial marketers or salesmen will know that industrial buyers are prey to the same human
pressures and motivating factors as the individual consumer, in addition to the constraints and
motivating factors imposed upon them by the organisation (availability, quality, time, price, storage
costs, etc.).
An understanding of behavioural patterns will result in more successful marketing communications –
and therefore more successful marketing. Clever use of communications can overcome the difficulty
in getting to any buyer – whether it is a consumer, or an industrial purchaser buying for a
transnational organisation.
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179
Study Unit 7
Product Management and Development
Contents Page
A. Nature of Products and Services 181

Some Introductory Definitions 181
Services and Products 182
Classifications of Products 182
B. Product Management 185

Main concerns of Product Management 185
Product Portfolio, Range and Mix 188
Product Management Decisions 190
Product Mix and Customer Benefits 196
C. Product Branding 197

Brand Strategy 197
Threats to Branding 199
D. Product Packaging 199

Practical Aspects 199
Decorative Aspects 200
Informative Aspects 200
E. The Product Life Cycle 200

Problems with the Product Life Cycle 202
Usefulness of the Product Life Cycle 205
Management of the Product Life Cycle 208
F. Extending and Expanding the Product Life Cycle 209

Extending the Market 210
Expanding the Market 211
Extended Product Life Cycle Graph 211
(Continued over)
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180 Product Management and Development
G. New Product Development 212

Process of NPD 213
Success and Failure of NPD 217
The Product Plan 218
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Product Management and Development 181
A. NATURE OF PRODUCTS AND SERVICES
Some Introductory Definitions

Skinner defines a product as “anything that satisfies a need or want and can be offered in an
exchange”. He goes on to say that a good is a tangible object (one you can touch), a service is not
tangible but provides a benefit, and an idea is a philosophy or concept. All can be included in the
word “product”.
Kotler also offers the following definition:
A product is anything that can be offered to a market for attention, acquisition, use or
consumption: it includes physical objects, services, personalities, places, organisations
and ideas.
Theodore Levitt, in his text Differentiation of Anything, puts forward four concepts which go to make
up his idea of the total product:
! The physical product or service;
! The expected product, which includes price, packaging, availability, after-sales service and so
on;
! The augmented product, in which augmentation is the way in which the manufacturer
differentiates his products from others by adding some extra benefit;
! The potential product, which is the ultimate combination of product and service which it is
possible to achieve.
This introduces the idea that products and services have depth – or different dimensions – to them
which consumers find attractive and contribute to the decision to buy.
We can say that a product has three main dimensions:
! Physical
This refers to the materials from which a product is made, e.g. cotton for bed linen, metal for
shelving units, etc. The actual raw material may have no real value until it is formed into a
“product” of some kind, which is there for a purpose.
! Functional
Functionality refers to the use of the product. What is it for? What does it do? It may be that it
plays music, or it keeps out the cold, or whatever. The fact is that the raw materials have been
turned into something which has a purpose. The “function” of a product may change at times
because someone has found another purpose for it, e.g. house bricks can be used as supports for
beds, seats or shelving units.
! Symbolic
The symbolic attributes of products are also sometimes known as “psychological” attributes.
This is because the symbolic attributes refer to the “value” which a user gives to a product.
Value is intangible and will vary from person to person, e.g. the value ascribed to a pair of Nike
training shoes by a style-conscious teenager is much higher than that given to a similar pair of
shoes by a middle-aged keep fit enthusiast.
It is the “symbolic” attributes that play on the “esteem” and “belonging” needs of the buyer
and, consequently, help in the marketing of branded and high value goods.
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Another explanation is that a product has three “layers”:

! Core or generic product
What the product does – its function. For a refrigerator, for example, this could be that it stores,
preserves and cools.
! Tangible product
What is offered – the features, style, quality, packaging, etc. For the refrigerator, this could be
that it fits under worktop, is self-cleaning and is offered in a range of colours.
! Augmented product
The add-on benefits provided along with the product – after-sales service, guarantees and
warranties, credit facilities, availability in the market, delivery, etc. For our fridge, this might
include image, guarantee, free credit and the particulars of the after-sales service.
In addition to these two methods of explanation we could describe a product as a “solution to a
problem” or a “bundle of benefits”. Using these last two descriptions also allows us to take into
consideration the supply of a service.
Services and Products

When you buy the product you automatically get the benefit of a lot of service which you may or may
not know about – after-sales, guarantees, etc. However, when we talk of “services” in the marketing
sense, we do not mean the backup behind the products you buy, but rather those services which are
marketed in their own right. Examples include airline, train and bus travel; hotel accommodation;
doctors, dentists, hairdressers and so on, where the result of the “service” is what you are buying. The
most important difference between products and services is that services cannot be stored; if a hotel
bedroom is not occupied tonight, a profit opportunity is lost for ever.
Is a service any different to a physical product? Well, of course it is, in some ways. Services differ
from physical products, in terms of their:
! Intangibility – they cannot be seen, touched or tried before purchase.
! Inseparability – they are used or “consumed” at the time of purchase and, as such, cannot be
separated from the provider.
! Perishability – they cannot be stored for use at a later time.
! Variability – they are dependent on the person who is providing the service and, as such, will
vary from time to time in accordance with when they are being provided and the circumstances
surrounding the provision.
The characteristics of a service can add difficulties for marketers but, at the end of the day, it is still
“the item that is being exchanged” – it is the product. The product of an accountant is the expertise
which is being sold, and the product of a hairdresser is the skill in cutting and styling that he/she
provides.
Thus, “products” and “services” are not really any different. A product is a service and a service is a
product. For the rest of this study unit, when we refer to “product” please remember that we are also
referring to “service”.
Classifications of Products
If you recall we have basically two types of markets: consumer and industrial. It follows, then, that
we have basically the same two types of product and service.
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(a) Consumer Products

Consumer products are classified in three ways:
! Convenience
The minimum of effort is needed because the customer knows about the product before
they shop. Brand substitutions are easily accepted as these products have low “value”.
They are the products which are bought automatically and repetitively, e.g. butter in a
supermarket.
The marketing implications of this are that:
(i) The product must be easily accessible to the buyer.
(ii) Advertising is needed to strengthen branding and gain loyalty.
(iii) Differentiation is achieved by using other mix elements.
! Shopping
Those products where customers do not have full knowledge and where they can be
influenced to accept an alternative product (during their “search” phase) by the benefits
being offered. They are higher in “value” than the convenience type of product and
therefore involve more risk in purchase.
(i) Benefits offered are critical – sometimes more than price.
(ii) Persuasion may be involved, (e.g. by the retailer or salesperson).
(iii) Distribution will not be as widespread as for convenience goods.
! Specialty
This type of purchase is where customers have hard and fast ideas of which product,
outlet, brand, provider, etc. they wish to use. The customer will go to great lengths to
ensure that they obtain the actual product they require and will not be easily converted to
a substitute. These purchases are high in “value” and therefore carry the greatest element
of risk to the buyer.
(i) Promotion needs to be targeted very carefully.
(ii) Image and reputation are critical.
(iii) Price is secondary to other features.
(iv) Distribution will be very limited/exclusive.
(b) Industrial Products
Industrial products can also be classified into three categories:
! Raw Materials and Components
The actual fabric, etc. from which an end product is made. Manufacturers buy these
items from suppliers and buying tends to be on a regular, repetitive basis once a
production line is established.
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(i) Supply and price will be major factors.
(ii) Promotion tends to be in business publications and catalogues.
(iii) The level of quality required will depend on the quality of the end product.
(iv) Relationships can influence the buying processes.
! Equipment/Plant
Computer systems, production plant and other types of equipment needed in the
operation of a business fall into this category. The nature of the purchases often involves
high prices and, as such, a great deal of research and deliberation will go into the
purchasing decisions.
(i) Product features and performance are critical.
(ii) Price may not be highly important.
(iii) Support services take on extra importance.
(iv) Promotion, highly targeted, may be direct or in business publications.
(v) Personal selling may be required.
(vi) Decision processes will be complex and take time.
(vii) Distribution is likely to be limited to direct or distributors.
! Supplies
The “consumable” items that are needed for day-to-day operations. These products are
similar in nature to convenience goods in the consumer sector. Purchasing can be
habitual and may carry little psychological “value” to the buyer.
(i) Delivery is not normally direct from the manufacturer.
(ii) Price lists and any catalogues need to be comprehensive.
(iii) Promotion will be more general than for other industrial purchasing.
It makes little difference how we describe the product, or even how it is classified. The product is
what is being sold and what is being bought. In other words, it is the item that is being used in the
exchange process that is taking place between buyer and seller.
However, the more qualities there are to the product, the more valuable it becomes to the person who
is acquiring it and the more likely the chances of success for the marketer. Hence the emphasis on the
augmented aspects of image, after sales, delivery, etc. and it cannot be denied that the best products
for a buyer are those which give an “added value” of some kind: they give something more than the
basic function. For example, designer clothes cover the body but they also give esteem and status;
personal computers now give the benefits of built-in modems which can be used to communicate with
people around the world.
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B. PRODUCT MANAGEMENT
The level of responsibility and autonomy given to managers of products will vary in accordance with
the size of the organisation as well as with the style of management which is currently being used.
Some product managers will have wide-reaching responsibilities and freedom for decision making;
others will be limited in their scope.
Main concerns of Product Management

Product management is concerned with both existing and potential products.
(a) Maintenance of existing products
Products need support in terms of other marketing activities – promotion, pricing exercises,
distribution management, etc. Product managers must constantly monitor product performance.
Information on how a product is faring in the market will help a manager to decide if it is time
to make any changes to the range, or part of it. In cases of poor revenue generation, it may be
that a product needs to be dropped or extra promotional activity is called for. Decisions such as
these are made on a regular basis in the process of product management.
(b) Development and introduction of new products
We know that not every product is blessed with a never-ending life and, if only because of
changing customer requirements, new products will be needed. We will cover new product
development in more detail later, but at this point we must remember that it is a vital part of
product management.
Part of both these concerns is how the product is placed in the market in terms of customer
perceptions, e.g. high quality, value for money, etc. This is product positioning.
(c) Product positioning
Product management is concerned with getting the positioning right, keeping it right, or
changing it until it is right.
Perceptual maps are used to show positioning. These maps can be used by a manager to
compare positioning with the competition or to show the overall picture of a company’s product
range, as in the following Figures.
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HIGH PRICE
• Golf Club
Theatre •
• Squash Club
• Swimming Club
Cinema •
POOR VALUE GOOD VALUE
Bingo Hall •
• Council Sports Centre
LOW PRICE
Figure 7.1: Competitive Positioning (Leisure Activities)
HIGH PRICE
Golf • • Tennis
• Swimming
Hockey •
• Museum
Sports Fields •
• Art Gallery
LOW PRICE
Figure 7.2: Leisure Product Range (Local Authority)
Changes in product positioning (forecast or actual) can also be shown by perceptual mapping,
as in the following two Figures.
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HIGH PRICE
Theatre •
Bingo Hall •
• Council Sports Centre
LOW PRICE
Figure 7.3: Competitive Positioning Changes (Leisure Activities)
HIGH PRICE
Golf •
Hockey •
Sports Fields •
LOW PRICE
Figure 7.4: Leisure Product Positioning Changes (Local Authority)
The variables which can be used in the construction of perceptual maps can really be on any
aspect which the company wants to use, e.g. distribution : price; guarantee : length of time
taken to complete the order; or price : quality.
It will depend on what the management has identified as being important and just what is being
“measured”.
Influences on positioning can, in most cases, be directly related to customer perceptions and
expectations. At this point we should be asking why these influencing factors are so important
to a product manager.
Well, the whole idea of marketing is to satisfy customer requirements and it is the company best
at doing that which is likely to win the rewards of market share/profit, etc. By understanding
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the influences on buying behaviour, a manager can fine-tune his product and position it in such
a way that it will not only satisfy, but “delight” the customer. This is what most product
managers want to achieve. Obviously there are benefits to be gained – happy buyers, repeat
purchasing, kind words said about the company and its products, etc.
(d) Improving Customer Loyalty
There is an expression quoted in marketing and selling which says:
“We want customers that come back, buying products that don’t”.
Translated, that means we want good quality products and satisfied customers.
Customers and consumers alike are now very knowledgeable on their rights. They have high
expectations of products and do not hesitate to complain if a product offering does not match up
to its promise. All of this, coupled with increased competition, has resulted, overall, in a
general raising of the quality of products which are available in the marketplace.
The higher quality expectations for products have, in turn, resulted in more emphasis being
placed on the added value aspects of products in order to gain customer loyalty.
Customer loyalty is of prime importance to any marketer, even if buying the product involved
is a one-off, or very rarely completed, purchase. The majority of purchases, however, are
repeated on more than one occasion and, as such, the marketer wants to build up a relationship
which will mean that the customer will come back another time.
Apart from the aspect of satisfying the customer, there are very good managerial reasons for
establishing customer loyalty, such as:
! The cost of gaining new customers is much higher than keeping existing customers
happy.
! It is easier to promote to existing customers than to unidentified buyers.
! It is easier to encourage satisfied customers through the buying process than to start from
scratch with new prospects.
! It is easier to manage the product range when buyer needs are known.
You can see from these points how important it is to develop a long-lasting relationship with a
customer. Long-lasting relationships MEAN customer loyalty. The stronger the ties are
between a seller and a buyer, the less likely the breakdown of the relationship. Marketers try
very hard to create and maintain this type of relationship.
Product Portfolio, Range and Mix

(a) Portfolio
If a company has just one product then all its efforts and resources will be devoted to it. Since
all the risks in the marketing environment will fall on one product, most companies would try
to avoid such dependence. Yet as soon as another product is marketed, there is the need to
reallocate some of the company’s resources and the scene is set for conflict, even in the best run
companies.
The benefit of having more than one product would be obvious if we could foretell the future
accurately; we could just allocate resources to those products which are going to make most
money, and change when the future changes. As you know, life is not so simple and every
decision carries some risk of being wrong.
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The idea of a portfolio of products is sensible; if you can arrange your business so that as one
market dwindles away another is just growing, you can have profit continuously and inherent
risks will be reduced. When the theory works in practice it is not by chance. Information has
to be acquired and decisions made so a progression of new products can be phased in. At the
same time, management will want to make as much profit as possible from their investment in
the old products before they are retired.
(b) Range
Many simple products are supplied in different sizes, to suit the needs of different customers;
you will have seen big and small packs of foodstuffs in grocery stores and there are plenty of
examples of size ranges, as in shoes and clothes. The same situation applies in factories – gears
and chain drives, belt drives and machine tools all come in different sizes to suit specific
purposes.
A product range (or line) has some similarities; if the products are not related in some way, they
are in different ranges. For instance, a supermarket may have in stock 5000 product ranges and
some may include four or five different sizes. Packs of sugar may be in two sizes and three
varieties, but they will all be in the “sugar” line, as distinct from the frozen chicken line.
Similarly, for a product which does not have size variations, the number of models in the range
may be considered. Take pens, for instance; they are roughly the same size and the differences
are in the quality of the nib, the filling mechanism and the casing. Packaging has some
importance, too.
This leads us to consider the product mix, which can be a serious matter for a manufacturer.
(c) Mix
Lancaster & Massingham, in Essentials of Marketing, show a neat description of the concepts
“mix”, “depth” and “consistency” in connection with products adapted in this figure:
Product line 1 • • • • • • • • • =9
Product line 2 • • • • • • • • • • • • • = 13
Product line 3 • • • • • • • • =8
The “depth” of the product range is shown by the longest horizontal line and the “width” of the
range is shown by the number of different lines.
When studying companies the “consistency” of their product range depends on the closeness of
the products in terms of end use, production facilities utilised and distribution systems.
Stronger consistency will give a company a greater strength in the market, whilst a greater
depth will extend the consumer types. Extending the width of the product mix will give the
company more scope for providing profit from different sources, for protection against a
decline in one range.
In the above example, Lancaster & Massingham go on to show that the company has 30 items
in the portfolio, in 3 lines, and the average depth of the product mix is 10. These “ratings” can
be used by managements to assess company strengths. We can take a closer look at the idea of
a product mix.
(d) Implications of product mix
A company which is dependent on one line of products is clearly vulnerable to changes in the
market, so it is usual for companies to develop a number of product lines or ranges. Quite often
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they start off sharing the same production and marketing facilities, then develop separate
departments or even divisions as the products grow.
One of the most useful theoretical concepts which can help the marketing management to find
the best product mix is the idea of a product life cycle. We shall examine this in detail later in
the unit, but for now we can briefly state that it describes the way in which sales of a product
develop and then decline over time. It is usual to plot this a graph, producing a curve which
grows, slowly at first, through the stages of development and introduction and then more
vigorously in the growth stage, before reaching a relatively consistent level of sales in the
maturity stage and then seeing sales fall as the product enters decline.
It is clear that a wise management will try to have new products coming into profit as the old
ones fade away; and there might well be a time when it is best to withdraw an old product so as
to concentrate on a new one.
Planning such product progression is essential where the marketing management can see there
is a pattern to their product life cycles. However, it is important to note that the life cycle may
be drawn for the product range, rather than for an individual product; and a new product (or a
variation of an existing one) can prolong the profitable phase of the whole range.
Product Management Decisions

Decision-making is usually helped if the situation can be simplified through the application of clear
models and here we shall revisit some of those considered earlier in respect of planning marketing
strategies. The first is the Ansoff matrix.
(a) Ansoff matrix
The Ansoff matrix can be used to show the possible ways in which a company might look at
product strategy:
Product
Existing New
Existing
MARKET PRODUCT
PENETRATION DEVELOPMENT
STRATEGY STRATEGY
Market
MARKET
New
DIVERSIFICATION
DEVELOPMENT
STRATEGY
STRATEGY
Figure 7.5: Ansoff Matrix
! Market penetration strategy involves getting more from present markets, possibly by
improving or adding to distribution (flowers in petrol stations) or extending the service or
product to parts of the country not yet reached.
! Product development strategy is a matter of finding new products using the same
production and distribution facilities to earn more profit for the company. Many ideas
may come from the customers, some of which can be used to add to the product range.
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! Market development strategy is a matter of finding new markets for the products, such
as when Amstrad introduced computer-based word processors to the home market. At
that time “serious” computers were only used in offices. Some people say that extending
the geographical spread of the product belongs in this strategy, rather than in the market
penetration strategy. I would agree if the geographical spread involved international
marketing, or extending the marketing from one state to another in the USA or Australia,
but not for extending within a small country like Britain.
! Diversification strategy involves launching a new product in a new market, usually
achieved only by strong companies which can afford to take the high risks involved.
The four basic strategies shown in the matrix have different risks attached and have been
estimated in principle as in the following table:
Risk Factor
Current product, penetrating deeper into the 1

current market
Current product, entering a new market 2
New product, entering current market 4
New product, entering a new market 16
Although the Ansoff matrix must not be seen as a decision-making tool, it is useful as a way of
clarifying the next stage in the process of ensuring profit growth, which is the investigation of
the possibilities. The choice between the strategies shown in the matrix will involve a great
deal of information collecting and analysis, so it is useful to show the risk involved in each
strategy right at the start of the process. Some managements will rule out the riskier strategies
and concentrate on less risky procedures, so narrowing the amount of information to be
collected and analysed.
You may see many variations on the simple matrix shown here; some go as far as 16 squares to
refine the risk assessment. You may see matrices with “HIGH” and “LOW” instead of
“Current” and “New”, or different factors instead of “Products” and “Markets”; however, all
have the same purpose – to clarify the decision-making process.
Obviously, when a manager uses the Ansoff matrix, each square will show factors relevant to
the specific situation, and “Market Penetration Strategy” would become something like
“improve the distribution”, or “offer some extra product features”, or “increase the advertising”,
or “sponsor the London Marathon”.
(b) Boston Consultancy Group Growth/Share Matrix
The Boston Consultancy Group (BCG) is an international group of management consultants
which has built up a substantial reputation as leaders of their profession. They have the
advantage of dealing with a lot of companies, from which BCG can develop their knowledge of
“cause and effect” in marketing. The BCG Growth/Share Matrix uses “Market Growth” on the
vertical axis and “Relative Market Share” on the horizontal axis. The axes are both divided into
“high” and “low”, as you can see in Figure 7.6.
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High 20
Modest + or – Large –
cash flow cash flow
Market Growth
10
Cash cows Dogs
Large + Modest + or –
cash flow cash flow
Low 0
10x 1x 0.1x
Market share
Figure 7.6: Boston Consultancy Group/Share Matrix
Market Growth refers to the growth of a product, a product range or a Strategic Business Unit
(SBU). Any division or department may be a SBU, if their costs and profits can be identified
separately from those of other parts of the company. Most people regard an annual growth rate
of 10% or more to be high and less than 10% to be low. You can see already how arbitrary are
the decisions on what to include in the matrix.
Relative Market Share is a different matter, which depends on a comparison of the company’s
market share with that of the largest competitor. The comparison is expressed as a ratio, so that
if the company has a market share of 10% and the largest competitor has a share of 20%, the
BCG Relative Market Share is 0.5. If the positions were reversed, the company’s Relative
Market Share (RMS) would be 2.0. Some people use the “x” after the figure, others do not, but
it is generally agreed that any RMS higher than 1.0 is “high”. An RMS equal to 1.0 shows that
the company is a joint market leader.
Another innovation on the BCG Growth/Relative Market Share Matrix is the use of circles of
different sizes to show the relative size of the sales involved. These circles only give an
approximate idea, because it is often difficult to visualise the relative areas of circles.
It should be clear that using the BCG Growth/Relative Market Share Matrix needs a lot of time,
as well as a lot of consistent information. There are many critics of the principles behind the
matrix, and there is an obvious simplification of the total market situation. In many cases some
of the “information” used will be the manager’s own estimates and I always reckon that if you
multiply one estimate by another estimate, the result is no better than a guess.
Finally, on this topic, always write out the title of the BCG matrix in full so that you will not
forget the importance of “relative market share”. It is very easy to slip into thinking of this as
“market share” and that is a different matter.
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(c) General Electric Portfolio Analysis

This is a development of the BCG Matrix and uses much more information, as well as
judgement of the managers concerned. The General Electric (GE) matrix relates competitive
strength and industry attractiveness. To bring this down to basics, you might be pleased to have
a very high market share, but that may not be of much value if the industry is declining rapidly.
Industry attractiveness
Strong Medium Weak
High
Market attractiveness
Medium
Low
Business Strengths
Invest for growth – these are the best positions to be in attractive
markets
Harvest or withdraw – the business is weak in unattractive markets
Invest selectively and with caution, but the markets are medially
attractive
Figure 7.7: General Electric Portfolio Analysis
Note: When placing products or SBUs on the portfolio matrix it is normal to use a circle to
indicate the overall size of the market. Bigger circles equal bigger markets, and the shading of
an area indicates the firm’s current share of that market. Thus, in the following illustration, A
indicates a market about twice the size of B, with the operation having 50% of A and a 25%
share of B.
A B
Some people use the title “Competitive Position” instead of “Industry Attractiveness” and the
matrix is based on Return On Investment, not just cash flow. You can see from the shading on
the matrix just what indications there are for managements trying to plan future strategies.
However, you can also see that there is a need for even more information and a lot of
judgement.
One of the problems in using matrix analysis is that the simplification of the information tends
to ignore factors that cannot be expressed in commercial terms. The matrix may suggest the
closure of a SBU, or the withdrawal of a product, yet there may be good reasons within the
company for keeping them going. One product supports another, perhaps, by using the same
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machinery or raw materials. A company in which I worked for a time bought raw rubber at a
very good price, then used the raw material to make mouldings, drive belts, conveyor belting
and waterproof sheeting. If one of the SBUs had been closed, due to failing in the matrix
analysis, all the other SBUs would have suffered from the higher buying price of the smaller
quantity of raw material.
Can you find enough information to draw up the GE matrix for your company? Maybe you
could discuss the matter in general terms with colleagues or your manager. You will remember
the principles much better if you have tried to compile the matrix, even if you are not
successful. Don’t think that matrix analysis is useless if you cannot make it work in your
situation – remember that this is a technique for the big companies with ample resources.
(d) The Shell Directional Policy Matrix
This is a development of the GE Portfolio Matrix, and uses the “Company’s Competitive
Capability” on the vertical axis, instead of “Market Attractiveness”. The title on the horizontal
axis is often “Prospects for Sector Profitability” instead of “Industry Attractiveness” and you
may think there is not much difference.
The Shell Directional Policy Matrix does take into account the company’s competitive
capabilities and if the nine squares of the matrix can be completed, there can be
recommendations for future strategy, as shown in Figure 7.8.
Prospects for sector profitability

Unattractive Average Attractive
Weak
Phased Double
Disinvest
Company’s competitive
withdrawal or quit
capability
Phased
Average Custodial Try harder
withdrawal
Cash generation Growth Leader

Strong
Figure 7.8: The Shell Directional Policy Matrix

(Source: Lancaster & Massingham, Essentials of Marketing)
Although the matrix usually does include strategy recommendations in the nine cells, Shell say
that each strategy should be evaluated against all foreseeable scenarios, and if the results in all
nine cells are acceptable there should be no disasters. But how do we foresee scenarios of the
future? Quite often a manager can predict events, such as a general election, but he or she
cannot foresee the effects of the event.
(e) Porter’s Model of Industry/Market Evolution
Michael Porter uses a different matrix, with only six cells, and he has developed this on the
basis of the differences in strategies needed as industries evolve. He shows that there are three
stages:
! Emerging industry
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! Transition to maturity
! Decline
We can look at this at a very basic level – you probably take for granted the use of a fax
machine or computer to transmit messages down a telephone line, but it is not so long ago that
this facility was developed. The change from “wired in” telephones to the modern “plug-in”
types has enabled a whole new industry to develop, probably within your working lifetime.
The strategy for selling the old type of telephone was very simple, and was hardly noticeable as
a strategy. However, when the new uses for telephones were in their early development stages,
there was a need for a quite different strategy, because of the new versatility of the equipment.
In Britain there has also been the introduction of competition from cable companies to replace
the old monopoly situation. This has made the telephone industry evolve their marketing
strategies very quickly.
Another example of evolution is the compact disk used on computers: that has gone from
novelty about ten years ago to now being a basic part of computers sold to householders. I
leave it to you to work out the changes in strategies – they have happened in your working
lifetime.
Stage of Industry Development

Growth Maturity Decline
Leader
Redefine scope
Strategic position of organisation
Cost leadership
Keep ahead of the Divest peripherals
Raise barriers
field
Encourage
Deter competitors
departures
Imitation at lower
Differentiation Differentiation
cost
Focus New opportunities
Joint ventures
Follower
Figure 7.9: Porter’s Industry/Market Evolution

(Source: Lancaster & Massingham, Essentials of Marketing)
Porter suggests that industries have particular characteristics which change as the industry
changes from emerging to maturing then to declining, and we should look at these stages.
! Emerging industries have to deal with uncertainty among buyers about product
performance, potential applications and future developments. They also have to cope
with uncertainty among sellers about the customer needs, demand levels and
technological developments that might make the product obsolete before the sellers have
recovered their costs of developing a market. This is a common problem in the late
1990s as computer systems, which were installed at great cost, are seen to be outdated
within a couple of years. Many buyers are reluctant to remove the systems, buy new
ones and re-train their staff, for the small improvements in performance that they could
achieve. In some technologies, customers have shown some resistance to the capabilities
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of some of the new machines. Video recorders are a good example – some researchers
have seen people asking for a simpler version, easier to operate.
! Maturing industries have to contend with customers who become more knowledgeable,
falling profits, slower growth, more competition, lower innovation and reducing
customer interest.
! Declining industries have to deal with customers’ changing needs, changing markets and
competition from substitute or alternative products. Prices are lower, so revenues are
reduced even if the same sales volumes can be achieved.
Porter classifies companies simply as “leaders” or “followers” and you can see in Figure 11
how the strategies change as their industries move from “emerging” to “maturity” and then to
“decline”.
Have you noticed that Porter has moved towards the Product Life Cycle (PLC) concept? You
could almost superimpose the PLC on some of the matrices that we have been looking at. Do
that if you wish, but remember that all these ideas depend on a lot of information, a lot of
management thought, a lot of patience and some conjecture. There are not many companies
that have enough spare management capacity to be able to use these analytical tools fully.
However, that does not reduce the value of the concepts and some managers can adapt the ideas
to reduce the complexity and make the concepts workable in their marketing activities.
Product Mix and Customer Benefits

The selection of the product mix would be easier if the decisions depended simply on production
management; but the whole purpose is to satisfy customers, so what they want comes into the
decision-making process. It is tempting to make decisions just on the profitability of each item in the
range, but to do so could cause a lot of problems.
For example, the pack sizes of some food products may appear expensive to the production manager;
yet if the small sizes were to be withdrawn, there would be complaints from old people who live
alone, or from couples without big families to feed. The complaints would be made to the
supermarket or grocery store manager and might take a long time to reach the food manufacturer.
Whilst that is going on, the customers will have looked at competing products and may well have
switched from one brand to another.
The same can happen in the industrial markets, in which even tradition can play a part. When I
worked for a chain and sprocket maker there was some talk of withdrawing some unprofitable sizes,
yet a postal questionnaire revealed we would lose much more profit by withdrawing those sizes than
we did by supplying them. Improvements in the manufacturing processes were a better solution to the
problem.
Customers get benefits in several different ways and it is worth knowing what your customers think
about the features of your products. I was amazed when a customer complained about a change in the
position of the nameplate on a gearbox; he had designed his machine so the nameplate showed and his
product literature included the remark that only “top quality” components were fitted. Our company
name was one of the benefits he offered his customers.
Benefits can be classified as symbolic, functional or physical and the nameplate on the gearbox was
obviously symbolic. A taxi service which used only Rolls Royce limousines would be offering a
symbolic benefit to their customers; you can probably think of many others.
Functional benefits are often due to quite ordinary features which customers may not appreciate until
they are told about them. “Wipe-clean” aprons look just like any other aprons, but have a particular
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surface which allows the wearer to wipe off any spillages. Automatic chokes and gearboxes on cars
are commonplace now, but when the automatic choke first came out it was a serious benefit. (If you
do not know what a choke is, ask an older motorist!)
Physical benefits are often so obvious you might wonder what they are, but think of the sizes of
many products – take motor vehicles again for example. The physical size of a car can be a benefit or
not, depending on where you want to drive; a small car is best for parking in the city but probably not
best for long journeys. Airlines offer wider seat spacings in their first class cabins, and there are many
similar examples – you may prefer an upper deck when you go on cruise. (After the exams!)
C. PRODUCT BRANDING
Kotler tells us that the American Marketing Association gives the definition of branding as being:
“...a name, term, sign, symbol or design, or a combination of them, intended to identify
the goods or services of one seller, or a group of sellers, and to differentiate them from
those of competitors”.
Essentially, a brand is the flag which signifies, to the buyer, what they can expect from purchase in
terms of quality, service, functionality, etc. A brand is a recognition factor which, particularly at the
point of sale, can help a buyer to reach a purchase decision.
Consider the following brands and what they could mean to an individual:
! Cadbury – good quality milk chocolate/fattening products
! British Airways – good flight schedules/high prices
! Sony- excellent quality/poor quality
! McDonalds – pleasant outlets/poor nutritional value
! IBM – solid quality/outdated technology
You can see from the above (remember, they are only examples – I am not stating them as fact) that a
brand can mean good and bad things to people.
Buyers are attracted by certain brands and not by others. There may be good reasons behind the
rejection of a brand by a buyer, e.g. poor experience in customer service, or in product quality, or
perhaps because of influences coming from a family member, etc. but “brand rejection” does occur.
Because of the danger of this phenomenon, marketers try hard to protect a brand image with vast
amounts of money being spent on advertising and publicity. At the end of the day, marketers see the
brand as being a major asset which works in their favour. The more loyalty that can be created, the
better it is. The better the branding, the more likely it is to create loyalty.
Brand Strategy
To develop a brand takes time and involves long-term planning and investment. This means that
decisions on the type of branding to be used will not be taken at the operating level. These decisions
are strategic in nature and involve higher-level decision-makers. Brand strategies that can be
followed are:
! Corporate Umbrella Branding
This is where the name of the company is used as the main “identifier” to the customer, e.g.
Sony, Kellogg, Heinz. (Some major companies are now using the term “monolithic” when
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referring to their corporate brand. This appears to be happening when there are multiple brands
under one parent group.)
Brands of this type can be very powerful. The name “Hoover”, for instance, became
synonymous with the vacuum cleaner. “Biro” became a common name for ball pens.
Of course, such branding can also be very dangerous. If for some reason a brand name
becomes damaged by adverse conditions or publicity it can reflect on the entire product range
and, consequently, affect earned revenue.
! Family/Range Branding
This is where a company has products being sold under a recognised name which is different to
the company name. Family branding can apply to all products which are sold by the company,
(e.g. Marks and Spencer use “St. Michael”) or for some of the products only (Woolworth uses
“Kingfisher”). Family branding can also apply to individual ranges. This type of individual
family range branding is very common with high street fashion retailers, e.g. C & A use
“Canada” and “After Six”, Littlewoods have recently introduced “Berkertex” (a play on
another well-known fashion brand), Evans use “Essence” – each of these names signifies the
particular qualities of the range to the buyer.
! Individual Product Branding
This is where the name of the product does not have any relationship to the company name at
all but the product is recognised for its own merits, e.g. Lucozade, Seven Up, Benylin.
A company may decide to adopt one, or all, of these strategies depending on what it is they want to
achieve. We can quote many examples:
Corporate Family Individual
Van den Burgh Foods Ragu Chicken Tonight

Nissan Frontera Frontera Sports
Volkswagen Golf Gti
Warner Lambert Health Care Benylin
Often the brand strategy decisions will be based on the type of products which are being
manufactured. If they are broadly similar the company may choose to be known for its corporate
name rather than for individual products. Where the product range is diverse and aimed at different
target sectors they may choose to adopt a policy of “family” or “individual” branding. It is impossible
to give a good, general guideline. The ethos of the company and its long-term intentions will dictate
how branding is carried out.
When brands need to be developed, either from scratch or changed in some way, decision-makers
cannot simply come up with a catchy name or new logo and hope that the buyers will like it. The
brand must be very carefully planned in terms of its particular characteristics. Consideration needs to
be given to several aspects including:
! Impact on Existing Brands
To introduce a new brand, or change an existing brand, that would have an effect on other
brands being offered by the same company would be rather foolish, to say the least.
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! Suitability for Global Operations

Products are available in most parts of the world so the “translation” of a brand needs to be
universal. A name which is offensive, or difficult to say, or a colour which signifies disaster
would be inappropriate. There can also be savings on promotional material if brands are
adapted to cope with multiple cultures.
! Potential of the New for Brand-stretching
A brand name that can be used to cover other products which may be introduced later can be
highly attractive. When a company has acquired a good reputation for a brand it makes sense
to use that brand for other products. For example, Marks and Spencer originally were known
for clothing under the brand “St. Michael”. They have now stretched that brand to cover food,
gifts and toiletries, home furnishings and furniture. Each new line has benefited from the
security of the established brand name.
Threats to Branding
The presence of strong branding can, in itself, be a threat to an organisation. Managers can become
complacent and, at times, arrogant and dismissive of customer needs. Acting from a power-base can
be a powerful drug and warning signs may sometimes be ignored. Resentment of the power of a
supplier can cause problems which will build up and then suddenly develop into a major issue.
One of the main outcomes of this, throughout the world, has been seen in the actions of major retailers
in the consumer sector. Many have developed their own brands which now compete with each other
and more established brands, on the basis of price or value for money.
Buyers who try the own-brand goods will often find that there is little difference in quality and taste
but there can be a big difference in the price they pay. If the price they are paying does not equate to
the “value” they receive, they change brands. They shift loyalty from one brand to another! Brand
managers don’t want this to happen so they do everything they can to keep their customers happy.
D. PRODUCT PACKAGING
You may think that packaging is only for protecting the goods on their way from factory to user; but
just stand in a supermarket, look down the rows of shelves and imagine what the scene would be like
if all the packages were in plain brown. And think what a struggle it would be to find the product and
pack size you want to buy. The same applies to most other types of store; so it is clear that packaging
does more than protect the product.
We can look at packaging from three aspects: practical, decorative and informative, to get a better
view of the importance of packaging to the marketing manager.
Practical Aspects
Some aspects are obvious, such as containing the right quantity of product and keeping it safe during
transit from factory to warehouse, then to the store shelves and finally to the customer’s home. It is
equally important for the packaging to protect distribution staff, customers and associated people from
the product, if it is hazardous.
Some products sold in grocery stores could be very dangerous if spilled onto people or property.
Oven cleaner is an example; I bought an aerosol in a hardware store which could be a real killer if the
packaging failed to protect the user.
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There is scope for ingenuity in the design of packaging, to make the pack more useful or attractive to
the user; examples include “easy-pour” spouts on cans of engine oil and “tuck-in” flaps on cardboard
cartons for various products. I always look for hand-holes to help me to get a grip on heavy packages.
If the pack can be re-used (for a different purpose rather than re-filling) there may be a benefit for
some customers which will be another reason for buying the product. This applies in industry, too;
some large packing crates are used as offices, sheds, workshops and even as homes in some places
overseas.
You may like to ponder on the supply of foodstuffs before packaging by processors became the
normal activity. I can remember the grocer weighing out sugar, flour, dried peas and beans, pouring
them into paper bags and then folding over the tops neatly. I never knew who had produced the
groceries and hygiene was of minimal importance. Can you imagine returning to life before plastic
bags?
Decorative Aspects
The obvious “prettiness” of packages is not the important matter here. A package can carry the logo
or symbol of the brand, which adds to the message appearing in advertisements. Repetition of a logo
helps identify the product to customers with some satisfactory experience of the same brand. It also
“reinforces” the message in the advertisements and helps persuade customers to buy the product.
Some products have quite distinctive packs; the colours and designs used become synonymous with
the product, such as Kodak film, Mars bars and After Eight Mints. Here, the design of the pack and
the colours used are identified with the product just as strongly as the coloured shirts of a football
team.
The packaging may not be on the shelf – the logos of petrol suppliers are on their tankers and on the
forecourts of petrol stations, not on the product.
Informative Aspects
This really is important in view of the potentially dangerous products sold over the counter these days.
The information can be simply how to open the package – not easy with some of the “protection”
devices which appear for our benefit!
In other cases the information shows us how easy it is to use the product, as with the lawnmower
operated by a gorgeous young lady in a clinically-tidy garden. In fairness, the same packaging tells
you how to use the machine safely and even tells you how to carry it easily. Some packaging includes
information on the safety aspects of the product. Many products can only be sold if labelled with
specific information.
E. THE PRODUCT LIFE CYCLE

We have already mentioned the product life cycle model which is perhaps the most easily recognised
and well-known model in marketing theory.
You will know that the concept is best illustrated by a diagram of the “life” of a product covering the
time from when it is introduced onto a market until it is deleted or phased out of a product range. The
variables used in the model are Time and Sales Revenue (or Profit). Over the course of its life, the
product moves through a number of stages, each of which has its own implications for the
management of a product.
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Figure 7.10: Typical Product Life Cycle Model
The five stages in the life cycle are as follows.

! Development
This can be a protracted stage and will involve activities such as design, planning, costing, test
marketing, etc. Costs are high, with no earned revenue (and thus it does not register as a stage
on the diagram at Figure 7.10). Promotion for awareness may commence in advance of
introduction of the product to the marketplace.
! Introduction
This is another heavily expensive stage with promotion being intensive even though it may be
selective initially. If the product is truly innovative there may be little or no competition at this
stage, but market education will be required so promotion costs may be even higher. The
distribution network will have to be established with dealer incentives being offered to secure
business.
! Growth
If the product is taken up by the market, this stage will produce the greatest increase in sales
and profit. The competition will be catching up and promotion will be aimed at creating
favourable attitudes to the product as well as establishing buyer loyalty. The growth stage gives
opportunities to solve problems which may have been found in the marketing effort
(distribution, packaging, etc.) but pressure from the competition makes this a tense stage and
there are still relatively high costs to be incurred.
! Maturity/Saturation
The market has matured and competition will be at the maximum. Profit levels may begin to
show falling trends as market share is lost to the competition or the market becomes saturated.
At this stage promotion will be aimed at reminding the target audience about the product and at
overcoming the competition. There may still be good revenue to be earned from the product
and managers may extend the life cycle by marketing effort – new packaging, increased
promotion, new market sectors, regions, etc.
! Decline
The market is falling and results in low profits. There is a possibility of high support costs and
considerable management time spent in considering the merits and demerits of the product.
The product may need to be withdrawn if new markets/uses cannot be found or if adaptations to
the mix are not effective in increasing sales.
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At this stage organisations may be introducing new products to take the place of those which
are about to be deleted. The decisions on product deletions and introduction are strategic
decisions and will be dealt with at higher levels of management – some companies make a
practice of deleting products regularly and others stick to making adaptations to extend the
PLC; yet others will have an “open” policy of considering each product on its own merit.
Problems with the Product Life Cycle

We know that most marketing models are not perfect and can be criticised for various reasons. The
product life cycle model is no exception to this and there are a variety of problems in using the above
basic concepts.
(a) Shape
The typical life cycle model shown in Figure 6.5 illustrates the four “stages” that a product can
go through: Introduction, Growth, Maturity and Decline. Occasionally, you may see another
category, Saturation, which comes immediately after Maturity.
The model in Figure 7.10 can immediately be criticised because it makes no allowance for any
activity, costs incurred or time taken before the product is introduced to the market. It is, in
effect, a “sales” life cycle as it shows the revenue gained and falling over time, although this
could be related to the life cycle of the product from launch only.
Figure 7.11 gives a better illustration of the concept:
Figure 7.11: Product Life Cycle Model
The model in Figure 7.11 is more realistic in that it shows activity and resource utilisation at the
development stage, before market launch. We could therefore argue that the true shape of the
product life cycle diagram is “S” shaped.
But then we come across the problem that not all products are alike. They are launched under
different circumstances, for different target sectors and for different uses. They will also
involve different levels of resources during the development stage. This implies that the shape
of the individual life cycle model will change.
Consider Figures 7.12 and 7.13:
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Figure 7.12: Product Life Cycle – Rubik’s Cube
Figure 7.13: Product Life Cycle – CD Players
The model for the Rubik’s Cube shows little development costs incurred, a very rapid growth
phase, a short maturity and a rapid decline. This reflects the nature of the product – it was a
game that took the market by storm in the mid-1980s with everyone trying to beat the puzzle,
but it quickly fell out of fashion with the resulting loss of sales. You can still buy the cubes but
they do not take a large share of the games market – other favourites, or fads, have taken their
place.
Figure 7.13 shows a different history, with massive development costs, a slow introductory
phase and then a steady growth with a long maturity phase.
This reflects the fact that the CD player was a highly technical product which needed intensive
development and production costs before launch onto the market. The product was bought in
small quantities at first because people could not really see the benefits of changing how they
listened to music. Additionally, CD players were seen as being a waste of money because the
gramophone records that people had collected could not be used on them. Gradually, as the
benefits of the superior sound reproduction were recognised, more and more people bought
them with the growth stage increasing steadily until maturity was reached. Some music is now
only available in CD form and, for those who like that music, a CD player is essential. The
long maturity stage, as shown in Figure 6.8, is typical of where an industry has adopted a
standard. Until something even better comes along, CD players are here to stay.
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Note that the model for the CD player is not for any particular product – it is for a generic, or
core, product – a class of product. A life cycle diagram for an individual product may look
completely different. In actual fact different product life cycle diagrams can be drawn for
product class, product forms and products or brands. In Figure 7.14 we have used the vacuum
cleaner as an example.
Figure 7.14: Product Life Cycle – Vacuum Cleaners
You can see that the life cycle of the product class is continuing. The product form (cylinder)
was popular for some time and then declined in popularity with another growth stage at a later
date.
The curve for the individual brand (Vax) shows that the product has been a relative latecomer
into the market and it is still in its growth stage. The scalloped curve for the Hoover brand,
however, shows an on-going history of rising and levelling of sales.
This variety in the possible shape makes it rather difficult to accept the idea of a “standard
product life cycle” and this is a major problem for managers. They would like to be able to
draw a simple product life cycle and then have everything go according to their expectations.
Unfortunately, life is not that simple.
(b) Influencing Factors
Product life cycles are a reflection of sales over time. We all know that sales can be affected in
numerous ways and, no matter how good the forecasting or planning, there can always be a
reduction in sales. The product life cycle takes no account of environmental influences such as
competitive activity, legal pressures or customer buying behaviour.
! Accuracy
As it is not possible to be 100% accurate in forecasting sales in advance, the only way
that the product life cycle model can reflect a true picture is if it relates to sales already
achieved. It follows, then, that only historical product life cycles can be accurate.
! Location of Products
Another problem that managers face is in knowing exactly where each product is in its
life cycle. The growth stage may be protracted or very short. The potential size of the
market may have been underestimated, which could result in a manager thinking that the
product had reached the maturity stage when, in fact, there could still be opportunities for
growth.
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! Over-reliance
Sometimes a reduction in sales revenue can be because of some influencing factor, (e.g.
recession). Just because the product appears to have reached maturity does not mean that
it will go naturally into decline. An over-belief in the concept of the life cycle can mean
that a manager will withdraw support from a product when sales slow down. Doing this
can actually create decline and the product will fail. This is known as the “self-fulfilling
prophecy syndrome” and has caused many products to disappear from the market earlier
than necessary.
Usefulness of the Product Life Cycle

Because I have covered the problems associated with the product life cycle first, you could be
forgiven for thinking that I see no great use for this concept or model. On the contrary, I think it can
be extremely useful if it is used with caution. As a general aid to planning it is excellent and can offer
several benefits.
(a) Planning and control
Once levels of revenue to be achieved have been established, a manager can calculate how
many units of a product need to be sold in the time period covered. Using a desired product
life cycle will show what possible sales could be achieved based on salesforce capabilities
(number of customer visits : likely conversion rate, etc.). It also means that the manager can
liaise with the production department on schedules and product availability.
If the possible sales, coupled with the product availability, are in line with the revenue
objective, the objective is given greater credibility. It also means that resource utilisation can
be planned much more effectively.
Using the model as a control mechanism is perhaps an even greater advantage. When a
forecasted, or desired, chart is drawn it can be used as a measurement of actual results for any
product. Comparisons can be made between the take-up rates of a range of products in order to
see which marketing activities produced the best results. This type of post-campaign
monitoring will help when formulating strategies for future product launches.
(b) Strategy formulation
The stages of the product life cycle give good general guidelines on the characteristics which
can be expected for aspects of the marketing activity and consequently aid decisions on the type
of marketing strategy that might be appropriate. These are set out in the Table following
(Figure 7.15). I stress the word “general” because there will be exceptions. Environmental
influences should always be taken into consideration when formulating strategies.
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Characteristics Introduction Growth Maturity Decline
Sales Low Increasing Slowing Declining

Profits Loss Peaking Declining Low to zero
Cash flow Negative Moderate High Low
Customers Innovative Mass market Mass market Laggards
Strategic focus Expanding Market Defensive Productivity
market penetration marketing
Marketing High High – declining Falling Low
expenditure
Product plan Market to Expand for early Widen product Niche marketing;
innovators; early & late majority; lines, rationalise reinforce brand
adopters; high less product brand; less loyalty;
product failure distinctiveness; competition; rationalise
rate; basic – improve models differentiate
developing
Competitor No reaction Maximum new Marginal Competition
reaction entrants – high competitors exit declines
Pricing plan High skimming Differentiated for Lowest – Price cutting
each segment competitive rises for niches
Distribution plan Unstable pattern Increasing Control passing Segmented,
– widen pattern – to fewer firms fragmented, and
channels, seize competitor localised
shelf space activity
increasing
Promotional plan Push for Create “pull” Withdraw Cease
awareness
Figure 7.15: Characteristics of Strategic PLC Planning
If managers were to follow the guidelines given in Figure 7.15 too rigidly they may come up
against a number of problems. Take the example of Distribution at the growth stage. To simply
say that because a product is in its growth stage you should intensify your distribution activities
may not always be true. Product and customer requirements may make that a nonsensical
proposal.
For example, think in terms of producing a highly specialised and innovative design tool. To
have intensive distribution would be almost impossible, and customers would need personal
attention. On the other hand, intensifying distribution for a product aimed at the consumer
market might well be appropriate when the product is in its growth stage. Therefore, it follows
that the product life cycle is not, and can never be, a formula for marketing management.
(c) Targeting and Positioning
The diffusion of innovation is a concept which was introduced by Rogers and it refers to the
characteristics of buyers. We looked at this concept briefly earlier in Study Unit 5. Based on
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the normal distribution curve, the model shows the rate of diffusion at which a product will
normally spread into a market.
Figure 7.16: Diffusion of Innovation
As you can see from Figure 7.16 the theory splits buyers into four categories:
! Innovators
These are buyers who are always at the forefront of the market. They buy new products
as they like to experiment and be seen to be first. These people are the “opinion leaders”
of society. If this category can be convinced of the value of a product, and they buy,
there will almost certainly be a growth rate for the product. It is also likely that if this
category do not take up a product, then success will be limited and the product will die at
birth or very soon afterwards.
! Early Adopters
These buyers are never the first to try new products, but they always follow opinion
leaders fairly closely. They are not confident or adventurous enough to be leaders, but
like to be “fashionable”. They need to see that a product has some value before they buy.
! Early Majority
Once a product is established, the early majority will take it up and buy. By the time the
early majority are buying, the product has been on the market for some time and has been
proven to be successful or useful in some way.
! Late Majority
The late majority buyers are those who wait until the product is almost at maturity stage.
They require much persuasion and it is often only when a product is widely available that
they will buy.
They are conservative buyers who need reassurance of performance.
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! Laggards
These buyers are behind the time. They buy products when they are going out of fashion
or may even have been outdated by new technology. They are the most resistant buyers
to convince as they are the most risk-aversive. Products in the decline stage which have
been reduced in price may be attractive to these buyers, but a marketer would not
necessarily devote very much attention to them.
By superimposing the theory of the diffusion of innovation onto the product life cycle, it is
possible to understand the typical characteristics of buyers. This means that positioning can be
done in such a way that it will be more effective and changes in positioning can be made as the
product moves from introduction through to decline.
Management of the Product Life Cycle

By constructing a desired product life cycle at the beginning of a campaign, monitoring results and
then plotting actual figures, a manager can see how any product is performing. The visual
representation helps in planning ahead to phase out obsolete products and in knowing when to
introduce new products.
The ideal situation for any company is to have a relatively steady income and it is by product planning
that this can be achieved.
In Figure 7.17, the horizontal dotted line shows the required level of revenue for the company. You
can see that:
! Product A is now well into the decline stage and revenue is falling.
! Product B is moving into maturity. This product was launched and managed to reach maturity
as product A began to fail.
! Product C is in the growth stage and is timed to reach maturity as product B is expected to fall.
! Product D has been launched and is being managed to reach maturity as product C moves into
decline.
The expected revenue is more or less at a steady rate which means that the cash flow will be constant
and resource utilisation will be planned.
Figure 7.17: Recurring Product Life Cycle
This recurring product life cycle will be appropriate for those companies who are involved in new
product development, rather than in product adaptation. Where product adaptation takes place, the
result will be a scalloped, or extended, life curve, such as the one for the Hoover brand in Figure 7.14.
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Most managers would agree that the ideal product life curve would indicate little development cost,
rapid growth and very long maturity. However, the reality is that most products are not fortunate
enough to achieve that and product life cycles will vary in shape according to:
! The nature of the product
! The management decisions taken
! The activities of the competition
! The tastes of the buyers
! The influence of governments
So we could argue that there is no ideal product life curve. The nearest we can come to that is if we
create product life cycles and manage the product to fit our requirements, rather than simply
launching a product and accepting the way the market behaves.
Thus, then, we can say, in summary, that the product life cycle:
! Is very useful in targeting and positioning
! Can give general guidelines on strategy
! Is useful as a control mechanism
! Is useful as a comparative tool
! Can never be 100% accurate in advance
! Is only effective if used with caution
! Should be created rather than accepted
F. EXTENDING AND EXPANDING THE PRODUCT LIFE

CYCLE
When a new product is introduced to the market there is usually a lot of expensive investment
involved, on which management must try to get the best possible return. Remember the owners are
shareholders who judge management partly on the dividend paid on their shareholdings. There are
other factors, but in general it is fairly safe to bring the operation down to money terms.
Managers cannot control markets, which consist of customers who have their own ideas, but skilful
managers can influence customers in such a way as to lengthen the life of a product by extending or
expanding the market.
! Extension involves maintaining production levels by seeking a wider market as demand begins
to fall in the existing market. No new investment in manufacturing operations is required.
! Expansion involves trying to increase demand for an existing product and thus increase
production levels. Hence it is a strategy which does require additional investment, either in
support of local manufacture or foreign market facilities.
As for examples, the original domestic market for Perrier spring water was extended by repositioning
and a change in advertising and pricing. The market for Japanese cars and motorcycles was
expanded by setting up satellite manufacturing facilities in overseas countries.
Be warned that there are no generally accepted definitions of these two terms (a common problem
with marketing terminology). If you have to use any problematic terms in answer to an examination
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question, it is entirely acceptable to begin with your own reasonable definitions and then apply them
consistently in your answer.
Extending the Market

I am taking “extending” to mean going deeper into an existing market, as would occur if Disney
World were to add more attractions to their theme park in Florida. I reckon that when Disney opened
a theme park in France, they were “expanding” the market.
So if we have a market which we wish to extend, what are we really saying? We want to get more of
the market in which we now operate. We already have some market share and if we increased it we
would probably achieve more profit. That would enable us to get a better return on the original
investment.
Take an example such as Walls Ice Cream – they have always been strong in shops, but a lot of ice
cream is delivered by vans which tour housing estates or park outside sporting events and similar
places. Walls were missing out on part of the market and when they decided to supply van salesmen
with ice cream, they extended their market.
There are many benefits to be gained from this type of activity – the company already knows how to
make the products and in many cases they will have a reputation which is an asset worth developing.
Quite often there will already be some of the support services in place and able to cope with more
work.
There are also potential problems too, since every development carries some risk, so we must look at
the activities involved in extending the present market.
! First, marketing management requires information on present performance, including market
share if known. (Textbooks take it for granted that everyone can estimate their market share,
but there are some markets for which statistics are not available in sufficient detail.) It would
be nice to know the strengths of the company compared with those of each main competitor;
and if you can work out strengths, you can work out weaknesses, too.
! The marketing management will also want to know the nature and size of the opportunities
available for extension of the market; where they are and what they are like. How do they
differ from present markets? Is the present distribution system adequate or even appropriate?
Is there any way in which we can spread our message to potential new customers? Can we use
the same type of advertisements? What will it cost?
! Can the marketing management expect to be able to move into a new extension of their market
without competitors fighting to keep their market share? Surely the best of them will try to stop
anyone from taking their market share? Their reactions might be a threat to our extension
plans.
It is commonplace in marketing texts to refer to a SWOT analysis; the initials stand for Strengths,
Weaknesses, Opportunities and Threats, which are all words used in the preceding paragraphs. It is
easy to suggest a company does a SWOT analysis, but it is not always realised that there can be a
great deal of work involved. A good Marketing Information System (MkIS) will have some of the
information already on file, of course, but other material will have to be gathered and analysed.
A company may be lucky enough to be able to choose from a number of possible extensions to their
marketing activities; hence it will be necessary to decide which of them will bring the best increase in
profit. In addition, there are few fixed points in this sort of analysis; most possibilities will have some
element of doubt about them.
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Fortunately, computer analysis programs are available to help marketing management predict what
might happen if they take specific actions. They are fine in their way but depend on having a lot of
information to feed into the program. This type of analysis is often called “what if?” analysis. A
more formal name for the activity is “modelling”.
Expanding the Market

This is similar in many ways to extending the market and many of the ideas mentioned above will
apply. A SWOT analysis will be necessary and it will be important to ensure that production and
financial arrangements can cope with the costs of the work involved.
The big difference between extension and expansion is that expansion does not involve winning more
market share from competitors; expansion means making the total market bigger, which might be a
much more difficult job.
Expanding the market means the company will have to pioneer the product or service to customers
who have not encountered it previously. It will involve more than just product marketing; it may be
necessary to promote the company name and image too, if the company has not operated in the new
market before.
Expanding the market for a product will be easier if the company already markets some products in
the new location, because an existing good reputation will “rub off” on the product which is being
moved into the expanding market. We will look at branding in more detail later.
Kotler states that markets are seldom fully saturated by the companies which pioneer them, because
some of the potential customers have needs which are not covered by the pioneering company. This
leaves small numbers of potential customers who cannot get their needs and wants satisfied by the
main suppliers. If another company chose to satisfy those customers, it could be done without
clashing with the main suppliers. Such a strategy may provide a smoother way to expand your market
than going in head-on at existing suppliers.
This type of marketing is often called “niche” marketing because of the small sections of the total
market which are involved. Some textbook diagrams show the niches as corners of a square, with the
middle being occupied by the main supplier; however, it gives the dangerous impression that there is
geographical location of niches, which may not be true. The people in a market niche for million-
pound necklaces may be scattered around the world; it is the nature of their needs or wants which
matters, not their specific location.
Markets tend to evolve rather than appear suddenly, so it is fairly logical for a company to move into
several niches, then gradually start to supply the whole market.
The alternative, if the market already has some suppliers, is a head-on attack on the market leaders,
which may be the right way for some companies.
It is interesting to note that the marketing activity of a company which enters a niche will usually
involve placing advertisements, which will add to the total advertising exposure of the whole of the
market. Sometimes it will bring benefits to the entire market, not just the new entrant.
Extended Product Life Cycle Graph

The idea behind expanding and extending the market for a product is to bring in more profit in order
to obtain a better return on the original investment and development costs. This also enables the
company to finance development of new products.
The product life cycle graph which we discussed earlier can be modified by market extension and
expansion to look like Figure 7.18.
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Figure 7.18: Extended Product Life Cycle
For a well-managed company there might be several such curves for different products. They would
be plotted from actual sales and profit figures, so they would show the total profit and help
management predict future profits. Product life cycle graphs can be predicted if the company has
experience in comparable products, which is a bit like having “hindsight” in advance. A very useful
bit of knowledge!
G. NEW PRODUCT DEVELOPMENT

The market stance adopted by the company will, to a large extent, dictate whether a company will be
an innovative leader and involved in extensive new product development (NPD), be a follower and
copy the leaders, or whether the products will only be refined over and over again to make them
appear “new” to the buyers.
Companies who do not have the benefit of one perfect product which will always be in demand by
loyal customers and will never be attacked by competition, need to be involved in NPD to one extent
or another.
NPD can be amendment of existing products in order to produce products which are “new” to the
market or it can be totally innovative, in which case products entirely new to both market and
company will be developed.
The advantages of NPD are that it can:
! Give advantages over the competition
! Mean increased customer loyalty
! Lead to increased sales/stability of profits
! Spread investment risks
! Increase the prestige of the company
! Utilise production equipment
The disadvantages of NPD are those of money, time and risks – the opposites of the advantages.
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Process of NPD
The process needs to be thorough and systematic but flexible. All costs should be considered but
short-termism should be avoided, as often there may be high costs/low profits initially but ultimate
profits will be excellent and costs can reduce through experience.
The main emphasis on NPD is that there should be a process – planning is crucial if NPD is to be
successful. Everyone involved should know the policies of the company where new products are
concerned and should understand the stages of the development process itself. Poor communication
and liaison will inhibit the development and successful launch of a new product.
The main priority in NPD must be to monitor constantly so that activities can be controlled.
The new product development process for many years has been viewed as a linear, sequential process
involving several stages of analysis and review. The model most frequently quoted for this is the
Booz Allen Hamilton model, identifying logical sequences in the process as follows:
! Idea generation
! Screening
! Concept testing
! Outlining marketing strategy
! Business analysis
! Product development
! Test marketing
! Commercialisation
Whilst the model does give a good basis for risk reduction in new product development, we can see,
by looking at each stage in turn, that it can be a time-consuming process and therefore may not be
perfect in today’s highly competitive marketplace.
(a) Idea Generation
Ideas are collected from perhaps the salesforce, distributors and customers/consumers. The
company will be actively looking for opportunities, and new products can be produced in
response to a perceived, or recognised, demand. The process of gathering the ideas may take
weeks or even months. The ideas have to be collated, considered for feasibility and eventually
passed to the people who are responsible for screening.
(b) Screening
The company will have set certain criteria, e.g. we must be able to produce this product without
further investment in production plant or personnel; the product must “fit” with the rest of our
range; there must be a recognised level of demand; it must give a stated level of profit; it must
be different to what the competition is offering, etc. The people who are responsible for
screening the new ideas must try to “match” the ideas against the stated criteria wherever
possible. Assuming some of the ideas meet the criteria, they are then passed on to the people
responsible for the next stage in the process. The screening stage is crucial, as it is here that
non-viable ideas are shelved.
(c) Concept Testing
This is not a “product test” but an “idea test”. The concept is taken to potential buyers as well
as to the internal processing people to check on manufacture, packaging, distribution, etc. At
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this stage people are being asked such questions as: “Do you think it is a good idea?”; “Would
you buy it at x price?”; “Can we make it?”; “Will it be easy to store and distribute?”. Once
again, a time-consuming process, before the next stage is begun.
(d) Outlining Possible Marketing Strategies
The results of the concept testing can help a company to decide just how it will market the
product. Will it be distributed direct, or through specialist channels, or will it be made widely
available to cater for a mass market? What positioning will it be given – high quality, good
value for money, or cheap and cheerful? Will the communications be heavily biased towards
direct marketing, or in the major media? What strategy would cause least reaction from the
competition? How can results be most effectively measured?
Decisions made at this time depend a great deal not only on the results of the concept testing
but also on knowledge of the marketplace and the planning skills of the marketers involved.
Knowledge of the marketplace is something which requires research. Research needs to be on-
going and takes time!
(e) Business Analysis
This stage is crucial to the NPD process. It is here that the potential profits are compared to the
production and marketing costs to see if it is worth proceeding. Competitive activity, market
trends, environmental aspects, etc. will all be analysed in order to give as accurate a picture as
possible. It is at this stage that products are often rejected because they do not demonstrate
enough potential earnings in a given period of time, whereas given the appropriate support they
may actually be products which could give huge profits over a longer period of time. Assuming
that after the business analysis the product idea is still a viable proposition the next stage then
comes into effect.
(f) Product Development
To begin manufacturing a new product is a risky venture and there can still be some doubt as to
the viability of the product. Because of this, some manufacturers will choose to produce a
prototype, or small batches, in order to test effectiveness before they give full commitment to
production. The effort in producing small quantities adds to the expense and time involved, not
to mention the possibility of the competition becoming aware of what the company is doing. It
is during this stage that final planning for the other elements of the marketing mix (brand
names/pack sizes, etc.) will be completed and this is often the time when something completely
unexpected will crop up – meaning higher costs for the company.
(g) Test Marketing
This is where the product is introduced to a representative sample of the potential market and
aspects of the marketing effort are tested. This is an opportunity to adapt any of the mix
elements which prove to need adjustment. It is important that the test area chosen is
representative of the entire target audience.
For industrial products, selected customers may be approached to “test” the product and they
will be surveyed for their responses in view of effectiveness, price and other attributes. For
consumer products, testing regions will be chosen. In the UK, and indeed throughout the
world, certain areas are known to be good testing sites. Usually this is because the region has a
representative cross-section of the community, with good communications and distribution
facilities available.
Although it increases costs, it is better to use more than one testing area so that comparisons
can be made. Different prices, advertisements, methods of distribution and perhaps even
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packaging may be used in the different areas so that the company can see which methods are
most effective.
The results of the test will then dictate whether or not the product moves on to the final stage of
the NPD process. However, before we move on to the final stage, it is worth considering the
possible problems in test marketing. The problems can come from:
(i) Buyers – people will often buy a new product just to try it. They may like it and tell a
researcher so, but they will then revert back to their normal purchases because of brand
loyalty or for some other reason.
(ii) Distributors and suppliers – they may be willing to give a new product exposure
because of an introductory incentive, but once the incentive is withdrawn they may not
be so willing to cooperate or devote space to the product.
(iii) Competition – if they have relatively similar products, competitors may take defensive
action and introduce promotional activity that will undermine the testing. This could be
in the form of increased advertising, reduced prices or some other form of incentive to
keep the attention of the target audience away from the product being test-marketed.
Competitors have even been known to buy up new products in large quantities which
results in distorted sales figures that can lead to over-optimistic forecasting of demand on
the part of the company introducing the new product.
On the other hand, if you are introducing a truly innovative product which has no
competition, you are likely to become subject to “following action”, where competitors
will investigate your product and your marketing activities, find some way of improving
on what you have done and then capitalise on your weaknesses by launching an
“improved” version.
Other factors which research has shown can cause problems in test marketing are:
! Failure to understand the needs of the target market adequately.
! The wrong sector is chosen for the test and it is not truly representative of the whole
market.
! The size of the market sector being tested is not big enough.
! The timing is wrong, e.g. testing products in July, when they are likely to be purchased
for Christmas gifts or entertainments.
! The length of the test is too short, or too long, which can give distorted results.
! Not enough resources are put into the advertising and promotional aspects.
! The results of the test are ignored because of an over belief in the product by one
influential executive in the company.
Irrespective of the problems which may be encountered, there is no doubt that this stage in the
NPD process takes time and effort (both time and effort to any company mean one thing –
money!) before the new product finally reaches the last stage in the process.
(h) Commercialisation
This is the full-scale manufacture and launch of the product onto the marketplace. If all of the
stages have been carried out correctly, the product should have a good chance of success, and
yet research indicates that anything up to 80% of new products fail to progress from the
introductory stages of their life cycle.
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If we accept that the sequential NPD process as outlined in the Booz Allen Hamilton model is
valuable in that the process can weed out obvious failures and, at the very least, reduce the risk
factors, we must also realise that in the aspect of “time to market” it can be severely restrictive.
A sequential approach implies that one stage must be completed satisfactorily before the product is
“pushed over the wall” and another stage begins. Add to this the fact that often different teams of
people are responsible for the various stages and it is not difficult to see why producers have had to
come up with new ideas on how to cope with NPD.
! Consider that, instead of each stage being done in sequence by the relevant people, the
company changes its approach completely and parallel processes are introduced where various
stages are carried out simultaneously. You may well think that this is a high risk process and
that some aspects may be overlooked, which could still result in failure for the product. But it
is a fact that manufacturers are moving increasingly to this innovative style of NPD.
! Venture teams, or new product teams, are drawn together for the sole purpose of introducing
new products to the market. These teams may be ad hoc in that they are brought together for
one project only, or they may be more or less permanently established in that they are
constantly looking at new product ideas. It is necessary that the team represents ALL sections
of the organisation: marketing, finance, purchasing, production, possibly personnel and maybe
even any trade unions. In other words, any parties involved in the production and launch of a
product should be involved.
The team meets and “brainstorms” ideas. Just as with the Booz Hamilton sequential approach,
these ideas can be as collected from customers, or the salesforce, or may simply be ideas that
have been generated by the personnel in the company.
Because the team is comprised of people from different functional areas, there will be
immediate responses as to the likelihood of turning an idea into a distinct possibility for
development. So, using cross-functional teams, a lot of ideas can be subjected to simultaneous
initial screening which will get rid of some totally unsuitable ideas almost immediately and
identify those ideas that are at least possible.
The various team members then go off to their own areas and “work” the ideas. Production
thinks about whether, and how, the product could be made; marketing research demand and
draw up outline plans for the mix elements; personnel look at whether new people or skills
training will be required; and purchasing investigate sources, prices and quality of the required
materials. Other involved personnel consider the aspects relevant to them. In some
circumstances even potential buyers, or users, of the product could be involved with these
teams.
The team must meet regularly to report on progress and discuss any changes that may be
necessary as a result of the activities undertaken. As a lot of the work will be “research based”
many inconsistencies will be ironed out as the development process continues. This means that
decision making is much easier and decisions made should be far more reliable, with the result
that risk factors can be reduced to a great extent.
If a team such as the one we have described is formed, the members should be working together
from the idea generation stage to the ultimate commercialisation stage, so that they carry the
product through all of the problem stages. In effect, the product becomes “their baby” and they
are interested in ensuring success.
Obviously, this approach to NPD will only work if the culture of the organisation is conducive,
and supportive, to this type of cooperation. The whole ethos of the company needs to be
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innovative and encouraging towards innovation on the part of its employees. There are
numerous examples of companies which have successfully adopted innovative cultures, but
perhaps the most quoted is 3M. This company actually allows its workers time to come up with
new ideas. If an idea is accepted, the person whose idea it was not only becomes part of the
project team and helps get the product to market, but also gains a percentage of the profits made
by the product. All of this has resulted in a workforce which is constantly generating new ideas
and is dedicated to getting those ideas produced – with obvious benefits to the company and its
customers. A real “win-win” situation for all concerned.
! Recent years have seen companies moving away from producing entirely new products and
concentrating instead on product adaptation or extension. When you consider that it can cost
far more to introduce a new product than it does to adapt one, it is not difficult to see the sense
in this. Sometimes even a slight change in some aspect of the mix elements can extend the life
of a product and this need not incur high costs for the company.
! Coupled with this trend, we are seeing more and more companies who, when they produce
either entirely new or adapted products, are dispensing with the test marketing stage.
Decisions on whether to test the market or not will often depend on the confidence of the
decision-maker. If the early research into the new offering is viewed as being fully reliable,
they may decide to take a calculated risk and get to market early in order to defeat the
competition. One outcome of this, of course, is that the product may not be as perfect as it
could have been (not to mention the marketing effort). However, it is always possible to refine
an offering after it has been launched, whereas it is often too late if the competition get to the
market first.
Success and Failure of NPD

The adoption of any product depends on the rate of acceptance by the buyers. This acceptance rate is
often described as the rate, or process, of adoption. Basically it is the rate at which people become
aware of something, then enter the buying process. The speed of adoption will depend on the
intensity of activity by the company, on product characteristics, etc.
The rate of adoption and the diffusion of innovation categories and buyer characteristics are linked.
Research into successful new product launches indicates that, to be successful, there must be:
! An innovative culture within the organisation.
! Encouragement from senior levels.
! Committed development teams/personnel who will “champion” the product.
! Close cooperation between all functional areas of the organisation.
! Adequate resources invested in the development processes.
! Good understanding of the target market.
! Confident decision-makers.
Failures in product launches are quite often related to the timing of the launch, but they may also
occur because of inadequate market research, and failure to anticipate changes in technology,
customer preferences or competitive activity They can also arise quite simply because of excessive
faith in a product by the company or one of its more vocal or influential managers.
Recent research has shown that failures in NPD can be caused by:
! Poor/inadequate actions at the test marketing stage.
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! Lack of research into the needs of the target market.

! Time taken to get to market.
! Inadequate investment in promotional aspects.
! Risk-aversive management teams.
The Product Plan

Both existing and new products will involve managing aspects such as timing of launches and
promotional activities, scheduling sales effort in liaison with production departments, etc. which
means that activities need to be planned.
A product plan is a mini-version of a full marketing plan. While concentrating on aspects relating to
the product, it must fit with the plans for other elements of the marketing mix. Indeed, many brand
and product managers will have responsibility for, or be involved with, decisions on pricing,
distribution, etc. At the very least there must be liaison or all plans will be reduced in effectiveness.
Accepting that the product plan can be a plan in its own right, we can see that there must be strategies,
tactics and programmes as well as controls. The level of the product plan can be either strategic or
operational.
! Strategic product plans can include the type of branding to be used, the levels of quality to be
given, whether or not (and how often) new products will be introduced, etc.
! Operational product plans will be much the same as with any other operational plan – they
will identify timing, costs, responsibilities and measurement techniques. They are more
detailed than the strategic level plans.
A well-structured product plan helps to identify opportunities and to ensure that there is a good mix of
products in the overall range, as well as giving the capability of assessing the performance of range
items in order to see which need support, deletion or adaptation.
Lack of formal planning for the product is likely to result in failure in the marketplace, with the
obvious outcomes for the company.
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219
Study Unit 8
Pricing Policies and Price Setting
Contents Page
A. What does a Price Represent? 220

Price and Customers 220
Management Views of Price 220
B. The Pricing Decision 222

Pricing Plan 222
Pricing Policies 223
Influences on Pricing Decisions 225
Pricing Strategies 229
Changing Prices 231
C. Breakeven Analysis and Price 233
D. Price Elasticity 234

The Price Elasticity of Demand Formula 235
Factors Influencing the Elasticity of Demand 237
E. Marginal Costing 237

The Principle of Marginal Cost 237
Practical Implications 238
The Concept of Contribution 239
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220 Pricing Policies and Price Setting
A. WHAT DOES A PRICE REPRESENT?

The answer to this question may, at first, seem fairly obvious – it is the amount of money being
charged by the seller of a product, and the amount of money being paid by a buyer for that product.
But this response does not really say what a price represents. Price means different things to different
people – it depends on who we are talking about.
Price is one of the celebrated 4 Ps of marketing – price, product, promotion and place. All the other
elements cost money, but price is the exception – price is the one element that brings in revenue.
Some of the variables in marketing cannot be controlled by the marketing manager, e.g. the
environment, government actions, political events and so on, but price is one of the variables that the
marketing manager can control.
Price and Customers

To a customer, the price represents the level of value they ascribe to the item being bought. Value
changes from one person to another so what is a “good” price to one buyer may be a “bad” price to
another.
The following definition comes from a 1990 issue of the CIM Newsletter Marketing Success:
“Price represents the amount of income that has to be given up in exchange for the
package of benefits to be derived from the product”.
Note the word “benefits” – the Newsletter goes on to add that value is far more important than price,
and that leads to the idea that the total collection of benefits is more important than just the price
alone. For instance, suppose I have to send some goods to another part of the country, and I have the
choice of a “24-hour” service, or a “48-hour” service, or just a service which does not guarantee the
delivery day. All these services have different prices, yet they all end up delivering the goods to the
destination that I specify. The time of arrival may sometimes be such an important benefit that I will
pay extra for the faster service.
Most products have a number of benefits associated with them, and when we talk of price per unit in
customer terms we are usually speaking of the total benefit, not just the product. Clearly, the
customer must consider the other aspects of the purchase, and price is just one of many factors that are
involved in a buying decision.
I am interested in computers because I earn part of my living by writing and computers can be very
useful to a writer. However, many of the advertisements show prices that are higher than I am
prepared to pay, so those prices turn off my interest. One of the reasons for this is that the products
are developing so fast that if I wait a year, the model that I “cannot afford” just now will be offered at
a lower price, that I might be prepared to pay. If I really needed the features in the products, I would
allocate money that way now instead of some other way.
There are many factors which influence a customer’s view of price. If you are thirsty, you will pay a
high price for a drink, even though you think the price is too high, especially if you have little choice
or are in a closed situation such as a concert hall.
Management Views of Price

Various managers have different views on price, and the word “price” is too simple for use in the
deliberations of company managements. There is always a need to specify which “price” you really
mean.
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Pricing Policies and Price Setting 221
! Production Manager’s View of Price

To the production manager, it is often a matter of price being related to costs, with a percentage
added on for profit. This is an old-fashioned method of setting prices which is still used quite
extensively, and the effect on the production manager is that he or she will often be asked to
reduce the costs, because “the customers will not pay the price”.
As you can imagine, that causes problems for the production manager, who would certainly be
able to reduce the costs if he or she could get authority for making bigger batches of the
product, because unit costs fall as production levels rise. But would the lower costs, and lower
prices, ensure that there would be higher sales levels? Maybe, but maybe not.
It is easy to see how production managers can feel that they are being asked to do the
impossible to cover up for the inefficiencies of salespeople.
! Finance Manager’s View of Price
The finance manager is managing a very emotive raw material – money. He or she is
concerned that the revenue should be bigger than the costs of making, marketing and selling the
goods. If it is not, then why are we in business?
The finance manager is also concerned with the time of payment – revenue in the bank today is
better than a promise of revenue tomorrow, and timing is more important than it may appear
from the outside. The finance manager must ensure that the company does not run short of the
“raw material” that he or she manages, because the company could be closed down, however
busy they are in production and sales. (All companies in Britain must be able to pay their debts
at all times, or they can be closed down, and they may often have to borrow money to keep
themselves running.)
If revenue does not come in quickly enough to cover costs, the finance manager must borrow
from the reserves or the banks, and that is a matter for concern. The worst thing about
financing the marketing activity is the uncertainty – everything that is done by marketing staff
costs money and the whole activity is based on the expectation that money will flow back
eventually. But when? And how much? The finance manager wants to see a high price, but
only if there are going to be a lot of units sold.
! Sales Manager’s View of Price
In theory, any salesperson of average ability can sell a good product – it is just easier if there is
some flexibility in the price so that a “tempter” can be offered.
Sales managers tend to be judged on the success of their team in shifting quantities of the
product, and the quantities are often written into targets with little consideration of the
difficulty, or the competitors.
Within reasonable limits it should be possible to sell more at lower prices. There comes a time
when people have enough of a product, and shopkeepers soon get to know when their
customers will not buy any more at any price, but generally speaking price does have an effect
on sales levels.
For the sales manager, lower prices often mean higher sales volumes, and that can be a sign of
success.
! Distributor’s View of Price
The price paid by the distributor is not the list price paid by the customers, because the
distributor has to be paid for the service that he or she provides in stocking the product and
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delivering the small quantities that shopkeepers need. So the price to the distributor is the trade
price, and that may be as much as 50% lower than the retail price.
The “price” referred to by the finance manager, the production manager and the sales manager
is the trade price, not the list price. Whatever the terminology, the outcome is that the trade
price is what the company can expect to receive, and all their financial considerations must be
made on that price level.
The distributor may see the price in two ways:
(i) The price that is charged by the shopkeepers, which will have some effect on the demand
from customers; and
(ii) The price that he or she has to pay for the goods.
His or her profit lies somewhere inbetween those two levels.
Time is also important to the distributor – if the supplier will allow a few weeks’ credit, the
distributor may get some of the money in from the shopkeepers to whom he or she has supplied
the goods, and a longer credit period may offset a higher price, so the distributor, just like the
customer, is looking at the total package, not just the prices.
B. THE PRICING DECISION

The influencing factors on pricing can make the setting of prices very difficult for marketing
managers. Too high a price and the manager does not get the sales; too low and there is not enough
revenue. So the question must be: “How do we set a price?”
The answer is that there are basically two ways:
! From the point of view of the customer and the marketplace the manager must take note of
the current level of prices being paid for similar products on sale in the market. He/she should
then work BACK through the chain of distribution to manufacture, analysing the costs incurred
at each stage and building up a total cost for that particular item. When all costs have been
considered the actual revenue received for that product can be checked to see if it is viable or
otherwise. If profit levels are not adequate then managers need to consider other issues, such as
whether the product could be regarded a “loss leader” which would, in time, lead to sales of
other related products; or perhaps it is necessary that the company has a place in that particular
marketplace for competitive reasons.
! Working from cost of manufacture, by building up all costs incurred from production,
marketing and distribution until the product actually reaches the customer. If the final price is
too high, and unrealistic as far as the customer and current market levels are concerned, the
manager then needs to investigate how, if possible, he/she can reduce costs incurred in order to
lower prices. The converse also applies. In the case of high value items it could well be that
the price reached would be too low and would not reflect the correct “image”. Image is
important and customer perceptions are affected by price so that price needs to be right.
Pricing Plan
In the last study unit I said that the product plan was a mini-version of the marketing plan. In some
respects, the same could be said of the pricing plan. It has objectives and strategies and will
obviously need schedules and controlling to see if it is being effective. But the pricing plan has a
different role to that of the product plan. The pricing plan has to make sure that the customer is
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happy, but it must ensure that revenue is kept flowing and that costs are met. It is not an easy plan to
produce.
Managers involved in pricing are called upon to make decisions which will maintain the delicate
balance between the organisational aspects of earning money and the marketing aspects of satisfying
the customer. They need to know which is the best strategy to use at any given time and in any given
circumstances.
There are so many influencing factors that pricing can become a minefield if it is allowed to. It is
only by following laid down pricing policies and strategies, and adding value judgment, which is a
result of knowing the market and the customer, that a manager can be sure of any degree of success.
In other words, pricing needs to be structured, creative and based upon knowledge.
Despite the different structure of the pricing plan, it must still fit with the other plans. It is no good
deciding to adopt a policy of high pricing if the product quality does not match; it is no good deciding
on low prices when the product is unique; it is no good deciding to maintain prices when a market has
reduced in size – the price will need to be reduced or raised according to the competitive players who
are left operating. Last, but not least, it is no good regarding pricing as a minor issue – it is
important.
Pricing Policies
As with most activities in any organisation there will be stated policies underpinning the day-to-day
activities which are taking place. Policies are set and agreed at the higher levels of management and
then passed down to the relevant personnel for adoption and action.
Pricing policies may be complex or straightforward depending on various factors such as management
style, cost structure, etc. The policies are there to give guidance on the manner in which prices should
be set.
Because marketing managers may have to make decisions on prices both for the home market and
countries overseas, it follows that pricing policies need to be all-encompassing. They should be
clearly stated and easy to understand.
Pricing policies can be established in three ways. They can be:
! Cost-orientated
! Demand-orientated
! Competitor-orientated
(a) Cost-orientated Policies
Here the company knows the costs involved in manufacturing the product and then adds on a
percentage of the cost as a mark-up in order to set the price.
There are two ways of carrying out this policy:
(i) A standard “across the board” mark-up on all products produced. The mark-up is
designed to cover potential profit.
Example:
A company has a standard mark-up of 25%
Product X costs £5.00 to manufacture
Production batches are 500 units
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The selling price would be £5 plus 25% = £6.25

To simply cover costs the company would have to sell 400 units. If they were guaranteed
to sell that number, and were able to sell the other 100 units, they could have an extra
£625 revenue or profit. But, unless the product is made to order, there is always a risk
that some will remain unsold.
(ii) A standard mark-up plus expected level of profit.
Example:
The company has a standard mark-up of 25% before profit
Product X costs £5 to produce
Production batches are 500 units
The company wants to make £1,000 profit
Total production costs are £2,500. If we add 25% mark-up and the £1,000 required profit
we get £4,125. We can then calculate the price at different levels of sales, by dividing the
quantity into that amount.
Sales Quantity Selling Price (£)
200 20.63
300 13.75
400 10.31
500 8.25
There is a big difference between the lowest price using the method in (ii) and that found by
using the straightforward mark-up in example (i). The difference is that an allowance has been
included to cover required profit. This is a refinement on the basic cost-plus pricing policy. In
a situation such as this the marketer has then to decide which price to use, balancing
influencing factors against each other to see which scenario is likely to be the most productive.
These modest examples serve to demonstrate just how difficult it can be to set a good price
which will be acceptable to the market and yet still bring in the required revenue. Forecasting
of sales needs to be as accurate as possible, but the marketer needs to be able to “sense” what
the market will bear.
You may consider that cost-plus pricing is a rather dangerous method but many companies use
it quite successfully. In my experience those that do use it do not operate simply on a standard
mark-up; instead they have varying levels of mark-up to suit the particular products or markets.
There may be a stated policy such as:
“minimum of 25%, maximum of 400% before (or including) profit”
and then the marketing managers are given freedom to set the prices within those parameters.
Calculation lists, such as the one used in Example (ii) – but much more comprehensive, of
course – are drawn up so that planners can see at a glance how much profit they are likely to
make at any given selling price. This type of list is very useful in the process of new product
development and can save a lot of time in repeating calculations.
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You usually find the policy of cost-plus pricing in those markets where there is more than one
seller of a product and they are broadly similar in nature; products are differentiated by means
of added benefits.
(b) Demand-orientated Policies
High demand means high prices – low demand means low prices. This is a common perception
of demand orientation. However, there is the aspect of keeping prices high to meet a “special”
demand, such as in the case of luxury goods (Rolls Royce, etc.). In other words, demand can
be created by using a pricing structure that meets the needs of a specific market demand. In
the case of Rolls Royce it would meet the exclusive or elitist aspects of the buying market.
There is also the reverse aspect of keeping prices low to create a high demand. Keeping prices
low relies on very high turnover, e.g. FMCG products. To price low to create demand requires
that a company is strong in the marketplace.
(c) Competitor-orientated Policies
This type of pricing is usually found where a group of organisations is selling the same product
(petrol, finance, etc.).
The overall market knows the costs of certain items and is only happy to pay what is accepted
as the “market price”. If one of the companies or organisations were to reduce their price
drastically it would simply mean a huge loss of revenue – conversely, if they were to increase
their prices it would mean that buyers would buy from the competition.
In these circumstances the safest way is to keep pricing at a level that is the same, or near to,
that being charged by the competition.
This policy applies equally to large and small operators. Consider the case of three market
traders selling fruit and vegetables within close proximity. If one of them charged higher prices
they would simply lose out to the other two. Although they may charge a little more on one or
two items, the prices of all three will be broadly similar.
The policies of cost-plus and demand can also be applied to this scenario. If one trader simply
wants to cover costs it is easy to do so and of course he can include a percentage for profit
before he works out his price. If he manages to get some exotic fruit which the other two have
missed, he can price that in accordance with demand.
Influences on Pricing Decisions

From what we have said, you can see that pricing can be difficult. We have to accept that no price can
be set up in isolation as it will depend on multiple variables, or influencing factors.
The influencing factors on price are no different to the influencing factors on any other element of the
marketing mix. Figure 8.1 summarises this.
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COMPANY
OBJECTIVES
COSTS CUSTOMERS
COMPANY MARKET EXISTING
STANCE COMPETITORS
PRICE
MANAGEMENT NEW
CULTURE COMPETITORS
SUPPLIERS DISTRIBUTORS
LEGAL &
POLITICAL
Figure 8.2: Influences on Pricing Decisions
These factors can be grouped into a number of categories.

(a) Organisational Factors
! Corporate Objectives
As we have already seen, different companies will have different objectives. Where
financial gains are more important pricing may be aggressively high; where power, or
prestige, is considered to be important, prices may be kept low. Management ethics and
culture will undoubtedly have an impact on pricing. For example, in times of shortages
of supply which result in an increase in demand one company may raise their prices to
capitalise on the short-term situation, but another may hold their prices to be fair to the
customers. In times of shortage the company who maintains a loyalty to their customers
will inevitably reap the greater reward in the long term.
! Quality
There can be no doubt that there is a direct correlation between price and quality. The
better an item is, the more the customer will pay. Companies can set prices in
accordance with the quality of the product, whether it be high, medium or low. The
model in Figure 8.2 illustrates this situation (source, Wilson, Gilligan and Pearson).
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PRICE
Low Medium High
Low
CHEAP VALUE OUT-OF-STEP EXPLOITIVE
STRATEGY STRATEGY STRATEGY
PRODUCT QUALITY
ABOVE
MIDDLE-OF- OVER-
Medium AVERAGE
THE-ROAD CHARGING
VALUE
STRATEGY STRATEGY
STRATEGY
SUPERB VALUE HIGH VALUE PREMIUM

STRATEGY STRATEGY STRATEGY
High
Figure 8.1: Price/Quality Matrix
! Product Life Cycle (PLC)

Theoretically the PLC can be used to set prices if it is used in conjunction with marketing
strategies, e.g.
Introduction = market penetration = aggressive pricing for share (low)
Introduction = market skimming = aggressive pricing for share (high)
Growth = penetration and defeat competition = low/differential
Maturity = protection of share and defeat competition = low
Decline = recovery of costs = high or low pricing
However, this is a very generalised approach and, in view of the fact that it is difficult to
know exactly where a product is in its life, it is unlikely that a marketing manager will
set his pricing strategies entirely on the PLC.
! Product Line
The price of one product may affect another because of inter-related demand or costs,
(e.g. the same resources are used in production). In cases such as these pricing decisions
will be based on management values and judgment after full consideration of all
influencing factors.
! Segmentation/Positioning
It is an accepted fact that when a company holds a good position in the market it can set
higher prices as it will be operating from a position of strength, providing its
segmentation and positioning are set correctly. If segmentation and positioning are not
correctly carried out, the competition will soon attack on the weaker fronts.
Brand position and strength also feature here. When a brand is strong people willingly
pay higher prices to obtain the product. Although this will not attract every single
potential buyer, those that do become loyal are reducing the elements of “perceived risk”.
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Once they have fully accepted the brand, product or company, buyers will feel secure in
their purchasing and tend to “stick”. They will carry on paying the higher prices until
such time as they can be enticed away by yet another brand, product or company. Pricing
based on brand may be extremely high depending on the strength of the particular brand.
(b) Customer Factors
! Demand
As demand changes prices may fluctuate. This can cause gluts in the market and prices
will reduce because of over-supply, (e.g. oil, housing) or peak buying times, e.g.
holidays. Marketing managers who are prone to suffer peaks and troughs in demand will
be pricing in such a way that any revenue gained will off-set the lean times.
! Customer Benefit
Customers will accept a “basic” price for any commodity but many will be prepared to
pay more for added benefits. Companies therefore try to provide the benefits at minimal
cost in order to keep profits high. They can also use the “reduced benefits” approach to
attract buyers, e.g. the growth of own-label brands that promote on the basis of no fancy
promotional costs in their prices.
! Perceived Value
A customer will pay more for what they consider “good” value but only if the price
reflects the value ascribed. Ascribed value can be on any aspect that is considered
important to the buyer – quality, delivery, image, etc. Sometimes manufacturers do not
initially recognise an obvious asset, and do not raise their prices accordingly. This is a
failure to recognise competitive advantage which can result in needless loss of market
share.
(c) Market Factors
! Competition
Managers know that the prices charged will be noted by competition, as well as by
buyers, and this will affect how the prices are set. Companies may adopt a pricing policy
which signals “we are not aggressive” to reduce competitive activity – or the opposite,
“we are strong, keep off, you cannot touch us” to frighten off attackers and inhibit new
entrants into the arena.
! Environment
Government intervention for any reason can have an impact on how a company sets its
prices, e.g. fair trading, monopolies. Intervention can be for a number of reasons: to
protect the consumer, to protect manufacturers, to encourage or deter importers, or
simply to gain political points.
! Geographical
Distance can add extra costs for delivery which can make pricing difficult. For many
products customers expect to pay the same price no matter where they are. This calls for
a system of uniform pricing, (e.g. newspapers are sold at the same price throughout the
UK irrespective of the distance from the printing base) or zone pricing, where transport
and delivery are part of the price but the price varies in accordance with the distance
travelled, (e.g. some retail furniture outlets add an amount to the price, based on the
number of miles that delivery has to be made – within ten miles free, 20 miles plus £10,
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30 miles plus £25, etc.). The added cost may not be the entire cost of the delivery but the
customer is expected to contribute.
The nature of the product, its value to the customer and the level of service which the
company wishes to give will all be determinants of the price where distance is concerned.
Pricing Strategies
The underlying intentions of any pricing policy is to set standards which can be used to price in such a
way as to maximise profits in the long and short term. There are several strategies and actions that
can be used in conjunction with the above policies.
! Penetration Pricing (Low Price)
This strategy will be used to stimulate market growth, to capture market share or to defeat
competition by stealing share or by inhibiting new entrants.
Some companies believe that they can earn long-term profit by pricing in this way. Kotler
quotes Texas Instruments as a company that builds excess capacity and is prepared to accept
low profits for a few years. Then when the market share builds up, the excess capacity is
useful.
To do this the company must be strong and the management determined to continue along this
line. The market must be one that can respond to low prices by growing, and the production
processes must be of the type that will cost less as experience is built up.
The danger in this strategy for marketers is that they may suffer from the reduced revenue
because of low prices. They may also find that they are unable to increase the price from its
low level.
You will often see this strategy called “market share pricing”, “market penetration” or
“swamping the market”.
! Skimming Pricing (High Prices)
Skimming is aimed at capturing the top end of the market, i.e. to sell on “perceived value”
aspects. Sometimes the entire activities of the company will be based on market skimming
strategy (Rolls Royce, Rolex, Yves St. Laurent) but quite often this strategy is used by
innovative market leaders when they are launching new products. They aim to get as much
profit as possible before the competition catches up.
In the case of new products, this strategy will only work if the product has enough market
appeal to warrant a high initial price. Market appeal can be based on any aspect of “value” to
the buyer – taste, image, service levels, access, etc. Eventually the price may have to be
lowered to match the price of followers.
! Early Cash Return
If a company has cash-flow problems they will take short-term corrective action. They may opt
for low(er) prices which will give them a rapid return on the resource investments they have
made and try to recover their initial outlay quickly. This, however, can lead to problems. How
can they then increase the prices to a more realistic level? What if the competition moves faster
and captures a large share of the market at the correct pricing? These are the problems that
managers face with this strategy, but for companies working with minimal resources it is often
the only way to operate.
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! Satisfactory Rate of Return

Sometimes a company is happy to make a certain level of profit and not interested in going
beyond that figure. Prices will be set and aimed at achieving that profit and no more. It is often
the smaller company that operate on this basis, e.g. small family businesses, or semi-retired
consultants who only want to earn nominal amounts. This strategy tends to be found in those
companies who use a cost-plus policy.
! Differential Pricing
Companies may operate a differential pricing structure – charging different prices in different
market sectors. This strategy is usually adopted by companies following a demand-orientated
policy. In order for differential pricing to work efficiently, the different target markets/sectors
must be clearly distinguishable. They must show different demand patterns and be separate
enough to avoid overlapping knowledge of the different price structures being used. Therefore,
it follows that this type of pricing is more likely to be found in international markets than in
home markets.
Differential pricing can be difficult for the following reasons:
(i) Increased activity on part of the competition.
(ii) Intervention by governments (home and overseas).
(iii) Improved communications means that people are more aware of what is going on in
other parts of the world.
(iv) Increased trading agreements between countries has led to standard pricing in entire
regions of the world.
! Competitive Pricing
Pricing can be used to build a competitive advantage. There are a number of tactics that can be
deployed and a selection of these are given below. These tactics are meant to be short term and
can be implemented without damaging the overall pricing strategy.
(i) Volume discounts
These are designed to encourage repeat purchasing and contribute to brand and customer
loyalty. They are frequently used in business-to-business markets to reward customers
who purchase larger quantities or who buy fixed volumes over a given period of time.
(ii) Menu pricing
This allows the cost to be broken down into different elements. Customers are then able
to choose their requirements from the menu. This system offers customers a degree of
choice when they are faced with bills for large purchases. For example, car servicing
costs can be broken down into different parts so the customer can select from the menu.
(iii) Promotional pricing
This is a popular form of pricing used throughout the marketing process. There are five
main categories:
! Money off current purchase
! Money off next purchase
! Cash-back offers
! More product for the same price
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! Discounts on multiple purchases

Other approaches include premium pricing and all-inclusive prices as offered by hotels, garage
service companies and finance/lease schemes.
Changing Prices
There are some situations in which a price must stay level for a time, such as catalogue stores where
the catalogues are printed in quantity and have to last six months at least. It is possible to amend the
catalogues in the store, but the claim is that you choose the products in your home, so price changes
would be undesirable.
Equally, there are market situations where the price is a daily negotiation between suppliers and
shopkeepers, such as the vegetable markets in towns. In principle, stable prices which do not change
frequently are desirable, so that customers can know what to expect when they go shopping. That is
easy to achieve if you run the biggest store in town and can exert great influence on the rest of the
traders.
The difficulty comes when the prices of raw materials rise or the staff get a pay rise, which would
reduce the profit if the prices were kept level. A clever management may be able to reduce production
costs so as to absorb the increases, but there are many managements which do not have that
opportunity. If you buy different raw materials from which you make a machine, you have more
chance of balancing one cost rise against another, and maybe some reductions, to keep your own
prices level. But if you get vegetables from a wholesaler and then sell them from your shop, there is
little scope for keeping prices down, especially as your overheads go up without any choice.
Just recently I have had to compile an advertisement for a directory which will show my price for a
year, starting about eight months from now. That advertisement commits me to a price for nearly two
years. It’s a good job I have only one product range with few prices!
If everyone else is raising their prices, you could gain some temporary differential advantage by
keeping yours down – or you could give the impression that you do not need to raise your prices
because you have enough money. Customers, or at least some of them, will say that is due to
overcharging in the past.
(a) Price reductions
Speaking in general terms, marketers do not like to reduce prices because they fear the danger
of a price war with the competition. Consequently, when a price is reduced there will always
be a very good reason for it, if not more than one. It may be a situation which forces the
change in price, or a deliberate action on the part of management in an attempt to revitalise
activity in the market.
Prices can reduce because of one, or more, of the following reasons:
! Competitive activity
! Leadership strategy
! Excess production
! Falling brand share
! Low quality tarnishes image
! Recession
In fact not all price reductions are destructive and create price wars: sometimes they simply
increase volumes of purchasing so that profits are increased. However, when price wars do
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occur they are usually between companies which have similar pricing structures and policies,
and a downward spiral will often mean that one company has to withdraw from the fight
leaving the winner the overall market. The winner is then able to put up the prices again.
This shows that although the customer will gain from price reductions in the short term, they
can lose in the long term because of lost opportunities for choice and stable prices.
The only way to avoid price wars is to operate in such a way that competitive activity does not
become over-destructive. This may require a level of cooperation with a competitor in order to
keep the market stable or to secure the company’s future position. Remember that price fixing
by agreement between competing companies is illegal in Britain. It may not be in other
countries and you need to find out before going into international marketing.
(b) Discounts
When a discount is given, it means that an allowance has been given from the price for one
reason or another. Different companies may have different names for the types of discounts
they give, but they are all similar in nature. Marketing managers use them as and when
appropriate in their pricing strategies. Some of the more common types are:
! Trade – “special” within the distribution chain
! Quantity – incentive to buy more
! Cash – incentive to help cash flow
! Promotional – to create “instant” sales
! Individual – the strength of the negotiator will determine
! Psychological – high prices initially in order to give good “discounts”
Sometimes a price cut, or a discount from a standard price list, may be offered so as to
encourage sales and move some stock out so that the factory can keep up production. (When
you keep on making products, you need somewhere to put them.)
(c) Price increases
Price rises are far more popular with marketers than price reductions but, even then, marketers
recognise the danger in raising prices. It is a fact of life that customers expect prices to rise
over time – but not too rapidly. If a company puts up prices for no apparent reason they will
soon fall out of favour in the marketplace, so price increases are only brought into operation if
there is good reason. Reasons may include:
! Inflation
! Increased cost of raw materials
! Increased taxes
! Currency exchange rate changes
! Excess demand
! Increased quality/buyer benefits
For managers to raise prices successfully there are some basic rules that should be followed:
! Do it at same time as everyone else
! Increase a little at a time and not too often
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! Try to lower one price as you raise another

! Look after your main customers
! Give good reasons for putting up the price
Always remember that no price is absolute. Your strict terms and reasonable price may not be
as good as your competitor’s high price and reasonable terms. Sympathetic payment terms can
help close the sale.
C. BREAKEVEN ANALYSIS AND PRICE

Marketing planning is all about the future, and it is not surprising that some people want to get a good
idea of what the future might look like, especially in money terms. You will often meet the idea that
marketing is about spending now to earn more in the future. Breakeven analysis brings together the
various types of cost that are involved in making products, then relates them to the quantity that must
be sold – and paid for – to cover all the costs that are involved and leave the company with no debts
for that product.
The problems start with costs – just what does it cost to make a product? If you have never been
involved in costings in any sort of business, you may be surprised to learn that it is very rare to know
the real cost of making anything. If you get a jeweller to make you a tiara, you will be charged a price
and that will include some costs such as:
! Raw materials;
! Labour;
! Overheads and profit.
It is with this last item that the difficulty arises, because the amount of raw material can probably be
reckoned up quite closely, and there should be some record of the time that each craftsman spent on
the item. (Do not worry if you are out of touch with tiaras – the same principles apply to paper clips,
but the numbers are different.)
Overheads consist of all the costs of keeping the factory open and fit for the production process. That
includes a lot of items that cannot be allocated to specific products, and most of the overheads will
still be incurred if the factory is not actually producing anything for a time. Even if it is closed
altogether there will still be rent to pay and whatever local taxes are involved, as well as the wages of
the security guards, and some heating and lighting bills.
It is common to ask at what level of sales will the company “break even”, or get out of debt? That
brings in the matter of revenue, and with it the question of what price to charge for the product.
Economists take the simple view that if price goes up, demand will go down, and if price goes down,
demand will go up. If we stick with this oversimplification for a time, we can look at the effect of
different prices on the breakeven point. The best way to do this is to draw a hypothetical model of a
one-product company’s situation, using the terms “fixed costs” for overheads and “variable costs” for
the wages and raw materials that are involved in making one product.
Fixed costs are considered to be constant for the year, for convenience of reckoning, so they can be
shown as a straight horizontal line at the appropriate level on the “money” scale (see Figure 8.3).
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Revenue/Cost
40
£000 Sales
30
Breakeven Point
20 Total Cost
(Fixed + Variable)
16
10 Fixed Expenses
2,000 4,000 6,000 8,000 10,000

Volume of Output
Figure 8.3: Breakeven Chart
Revenue starts at the zero point, because we will plot the numbers of products sold in each month,
against the revenue (not profit) from the sales. For every product sold there is a variable cost and that
can be plotted as a line rising to the right from the left-hand end of the fixed costs line, so that if we
take a vertical line at any volume of sales, we can see the total of the variable and the fixed costs. We
can also see the revenue to be earned from this volume of sales, so we can see whether or not the
company is in profit at that volume of sales.
There are figures shown on this breakeven chart so that you can see the breakeven volume. However,
I simplified this example to show the principle, and in real life it would be quite common to see the
revenue line curving downwards after a certain level of sales – people will only buy what they need or
want of anything, whatever the shape of your breakeven chart.
At the same time, the variable cost line could have kinks in it when you reach specific quantities,
because of quantity discounts for material and production line economies.
For an existing product, already being sold, the breakeven chart will be built up as sales and cost
information is built up during the year, and the chart will be a factual record of the situation.
However, price setting can be helped if the marketing manager can see at what level of sales the
breakeven point is reached for various prices, so it is common to try to use the breakeven chart to see
what price to charge.
If the marketing manager knows from experience or from a test marketing activity the effect on sales
of various price levels, it is useful to plot several revenue/sales lines to see what the effect may be of
setting high and low prices.
D. PRICE ELASTICITY
Elasticities are relationships and it is possible to consider several different types of elasticity. As we
are dealing with price setting, we will stick to the price elasticity (p.e.) of demand.
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In order to understand price elasticity we have to consider volume sales, so let us consider cassette
tapes, sold in their thousands to many different types of people. At the simplest level, if the demand
for a specific cassette goes down when the price goes up, then the cassette is said to have an elastic
demand relative to price. This often happens when the goods are not essentials.
The opposite would happen if the price went down – the demand would rise, but only for a time.
When all the people who wanted a specific cassette at that price had got one, the demand would fall
off again. If the cassette was then offered at a lower price there would be some more demand
generated, by people who had a lower idea of the value of that cassette.
On the other hand, if the price of bread went up, people would still buy bread, for quite a long time. It
would take most people a long time to find a suitable substitute for bread, so people would pay the
higher price and the demand would not fall dramatically. Demand for bread would be considered to
be inelastic relative to price.
Some goods are just so essential that some people will buy them at any price – life-saving medicines,
for instance, although in that case the buyer may not be the consumer as the State takes some
responsibility for our health.
The Price Elasticity of Demand Formula

The formula for price elasticity of demand is worth knowing:
Percentage change in quantity demanded
P.e. of demand =
Percentage change in price
You will see that the numerator and denominator of the equation are both in the same units –
percentages – so the price elasticity of demand is a number, although it is common to write it in the
equation as “e”.
! If e < 1: then the demand is relatively price-inelastic and it would need a big change in price to
make any change in demand
! If e = 1: a specific change in price results in a change in demand of the same proportion and
this is unit price elasticity.
! If e > 1: then the product is price-elastic relative to demand, and demand will move in the
opposite way to price.
Just occasionally there is a product which will be bought at whatever price is charged – the p.e. is
infinite, but this is not the normal state of affairs, so you do not need to do anything about that.
Practical examples will make this clearer: suppose that you are one of the thousands of people who
will buy a toothbrush next Saturday. Some of the thousands of buyers will have some idea of price,
from experience or looking around. If there were 10,000 buyers and the price went up from £1.00 to
£1.20 (an increase of 20%), it is likely that there would still be a lot of buyers, let’s say 9,500, a
reduction of 5%.
Then the p.e. of demand for that brand of toothbrush would be:
5
=<1
20
and the demand would be relatively price-inelastic.
Suppose we take the example of a music cassette – not really an essential item. If the demand for a
specific cassette was 10,000 at the expected price of £5.00, and then it was found that demand
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dropped to 5,000 (a 50% fall) when the price went up to £5.20 (a 4% rise), the p.e. of the cassette
would be:
50
=>1
4
and the demand would be very price-elastic.
You may see this better with a diagram; Figure 8.4 is a graphical indication of the effect of price on
demand.
Price
Price/Demand
Relationship
Quantity
Figure 8.4
This is a common sight in textbooks on economics, although you will seldom see it drawn in such a
simple form. It is necessary to understand this clearly, so I will go into some detail: if you know this
subject well, just skip this bit.
If this was a graph drawn from real information, it would show the quantity of product bought (i.e.
demanded) at each price level. As the price gets higher, the demand gets lower, indicating a demand
that is price-elastic.
The slope of the curve indicates the degree of elasticity – if the slope is shallow, so that a small
change in price makes a big difference in demand, the demand is very elastic in relation to price. If
the slope is steep, and the demand changes little with higher prices, indicating that most people will
still buy the product even if the price goes up, that shows a demand that is not so elastic in relation to
price.
Note, however, that the graph shows price and demand, whereas the elasticity of demand relative to
price depends on the percentage change in each of these factors. As far as we are concerned, there is
no difference in the result.
There is a lot more to the matter of price elasticity of demand, and quite often it is in the mass market
rather than the individual consideration where the importance is noticed. Management will be looking
at the total revenue from a product, and the speed at which that revenue arrives. A knowledge, from
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experience, of the probable price elasticity of demand for a product would enable the marketing
manager to set a price that suited the company policy.
For example, a “clearance” price would only work if the manager knew that there could be more
demand at a lower price, in other words if the demand for the product was price-elastic. Remember,
though, that this is assuming that price is the only factor that changed. In real life, just moving the
goods to another location might make them sell better.
Factors Influencing the Elasticity of Demand

(a) The availability of substitute products
Take, for example, coffee. If the price were to fall dramatically, many tea drinkers could switch
to drinking coffee instead. Thus a fall in the coffee price leads to a decrease in the price of tea.
This is an example of positive cross-elasticity.
(b) When complementary goods exist
Where groups of goods are consumed together, a price change on one affects the quantity sold
of the other. For example, if the weather turns hot and strawberry sales take off, the demand for
the accompanying cream also rises. Similarly, when computer hardware came down in price,
and demand shot up, there was a corresponding increase in the sales of software programmes.
This is an example of negative cross-elasticity.
(c) Purchasing power and income
Income elasticity is the extent to which the amount demanded of a product varies according to
changes in the income of consumers. As purchasing power increases, people can afford to buy
new cars, extend their homes, invest in new video/hi-fi equipment, and so on.
(d) Importance of purchase within budget
The purchase of new furniture can represent a large proportion of the buyer’s budget and so if
prices increase, it can cause a dramatic drop in the quantity demanded and vice versa. Demand
for these items is therefore elastic. But in the case of everyday items such as newspapers,
groceries and other foods, if the price goes up, it does not significantly affect the quantities
sold. The cost is relatively small and the increase is not really noticed that much. Here, the
demand for the goods is inelastic.
E. MARGINAL COSTING
We met fixed costs and variable costs earlier in the study unit and now we need to look just at the
variable costs of making products. Again, we shall just consider simplified examples because you
only need to understand the general principles here – we shall leave the intricacies of costing
methodology to your Accounting studies.
The Principle of Marginal Cost
If we have several products being made in a factory, it is difficult to apportion properly the cost of the
total lighting and heating, cleaning and maintenance activities. It is common to apply a multiplier to
the material costs and another to the manpower costs for each product, because these are figures
which are known or can be found out. The multipliers used are based on experience of the business in
previous years and the expected level of business.
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So if you buy a tiara, it could be costed as:

material = £1,000, labour = £2,000.
The overheads could be calculated as “5% of material costs” plus “7.3% of labour costs”, and these
amounts would be added to the variable costs to calculate the total costs. (The actual percentages
would be decided from experience and would be used for all products in that production line.) Then
the sales manager would add a percentage for profit to calculate the final price.
However, if the manager had been trained in marketing, he or she would have a good long discussion
with you about style, the purpose of the purchase, and various other matters, so as to estimate what
you thought the value of the tiara would be to you. Would it improve your chances of catching a rich
partner, and just how desperate are you?
The sales manager’s assessment of the value of the item to you might well be a lot higher than the
total cost, plus profit, that had been calculated and then there would be a decision for him or her to
make on just how much money to take from you.
Suppose now that you decided that you ought to have another product, just like the one that we have
just costed out. You would expect to pay for the material and labour just as before, but would the
manager be justified in adding the same percentages to the material and labour costs? After all, the
additional effort to make the second item would be covered in the labour costs, and the material would
be just twice as much. All the cleaning, heating, lighting and other overheads are already covered by
the percentages added to the previous costs of making the first item.
So maybe you could persuade the company to make the second product for just the variable costs
(plus profit) only, and that would save you a lot of money.
Practical Implications
In the real world, the marketing manager may well be faced with a factory that is running profitably at
80% of full capacity and is covering all the fixed costs: if he or she can get the factory running at
90% capacity or more, there will be even more profit and that is good for everyone. If the marketing
manager can get an order for a quantity of products that will use up the spare capacity, he or she does
not need to cover the cost of the overheads in the price of each product, because the other work is
already covering them adequately.
So, if the regular production orders are covering the overheads, the marketing manager can offer the
spare capacity at “marginal” costs. That means he or she charges for the material and labour, and adds
whatever profit he or she thinks is reasonable, but leaves the overheads off.
You may have seen textbooks which refer to the marginal cost as “the cost of producing one more
item”, and that does not fit in well with ideas of production lines. It is reasonable to think that if the
material and labour costs are covered in the pricing of the additional order, then the average total cost
per item of production will be lower, and that is the main reason for using marginal costing, when it is
used.
There are several potential dangers in the marginal costing approach to getting more business, and the
first one is that the manager must understand the ideas behind marginal costing and know the facts
about the costs in the factory. Quite often there is hardly any extra cost involved, other than material,
if the products are made on machines, because it is just as costly to set up for, say, 1,000 components
as it is to set up for 1,200. That is why it is common in the printing trade to expect the customers to
accept and pay for “overruns”. This idea is also particularly applicable to such products as mouldings
made of plastic, or other processes such as chemicals, where the plant is set to run for a specific time
and the production has to be sold.
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The other main danger is that the customers do not understand the system and start to expect to get
lower prices for all their orders. That is especially difficult if one principal customer boasts about
having got you to cut your price extremely low – then they all want such favoured treatment. It is
essential to make sure that each order which is marginally priced is regarded as “special” and not
repeatable.
The Concept of Contribution

The most important thing to remember about marginal costing is that the idea depends on the regular
sales covering all the fixed costs (overheads) that are involved in running the factory and storing
goods, then delivering them to the customers. It is only after that has been achieved that the idea of
marginal costing can apply.
A useful example involves the pricing of a range of products that were related by size. These were
chain sprockets and the company was a major manufacturer of roller chains – the sort that you see on
motorcycles, and some much bigger than that but similar in design. It was essential to sell the
sprockets in order to sell the chains and the sprockets were made in a separate factory (sprockets
should be replaced at the same time as chains in order to avoid excess chain wear).
Sprockets are identified by the number of teeth at the rim, and they go up in steps from 13 to 114
teeth, with the diameters of the sprockets increasing in proportion to the number of teeth. One
manufacturing process was used for sprockets up to 25 teeth, there was a gap from 25 to 38 teeth, and
a different process was used for sprockets with 38 teeth or more.
It was logical to set prices in relation to the sizes of sprockets, but because of the difference in
manufacturing processes the “cost plus profit” price for the 38-tooth sprocket was out of line with the
rest of the range. It did not fit in with the “up to 25 teeth” range, and it was also too high for the rest
of the range over 38 teeth.
The customers wanted the full range but they saw no logic in paying a price that was out of line so we
had to sell the 38-tooth sprocket at a logical price, which was lower than the calculated price based on
material, labour, overheads and profit.
The reason for this was twofold: we had to satisfy the customers and the machinery in the factory was
kept busy, along with the operators. The action was justified because the revenue from the 38-tooth
sprockets made a contribution to overheads and profit.
Contribution pricing takes the variable costs (material and labour) which are easily identified, then
adds an amount which is the contribution to overheads and profit. So instead of each product having a
price fixed by the variable and fixed costs plus a percentage, the price is the variable costs plus a
figure determined by the manager. It is essential to cover the full costs of operating the factory, of
course, but the “contribution to overheads and profit” is a pool of money which can be added to by
every product sold, even if the variable costs are barely covered.
You might have recognised that contribution pricing is very similar to breakeven analysis, and the two
ideas might work well together. The breakeven graph is different for contribution pricing, but the
result is similar (see Figure 8.5).
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Revenue
Total Costs
Variable Costs
Fixed
Costs
Quantity
Figure 8.5
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241
Study Unit 9
Distribution Policy and Management
Contents Page
A. The Importance of the Place Element 242

The Distribution Plan 242
Distribution Management 243
Distribution Decisions 244
B. Channels of Distribution 245

Direct and Indirect Channels 245
Factors Affecting Channel Choice 246
Characteristics of Different Channels 248
Distribution Strategies 250
Industrial and Business Markets 250
Export Markets 251
C. Dealing with Intermediaries 252

Wholesalers 252
Distributors 253
Retailers 254
Franchisees 257
Agents 257
Contractual Agreements 258
D. Distribution Channel Maintenance and Change 259

Relationship Marketing 259
E. Physical Distribution Management (PDM) 262

Benefits of Logistics 262
Management of Logistics 262
Using Availability as a Competitive Advantage 264
Logistics 265
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242 Distribution Policy and Management
A. THE IMPORTANCE OF THE PLACE ELEMENT

The “place” element of the marketing mix does not only relate to the actual location where a buyer
can obtain a product; it is also concerned with the entire process of distribution management.
This means that it is all processes which are involved in getting the product or service to the buyer
and, ultimately, to the users in the most economical manner, i.e. order receiving and processing,
stocking, transportation, delivery and display. Responsibilities will also include receiving back and
checking items returned from buyers because they have been found to be faulty or damaged, or for
any other reason.
From the marketing point of view, there is a sequence which is important and it goes like this in most
companies:
Spend money making products → Get enquiries → Receive orders
→ Make products → Deliver → Invoice → Receive payment.
Nothing is invoiced until the goods are made and despatched, usually. For some big jobs there are
payments when specific stages have been reached, but for the majority of products the sequence
shown above applies, and you will see that there are many points where there could be delays, any of
which could slow down the payments.
Proper management of the distribution system is, therefore, an important part of the company’s total
marketing system, and can make a significant contribution to the cash flow needs of the company.
In some companies distribution will be under the direct control of the marketing department – in
others it may be under production or even purchasing. If marketing is not in direct control, there must
be a great deal of liaison or the whole process of satisfying the customers’ needs may be endangered.
Decisions on distribution channels are very important because they have great effect on other
decisions made in the marketing process. In addition, once decisions have been made on distribution
aspects, they tend to be difficult to change.
The distribution industry has seen many changes in recent years, with systems becoming
predominantly technology based, which has improved efficiency and reduced costs quite dramatically
in some cases.
The Distribution Plan

Here we are at yet another “mini-plan” which goes towards the overall marketing plan. You can see
that the plan for distribution is in many ways a “facilitating” plan which is aimed at identifying the
most appropriate distribution method to suit the product on offer. The management of the distribution
activity then comes down to dealing with people and controlling costs.
The plan itself will take a similar format to other plans. Although they may not all be expressed in
quite the same terminology, there must be sections relating to:
! A Situational Audit
The research that is necessary to find, select and establish channels.
! Objectives
These will be aimed at coverage, costs, timing and control.
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Distribution Policy and Management 243
! Strategies
The choices that are available to get the product(s) to the user.
! Tactics
The implementation, monitoring and control, etc. of the distribution channel.
McDonald lists a straightforward approach to the planning of distribution:
! Determine marketing objectives.
! Evaluate changing conditions at all levels.
! Determine distribution task within overall marketing strategy.
! Determine distribution policy in terms of type, number and level of outlets to be used.
! Set performance standards for the distribution organisation.
! Obtain performance information.
! Compare actual with anticipated performance.
! Adjust where necessary.
The distribution function deals with minutiae – in volume and on a continual basis. Its role is
supportive but crucial. Marketing is concerned with the exchange of satisfactions on a continuing
basis and the product must be delivered, in good condition, at the right time and to the right place.
Errors in invoicing can probably be corrected with minimum problems. A similar error in distribution
can cause a serious loss of revenue both to the customer and the supplier.
The distribution plan is developed from objectives, strategies and the main marketing plan. It is
therefore tailored to suit the company products, the market segments targeted, and the performance
criteria and standards set.
Providing the planning is done in relation to the marketing and corporate plans, a distribution plan
will be effective.
Distribution Management
Cost-effective distribution is a specialised management skill – one which an increasing number of
organisations are contracting out to specialists. In some cases the sub-contractors are SBUs within the
organisation but run as independent trading operations, often carrying associated lines from other
manufacturers to maximise efficiency. Every major high street grocery retailer has its own
distribution network and negotiates special delivery/collection arrangements with suppliers.
No physical distribution system (PDM) can simultaneously maximise customer service and minimise
distribution cost. Maximum service implies large inventories, in close proximity to customers, with
very flexible transportation availability. Minimum cost implies slow/cheap transport, low stocks and
few depots. Kotler suggests eight areas for which strategies must be set.
! Speed of filling and delivering normal orders.
! Willingness to meet emergency merchandise needs of a customer.
! Care with which merchandise is delivered, so that it arrives in good condition.
! Supplier’s readiness to take back damaged goods and resupply quickly.
! Number of options on shipment loads and carriers.
! Supplier’s willingness to carry inventory for a customer.
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! Price of services – are they free or separately priced?

The relative importance and determinance of these various customer services must be researched for
the target customers. Competitive policy, promise and achievement must be monitored; only then
can the necessary distributive strategies be set.
Cost-effectiveness is crucial. Twenty years ago costs of distribution could easily run as high as 20%
of sales revenue. This has been halved in many industry sectors, and reduced to around 4% in some
retail sectors.
The achievement of profit leverage through cost reduction is of significant importance. A 5%
reduction in distributive costs can boost profits by 50%. This gearing effect is well known but
maximising its benefits requires constant monitoring of the PDM operation by specialised
management.
Distribution Decisions
Initial considerations on this aspect of the marketing effort will be mainly based on four factors:
! Requirements of the Product
What kind of storage is needed? Is it perishable or does it have a long shelf-life? Are there any
hazardous or other aspects which require extra security in handling and storage, etc.?
The product may be for mass markets and have a high rate of turnover, or it may be for
industrial markets which will be high value but of limited frequency. It may be a seasonal
product which only requires distribution at certain times of the year.
The characteristics of the product will dictate the type of distribution channel that can be used.
! Requirements of the Buyer
How does the buyer wish to obtain the product and where? Do they want to buy it from a
catalogue, a multiple store, a warehouse, a specialist retail outlet or a trade outlet?
Sometimes it is necessary to have the product available in several types of outlet in order to
reach the full potential market; alternatively it may be better to restrict the availability of the
product in order to maintain an “exclusive” appeal.
! Kind of Transport Required/Available
Can the product be moved easily? Does it have to be moved quickly? Can it be flown if it is
going overseas? Are there points of entry in overseas markets? What kind of transport is
available? Who will bear the transport costs – buyer or seller? Does the image of the product
require a special type of transport?
! Requirements of the Seller
How much control does the supplier want to have? How much of the overall potential profit
are they prepared to pass on to an intermediary?
Do they want to have information on the end-user? How much protection do they need from
competition?
You can see that these areas are all interdependent and none can be taken in isolation.
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We can summarise this by saying that decisions on distribution should be based on a combination of
factors relating to the four Ps of distribution:
! Product
! Producer
! Purchaser
! Physical movement and storage
B. CHANNELS OF DISTRIBUTION
When we refer to a channel of distribution we are speaking about the chain which links the
manufacturer and the user.
The shorter the chain the fewer the links and the closer the ties between the manufacturer and user.
As channels lengthen, problems associated with loss of control and profit become more pronounced
and the responsibilities of the manufacturer will increase.
Direct and Indirect Channels

The basic decision in the choice of a distribution channel can only ever be between a direct and
indirect channel.
! Direct channels
Direct distribution means that the manufacturer delivers the product straight to the buyer – the
product goes directly from the producer to the consumer without the use of a specific
intermediary. We are seeing a growing trend for farmers to bypass wholesale markets and sell
their produce direct at farmers’ markets. These are proving very successful, particularly as the
call for organic produce develops. Many companies who want to reach a wider audience use
the pages of the national newspapers and magazines to sell off the page. This method of selling
is now being transferred to the Internet where ordering and payment are made easy. Initially, it
was mainly travel and book companies that used the Internet to sell their goods and services.
Today, we are witnessing an explosion in many other fields, including property, jobs and cars.
Guarantees have to be given to buyers in case the merchandise is not what they want and so a
full refund has to be offered.
Direct channels mean total control over quality, price and profit and more involvement with the
customer. This closer involvement adds many responsibilities – order processing, transport
arrangements, marketing, promotion and after-sales service. This can be too much for some
organisations, so they prefer to use indirect methods of distribution.
! Indirect Channels
Indirect distribution means that delivery is made through an intermediary of some kind. The
intermediary is a “link in the chain”. There may be multiple links in the chain with many
intermediaries before the buyer, or user, comes into contact with the product.
Using indirect channels means that manufacturers will lose some element of control and profit.
They may never get to know, in great detail, anything about the actual users of their product,
which could result in a reduced capability of knowing what the users are looking for. We must
also recognise that using an intermediary can never be as quick as going direct to a customer.
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Both the number and types of intermediaries selected in designing a channel depend upon the range
and nature of the tasks required in moving goods and services from the manufacturer to the final
buyer. They also depend on the extent to which one channel is superior to another. That said, the
following table highlights a variety of factors influencing choice between direct and more indirect
channels of distribution.
Direct Indirect
(Shorter) (Longer)
Industrial products Consumer products

Services Tangible products
Few, more concentrated customer Larger numbers of customers,
groupings geographically dispersed
More control required, e.g. quality, Control less important
installation, after-sales service
Customer purchases in large amounts Customer purchases frequently but
at frequent intervals in small amounts
Products which are bulky, expensive Less bulky, cheaper, standardised,
to handle, custom-built, high unit non-perishable products
value or perishable
Factors Affecting Channel Choice

For many products it may be possible to use several methods (channels) of distribution, which implies
that the seller must decide which channel(s) will be the most beneficial to his requirements. This can
be a difficult choice to make and a number of factors come into play.
(a) Market Characteristics
These include location, purchasing preferences and patterns, overall number, segments,
communication media used.
! Where the number of customers is large, long channels are normally necessary. (The
role of the bulk-buying multiple has changed this.)
! Wide geographical dispersion of customers may require long channels.
! High frequency in the purchasing pattern of low unit-value items may indicate the need
for long channels because of high cost of direct sale.
! Consumer preference for dealing with a specific type of outlet affects choice.
(b) Product Characteristics
The most important characteristics are as follows:
! Price: the higher the price and the lower sales costs as a percentage of price, the more
direct sales become attractive.
! Seasonality: seasonal products require a reseller system that can handle the stress
caused by seasonality in sales.
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! Product complexity: highly technical products, requiring assembly or installation or

service, need specialist middlemen. If these are not available, direct sale is indicated.
! Perishable items: these often require a direct channel. Note that because of
improvements in science and technology, many traditional perishable products are being
developed into longlife products, such as UHT milk.
(c) Characteristics of intermediaries
The availability of suitable intermediaries, their ability and willingness to perform the various
marketing functions and their willingness to take on the particular product affect choice. Other
factors include capabilities, premises, salesforce, customer base and credit rating.
(d) Characteristics Competitors
The extent to which competitors dominate existing channels and to which manufacturers wish
to compete directly against competitors or avoid them affects channel choice.
(e) Company Characteristics
The size and reputation of the company, its product mix, its past channel experience and its
present marketing policies will affect its channel strategy.
(f) Legal Aspects
Any government-imposed restrictions or incentives, difficulties in setting up or cancelling
contracts.
You can see that the information which is required is as for the full marketing audit – you should be
recognising by now just how comprehensive a full marketing audit can be and how important research
is to the marketing effort.
Either before, or after, the basic decision of direct or indirect channel has been taken, research into the
above factors will help in determining which type of distribution channel comes closest to meeting all
requirements.
However, it may well happen that the “ideal” channel is non-existent in the intended market or, for
various reasons, is unavailable to the seller. If this is the case the seller may decide to diversify by
vertical integration and take over some existing distributor, build up his own distribution
outlets/chain, or even develop a completely different method of selling.
The final choice between channels will depend on a balance between:
! Cost – Investment
– Maintenance
! Coverage – Large/small area
– Many/few outlets
– All/few products
! Control – Maximum/minimum
– Strict/lenient
! Continuity – Channel growth
– Channel stagnation
– Channel decline
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Characteristics of Different Channels

The various channels are displayed in Figure 9.2 in terms of the directness of contact between the
producer and the consumer, and the length of the distribution chain.
Decreasing Decreasing
directness length
Producer Consumer
Producer Retailer Consumer
Producer Wholesaler Retailer Consumer
Producer Agent Wholesaler Retailer Consumer
Figure 9.2: Channels of distribution
In order to decide which distribution channel or combination of channels is preferable, the marketing
manager should quantify the costs associated with the alternatives. Let us now examine the
advantages and disadvantages of different channels – the chain of intermediaries involved such as the
wholesaler and the retailer, and finally the process of selling direct to the consumer. We shall consider
the characteristics of the various intermediaries in more detail in the next section.
(a) Advantages of Using a Wholesaler
In general, manufacturers of consumer goods tend to use wholesalers in the following
circumstances:
! Where the manufacturer is new to the market and prefers to rely on the wholesaler’s
contracts.
! Where demand is irregular or seasonal.
! Where the manufacturer cannot carry out certain functions himself, e.g. warehousing.
! Where the manufacturer would not find it cost-effective to send a salesman to a number
of small retailers. One large order from the wholesaler is preferable to many small, retail
orders.
! Administration costs, e.g. postage, typing, are reduced by using wholesalers because the
number of accounts is reduced. Also fewer manufacturer’s salesmen are required.
For industrial goods a similar pattern emerges. For example, steel stockholders handle steel
for steel companies. The wholesaler here can employ his own salesforce, make immediate
delivery from stocks, and provide credit and technical back-up to his customers.
The above points illustrate where it is advantageous for the manufacturer to use a wholesaler,
but there are disadvantages.
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(b) Disadvantages of Using a Wholesaler

! The manufacturer loses control over where his products are finally sold. He cannot
dictate a distribution policy to the wholesaler.
! Call frequency is dependent on the wholesaler.
! The wholesaler sells other competing lines and therefore the manufacturer has no control
over what products the wholesaler generally pushes.
! Promotion in-store/warehouse is not possible unless merchandisers are used.
! In certain cases, the manufacturer has no control over price.
Some manufacturers operate dual distribution, e.g. Mars (the confectionery company) sell
direct to big customers, but also sell to wholesalers who service the small retailers – outlets
which the Mars salesforce leave alone.
(c) Advantages of Direct Sales to Retailers
! Manufacturers have greater control over where their product is sold.
! The salesforce can concentrate on particular products or new products, as required by
company policy.
! It is useful where technical service or a large flow of information is required. To use a
wholesaler would increase the number of communication channels and this could lead to
a distortion of facts.
! Greater control is maintained over prices, call frequency and in-store merchandising; in-
store promotions are most easily organised.
(d) Disadvantages of Direct Sales to Retailers
! There is an increase in costs of sales, administration and distribution.
! Some customers continually place small orders which are hardly economic; roughly 20%
of customers provide 80% of the turnover.
! More working capital is tied up.
! There are more bad debts.
You should bear in mind that some retailers will not, on principle, deal with wholesalers
because they feel that wholesalers are “inferior” to the manufacturer. This is often an attitude
of mind rather than a fact. Also, some retailers are so large, e.g. Boots, J. Sainsbury and others,
that they have enough buying power to contract direct with the manufacturers – their orders
alone would eclipse those of many wholesalers!
(e) Selling Direct to the User
This channel is used for some industrial sales, e.g. machinery, chemicals, processing plants.
Some are unusual, e.g. a company which builds ammonia plants for industrial use both in the
UK and overseas. Contracts here may be with governments or companies.
Direct sales to the ultimate consumer of consumer goods may be achieved in one of the
following three ways:
! Mail-order selling: this may be done through catalogues or advertising through
“bargain squares” in the national press.
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! Door-to-door selling: this is carried out in various ways, e.g. some companies such as
Avon Cosmetics do a direct canvass, others use leads. This is in response to press
advertisements and is a method exploited by many small businesses.
! Internet selling: this is fast becoming a key area in direct sales.
! Forward integration: this occurs where manufacturers own their own retail outlets, e.g.
Boots, through which they sell their own products.
Generally, using these methods, the costs of distribution to the final consumers are relatively
high, but this has to be balanced with the supplier’s complete control of the marketing.
Distribution Strategies
We have examined some of the factors which will influence which outlets you wish to distribute to
and here are three options that can be engaged as part of a distribution strategy.
! Intensive
Intensive distribution aims to achieve the widest coverage of outlets and is sought by suppliers
of high-volume, low-value products that are in mass demand. This strategy is usually adopted
for fast-moving consumer goods. They are in high demand all year round and the aim should
be to gain distribution in every available outlet possible.
! Exclusive
Exclusive distribution is where distributors/stockists are granted exclusive rights in specified
areas. This makes a lot of sense where high capital investment is required, and especially
where detailed after-sales service is needed.
It is applied where the product is expensive and infrequently purchased and, hence, the motor
car distributive networks exemplify this type of distribution. For example, top-of-the-range
cars like a BMW or Mercedes, distribution should be matched to areas of population that can
afford luxury goods. In truth, they will visit you (maybe initially via your web site) before
visiting the showroom.
! Selective
Selective distribution can be adopted when the product is fairly expensive and bought
occasionally but not top of the range. This strategy is used by consumer-durable manufacturers.
The product is not placed in all potential outlets, thus selected dealers can specialise and afford
after-sales back-up and support.
Industrial and Business Markets

So far we have discussed distributing products or services to the consumer – those who actually use
up what they buy. In business-to-business channels, many of the same principles apply as with
consumer markets. There are, however, some differences:
! Business-to-business tend to have professional buyers who control the main sales contact. For
example, Halfords, the high street retailer of motor accessories, has a buyer for automotive
paints only. As Halfords account for around 25% of all car paint sales you can see the
important role that the buyer will play.
! The Decision-Making Unit (DMU) can be much more complex. As marketers you have to
establish who makes up the process and often tailor different messages to them. Take, for
example, Leyland Trucks. The managing director, financial director, fleet manager and the
truck drivers will all have an influence on choice.
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! Deliveries are likely to be larger, e.g. kitchen furniture to a B&Q warehouse, and will be needed
more frequently.
! Business customers often require on-going supplies, often on a routine basis. It is important to
ensure that your customer services department can respond to customers’ needs at all times.
Figure 9.3 illustrates the various channels available for industrial marketing.
MANUFACTURER
Branch or
Agents Brokers
Depots
Wholesalers – Merchants – Factors – Franchises – Distributors
CUSTOMERS/BUYERS
Figure 9.3: Industrial distribution channels
Largely because of the nature of industrial markets and the type of product, much of the business is
conducted with the customer on a direct basis. Often this might be done through a branch or depot
which may carry stocks and service parts.
However, you should note that many of the channels listed under consumer markets will also apply to
industrial markets. For example, an industrial concern in the UK may buy its biros from W. H. Smith
and catering supplies from Asda.
With the growth in self-employment and working from home (currently there are 2.5 million
businesses whose owner is also the manager) companies have had to develop new distribution
strategies for reaching this lucrative market.
A good example of this is Viking World, an American organisation that was set up in the UK to supply
direct to businesses, both small and large. Using large catalogues which are mailed out to customers
and prospects, they offer a huge range at keen prices and they deliver to your premises the same day
free of charge for orders over £30 in value. Their customer retention methods are first class. The
Chairman regularly writes offering customers special offers or to remind them when you last did
business with them. All these messages are personalised.
The computer industry – both manufacturers and software wholesalers – have also been particularly
adept at penetrating this market.
Export Markets
If a company is engaged in international marketing, i.e. having separate marketing operations in
overseas countries, the distribution channel options will be similar to those we have already
illustrated. If the company is engaged in export marketing, i.e. manufacturing at home and selling
overseas, the following channels may be used:
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! Buying agencies in foreign countries: several large retailing concerns located overseas, and
certain foreign governments particularly in Eastern Europe, have buying agencies located in the
United Kingdom.
! Export merchants: these people take title to the goods, which they ship to their own overseas
agents or customers. They may publish their own catalogues featuring assortments of goods.
! Manufacturers’ export agents: manufacturers may employ export agents located in overseas
countries who operate on a similar basis to manufacturers’ agents in the domestic market.
! Overseas branches: the company may have overseas sales offices or depots selling to and
supplying the overseas market.
! Overseas import houses: these companies receive and take title to goods, relieving the
manufacturer of overseas manufacturing operations.
! Joint venture operations: the company may enter into an association with an overseas
company which agrees to market the firm’s products.
C. DEALING WITH INTERMEDIARIES

An intermediary is an external agency that is acting, in some form or another, as a link in the
distribution chain between manufacturer and user.
Using intermediaries is something which manufacturers do as and when necessary, but the decision on
the type of intermediary to use will be based upon many influencing factors. Such decisions can
never be taken lightly as so much depends on the satisfactory distribution of a product.
Thus when choosing intermediaries manufacturers will be concerned with various aspects, such as:
! Does the intermediary have access to the target market?
! Will the intermediary help exploit the advantages of the product?
! Will the intermediary help in promotion costs, etc.?
! Will there be enough profit for the manufacturer?
! Will the intermediary be dealing in competing products?
! What contractual obligations are involved?
Earlier in the course we discussed relationships with research agencies and, basically, finding,
selecting, briefing and controlling any external agency is similar in home or overseas markets, but we
have to accept that the added dimensions of dealing with another language and culture can create
additional problems.
What you must remember is that an intermediary is a customer. They are entitled to be treated with
respect and given as much consideration as the individual user of a product. Indeed, treatment of
intermediaries may be crucial to the long-term success of a manufacturer.
We shall now look at different types of intermediaries.
Wholesalers
The wholesale trader is one who purchases in bulk from the manufacturer and sells in smaller
quantities to the retailer. The true wholesaler operates neither as a manufacturer nor as a retailer but
as a link between the two.
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The wholesaler, therefore, is a merchant whose functions are:

! To buy from manufacturers and sell to retailers.
! To forecast, stimulate and interpret the desires of his customers.
! To be the arbiter of what shall be produced by the manufacturers by forecasting changes in
fashion and suggesting the type of goods and materials likely to be required.
! To help manufacturers concentrate on production without having to be concerned with the
problems of marketing small quantities of goods through numerous retail outlets.
! To assist retailers by supplying goods in the quantities and of the qualities required, obviating
the retailers’ need to carry heavy stocks which would tie up their capital for long periods.
! To keep prices steady by buying when trade is slack and prices low, and selling when prices rise
due to increased demand, thereby relieving the manufacturers and retailers of much of the risks
of market fluctuations and price movements.
Wholesaling can be classified into three major groups:
! Merchants
Merchant wholesalers are the largest single group of wholesalers, accounting for roughly half
of all wholesaling. The merchants are independently owned and take title to the merchandise
they handle.
! Brokers or Agents
The difference between merchant wholesalers and brokers and agents is that the latter perform
only limited functions and do not take title to the goods. Brokers bring buyers and sellers
together to trade, and assist in negotiations. There are several types of agent, the most common
of which are manufacturers’ agents, who often use their wide contacts to sell their clients’
products such as clothes, furniture and electrical goods. Buying agents make purchases for
their clients and often receive goods, warehouse them and ship them on to their clients. These
are particularly common in the apparel markets. This system also operates quite extensively in
international marketing.
! Manufacturers’ Sales Depots and Offices
The third classification of wholesaling is carried out in manufacturers’ sales offices and depots
by sellers and buyers themselves rather than by independent wholesalers. Up to one third of all
wholesaling is carried out in this way, e.g. building supplies and DIY furniture kits.
Distributors
The main difference between distributors and wholesalers is that distributors take the products in the
form that the buyer requires. Payment may be made to the manufacturer for the products or they may
be despatched on “consignment” basis – which is simply another way of saying “sale or return”.
Distributors are strategically placed in the market to ensure coverage of the target sector and can
relieve manufacturers of a lot of basic marketing problems. They like to be “exclusive” as this cuts
down on competition and adds to their own competitive advantage in the marketplace. They may be
dealing with a wide range of products manufactured by various companies, or they may limit
themselves to only one particular type of product.
Distributors are often used for electrical goods – both consumer and industrial.
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Retailers
Retailers, large and small, provide a point of contact for buyers. High street retail shops will have
decor that is suitable to the type of customer they are selling to. For example, the fashion store “Top
Shop” is “brighter, noisier and less formal” to cater to the tastes of its young market; “Country
Casuals”, on the other hand, caters to a more selective audience which tends to be older, so the outlets
are tastefully decorated with more gentle background music than the frenetic pop music which is
played in “Top Shop”. Both stores, despite the differences, are supplying a convenient location for
buyers to see and try garments before buying.
They may be a long way from the manufacturers of the clothes they are selling, but they are a direct
link to the users.
(a) Retailing Functions
The functions of the retail organisation may be listed as follows:
! Establishing premises to which the consumer is attracted.
! Obtaining, at prices which are economic, a sufficient source of supply of the goods
demanded.
! Competing successfully with other retail organisations.
While these functions may appear formidable, they are by no means a deterrent to the
entrepreneur. Many thousands of retail businesses exist throughout the world. They range
from the village general stores run on a sole trading basis to the multiple shop and chain store
ventures operated by large, public, limited companies.
(b) Growth of the Multiples
There is no doubt that one of the more significant developments in retailing in many economies
has been the growth of the multiples. As the term implies, the multiple type of retail outlet
includes those retail organisations who operate a number of retail branches with a common
ownership and a high degree of centralised control. Because such organisations frequently
control a chain or stores operating often on a nationwide basis, they are often referred to as
chain stores.
The phenomenal success of the multiples is due to a number of factors, among the more
important of which are:
! Their willingness, and ability, to introduce innovations in retailing, e.g. self-service.
! A very market-oriented approach based on exploiting changes in consumer spending
patterns.
Essentially, these factors have enabled the multiples to offer their products at very competitive
prices. In turn, and as they have grown in size, their centralised bulk buying of goods has
enabled them to negotiate advantageous price terms with suppliers, and to enjoy marketing and
promotional support from the manufacturers. This has enabled growth to be sustained.
The key features of multiple stores are their size and concentrated buying power, which enable
them to buy large quantities of goods and foodstuffs at the lowest prices. From the
manufacturer’s point of view, there are fewer calls to be made by sales representatives and
much of the negotiating is done by high-level managers rather than shopkeepers. Early in
1987, the Managing Director of Campbell’s Soups (UK) Ltd was quoted as saying that four
customers bought 50% of their output and the top seven customers bought about 65% of their
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output. With such buying power, these customers are visited by national account managers who
are at a much higher level in their organisations than sales representatives.
(c) Power of the Multiples
To a large extent, power has passed from the producer and wholesaler to the retail multiple,
mainly because of the growth in buying power of these multiples over the last 20 years. The
multiple, because of the need to maximise the use of shelf space and volume sales, can be very
selective over the product lines to be carried. Decisions over which, if any, new products to
carry are made in many cases by considering what should be delisted in order to make space for
the new lines. This will mean that the producer will have to offer very attractive terms to make
a convincing case.
This power is not confined to the grocery trade. Multiple power exists particularly in mixed
retail business and the hire and repair business. Overall, up to 75% of retail trade is in the
hands of multiples. The profits made by these organisations indicate the degree of power that
they enjoy.
(d) Development of Hypermarkets and Out-of-town Shopping Centres
Patterns of retail trading have been undergoing constant change, particularly over the last 20
years, and in many other countries throughout the world the general tendency is to adopt
increasingly the American way of life.
! Hypermarkets
Supermarkets are a typical example of a development which took people away from the
idea that shopping had to involve visiting a number of small, specialist shops, perhaps in
different parts of the town, in order to purchase the weekly requirements. Much larger
buildings were required for the new method of shopping, but eventually most, if not all
of the goods required for the week could be purchased under one roof.
Unfortunately, however, there were, and still are, attendant disadvantages, such as the
lack of space in town and city centres to build the supermarkets and the lack of facilities
for car parking in and around the shopping area, particularly at a time when town
planners are desperately seeking ways to rid the centres of towns and cities of the
scourge of the motor car wherever possible.
From the planning viewpoint, then, it would seem completely logical to attempt to solve
these problems by building, or allowing to be built, an ultra-modern shopping complex,
ideally under one roof, in a location outside the city, but with good communication
facilities to nearby areas. Here, the shoppers could park their cars and, if required, spend
the day at the centre, which would provide restaurants and recreational facilities in
addition to shopping facilities. In this way, shoppers could buy everything they need, not
only food and clothing, but other items, such as toys, gardening equipment, washing
machines, televisions, carpets and so on.
These large complexes are known as hypermarkets to indicate that they are larger than
supermarkets. They have been successfully established in the United States, Canada and
Europe. This is a trend which has been particularly strong in France, where there are
about 1,000 hypermarkets (each with an area of 5,500 sq. metres going up to over 20,000
sq. metres). These mostly belong to three chains: Leclerc, Carrefour and Casino/Rally.
They cover huge areas with a very wide range of products and for the consumer they are
one of the best places to shop for choice and price.
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! Out-of-town Shopping Centres

The lack of space in town and city centres for hypermarkets has led to the introduction of
out-of-town shopping centres where virtually anything can be bought. This has led to a
concentration of outlets and, in many cases, to a strengthening of power on the part of the
owners of the sites. For example, in the UK, P&O shopping centres manage 12 shopping
centres which account for more than 5 million square feet of shopping space. Their
biggest base is the Arndale Precinct in Manchester which covers an area of 1.3 million
square feet on two floors and has some 200 shops selling an extensive range of products
and services: clothes, shoes, travel, leisure, household goods, banks and so on. Also in
the UK we have the Metro Centre (Gateshead), Lakeside (Thurrock) and Meadowhall in
Sheffield to name but three. These centres attract huge numbers of shoppers and day
trippers and are very profitable for both the site managers and the retail outlets. For
example, Meadowhall claims to have an average of 400,000 visitors each week and is
ideally placed with over 9 million people living within one hour’s drive of the complex.
The popularity of these centres, however, has caused much resentment from smaller
traders in town centres who have seen the number of shoppers and, thus, trade, reducing
over the years. Governments are now particularly concerned with control of the growth
of these centres. France and the USA, in particular, have tightened up on regulations
controlling new centres. The UK government has also said that growth will be restricted.
However, despite this yet another huge centre (Bluewater) is being built near Gravesend
as part of the Thames River revival projects and should be fully opened in time for the
millennium celebrations. Bluewater is forecast to be the biggest of such complexes in
Europe!
Both hypermarkets and out-of-town centres are likely to take an increasing proportion of retail
business in the developed economies, representing, as they do, a convenient and economical
form of one-stop shopping.
You should be able to discuss some of the main factors that have contributed to the success of
these large retail stores. For example:
! The growth of car ownership and the importance of the motor car in our everyday lives.
Hypermarkets and superstores such as Asda are often located in out-of-town sites. Car
ownership provides a greater catchment area for these stores, enabling customers to
travel to them. Parking facilities are very important to the consumer, particularly with
the increase in city centre traffic congestion, and such stores provide extensive parking
facilities.
! Car ownership enables the consumer to buy large quantities of goods at once; some
people purchase one month’s groceries at a time. They are able to transport these large
purchases to their home in their car.
! More women, particularly married women, are going out to work and do not have the
time to spend hours shopping. They are able to visit a hypermarket, often quite late in
the evening after work has finished, and purchase the majority of their requirements at
one retail establishment within a short space of time. Weekend opening also means that
more shopping is done as a family than in past years.
! The increasing ownershop of home freezers enables consumers to store a large amount of
perishable food products. Hence they are able to purchase more items at once.
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Franchisees
Many companies now use franchising and licensing as a means of distributing their products around
the world. Using a franchise system means that the company’s name and image can gain much
greater exposure without the need to have owned outlets. Franchisees are controlled, to some extent
or another, to operate within certain parameters set by the franchiser. Fees are payable for the right to
the franchise and any support which is given by the franchiser. Some franchisers give full support,
whilst others expect the franchisee to pay for it, e.g. in promotional material or product training.
Franchises are in operation for a wide variety of products – food, office supplies, photocopying and
carpet cleaning to name but a few.
This system is popular with people who want to set up in business in their own right but do not have
the resources available. They in effect become “managers” for the franchiser but take profit from the
business they are running.
Agents
An agent is someone who acts on your behalf. They are used both in home and overseas markets, and
are a “link in the chain”.
The term “agent” can mean many things, from one man to a complicated organisation as we noted
above. An agent can be responsible for few or many activities – depending on the relationship
required, current legislation and prevailing circumstances.
There are various types of agents, including:
! Commission
! Stocking
! Spares and service
! Del credere (accepts financial risk)
There are strong advantages in using agents for both the home and overseas markets:
Home Market Overseas Market
Coverage of the market Local knowledge/contacts

May find customers Easier importation/paperwork
May help with promotion Acceptability in the market
Language problems eased
May have good distribution contacts
The disadvantages of the use of agents include:

! can have split loyalties;
! may have poor resources;
! may not work to your system;
! may mean reduced profit/control; and
! can affect image.
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The advantages and disadvantages must be balanced before any decision can be made, but the
ultimate choice will be based on some of the following aspects:
! Area covered
! Experience
! Resources
! Location of customers
! Willingness to cooperate
! Costs/profits involved
Contractual Agreements
Problems in dealing with any type of intermediary may be overcome, to a large extent, by the contract
agreed between the intermediary and the manufacturer.
At times contracts may not be necessary as the relationship between the manufacturer and the
intermediary is a straightforward buying and selling activity. In these circumstances the terms and
conditions of sale and/or purchase will determine the ease or complexity of the transaction.
Where contracts are necessary they are very important and must be agreed with the utmost care. All
aspects should be covered to the optimum satisfaction of both the manufacturer and the intermediary.
Intermediaries may well have the protection of legislation which could mean non-cancellation clauses
or punitive fees in certain circumstances.
Each party has to ensure that the contract will not inhibit its future activities in any way. For example,
if a small manufacturer in the south of France agreed to let one local store be the only distributor of
his products he could, in the event of growth, be restricted from engaging any other distributor
anywhere in the world. If the manufacturer had discovered a unique product which was in high
demand everywhere he would lose a great deal of business and money simply because he had allowed
himself to be tied to one small outlet in the south of France. The distributor, however, could make a
lot of money because he had been better at negotiating a contract.
If the manufacturer decided to take a risk and appoint a distributor in another country he could find
himself being sued and at the worst could end up losing his business altogether.
Examples of points covered in contractual agreements are:
! Area involved – region, country, continent
! Product – full range, selected items
! Validity period of contract
! Commission to be paid/and how to be paid
! Exclusive agency or one of many outlets
! Promotional support arrangements
! Authority to change prices
! Training commitment
! Any after-sales arrangements
! Expected turnover
! Dissolution clause
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If a contract is not clear it can, and will, lead to confusion or disputes which are likely to result in poor
relationships, loss of profits, loss of “face”, loss of market share, etc. However, a good contract
means security. It also lays down operating systems/procedures which make day-to-day activities
within any organisation that much easier to arrange and control.
D. DISTRIBUTION CHANNEL MAINTENANCE AND

CHANGE
Most of what we have said so far has related to the setting up of a distribution channel and has taken
no account of the continuity aspects of channel management. Continuity is equally important.
Distribution managers want good channels, and good channels only happen if they are well-managed.
There should be no channel conflict; there should be channel harmony.
Channel conflict is caused by not treating channel members equally. For example, if one distributor is
given better discounts than another it will cause problems; if one channel member is given product
training for the salesforce, and another is not, it will also cause conflict.
Fair treatment of channel members on every aspect of the business is of utmost importance if a
distribution channel is to remain effective. Once relationships begin to suffer business can be lost and
it can take a great deal of time to recover lost ground.
Managers should be working towards the development of their distribution channels and, although
this may simply be a case of managing and controlling existing channel members in terms of supply,
targets, reporting, etc., there may be times when a channel needs to be changed.
Change may become necessary because of environmental factors such as legislation, competition or
customer preferences. The fact that channel member(s) have proved to be incapable of giving the
level of coverage that a manufacturer requires, or are failing in some other aspect (e.g. spiralling
costs) may also lead to the need for change.
Whatever the reason for changing a channel, change can only be effected with care. The original
supplier needs to consider all aspects:
! What will the effect be on the other channel members?
! How will the customers react?
! How will the competition react?
! What costs will be incurred?
! What level of profits can be expected?
Put another way, making any change to a distribution channel is a similar exercise to setting up a new
distribution channel. The same type of research has to be undertaken and similar decisions made.
If we assume that it is not simply a case of getting rid of a channel member who is performing badly,
changing a distribution channel can, in some circumstances, be made much easier if channel harmony
exists. Harmony among channel members leads to smoother operating procedures, better
communications and a greater willingness to cooperate. This is helped by building relationships.
Relationship Marketing
Increasingly competitive markets, resource restrictions and buyer power has heightened the need for
good relationships in distribution. When manufacturers and intermediaries work together,
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communicate well and discuss plans, etc., they become interdependent and the relationships formed
are less likely to suffer.
Not only will control be much more effective, but it will also be much easier to make changes to
improve efficiency and effectiveness for both parties.
A word of warning, though. Relationship marketing is excellent in all ways apart from the fact that it
can cause complacency. If a manufacturer becomes too lax in his treatment of an intermediary (or a
supplier) he may miss some factor which is indicative of an underlying problem. If that problem is
not settled it can lead to a break up of the relationship. This also applies to intermediaries being
careless in their attitude to manufacturers.
The key relationships which need to be managed are set out in Figure 9.4.
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SUPPLIERS’ DISTRIBUTION
CHANNEL OBJECTIVES
Market/segment share
Profit objective by market segment
Channel member allegiance
Consumer brand loyalty
SUPPLIERS’ CHANNEL
REQUIREMENTS –
ULTIMATE CONSUMER NEEDS –
SUPPORT REQUIRED TO ACHIEVE
SATISFACTION REQUIRED BY
DISTRIBUTION CHANNEL AND
ULTIMATE CONSUMERS
MARKETING OBJECTIVES
Price/value
High penetration
Convenience
High service levels
Availability
Wide range Inventory
Choice
Promotion
Market intelligence
Market development
Intermediary
Consumer
support
satisfaction
programmes
DISTRIBUTORS’ REQUIREMENTS –
COMPENSATION EXPECTED BY
INTERMEDIARY FOR PROVIDING
SELLER SUPPORT
Satisfactory rate of stock turn

Gross margin and overhead contribution -
ROI on inventory/selling area
Promotional allowance and other
below-the-line benefits
Distribution exclusivity
Continuity of supply
Market development
Credit
Figure 9.4: Relationships in distribution
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E. PHYSICAL DISTRIBUTION MANAGEMENT (PDM)

PDM is often referred to as logistics. In the army, certain officers, usually those of the Royal Army
Ordnance Corps, are responsible purely for the movement of goods from one place to another, i.e. all
equipment, food and fuel supplies. Every detail has to be thought out, organised, planned and
executed since under no circumstances could troops afford to run out of ammunition, food, or any
essential supply in a war-like situation. The same reasoning can be applied to marketing.
Benefits of Logistics
Lancaster and Massingham make the point, in their book “Essentials of Marketing”, that properly
managed logistics can provide the supplier with cost savings and a differential advantage which will
go a long way towards ensuring future orders. In fact, they say that in some industries you cannot get
orders unless you can work to Just-in Time (JIT) schemes. On the other hand, a stock shortage on a
modern assembly line can be an expensive disaster, so there is some justification for the demands of
the manufacturers.
Although this looks like an industrial matter, the same ideas apply to some of the products sold in
supermarkets. You see fresh flowers in superb condition in some supermarkets and even in
department stores such as Marks and Spencer. You might wonder how they keep the flowers so fresh;
the answer is in the contracts for daily deliveries with local growers.
This is not quite as dramatic as the assembly line, but is another example of JIT marketing logistics
which you have probably seen but not thought about. Examples of marketing logistics are all around
you, but the fact that they are so efficient stops them from being noticeable.
Management of Logistics
There are whole books devoted to the management and improvement of marketing logistics, but for
now we can confine ourselves to the following, adapted from Lancaster and Massingham.
The process of physical distribution management involves the following steps:
! Find out customer service needs.
! Find out the present performance of our company and of competitors.
! Determine the costs and benefits of improving our performance levels, so as to maximise
profits.
! Establish specific objectives for logistics performance.
! Plan, implement and control the logistics system.
We can take each item and look at the implications for the company.
(a) Customer Service Needs
It is clear that a scheme to look into logistics would involve a lot of work for marketing and
other departments, the first item being the collection of information about just what the
customers really want. Do they want us to deliver the goods just at a specific time or do they
simply want to know that they can rely on us to keep our delivery promises?
It is usually easy to see what products they want, but not always as easy to see exactly when
they want them, and how much they are prepared to pay for the service element of what they
are going to receive. Some buyers ask for better delivery than they need, just to avoid being
caught out by unexpected delays.
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If a company is to enter into special delivery arrangements with specific customers, then there
must be trust on both sides, and the whole truth is needed. It is likely that full details of
production plans will have to be exchanged so that the two companies can work together: that
sort of collaboration goes beyond the normal relationships of customers and suppliers.
(b) Present Performance – Competitors and Ourselves
You may have some idea from your sales representatives’ reports on how the customer views
your performance levels, and it is worthwhile trying to get a comparison with your competitors.
That may involve a different approach – sometimes a buyer will be more forthcoming when
talking to a marketing researcher or even to a sales manager, and any “different” approach is
worth trying.
It is often easy to get criticism of performance – everyone remembers the disasters, but not the
more frequent good service that is taken for granted. It is essential to get a balanced view of the
situation, so as to determine how much needs improving, if anything. There is no point in
setting up to deliver “JIT” if the goods are then going to lie in the goods inwards store for
several days.
(c) Maximising Profits
Whilst we are looking at the possibility of improving logistics for the customers, it is essential
that we keep an eye on the costs that may be involved. Although we talk of JIT deliveries, the
goods have to be manufactured and the machinery in our factory may not be adaptable to small
batches every day or two. Production economies usually come from large batches, or long
production runs, and it is normal practice to plan for economic production runs, then store the
products for delivery to customers on a planned schedule or just when orders are received.
If the customers no longer want to hold stocks and if they prefer to depend on frequent
deliveries, we might have to use different delivery methods. We might even have to set up a
small stock depot near their factory. This is not a new idea – a company based in the West
Midlands won an order from Volvo for forged steel brackets on condition that they set up a
stock depot to keep four weeks’ supply near the Swedish factory. And that was 30 years ago.
Stock depots are expensive items and may not be necessary if the customer is not too far away,
but the point has to be considered. Some car firms working in several countries in Europe run
their own mini-airlines so as to have full control over the delivery of vital parts.
(d) Specific Performance Levels
Although we are considering providing the customers with a delivery service that matches their
production needs, we must not let the customers demand unreasonable standards. The whole
idea of working on the logistics of marketing together is to make the system better for both
partners in the deal. It is only by setting performance levels by agreement that both parties can
be better off.
(e) Plan, Implement and Control
If a supplier and a customer get together in a marketing logistics scheme, there must be proper
planning and control. That means, usually, that there has to be one senior manager appointed at
each end of the agreement, with the responsibility to make the scheme work and the authority
to make changes when it does not. One manager in a manufacturing company may cope with
several schemes of this nature, of course.
I have seen this sort of scheme work within a company, where the design offices were a long
way from the production factory: a senior manager who was respected in both establishments
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had the job of keeping production rolling, and he often had to make small design changes on
the spot. These were formalised in the design office later.
Where two or more companies are involved, it is essential for full co-operation to be
established and there are many ways in which that can be achieved. For instance, it is usual for
Japanese companies to buy some shares in the other company as a sign of good faith. In Britain
the co-operation is more likely to be assured by means of meetings of directors.
You will see from all this (which only skims the surface of a vast subject), that the deals involved go
beyond the mere generation of short-term profits. Much of what we have looked at would take a year
or two to settle down into a pattern, and it is only where there is scope for long-term profit that this
sort of activity is worthwhile.
However, companies take note of what their competitors are doing, and if an agreement is seen to be
working well, there may be some demand generated for more of the same for different companies.
On a shorter time-scale it is possible to get something similar going, especially in mail order, with a
declaration such as “all orders received before 3.00 pm will be despatched the same day”. That, in
Britain, is enough to guarantee delivery next day, or in two or three days, depending on the level of
service that you pay for. If you make such a promise, make sure that you know where the carrier’s
depot is – you might be taking the goods to the depot if you miss the collection time.
Using Availability as a Competitive Advantage

Many of the so-called new ideas have been around so long that they are not recognised in their old
form. For instance, the idea of JIT deliveries is not new at all – for many years engineering
companies have persuaded their customers to place big orders that could make use of the economies
of scale of big machines. It was not unusual, some years ago, for a company to place an order for the
quantity that they expected to need for six months, and for the manufacturer to hold the stocks for
call-off as needed by the customer.
The customer had the satisfaction of knowing that the goods were always ready and the manufacturer
had the benefit of making use of machinery at the optimum rate. Both companies were better satisfied
than they would have been if the orders had been placed for small quantities more frequently.
That was availability under a different name, and is still adequate for most orders.
! Guaranteed Delivery
A company which sets out to gain a differential advantage by offering the availability of its
products at the times which suit the customers, must do more than simply manufacture the
goods and despatch them. As soon as the goods leave the manufacturer, they are out of its
control, and the promise of availability is no longer valid. With the best of carriers there can be
problems that are beyond the control of their management, such as a breakdown in the transport
which is used, or a consignment which is misdirected. The manufacturer has no control over
such problems and may be just one of many clients suffering from the same breakdown.
If the manufacturer wants to ensure that the offer of availability at specified times can be
guaranteed, it must either use a priority service which promises delivery in a specific time-
scale, or control the delivery service itself.
In Britain there are several companies which provide a collection and delivery service for items
ranging from small parcels to whole truckloads. Usually, these companies promise delivery
either on the next working day, or in two or three days, depending on how much you are
prepared to pay. You may have used the services of Parcelforce, a branch of the Royal Mail,
which offers guaranteed delivery in one, two or three days on the British mainland, and a little
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longer to the islands offshore. Or you may have sent parcels by British Rail’s Red Star system,
whereby you can take a parcel to the station, find out which train it will travel on and arrange
for your customer to collect it from the other station. For very urgent packages there can be
few schemes which are quicker than that.
The same sort of guaranteed delivery overseas is offered by some carriers, and one of them
advertises on television that their service “is as good as taking it yourself”. My experience of
just one of these carriers has been good – they handled all the documentation for customs and
the airline, then delivered to Brunei in three days, and Jeddah in two days, exactly as promised.
Ordinary air mail would have been less expensive, but my clients distrusted the local mailing
service so they asked me to use a specific carrier which they had learned to trust.
! Customer Satisfaction
In my small way I provided the equivalent of a JIT service for these two clients, to increase
their satisfaction. It cost me extra, and if I were to do this regularly I would probably charge
extra for the fast service. As it is, I got the benefit of a recommendation: business which
comes in when a satisfied client recommends you to friends avoids the cost of advertising. A
spread of such recommendations can then be used as part of the publicity message and the
advantage gained multiplies each time.
Years ago I was a sales representative working for a company that took a pride in delivering as
quoted, and customers came to rely on delivery promises. When a series of events caused a
delay, the customer demanded action, and the best way that I could help was to strip the car of
all loose items (to reduce the weight), then take the parts in the car. It took three trips, and I
was not selling anything during the journeys, but I was helping the company to maintain its
image as a reliable provider of availability. In that company everyone put the customers’
interests first, and the reputation of the company was as high as it could be.
The message is – if you promise availability, you must be able to provide it, and that may mean some
unorthodox activities. There are many factors to consider, and they do not all fit nicely into the fast
availability achievement that customers would like to see. Cost is probably the most important single
factor that affects availability: the transport manager wants to use the low-cost service so as to keep
his or her department costs down, but the accounts department wants the goods to be delivered
quickly so that they can start asking for payment. The packing room want to use the cheapest
materials but that may increase the breakages, which leads to replacement and customer
dissatisfaction. The optimum location of warehouses can save the customers some time, and increase
availability, but costs the company more money.
Kotler points out that the location of the manufacturer’s plant may seem to be obvious – as near the
market as is possible within reason – but that may mean a high cost location in the city suburbs. On
the other hand, a location some miles out of the city may be so much lower in costs as to offset the
transportation costs and make the total operation less expensive.
There is so much to consider, and if the company is setting up a new factory it will be possible to
choose the best site, for the time being. However, few people are in that position, and it is usually
necessary to do the best you can with the location that is available.
Logistics
Although some firms view physical distribution as being separate from marketing, the opportunities to
be gained from integration are enormous. The objective is to achieve a balance between services to
buyers and customers, in terms of time and place utilities and operating efficiency. We have to
remember that all sensible marketing depends on the provision of the goods at places where people
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can buy them. Effective logistics can lead to the maximisation of benefits for the company as a
whole.
The term “logistics” encompasses all the activities that are involved in getting the right goods to the
right place at the right time, in the right quantity, and with the right sort of support. There is more to
that than just “distributing” the goods from one place to another, although that is a big part of the
activity. It includes the following areas:
! Transportation: choice of transport method (road, sea, air, rail, etc.), vehicle utilisation (own,
hired or leased), vehicle selection, scheduling and routing, load planning.
! Materials handling: in-plant movement, palletisation, packaging, unitisation, handling
systems.
! Warehousing and delivery: space, layout, facilities, utilisation delivery policy and returns.
! Inventory: stockholding policy, inventory levels, security, insurance, stock checks.
! Location: choice of warehouses and depot locations for market cover.
! Processing: order processing and administrative systems.
! Cost control: audit procedures, cost allocation, account profitability analysis.
! Policy formulation: strategic issues, motivation, planning, communication, JIT.
Logistics considers the cost of all the activities and the aim is, of course, to keep the costs per unit to a
minimum. So much of the cost of a product goes into the packaging and movement of the product
from the factory to the customer that it is necessary to evaluate every activity and trade off one cost
against another. There is little point in reducing the cost of packaging or the speed of handling if it
increases the cost of handling and breakages.
In assessing the physical aspects of the logistics operation, the following criteria need to be
considered.
! Transit time: very important for perishable goods such as food, less important for some
others; the destination of some perishable foods may have to be changed if there is a delay in
the transport system, or even if the weather changes dramatically;
! Reliability: in total, because customers can often buy a substitute for the product if it is not
available at the right time and place. Also, the goods should be safe from pilfering;
! Accessibility: the warehouse and carriers must be easily available to move the goods over the
best network of roads, railways or waterways;
! Capability: the warehouse and carrier’s transport must be able to provide cold storage for
some products, or safety for such products as gases and fuels;
! Co-ordination: the warehouse company must be willing to co-ordinate activities with other
companies;
! Traceability: it is often necessary to find out just where a consignment is, to give an idea of
when it will arrive at the store. This is tied up with the policy for dealing with claims for late or
non-delivery;
! Cost: there are times when the minimum cost is best, but other times when a higher cost is
more acceptable, if the trade-off includes faster delivery.
Whilst all these matters make for plenty of difficult decision-making in connection with the
warehousing and transportation of goods, you must remember that in the long-run, the marketing
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manager has to take these matters into consideration too. If the best interests of the customer clash
with the best solution of the logistics model, the marketing manager may have to persuade higher
management to put the customer’s needs first.
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269
Study Unit 10
Marketing Communications
Contents Page
A. A Strategic Approach to Promotion 271

The Promotion Mix 271
Integrated Communications Planning 274
Marketing Communications Strategies 275
Budget Allocation 276
B. The Communications Process 277

Communication Objectives 278
The Message 279
Target Audience 279
Timing and Implementation 280
Evaluation and Control 281
Planning Communications 281
C. Advertising 282
Why Advertise? 282
Classification of Advertisements 283
Using Advertising Agencies 284
Avertising Media 286
D. Sales Promotion 289

Advantages and Disadvantages of Sales Promotion 290
Direct Mail 291
Exhibitions 292
Conferences/Seminars 293
Sales Literature 293
Merchandising 294
Effective Sales Promotion 295
(Continued over)
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270 Marketing Communications
E. Personal Selling 296

Salesforce Objectives and Tasks 297
The Seven Steps of Selling 298
Coordinating Sales and Sales Promotion 300
Organisation of the Salesforce 301
Sales Forecasting and the Sales Plan 302
F. Public Relations 303

What is Public Relations? 303
What Public Relations is not! 304
Purpose of Public Relations 304
Public Relations and the Marketing Mix 306
The Public Relations Message 308
Methods of Public Relations 309
Importance of Integrated Activities 313
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Marketing Communications 271
A. A STRATEGIC APPROACH TO PROMOTION

In this study unit we address the last of the four Ps of the marketing mix – promotion.
Promotion is often viewed as being more operational in nature, but this is not entirely true. Strategic
decisions need to be taken and here we shall consider the processes and decision areas involved in
strategic promotional planning as well as examining individual aspects of promotional activities.
As you know, the marketing plan covers the activities related to every element of the marketing mix
and is a combination of several sub-plans. The promotional plan itself is a sub-plan of the overall
marketing plan and, in turn, covers a variety of activities.
The Promotion Mix

The entire range of activities is known as the promotion mix and covers the activities involved in
advertising, sales promotion, PR and personal selling.
(a) Advertising
The paid for time and space in media not owned by the advertising organisation.
Tasks such as design and good buying of media may well be left to the operational manager but
other decisions, such as the nature of an advertising campaign, the timing and frequency, etc.
will be taken at strategic level.
Advertising is seen by the public and it must be done in such a way that the company, and its
products, are not harmed by any adverse reactions on the part of the public. This may seem to
be within the realm of public relations but it is really control of advertising and a prime
concern for senior levels.
Many people think that advertising is a short-term activity which cannot be planned in advance.
While this may be true in some circumstances, it is certainly not true in all cases. If a company
needs to make major changes, their advertising planning will certainly be over a long period.
They may decide to change the type of media they use or they may wish to change their image.
For instance, when Guinness was suffering from a reducing target market (they were literally
dying) the company knew they had to change their image. Instead of using the tried and trusted
“toucan” for their adverts, they used a well-known personality and advertisements that were
modern and intriguing. The approach worked – Guinness attracted a younger audience and
sales grew again.
Guinness did not just act on a sudden impulse. The strategic planners made sure that
everything was done correctly. The change took place over a long time period – arrangements
had to be made to make sure that the campaign would be effective. A great deal of money was
spent and it was a risky time for Guinness – too risky to leave to operational managers.
(b) Public Relations
The activities taken to foster good relations with stakeholders, and other relevant publics, of an
organisation.
Because public relations is so important and reflects the overall ethos of the company it is seen,
in many companies, as a major strategic responsibility. Operational marketers may well be
responsible for the implementation and control of any plans, but they will be following the
“company line”. The “company line” will be based on how the company is to be presented to
the public at large and will, ultimately, be aimed at achieving corporate objectives.
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A sub-activity of PR is publicity – free exposure, whether good or bad, to the publics of the
organisation. Companies will go to great lengths to gain good publicity and to even greater
lengths to avoid, or overcome, bad publicity in order to protect their image and reputation. At
the higher planning levels decisions will be taken as to whether the company will actively seek
publicity and which methods to adopt.
It is usual that the people who deal with publicity are the same as those who deal with PR.
Certainly the strategic thinking will be the same and similar considerations will influence any
decisions made.
(c) Sales Promotion
All other efforts taken to support the advertising and publicity activities of the organisation.
“Sales promotion” can include a multitude of activities: database marketing, free gifts, direct
marketing, television selling and so on. The term is a “catch all” for everything that does not
fit into the other categories.
The main difficulty with sales promotion is in getting the balance right. Customers can get
very tired of the same old things and the company can easily gain a reputation for being “offer-
based” if they are not careful.
It is the balance and the approach to sales promotion that are decided at strategic level, rather
than the day-to-day activities involved. Will the company give free gifts? If so, to what value?
Will exhibitions be used? If so, where and when? How often should incentive promotions be
held? These are the types of questions that strategic planners will be asking and finding the
answers to so that strategies can be passed on to the relevant people.
(d) Personal Selling
Activities taken to ensure that the sales transactions are completed.
The salesforce comes in various shapes and sizes – from a large number of retail assistants, to
one highly-skilled technical executive. They may be taking orders, delivering products,
collecting payments, giving after-sales service and so on, but they all have one thing in
common – they deal with the customer direct. It is this fact that makes the salesforce an
excellent promotional tool.
Wilson, Gilligan and Pearson, in “Strategic Marketing Management”, offer a diagram expanding
the promotional mix which demonstrates very well how the totality of promotion consists of yet
further sub-sections. If we accept that each of the identified activities in Figure 10.1 will need its
own “sub-plan” we can see that the promotional plan will be a combination of mini-plans in much the
same way as the marketing plan.
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ADVERTISING SUBMIX SALES PROMOTION SUBMIX
The role of advertising The role of sales promotion

Target audiences Sales promotion techniques
Creative approach Sales literature
Deciding on the message Salesforce, distributor and
Deciding on the media customer incentives
Selection of an agency Merchandising and POS
Deciding the advertising spend Exhibitions
Evaluating effectiveness Sponsorship
Direct marketing
THE PROMOTIONAL
MIX
Advertising
Sales promotion
Public relations
Personal selling
PERSONAL SELLING SUBMIX PUBLIC RELATIONS SUBMIX
The role of the salesforce The role of PR

Determine buyer behaviour Corporate identity and image
Selling methods/strategies Publics
Salesforce support Internal marketing
Salesforce size and structure Media relations
Recruitment and selection Agencies
Training Sponsorship
Direction and motivation Exhibitions/PR events
Remuneration
Evaluation and control
Figure 10.1: The Promotional Mix Expanded
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Integrated Communications Planning

Integrated communications planning relies on each element of the promotional mix being used to
strengthen and complement the others.
The strategy concentrates on the message and not the medium – it is the mix of media that is
important. Media should be chosen as appropriate to deliver a cohesive picture to the target
audience.
Cohesion is the key word. We are all subjected to so many different messages every day that we
actually do not see a large proportion of them. Promotional managers know this, so they need to take
an approach which will ensure that we do see them.
They work on the assumption that a buyer does not “see”, or receive, a message from one source
only, but that the messages are coming from different sources and at different times. The buyer
actually builds a picture, or an image, of the product or the company. The promotional manager
therefore needs to make sure that he is using a variety of media to present a constant message to his
potential audience.
Advertising will be supplemented by sales promotional techniques such as exhibitions, free gifts,
competitions, sponsorship and so on. I know of one company which does this to very good effect.
! The company advertises on local television and in the local press. They distribute desk
calendars and memo pads showing the company name. Every visitor to the company premises
is given a small gift which shows the company name. They have a sponsorship programme for
young people in sports. They regularly support parent and teacher associations in schools.
They distribute information packs for people moving home – with the company name being
shown, naturally. They hold seminars for local groups and exhibitions in public places. Their
vehicles are clean and bright. Their staff wear smart uniforms. Their information leaflets are
attractive and easy to read. Their name is known to everyone in their area!
Their core product is double glazing!
You could be forgiven for thinking that none of this is new – they are the old promotional tools
being used effectively. Well, I happen to know the managing director of this firm quite well
and I know that the strategy of using a combination of different media was quite deliberate.
Initially they used to advertise by sending out “flyers” and placing advertisements in the local
papers. The adverts did have some success but they discovered that their entry in the Yellow
Pages was actually producing more enquiries, although still not enough.
Advice was sought and a new approach was taken. They decided to cut down on the
advertising in the press and flyers, and begin to use other media. It did not happen overnight.
New methods were introduced as resources allowed, but the decision had been taken and
strategic plans were made for the longer term.
The company has now become the market leader in its own region and has grown to such an
extent that more than 50 people are now employed. The gross turnover for 1996 was in excess
of £8m. Not bad for a company that started off, in 1985, as two redundant men with £15,000
capital between them. They are now firmly convinced of the benefit of integrated
communications.
Let us take another example.
! The Ford motor company ran a campaign for their “Probe” car. Their target sector, for this car,
was the adventurous person who likes to be at the leading edge, and loves speed and
technology.
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The theme of the campaign was “fly me to the moon” and the screen broadcast commercial was
a combination of beautiful imagery and unspoken messages.
There was no commentary about the car.
The commercial relied simply on the visual aspects and on the linking of imagery that would
take place in the minds of the target sector. The use of space footage and technology-related
aspects appealed to just the right kind of audience.
And yet there was no information about the car!
Ford used other media to get the details across. They used database marketing to send mail
shots to identified targets. They used printed media to reinforce the images. They used
publicity to gain exposure. They used exhibitions to show the car. They used everything.
Obviously we are talking about a lot of money here, but the point is that Ford deliberately took
an integrated approach to attract the buyers. You could argue that they are still just using the
promotional tools – but it is the thinking that is different – it is integrated.
Integrated communications will work for any company but it is a challenge. It is not as easy as
just dealing with each promotional element separately. Close planning is called for, as well as
good budget allocation.
Marketing Communications Strategies

Communications strategies are predominantly based on two things: the type of campaign, and media
selection and use.
(a) Type of Campaign
Apart from some obvious aspects, such as whether a campaign will be intensive, sporadic,
aggressive, low key, etc., there is one major decision that needs to be taken – is the campaign to
be “push” or “pull”?
! Push campaigns are aimed at the distribution channel – often referred to as “pushing the
product down the channel”. The whole concept of a push campaign is to get suppliers to
stock the product in order to make it available to the customer and to encourage the
channel members to sell it. Incentives may be offered on quantity, turnover or some
other basis.
! Pull campaigns are directed at the eventual buyers and users, to make them seek out the
product – “pulling the products off the shelf”.
Push and pull campaigns cannot work in isolation – each needs the other. No push campaign
will be totally successful if there has been inadequate pull advertising. The opposite also
applies. If a massive advertising campaign is undertaken to the users but no promotion is done
to channel members, suppliers will not have adequate stocks and the users will be unable to
obtain the product.
This is partly what happened when Cadbury introduced the “Wispa” chocolate bar in the UK.
The consumer pull advertising was very successful – much more so than the channel push
campaign which meant that there were inadequate stocks available in the retail outlets. When
retailers began asking for the product the company had insufficient stocks of the chocolate
prepared. The product had to be temporarily withdrawn leaving dissatisfied customers,
unhappy retailers and, no doubt, some red faces in the planning department of Cadbury.
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This problem does not only occur in the FMCG sector. For example, one company I know,
which we shall simply call company X, was dealing in mobile communications equipment.
They did a very good pull campaign but their push to the distribution channel was not so good.
Unfortunately for them, a major competitor had decided to adopt a pre-launch push strategy, on
a very similar model, before taking any activity on the pull side. They had motivated suppliers
to take up stocks and their products were widely available. The suppliers were told that a
massive advertising campaign was to take place in the near future; suppliers like this kind of
support and they were ready to take advantage of the exposure.
However, the campaign never took place as, when requests began to be made for the product
which had been advertised by company X, the suppliers simply “converted” the buyers and
sold the competitor’s products which they had in stock.
A lot of money, and ground, was lost by company X with the competitor reaping the benefits of
a “free” campaign which had fostered the overall demand. To rub salt into the wound – the
money the competitor saved was later put to good use to press home the message of “being
first” to the market. Company X failed to keep abreast of what was happening and they
suffered badly.
The examples I have referred to show how dangerous it can be if communications are not
planned with every aspect being taken into consideration. Too much of one kind is just as bad
as too little. A balanced approach is necessary and this is where the strategist comes in. It is
the strategic planner who should be dictating the overall approach – not the operational
planner.
(b) Media Selection
Media selection is based on the characteristics of the target audience. If a manufacturer is
selling high priced industrial equipment he does not advertise it in a magazine which is read by
teenagers. Conversely, if a company deals in mass products they do not advertise in the
“Philatelist” quarterly review.
These are obviously extreme examples and would be unlikely to occur, but it is surprising how
many companies fail to streamline their communications and waste resources by not using the
correct medium.
We shall examine the selection of media in greater detail when considering each of the
elements of the promotional mix later in the unit.
Budget Allocation
You should know that budgets are appropriated by using some “measure” which can be:
! A percentage of sales (past or future)
! Last year’s spend plus (or minus) a percentage
! Equal to (or more) than what the competition are spending
! Enough for the job
None of these methods is perfect in its own right. Many writers have disputed the validity of basing
promotional budgets on results achieved, etc. as, very often, no direct correlation can be found
between advertising and sales. This can be caused by the delay in a buyer actually taking up a sales
proposition.
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Equally, the other methods can be disputed, e.g. last year’s spend may have been inadequate; the
competition may have better resources; “enough to do the job” is open to abuse – people will waste
money.
So perhaps the best way of appropriating promotional budgets is to assess from a results perspective.
If, instead of beginning to plan with the question: “How much money can we have?”, promotional
planners began by asking: “How much can we achieve with any activity?” budgets may be much
more appropriate. They will certainly be better justified as there will be projections to support any
bids.
In most cases promotional and other budgets tend to be set as a result of a combination of factors and
may well be based on one or more of the methods outlined above.
The reality of life is such that many promotional budgets are very tight and managers will be given a
limited amount to spend. It is here that the skill of the strategic planner comes into its own. If, once
a budget has been set, the planner can use that money creatively the overall success will be that much
greater.
Using all promotional tools and techniques works to this end. Basing the allocation of a promotional
budget on the effectiveness of the medium will result in better customer awareness which should end
in more revenue for the company.
Allocation by “weighting” is very common in promotional planning. If one medium is likely to be
more effective than another it is given a higher weighting and gets more of the spend allocated to it
and so on. Careful research and assessment needs to take place so that managers can identify which
medium will be most effective for any particular target sector. Without research, and objective
decision making, budget allocation may well be done on some basis which is illogical, e.g. the
manager “likes” TV advertising even though, in the past, it has not been as effective as personal
selling.
B. THE COMMUNICATIONS PROCESS

You may find the promotional mix being referred to as the “communications mix”. This means the
same thing, only some people think that “promotion” infers advertising and persuasion, whereas
“communication” better expresses what is really taking place – the passing of messages from one
party to another; or, to put it another way, passing messages from a seller to a buyer and other
interested parties.
We know that in any communication there will be:
! A communicator – the sender of the message.
! A message – the information being passed.
! A channel – the means of passing the message.
! A recipient – the individual or group the message is aimed at.
It is, of course, also preferable to have feedback in order to assess the success of the communication.
If you ever have to produce a model of communication to support an examination answer, either of
the simple models shown below should be adequate.
Model (a) in Figure 10.2 shows the four basic components of the communications process, with a
feedback loop. Model (b) shows that there is encoding and decoding taking place: the sender is
translating the message into a suitable format for transmission; the receiver is interpreting the
message in order to understand.
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COMMUNICATOR MESSAGE MEDIUM AUDIENCE
FEEDBACK
Figure 10.2(a): The Components of Communication
ENCODES DECODES
SENDER MEDIUM RECEIVER
MESSAGE MESSAGE
FEEDBACK
Figure 10.2(b): Communications Activities
The communicator can be an individual, a group, an organisation, a society or a government. If they

have a message to pass to another person, they need to communicate.
Successful communication relies on a balance between the components of the process, plus adequate
feedback. We can see this simply by considering the different aspects of the communications process
in respect of a promotional campaign. When communication takes place there are certain basic
criteria which are necessary if the communication is to work.
Communication Objectives
The objectives will be based on solving a problem that is currently being faced or on long-term plans
that have been made, and can be for various reasons, e.g.
! To enter markets with a “new” product.
! To promote “new” products in established markets.
! To support/maintain sales in established markets.
! To inform/educate users/dealers about the organisation or products.
! To influence attitudes towards the organisation.
! To inform/instruct internally.
The “information” nature of marketing communication means that most objectives will be
predominantly qualitative in nature – but this does not mean that they cannot be expressed in
quantifiable terms. For example, the following could be valid communications objectives:
! “To increase awareness from 40% to 65% within 12 weeks of the campaign launch among 25-
35-year-old females in the area covered by Carlton Television.”
! “To announce the introduction of a new chocolate bar, in the Tyne Tees region, creating 50%
awareness of the new product one week prior to launch.”
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! “To position the personal CD player as the best, and trendiest, on the market within 6 months
from the date of launch, among 85% of 18 – 25-year-old ABC1 males and females.”
The Message
It is important that you appreciate just how important the message can be. The message must reflect
the objective of the communication which will have been designed, or defined, to overcome some
problem.
For example, suppose you had a problem of falling sales because some of your customers have not
remained loyal in the face of competitive activity.
! Your objectives would be based on keeping your loyal customers and recapturing those who
have left you.
! Your message would be aimed at reassuring your loyal customers, and reminding the lost
customers, of your services/benefits, etc.
If you have creative people who can produce a message that will cater to both target sectors, that is
fine. If not, you may have to use more than one message and more than one medium.
Messages can be informative or persuasive or a mixture of the two:
! Informative messages will contain simple facts such as: price, outlets, times, locations, new
formulations, contact names or telephone numbers, etc.
! Persuasive messages play on the self-image of the recipient or target audience. They
concentrate on needs, wants, aspirations and desires.
Messages do not just “happen”. They need to be designed and this is a highly skilled task which is
why we have so many creative agencies earning vast amounts of money.
The criteria for successful messages are that they must be relevant and credible to the target
audience and relate to the nature of the objectives. They must also be ordered and unambiguous if
they are to be transmitted and understood properly.
Target Audience
Whatever the message, or the reason for it, the target audience must be identified and targeted or the
objectives of the communication will not be met.
We covered segmentation in an earlier study unit so we do not need to go over it again. Suffice to say
that audience research and segmentation go hand in hand. When you know your audience you should
know what kind of communication to send because you can design your message around the factors
which influence them.
The message may need to be serious or frivolous, depending on the campaign and the product in
question – but it must reflect the nature of the audience for which it is intended, and it must be
capable of being understood by that audience.
Audience selection has become very sophisticated in today’s marketing environment. Strategists now
concentrate on good targeting in order to reduce wasted costs incurred in promotional activities.
You already know from our study of buying behaviour that marketers have improved on the
traditional methods of audience selection (age, income, etc.) by taking into consideration how people
live and what motivates them. This has considerably improved marketing communications; not only
are the communications more specific and relevant to the audience, but wastage (promotion reaching
the wrong audience) has also been reduced, with the result that costs have been lowered.
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Audience selection criteria are exactly the same as for segmentation, i.e. the audience must have a
demand pattern, be big enough to warrant activity, be reachable, etc. Once the criteria have been
matched to a sector, promotional activities can begin.
You can see from everything that I have said here that the main audience research is really part of the
overall situational analysis that is undertaken at the audit stage. But there may be additional research
undertaken to investigate the coverage of one or more types of media so that results can be
forecasted.
I have previously mentioned the importance of internal communications and how marketers should
play a leading role in these. Sadly, strategic marketers often neglect internal audiences and fail to
communicate adequately with them. If internal audiences are not given the same due regard as
external audiences, the entire marketing process can be damaged.
Internal communications can be handled in exactly the same way as external ones. They can be one
way or two way, and can be for information purposes or for motivational purposes. Themes can be
frivolous or serious. Communication can be intensive or infrequent. They can be directed to one
person, a selected target, or a mass audience.
Of course, within an organisation we have the benefit of being able to use formal, established lines of
communications (e.g. from operative to manager, manager to director) or informal channels. Formal
lines of communication may well give a degree of security in how, or when, any relevant
information is passed, but they can also be slow and unwieldy and can result in some people feeling
isolated and left out.
On the other hand, informal channels – using “the grapevine”, “word of mouth” or “gossip”, etc. –
can be a very fast method of communication but it can be dangerous to rely on these methods as
information may be distorted as it is passed from one person to another.
Strategic decisions on internal communications will generally be made on a basis of: “Who needs to
know?”; “What is the best way to tell them?”; “When should we tell them?” etc. If you compare these
questions to the aspects which any communicator needs, you will see that they match. Internal and
external communications are exactly the same except, perhaps, that the cost of communicating
internally is likely to be much lower than communicating externally.
Timing and Implementation

The timing of any promotional campaign is crucial – too early is as dangerous as too late; too often
and the audience become bored; too infrequently and the audience can forget you.
This is why decisions on the timing of campaigns tend to be taken at the strategic level: they are too
important to leave to less experienced people. Strategic planners will also make the decision on
whether to advertise often, infrequently, in bursts or in drips.
The operational managers will arrange the schedules, and implement the campaign, in line with the
instructions they get from the strategic level. The implementation stage of any plan can be both
exciting and tense. Get this wrong and everything else has been wasted.
Managers know this and that is why great care is taken to see that responsibilities and resources are
allocated wisely, all timing aspects are synchronised, costs are controlled, arrangements are verified
and results are monitored. If these activities are carried out in a disorganised fashion the overall plan
may fail miserably.
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Evaluation and Control

Knowing how successful any plan has been is of major concern to a manager at any level. In
communications it is crucial. If the communications campaign is not working the target audience will
not buy, there will be no money coming in, capital will be tied up in stock, etc.
Standards, which can be used as measurements, are set at the objective stage, such as “increase
awareness to 85% from current level of 30%”.
The current level of awareness comes from pre-testing undertaken either with the situational analysis
or by a specific market test. It is done before a campaign to see what the current situation is.
Once a campaign has been implemented, post-testing is carried out. The results should match the
objectives. If not, why not? Does something need to be changed? Did we get the audience selection
wrong? Have we used an inadequate message or medium? Do we need to fine-tune or make major
changes?
If no measurements are taken against expected performance, the company may well be throwing
money away.
Measurements for communications may be done internally or by an agency. Internal control is
often allied to quantitative aspects, such as sales achieved or the numbers of people telephoning for
further details in response to an advert.
Measurements of a qualitative nature, assessing changes in awareness or perception, are often better
handled by an external agency with experience in this kind of research.
Decisions as to who will measure will depend on the resources available and be determined by
strategic planners at the outset of any campaign. If these decisions are left to operational levels, the
responsibilities might simply be passed on to an agency, with no concern about the costs involved.
On the other hand, the operational managers may decide to do the measurement in-house to save
money when, in reality, the time and effort it takes will, in the long run, cost more than using an
agency. Because strategic planners take an overview, they will be aware of all of these considerations
and make their decisions accordingly.
Planning Communications
The organisation of this section highlights the process of planning for communications. You can see
by studying the model in Figure 10.3 that communications planning is similar to all other types of
planning in that all aspects are related, and each activity is joined in a never-ending circle – take one
away and the circle could disintegrate. The process applies to planning for any of the individual
promotional submixes as shown in the expanded promotional mix model in Figure 10.1.
MESSAGE
OBJECTIVES STRATEGIES
CONTROL AUDIENCE
SELECTION
TIMING AND
IMPLEMENTATION
Figure 10.3: Communications Planning Process
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By accepting that the process of communications planning is common to all elements of the main
promotional submix, it is possible to formulate plans which are appropriate for any of the individual
elements. Objectives, target audience, strategies to be used, timing, budgets and controls appear in
every one of these plans. The differences may simply be on whether an agency is used or when a
particular promotion is to start, etc.
In promotional planning, as with all planning, strategists are concerned with setting, and achieving,
realistic objectives. Just as overall strategic marketing planners use the elements of the marketing
mix, strategic promotional planners use all elements of the communications mix.
The elements of the communications mix are used to:
! Attract and remind buyers – advertising
! Attract and interest buyers – sales promotion
! Help buyers and to “close the sale” – personal selling
! Build images and “feel-good” factors – public relations
Each element of the promotional mix is used to communicate with the buyer. The success of the
communication effort will be dependent on the plans which are laid down. One thing which is
absolutely certain is that if individual plans are not integrated, they will never be as successful as they
might have been.
C. ADVERTISING
Why Advertise?
The purposes or reasons for advertising can be many and varied, e.g.
! To announce a new product
! To announce a modification (price change, special offer, etc.)
! To challenge the competition
! To maintain sales
! To remind people to purchase the product again
! To educate users and buyers
! To retrieve lost sales
! To keep retailers/distributors satisfied and/or motivated
! To catch new customers entering the market for the first time
New products obviously need promoting and launching onto the market, but a great deal of
advertising is for products which have been in existence for some time, e.g. Coca Cola, Cadbury’s
chocolate. The reasons for advertising existing products vary from one manufacturer to another, but
there are general reasons for all manufacturers to advertise regularly and repetitively:
(a) The changing needs of the target audience.
As people move through their lives, they have different requirements and purchasing
motivations. Advertisers should be aware of these changes and aim their messages
accordingly.
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(b) Products being updated and improved.

Advances in technology and customer expectations often mean that a change is necessary in
the basic presentation of a product, e.g. the introduction of convenience foods which can be
used in a microwave oven or the awareness of health and safety factors relating to consumer
products.
(c) The increased sophistication of advertising.
Advertising helps to build and maintain a product’s brand image and adds to its value (as
perceived by the customer). If an advertiser does not keep pace with the advertising of the
competition the relative value of the product may be lowered in the opinion of the buyers.
(d) The competitive nature of the marketplace.
People forget about products if they are not constantly reminded of the benefits to be obtained
from using them. With so many advertisers trying to attract the same buyers it can be very
dangerous if advertisers relax their efforts.
Classification of Advertisements
Most advertisements could be considered as belonging to a “class”, or category, and will have aims
which are relevant to the prevailing circumstances. Some examples of the various categories are
given below (this is not a comprehensive list). Note that some adverts will fit into more than one
category and some will not fit into any!
! Persuasive
This is the most obvious kind of advertising. Selling hard, trying to attract attention and
convert it into desire and, finally, purchase. Vast amounts of money are spent on this type of
advertising because it is important that the consumer is properly informed of the product and
that the suppliers or distributors are backed up by the advertising which will create a demand
for a product to which they are giving up space.
! Informative
This style is often adopted for advertising more expensive products, such as cars, video
cameras, etc. Will contain technical information and be presented in a readable manner. This
type of advert may not always result in a purchase being made, but may well result in the
consumer being interested enough to take up the offer of a test drive or demonstration, etc.
! Generic
Not all advertising is for individual branded products. Sometimes controlling bodies or groups
of producers will combine to advertise the benefits of using one type of commodity, e.g. eggs,
milk, apples, wine, etc. The term “generic advertising” is also often used by large
organisations when they are referring to the advertising of their entire product range or the
product range of one of their subsidiary companies. The best way to think of “generic” is to
consider it to be referring to a “type” rather than an individual product.
! Retail
Retailers will spend money on advertising their own outlets, (e.g. Tesco, Dixons) and will give
the consumers a picture of the overall benefits that can be gained, such as opening times, range
of products/services, etc. Much of this type of advertising is done on a local basis and will
often result in full page adverts in the local press.
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! Direct Response
This is one area of advertising where response can be checked and effectiveness assessed. An
advertisement, which includes a response mechanism designed to either attract orders or
encourage customers to write in and ask for information, gives the advertiser an immediate
indication of the degree of success. Research into direct response advertising usually focuses
on the media and the advertisement used. Coupons are coded so that advertisers can identify
which adverts and media are most effective. Information gained from this assessment can help
in preparing plans for another campaign.
! Corporate
This form of advertising is not designed to sell products but to give the “image” of the
company. The organisation will be trying to communicate with various audiences – customers;
workforce; suppliers; shareholders; local authorities; governments; pressure groups, etc. They
will be trying to show what the company is up to behind the scenes and how the organisation is
working for “the good of all”. Quite often this type of advertising will be part of the public
relations activity rather than marketing.
! Trade and Technical
This is the advertising of materials or components to manufacturers or of selling in bulk to
retailers. Almost every business has it sown trade journal in which this type of advertising
appears, but advertisers are finding that TV and general interest magazines, etc. can be just as
effective for this type of “business to business” advertising.
! Classified
These are so called because the adverts appear in sections (Births, Sales, etc.). While many
adverts are placed by individuals, a considerable number are placed by companies such as
estate agents, garages, etc.
! Government
This may be for recruitment (forces, police, nursing, etc.), information (explaining legislative
changes) or persuasive (encouraging loft insulation, etc.). Government advertising tends to use
shock and fear more than most other types of advertising (drink, drugs, burglary, etc.).
Using Advertising Agencies

Any agency, irrespective of the service it offers, is an intermediary in that it will be a link between
two parties. We have already explored many aspects of dealing with external agencies and
intermediaries but advertising agencies deserve attention in their own right because of the very
specific work that they do and their importance to marketing activities.
Advertising agencies were originally set up to sell media space on a commission basis but now tend
to act more for clients than for media owners. They offer a wide range of services covering every
aspect of communications and do not simply deal with advertising space. There are two types of
agencies:
(a) Full service agencies may provide:
! Marketing/communication planning
! Market(ing) research/media research and selection
! Creative design/illustrations/photography
! Purchase of time and space.
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(b) Part service agencies may provide one or more of the particular aspects given by full service
agencies. This type of agency has become much more common in today’s market-place with
specialists setting up in business on their own, or in small groups.
Advertisers may decide to use an “A La Carte” basis where they use several part service agencies to
cover a campaign – basing the choice of agency on the particular skills available.
They may also elect to give the control of a campaign to one agency who may not have the resources
to carry out all of the activities necessary. These agencies will sub-contract to other agencies and act
as “managers” on behalf of the client.
! How agencies operate?
Agency objectives are profit-based. They will be seeking customers in the same way as any
other organisation – irrespective of the particular product/service. They have standard
structures (function/regional/task, etc.) according to whatever suits their individual
circumstances.
Clients of agencies are known as accounts. Each account will have certain agency personnel
who are responsible for achieving end results and reporting back to the clients. The agency
personnel responsible for dealing with clients can range from an entire team to one account
executive – it will depend on the prevailing conditions such as size of account, tasks involved,
etc.
! The need for an agency
The need for an agency will depend on the size of the organisation, resources available, size of
the problem in hand, time allowed, etc. Some companies will prefer not to engage agents as
they want to retain as much control as possible – or they may be unable to because of financial
problems.
! Payment of advertising agencies
The terms above the line and below the line are used to distinguish between types of activities
which are charged for differently.
(i) Above the Line refers to those activities which involve a commission from the media
owners (time, space)
(ii) Below the Line to those that need to be charged for by some other means (design,
research).
Unfortunately, although there is no “line”, we are still having to cope with these expressions
which often cause confusion for students. The “line” comes from the early days of advertising
agencies when they existed by earning commission from media owners for selling space, etc.
Originally, the media owners only gave commission to approved agencies. However, in the
early 1970s this system was deregulated and media owners were forced to give discount to
advertisers as well as to agencies. This led to agencies accepting lower profits and offering
reduced rates to clients in order to attract business. It has resulted in the client having more
power than previously, and the agencies having to work harder to maintain their profits, etc. In
some respects this deregulation was also responsible for the growth of specialist agencies who
could charge for their particular expertise – thus helping to create the “A La Carte” system.
We now have a mixture of ways in which an agency can be paid, or charge, for services:
(i) Agencies earn their commission from the media owners.
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(ii) Agencies “mark up” costs and pass charges on to clients.

(iii) Inclusive fees can be agreed at the outset of any contract.
(iv) A combination of commission/fee system can be used.
Advertising Media
“Media” covers a multitude of methods and means of advertising – “anything that can be used to
convey an advertising message” – but it is generally accepted that the term major media covers five
areas:
! Press
! Television
! Radio
! Cinema
! Outdoor advertising
Note that all major media come into the “above the line” category as it is subject to “commission”.
Perhaps the most difficult decision for any advertiser is the choice of medium as, no matter how
effective an advertising campaign, it will fail if it is not in the correct medium for the particular target
audience. An advertisement is subject to “wastage” – the amount of resources, or opportunities lost
by missing a sector of the intended audience.
Media selection will, broadly speaking, be based on three factors:
(a) Cost Involved
The size, objectives and resources of the organisation wishing to advertise will influence the
type of media, size and frequency of the campaign.
(b) Characteristics
The nature of the medium chosen will depend very much on the objectives of the campaign. Is
a serious presentation required? Will a popular daily do? Will it be better to use a trade
journal or a national daily? Will the media chosen reach the required audience? Is it a
believable channel for the message that is being sent? etc.
(c) Audience
Coverage is crucial. Advertisers will be asking: Does the medium chosen cover the target
audience? Will the audience respond in the required way? How does the medium know what
the audience will do? In other words, how well does the medium know its own audience?
Whether it be an advertiser or an agency that is involved in the decision on which medium to use,
there are several considerations to be taken into account:
! What is the competition doing?
! Is there a particular requirement as far as distributors, etc. are required?
! What are the lead times involved?
! Will the medium be available for the time(s) required?
! Has the creative work been done with a particular medium in mind?
! Does legislation impose any restrictions on the medium?
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We can now move on to compare the characteristics of different media for the purposes of
advertising.
(a) Press advertising
The “press” covers all printed papers, i.e. newspapers, magazines and directories. They may be
national, regional, specialist, trade or general publications. Basically they are owned and
operated by someone other than the paying advertiser.
The advantages and disadvantages are shown in the following table.
High circulation with good No sound/movement

Opportunity to See (OTS) If too many adverts some will be
Audience can be easily identified missed
Information can be saved and Magazines require long lead times
retrieved Printing only as good as the staff
Adverts can include response involved
coupons, etc.
Relatively low costs involved
(both preparation and advert
space)
(b) Television advertising

Television is seen as one of, if not the, most persuasive means of advertising. It is certainly
effective and is, in its own right, a hugely successful industry. From early beginnings of
limited land lines, we now have cable and satellite transmissions giving choices of multiple
channels to viewers round the world. Global advertising is now common practice but would
have been unheard of not too long ago.
Can provide movement/colour/ Short time of adverts restricts

sound/emotion information-passing
It is an intrusive medium Can be repetitive which will result
Viewers can identify with in boredom for viewer
situations in adverts Costly/time-consuming to produce
Mass, regional or specific live adverts
coverage available Adverts shown when many supply
points are closed
Adverts not retained for review
(consider home videos)
Can be difficult for viewer to
respond (consider tele-marketing)
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(c) Radio advertising

In common with television advertising, radio transmission has actually increased and radio
advertising (particularly for local services and business products) has gained in popularity.
This may, to some extent, be a direct result of the increase in the number of cars in the world
which now have radios fitted. Drivers are a captive audience who listen to relieve the
monotony of driving or being stuck in traffic jams.
Airtime is not very expensive Non-visual

Offers sound effects/emotion Can only transmit non-complex
Versatile in location (radios can be information
carried around) Need repetitive adverts to ensure
Is intrusive coverage
High risk of listener intolerance
due to repetition
(d) Cinema advertising

For several years, the cinema as a form of entertainment suffered from poor audiences and
falling revenue. However, there has been an upsurge in popularity with many major
“blockbusters” attracting audiences. This has revitalised the advertising activities within
cinemas. Coupled with the introduction of multi-screen complexes, the advertising capabilities
have been increased dramatically. Different advertisements can be targeted to different
audiences in accordance with the film that is being shown.
Pleasant/relaxed atmosphere Only one chance to show advert

Captive (though small) audience per visit to the cinema
Sound/colour/movement/emotion Audience cannot note telephone
numbers
Regular cinema-goers can become
bored with the adverts
(e) Outdoor advertising

Outdoor advertising takes many forms: posters; adshells (on bus shelters, etc.); transport
(buses, taxis, etc.). Outdoor advertising is often used to back-up other types of advertising in a
campaign.
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Continuous display Involves long, advance planning

Good “memory joggers” Difficult (not impossible) to
Good impact capabilities coordinate campaign start
Colour/humour Not easy to pass information as
people do not always read fully
D. SALES PROMOTION
This type of activity has been described as:
“Those activities which do not normally make provision for a commission to be payable
to an advertising agency” (Hart and Stapleton (Glossary of Marketing Terms)).
“A short-term tactical marketing tool which gives additional reasons or incentives to
encourage purchase.”
“Any activity which supplements the promotional campaign of an organisation.”
“The various techniques used to put the product in danger of being sold.”
“Profitable promotion of sales through means other than display advertising whereby
additional reasons or incentives are given to encourage purchase.”
“The main purpose of sales promotion is to give the hovering customer a push in the
right direction (i.e. towards the product) (Alison Corke, “Marketing and Public
Relations”).
The above examples of definitions show how difficult it is to define sales promotion but also how
easy it is to show that sales promotion can be anything and everything. Sales promotion is the sum of
all effort other than advertising which a company uses to help promote its products in the
marketplace.
The accepted idea of “sales promotion” covers two types of promotional effort.
(a) Immediate promotions, which can include:
! Point of Sale displays
! Direct mailing
! Exhibitions
! Incentive offers (multi-buy or buy one get one free)
! Free samples/magazines
! In-store demonstrations
! Re-usable packaging (where containers can be used for other purposes when the product
is used up, e.g. storage jars)
! Personality promotion (salesforce dressed up to give away prizes), etc.
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(b) Delayed promotions, which can include such activities as:

! Lotteries
! Competitions
! Cross-couponing (promoting one product by giving coupons on another)
! Free prize draws
! Self-liquidating offers
! Mail-in premiums (free gift for mailing in proof of purchase)
! Money-off coupons
! Charity promotions (money for proof of purchase donated to particular charity)
Without doubt sales promotion is widely used by many companies across the whole spectrum of
markets and catering to a wide variety of target audiences in both consumer and industrial sectors.
Advantages and Disadvantages of Sales Promotion

Sales promotion can:
! Help sales
! Increase customer awareness
! Help create peak selling periods
! Attract impulse or marginal buyers
! Attract customers to premises, which may have “knock-on” benefits for other products in the
range
! Improve relations with retailers due to increased traffic in stores
On the other hand, there is a downside to sales promotion.
! Tends to produce only fleeting interest in products and does not show any lasting effect (which
is why companies keep changing their sales promotional activities)
! If kept on too long the customer will become bored with the campaign
! Might result in a special offer price having to be re-set as a new standard
! Can lead to disloyalty on the part of customers if too many promotions are on offer (they will
shop around for the best offer, rather than the product)
! They are very expensive to run and this increase costs and, consequently, prices to the
customer, which means that the organisation suffers in the end by reduced sales
Thus we can see that although sales promotion techniques can be valuable they must be handled with
care if the customers are not to become worn out by offers rather than seeing offers as being
incentives.
Most of the types of sales promotion offers outlined above will be familiar to you from your
experiences as a customer and consumer, but we shall take a closer look at some of the methods
which are more frequently used.
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Direct Mail
Direct mail means exactly what it says: mail (using some kind of postal service) which is sent direct
to the target audience. It may be only a “reminder” or “news sheet” communication, in which case it
could be considered as part of the public relations activities of an organisation; however, direct mail
tends to be the first step in a chain of activities which a seller hopes will lead to an eventual sale.
In the majority of cases, direct mail is used to arouse interest in a possible/targeted customer, leading
to a request for further information, or a visit from a representative, or for a sample of a product.
Once this stage has been reached the advertiser can give more precise information or actually use
more intensively persuasive material and/or follow-up activities.
Mail order is often linked with direct mail – but they are not the same thing! Mail order is simply
“ordering by mail” – usually from a catalogue of products. The actual product may not be delivered
by mail, depending on the requirements of the product, buyer and/or seller.
Changes in advertising techniques and in technology have helped to introduce other forms of “mail
order”. These activities, which can be described as Direct Response Marketing can include such
activities as selling off the page (where an advert in the media will include a response coupon) or
selling from a TV advert (where viewers are invited to ring up with their order). Direct response
marketing tends to be aimed at mass markets, whereas direct mail, which may result in a form of mail
order, is targeted at a very specific market segment.
The close targeting required for effective direct mail has given rise to the term Database Marketing
which, in effect, is companies using good “lists” of customers in order to communicate with them.
Lists are on sale from a variety of sources and will be specific to certain target sectors – doctors,
students, sports fans, readers of certain publications, owners of particular makes of car and so on.
There is an endless range of lists that you can buy from list sellers but there is no guarantee that the
list will be accurate.
Many companies create their own database of current and potential customers by quite simple and
inexpensive means, e.g. when a purchase is made and a customer has to send in details to register the
guarantee, the customer’s details will be added to the database and any subsequent promotional
material will be sent in the future. Potential customers can be found by advertising in the press and
inviting people to write in for a free sample. They have to give their name and address, of course, so
that goes onto the database for future use. Not only does this produce an accurate list, but it also
indicates that the person has at least an “interest” in the product which is being offered as a sample.
Gathering lists by these means is effective, but the lists must be checked periodically to see if they are
still accurate to avoid wastage.
The sheer level of competition and increased choice for customers has helped to make direct mail a
very attractive means of communication for marketers. Research into customer tastes and lifestyles
has meant that accurate targeting can take place with reduced costs for the marketer and a greater
possibility of successfully completing a sale. However, as I said earlier, the list must be up to date or
costs will be wasted and the company image will suffer.
The advantages and disadvantages of direct mail are set out in the following table.
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Precise targeting Lists can be out-dated/inaccurate

Flexible Frequent mailings lead to
Inexpensive dismissal of a product by the target
audience
Measurable
Too many advertisers chasing
Can be “personalised”
similar market segments can lead
Reader devotes full attention while to saturation of target audiences
reading with resulting loss of sales
Exhibitions
Exhibitions are public events which are held by one (or several or many) organisation(s) which are
aimed at demonstrating products and/or services to an audience interested enough to attend.
In certain cases, particularly with industrial products and high status products such as cars, it is
almost obligatory for a company to be seen at exhibitions or the target sectors (and competitors) will
think that the company is in financial trouble. Customers do not like to buy from companies that
appear to be in difficulty as they want the security of knowing that the company will continue in
business.
The main reasons for and problems with using exhibitions are set out in the following table.
Reasons Problems
It is a means of gaining new The expense

customers Poor presentation will affect
It helps maintain relationships image
with existing customers There may be poor representation
It is a good way of making contact by organisational personnel
with people in the same field It can be difficult to measure
It is a good way of supporting effectiveness
agents and distributors It can be difficult to know if the
It is one way of gaining publicity right audience was reached
It is a good way to introduce new
products
It is a good way of seeing what the
competition is up to
Exhibition exposure can be at a recognised trade fair, at a locally arranged exhibition, or at an

international exhibition.
There are now many annual exhibitions which are well known in their respective fields and regarded
as being “essential” if organisations wish to keep their names in the minds of the consumers, e.g.
Ideal Home Exhibition, Boat Show, etc.
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There are also permanent exhibition sites which rotate the products or trades that are on display, e.g.
National Exhibition Centre (Birmingham, UK), World Trade Centre (New York, USA). In addition
there are “mobile” exhibitions arranged to suit requirements at a particular time; these mobile
exhibitions may be staged by individual companies, or local or national governments. They offer the
possibility of taking the “show” to the customer rather than using the established venues and hoping
that the customer will come to the show.
Exhibitions can be large or small but they all have the same basic similarities in that they attract
interested parties. Companies spend a great deal of money on exhibitions, giving away free literature,
samples and so on. The fact that this type of activity shows little sign of decline indicates how
effective a means of promotion it is. Note, however, that many companies regard exhibitions as being
part of their public relations activity. They would like to obtain orders, etc. but they are far more
interested in the exposure an exhibition brings.
Conferences/Seminars
Conferences and seminars are “smaller” events than exhibitions but they are very valuable in terms of
their communications capability. They tend to be arranged by individual organisations and are aimed
at specifically selected audiences, either directly involved with the company such as customers,
dealers, distributors, etc. or targeted at a wider but still relatively small target, e.g. design engineers,
industry or knowledge specialists, etc.
The main reasons for and problems with using conferences and seminars are set out in the following
table.
Reasons Problems
You can attract the people you The expense

want to influence (press, They can be seen as a way of
customers, agents) “bribing” interested parties
They are good public relations They may take place in an
activities for organisations as they artificial atmosphere which
can be “hospitality” based ignores the problems of the
You do not have the interference operating environment
of competitors, so you can get They are often carried out by more
your message across in the way senior personnel in the
that is best for you organisation who may be too
remote from what is happening in
the marketplace
Sales Literature
Leaflets and brochures can be an essential part of the product offering. Customers may be unable or
unwilling to reach a purchase decision without the support of literature which details technical
specifications, product uses, testimonials from satisfied customers, indications of the stability of the
manufacturer, etc. Manufacturers/sellers can reap extensive benefits from well-produced sales
literature and it is for this reason that so much care is taken and so much money spent in this area.
Once a sale has been completed, a customer may need support/guidance on operating, maintaining or
servicing a product and manufacturers will provide literature which caters to these needs.
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Obviously the more expensive, or technical, the product the more will be the requirement for sales
and/or support literature. It is for the organisation to assess customer/product requirements and to
decide what, if any, percentage of their budgets and efforts should be dedicated to this type of
activity.
Merchandising
Because much selling is now done on a self-service basis, where purchase decisions are made at the
point of sale, failure to put the right product in the right place at the right time can often mean no
sale. Merchandising techniques are used to provide the final impetus, and reassurances, to the
customer.
Merchandising which is sometimes known as the “Silent Salesman” or “Selling Through Techniques”
covers many in-store aspects of trading, e.g.
! Which products should be stocked/displayed
! How much stock to hold
! The most appropriate store layout/decor
! Traffic flows through the store
! In-store promotions
Retailers must ensure that products sell, as selling space is at a premium and the need to improve
sales per unit area is critical. Therefore retailers expect manufacturers to ensure that their product
can/will:
! Sell readily at the point of purchase
! Provide advertising
! Utilise sales promotion techniques
In return, manufacturers expect retail outlets to:
! Understand store layout techniques
! Provide first class sales assistants
! Have personnel skilled in product display
Other aspects of merchandising include
! Point of Sale Material
Stores generally receive more display material than they can use, so show space is at a
premium. Sales material and its location within a store are normally decided as part of the
overall communication strategy but sufficient discretion must be permitted for local variations.
The objective of point of sale advertising material is to provide a large “hook” which will
attract passing customers.
! House Style
Retail chains have become aware of the benefits to be gained from standardising on house
styles and this fact alone has led to many retailers producing their own sales material. House
styles show the appropriate image for the store and can be carried over into advertising, thus
achieving a collective impact over individual advertisements.
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House styles can develop in parallel with “own label” packaging; a retailer puts his reputation
on the line with his own name.
! Packaging
Packaging was originally used for the protection of the goods during storage and transit, or for
the protection of handlers when there was danger from the goods themselves. Security is no
longer the sole requirement.
As well as protecting the product with regards to temperature or strength, packaging is used to
convey information; establish an identity; and educate buyers and users.
Packaging is therefore a powerful promotional medium and an important communication
channel. It gives the manufacturer an opportunity to convey a message to the customer, which
can be aimed at persuasion, information, reminding, etc. Even when packaging is empty it will
be promoting (i.e. the item needs replacing).
Packaging material should be selected carefully and be capable of easy and quick disposal
when it is finished with. Better still, it should be capable of being recycled for further use.
The use of colour in packaging is very important. It can be used to convey psychological ideas
about products, e.g. cleanliness is usually portrayed by white.
! Branding
We looked at branding in an earlier study unit, but we include mention of it here because it is
very much a sales promotion technique and one of the major aspects in attracting customers to
purchase one product rather than another. The stronger the brand, the greater the possibility of
a successful sale.
Effective Sales Promotion

We can see that sales promotions can be many and varied and that each method will have its own
advantages and disadvantages. Because of this it is essential that managers treat such activities with
respect and take great care not to be in a situation where there is “over-kill” of promotion.
We could say that the main functions of sales promotion are to advise, stimulate and encourage
consumers to react favourably towards the products or services which are being promoted. To be
fully effective, all sales promotional activity needs to be integrated and coordinated with the
remainder of marketing activities. However, it is particularly important that sales promotion is
coordinated with sales and advertising policies, since their interaction and interdependence are vital.
This does not mean that sales promotions have to have the same theme as advertising. Many sales
promotions do, though, and extra benefit is gained if this can be done successfully.
The alignment of promotional activity as a cost or an investment is the first consideration a company
must give to promotional budgeting. Cost-related criteria are, though, often inextricably linked with
affordability, not the achievement of objectives. It is therefore desirable to work backwards from the
cost of achieving marketing objectives, rather than constraining activities within a predetermined
budget. However, it is often the case that companies have to cut their suit according to the cloth that
they have available.
The following factors will dictate the type and level of promotional activity:
! Product’s position in the life cycle
Depending upon the stage a product has reached in its life cycle, there may be requirement for
a disproportionate amount of promotional spend. A product which is in its launch stage
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requires heavy investment; a product enjoying a mature market position may benefit from the
long-term build-up of brand investment. Products in decline may also need heavier
promotional support.
! Product’s position in market
A large market share will condition promotional activity, since it is not in the company’s
interest to dilute the price of the product sold to its existing customer base. Alternatively, a
product with a small market share may use this type of promotional tactic to help “brand
switching”.
! Promotional activities of competitors
Promotional activity ideally should counter competitor activity and therefore be as relevant to
the market conditions as possible. For example, if all competitive activity is centred around in-
store merchandising, it may be wasteful and unnecessary to concentrate on traffic flow
advertising (i.e. getting people into the store).
! Brand image
It may be that certain promotional activity will debase the brand image of a product, especially
if the product has an up-market image.
! Consumers’ perception of product
Products which have an inferior perception in the eyes of the consumer will not benefit from
promoting anything other than a price advantage (if one exists).
! Market trends and strategy
If a market is expanding, there may be room for a company to penetrate using promotional
activity designed to brand-switch. Another strategic option (market development) will involve
a different type of tactic.
E. PERSONAL SELLING
Selling is a two-way communication which provides information in a flexible way that can be
adapted to meet the needs of a specific customer. Selling is part of the communications mix, but it is
much more focused than mass communications like advertising. Communication here is customised
by one individual salesperson or sales team in personal contact with customers. Its objective is to get
the buyer to act, to buy.
The importance of selling lies in the fact that most buyers buy from salespeople. Selling as a
communication tool does not, however, come cheap. As such the role, tasks and organisation of
selling need to be clearly defined so that the sales effort is not diluted or misdirected in any way.
Personal selling means informing and persuading customers through personal communications
directly associated with a particular transaction. In this respect, personal selling and non-personal
selling such as advertising are complementary activities and their relative importance will vary
dependent upon the nature of the product and the buying behaviour associated with it. A school of
thought as depicted in Figure 10.4 is that advertising will be dominant where purchases are small,
frequently purchased and of low unit value, whilst personal selling is appropriate to high priced,
technically complex products which are bought infrequently.
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Consumer Marketing Industrial Marketing
Personal
Selling
Advertising
Simple, low value Complex, high priced

Frequently purchased Infrequently purchased
Figure 10.4: Selecting the Promotion Mix
Although the diagram is rather over-simplistic, nevertheless most companies, especially those in
industrial marketing, spend more on operating a salesforce than on any other single aspect of
marketing, and many more people are engaged in selling than in any other part of the marketing
structure. However, there is no simple description of the salesperson’s role. It varies from industry to
industry and even within a particular industry there are substantial variations from company to
company.
Salesforce Objectives and Tasks

The objectives of the salesforce are selling, servicing, prospecting, communicating, information
gathering and allocating goods in the marketplace. Arising out of these objectives a number of tasks
can be identified as depicted in Figure 10.5.
Prospecting
Information collection, and
dissemination
Communications SELLING
TASKS
Negotiating and selling
Servicing
Time and resource allocation
Figure 10.5: Key Tasks in Selling
It is difficult to establish priorities among the list of tasks unless the selling style and organisation
structure are understood. Salespeople generally focus on the tasks of prospecting, negotiating and
selling, but the back-end tasks of information collection and dissemination, communications and time
and resource allocation are no less important and are often essential to the success of selling.
Sometimes companies will, however, provide sales support staff in the form of telesales, customer
service personnel, etc. to carry out some of these tasks.
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The Seven Steps of Selling

Selling, as we have already said, involves many tasks. However, the selling process itself is based on
seven steps, as illustrated in Figure 10.6.
Product Knowledge
Prospecting
Approach
Establishing Needs
The Presentation
Closing
Follow-up
Figure 10.6: The Seven Steps to Selling
(a) Product Knowledge

Selling is about promoting a product or service. To do this effectively, the salesperson must
have a good understanding of what is being sold and bought. The first step in the selling
process is therefore product knowledge.
Many companies spend a lot of effort training their salesforces to develop product knowledge
in terms of product features such as assortments, sizes, specifications, back-up support
services, finance, etc. However, the real purpose of the product is to satisfy a need – products
are, in effect, problem-solvers. To this end, the salesperson must not only be very familiar with
what a product is, but also what the product features can do for the customer in terms of
product benefits –
The following table highlights the distinction between product features and benefits.
Product or Service Feature Benefits
Car Runs on unleaded petrol Saves company money.

Allows customers to be seen as
environmentally conscious.
Personal Computer Light weight Allows machine to be moved easily
between offices.
Customer need not buy a special
desk or work surface.
Photocopier Immediate call-out of Saves customer lost photocopying
Maintenance Maintenance Engineer time.
guaranteed Provides peace of mind.
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(b) Prospecting
This involves identifying qualified potential customers. In most industries the salesperson
must continue to find and sell to new prospects in order both to increase sales and to offset the
loss of customer business to the competition. Some of the best means of prospecting are by:
! Searching for names and addresses in newspapers and directories.
! Subscribing to specialist sales leads organisations.
! Building referral sources such as suppliers, dealers, lost customers and non-competing
salespeople.
! Asking for introductions to see subsidiary companies of existing customers.
! Using the telephone to find out who the DMU is, their name and position in the
organisation.
(c) Approach
In all selling, first impressions count. This does not simply refer to how the salesperson looks,
but also how well prepared they are and how they meet and greet the buyer so as to get the
relationship off to a good start.
(d) Establishing Needs
In order to satisfy a customer, a salesperson must have a clear understanding of their needs so
that they know which features and benefits of the product to promote. Too often, the
salesperson makes the mistake at the start of the sales presentation of talking about their
products – instead of first finding out what it is the customer wants. Asking questions to re-
establish customer needs provides the clues as to which product benefits to promote.
(e) Presentation
Here the salesperson explains how the features and benefits of the product(s) will satisfy the
customer’s needs. This step in the selling process calls for good listening and problem-solving
skills. What’s being proposed will undoubtedly be questioned and objections thrown up.
Objections should, of course, be anticipated when formulating product knowledge and building
information up on prospects. In handling objections a salesperson should use a positive
approach, by asking the buyer to clarify the objection, by taking the objection as an opportunity
to provide new information and thereby turning the objection into a reason for buying.
(f) Closing
The hardest part of the selling process for many is closing the sale, simply because people
generally do not like rejection and so avoid asking for an order. Because of this, salespeople
often miss opportunities or buying signals which indicate when they should close, e.g. picking
up a sample, asking a colleague for his opinion, sitting forward and nodding approval, or
asking about prices, credit terms and delivery.
(g) Follow-up
The last step is very important if the salesperson wants to ensure customer satisfaction and
repeat business. On closing a sale, a salesperson should follow through by completing all
details of the transaction, and schedule a follow-up call for when the order is received to ensure
there is proper installation, instruction and servicing. Follow-up is about continuing customer
satisfaction in identifying any problem and reducing the buyer-concern about the sale.
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The steps outlined above are naturally more akin to the higher value sales which can be found when a
personal visit to a customer is necessary. However, this is not to say that the “spirit” of the steps in
selling do not apply equally to lower value sales – they do.
Many companies today recognise that they earn a higher return from money spent getting repeat
orders from existing customers than they do from resources invested in attracting new customers.
There are also benefits to be gained from cross-selling opportunities with existing customers. As
such, a professional approach to selling is essential irrespective of the value of the order from the
customer. It is customer satisfaction that should be paramount. If customers are satisfied with all
aspects of a company’s sales techniques and approach they are more likely to investigate other
products being sold which can result in cross selling (other items in a product range) or selling-up
(higher value purchases than the original intention) for the selling organisation.
Consider your own purchasing. Have you ever bought a pair of shoes and because a sales assistant
was helpful you also bought shoe cleaner (cross-selling)? Or in the case of more expensive products
– have you ever gone to buy something only to be persuaded by a salesperson that a more advanced
(and expensive) model would meet your requirements better (selling-up)? These techniques work in
every kind of selling but are only possible if a salesperson is good at their job and can arouse the
interest of a buyer.
Coordinating Sales and Sales Promotion

Personal selling and sales promotion are so interrelated that close coordination is an essential part of
the joint activity. Both sales promotion and personal selling have the same objective. In many
companies, the sales promotion activities are partly carried out by the salespeople. In such cases, the
salespeople must be carefully briefed, so that the promotion results are maximised.
! Sales Promotion Teams
Special sales promotion teams are employed permanently in some companies; other companies
may hire them as required. When special teams are used from within the company, it is
customary for the sales promotion plan to be agreed and cleared with the sales department so
that the maximum cooperation can be attained.
The teams’ programmes will be circulated to the sales staff and they will be able to warn
customers in advance of the promotional activity which is due to take place. This is an
essential part of the promotional scheme, for it enables the salespeople to prepare customers
for a period of what is hoped will be extra sales activity.
Usually the sales promotion teams will tour the country, working region by region or town by
town. The task of the team may be to deliver samples to homes and they may deliver leaflets
announcing some special offer or perhaps redeemable coupons. Sometimes, when the
promotion is directed at consumers, the team may be instructed to ask housewives questions
and, if the correct answer is given, a prize may be awarded. Sometimes the promotional
workers ask if the housewife uses a certain product, and if so, ask to see the container and then
a prize may also be given.
When the promotion is concerned with the trade, the salesperson may have helped to plan the
promotion on his territory by giving advice as to which dealers are likely to be cooperative and
also which dealers he would like to recruit as new stockists. There may be some stockists
where he would like to see an increase in sales and, in helping to plan the promotion, the
salesperson will select these stockists, who may be given special attention by the sales
promotional team.
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! Using Specialist Agencies

In-company promotional teams have several advantages since their loyalty is given wholly to
the company and as they become experienced in promotional work their services become more
valuable.
There is, however, one problem with in-company teams, and that is the high expense of
maintaining them. To keep permanent teams, or even one team, on the payroll is a large
expense and the team must be both fully utilised and profitably employed. Sales promotional
work is intensive and requires a continuously high level of enthusiasm. If the team is not fully
occupied, the enthusiasm will wane and the team’s efficiency will be impaired. There are
several companies which specialise in sales promotional work. They will provide teams of
men or women who will do the work according to an agreed plan with the client.
The borderline between promotional work and personal selling is a narrow one. The specialist
teams which can be hired will usually be prepared to do both personal selling and promotional
work if it is required.
The personal selling service can be an important one for a small company which has only a few
sales representatives. If it is desired to launch a new product, it will be difficult to obtain an
adequate distribution among dealers or customers if the salespeople’s time is limited. A hired
promotional or salesforce can help to effect distribution during the launch period. However, do
not expect the same degree of company loyalty from a temporarily hired sales team.
Organisation of the Salesforce

A salesforce needs to be organised in a certain way to be effective and efficient. Companies vary in
the way in which they do this and there are four methods by which it can be done.
! By Geographical Area/Region
This is perhaps the most common form of organisation and it is the one most people would be
aware of. A company is likely to be split into several functional areas such as sales,
production, finance and personnel and it is the sales department that is organised on an area
basis. Salesforce personnel will normally deal with customers in their particular area. The
possible advantages of a single salesperson assigned to cover all company products in a
particular area are savings in travel expenses, better local and customer knowledge and
avoidance of multiple calling on the same customer. The products offered do need to be fairly
homogeneous and within the technical competence of the salesforce.
! By Market/Customer Type
When a salesforce is organised by market it is, in effect, by customer types. Product
specialisation selling may lead to duplication of calling on the same customer but specialised
selling has the advantage that qualified sales personnel can be employed to deal with the
special product applications and attitudes. Knowledge of the organisation may also be
important. Salesforces are thus calling on particular market segments. Computer
manufacturers often do this by having separate sales staff to call separately on retailers,
engineering and construction companies and banking and finance institutions; there are thus
three salesforces and each would be dealing with the specific needs of each customer group.
Sales staff involved with retailers are unlikely to be able to apply the computer’s attributes to
the needs of bankers, engineers and so on.
Stirling Health, who marketed Andrews Liver Salts, Milk of Magnesia and Delrosa had a
salesforce organised in this way but this was subdivided into areas.
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! By Product
Salesforces may sell particular products. Thus, one salesforce may sell patent medicines,
another may sell food and drink and a third may sell pharmaceutical products. Salesforce
structures of this nature have the advantage that highly qualified salespeople can be employed
to deal with technical explanations and problems. Sometimes the product range may benefit
from this type of organisation. Note that in the example above the staff from each may call on
the same customer selling a different product range. However, this may not always be the case.
The structure is favoured by larger companies who have highly diversified, specialised product
lines each making substantial profit contributions.
! By Matrix
Planning and new product development are problem-solving activities for which a functional
structure is not suitable and some form of compromise is necessary. One solution is the setting
up of project teams comprised of representatives from each functional department and this is
sometimes referred to as matrix organisation. They are not a common form of structure but are
nevertheless used in heavy engineering industries in particular. Each project could, for
example, be a different type of aircraft.
Sales Forecasting and the Sales Plan

Sales forecasting is a very important part of sales management/marketing as it is usually this which
will determine production and procurement policies as well as policies covering promotion, pricing,
etc.
Forecasts can be based on market share in relation to growth or in the company’s own sales activities
with a “targeted growth”. Whichever way is used they will be either short (possibly three months
ahead), medium (usually one year), or long (up to five years in most industries but longer in some).
The bases for forecasting may be quantitative or qualitative depending on the objectives of the
organisation.
! The Sales Plan
It is vital that any sales plan is part of an overall marketing plan and, as such, part of a
corporate plan. If sales strategies are not linked into other strategies there may be problems for
the company:
! A sales drive on one particular line, which is not matched by increased production of that
line, will fail.
! An intention to improve customer service levels may well fail if the sales plan fails to
allow for increased involvement of the salesforce.
! Increasing the number of distribution outlets without reviewing the salesforce can lead to
wasted resources or over-stretched personnel.
The plan itself is not really any different to any other plan involved in the marketing effort.
There will be objectives, strategies and programmes, but where the sales plan may differ is in
the amount of detail. By their very nature sales plans tend to be operational and, as such, may
well include detailed targets and budgets for individual salespeople. Strategic sales planning
(at higher levels) will outline the overview of what is to be done, e.g. increased sales staff,
methods to use, etc. but the operational levels will be quite specific and detailed.
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F. PUBLIC RELATIONS
What is Public Relations?

There can be no doubt that public relations activities span the entire organisation, taking in the very
highest level of management as well the operational levels. Despite this the term “public relations” is
often misused and misunderstood, with many managers failing to appreciate the importance of the
activities involved.
It does not help that various authorities give different definitions of public relations, as this can lead
to even more uncertainty. Who should we turn to for a sensible definition? Consider the following:
“... all activities and attitudes intended to judge, adjust to, influence and direct the
opinion of any group or groups of persons in the interest of any individual, group or
institution ...” (American Public Relations Association)
Although I am convinced that this is not the case, the above definition could be taken to imply a
degree of coercion in the interests of the person or group undertaking the public relations activities.
To some extent, I prefer the comments of a previous President of the American Association who
described public relations as:
“...everything involved in achieving a favourable opinion ...”
However, even this comment could imply a lack of responsibility and a sense of “anything goes” as
long as it achieves the end result.
“... Public relations practice is the art and social science of analysing trends, predicting
their consequences, counselling organisation leaders and implementing programmes of
action which will serve both the organisation’s and the public interest.” (World
Assembly of Public Relations Associations, 1978)
You can see that this definition was actually formed as an aid to guide the actions of public relations
specialists specifically. It does not address the meaning of “public relations” itself, but seeks to
define what the specialist does.
“... the planned and sustained effort to establish and maintain goodwill and mutual understanding
between an organisation and its publics ...” (Institute of Public Relations, UK)
To me, this definition gives a much clearer view of public relations in that it contains the key words:
! “planned and sustained”
! “establish and maintain”
! “mutual understanding”
and, most important of all:
! “between”.
Whichever definition of public relations you prefer (and there are plenty more around) you should
find that they all have a common underlying principle. Public relations is about understanding the
needs of an organisation and its publics, and working towards satisfying those needs.
Thus we can see that public relations is something which needs to be worked at and does not just
happen because someone wants it to. No organisation can work for its own objectives and disregard
the needs of its publics. Likewise, the attitude that all we have to do is “be nice” to people carries no
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leverage in today’s sophisticated business world. Public relations is a discipline which demands a
careful approach if it is to be successful.
What Public Relations is not!

! Public Relations is not Publicity
Publicity can be defined as planned or unplanned “exposure” in the public domain, such as a
newsworthy item or some tragic event which involves a company in some way. Publicity may
be planned or unplanned, and it can be good or bad. Public relations is “planned” and should
always be to the benefit of the organisation involved.
! Public Relations is not Advertising
We have already seen that advertising is communication through a form of paid media and
tends to be of an impersonal nature. Media coverage for public relations is sought, but not
bought. Advertising tends to be aimed at the decision-making units in the purchasing process,
whereas public relations will tend to be aimed at a much wider target audience. It is true that
public relations can lay the groundwork for advertising in that it can imprint an “image” for the
company in the marketplace, but public relations in itself is not designed to attract buyers –
merely to increase knowledge and understanding of the company and its aims.
Public relations is often confused with corporate advertising and this is quite understandable as
the two will, in many cases, have similar objectives, i.e. to increase awareness of the company.
However, corporate advertising is carried out by using paid media; this differentiates it from
public relations, which does not pay for exposure in the media.
! Public Relations is not Press Relations
Both public relations and press relations can be referred to as PR, but they are not the same
thing. Press relations incorporates the efforts made to establish and maintain good relations
with the “press”. It is true that press relations will be a major task for the public relations
function but press relations will not have an impact on the policies governing the public
relations activities.
Note that the word “press” is not really accurate as other media are equally important, which is
why we now hear this referred to as “media relations”.
Purpose of Public Relations

Public relations could be said to be very similar to advertising: they both strive to pass on
information and awareness, and both have an impact on the attitude of the target audience. Neither of
these activities “sells” directly, but both are major influences on the behaviour of individuals and
groups. However, you could argue that the purpose of advertising is to “help the sale”, whereas the
purpose of public relations is to “create understanding”. This may be easier said than done.
It has been said that in the corporate world (perhaps the personal world, too) there are three main
categories of people to deal with:
! Those who know you and like you
! Those who know you and do not like you
! Those who neither know you nor care (often the majority)
The first category is easy to deal with as long as you do nothing to upset them and thus maintain good
relationships. It is the second two categories that give cause for concern. If we are to “create
understanding” we must try to change the attitude of others towards us. We know that different
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people can have different attitudes to the same thing – whether it be an idea, an organisation or even
an individual – and that these attitudes do not change easily. In fact, changing the attitude of
someone can be very difficult indeed. For the organisation, this is where public relations becomes so
important.
When we try to influence attitudes towards, or within, an organisation we are really seeking to
achieve a more favourable position. A model produced by Frank Jefkins, a renowned British writer
on public relations, encapsulates this “transfer process” that we are trying to achieve.
Current attitude Desired attitude
Negative Positive
to be
Hostility converted to Sympathy
Prejudice Acceptance
Apathy Interest
Ignorance Knowledge
Figure 10.7: Jefkins’ Public Relations Transfer Process
Every organisation should use some form of public relations in order to establish itself in the
marketplace. This may simply be to gain advantage over competitors or for some other reason such
as reassuring shareholders and customers that the company is financially sound.
It is not only profit-making organisations that are concerned with public relations. Charities, local
and national governments, political parties and pressure groups all have valid reasons for presenting
themselves favourably to their respective target audiences, or “publics” as they are known in public
relations. Consider the organisations concerned with public safety and well-being (transport,
pharmaceuticals, etc.); it is essential that they acquire a degree of public confidence and credibility if
they are to carry out their role effectively. Public relations is how these organisations acquire their
public standing.
At best, public relations does not only tell an organisation’s story to its publics, and foster good
relationships, but it also helps to shape the organisation and the way it performs. Taking this further
we must accept the fact that there are varying levels of public relations activity within any
organisation. The strategic, or higher management level of the company will be concerned with
corporate public relations which encompasses issues such as company positioning in the market
place, the corporate image and how business is carried out.
The operational levels will be influenced by whatever the higher levels decree, but they will be
responsible for the day-to-day activities that need to be carried out. It is quite common for these
aspects of public relations to be dealt with by the Marketing Department in a separate section known
as the Public Relations Function (or department, division, etc.).
Although corporate public relations tends to be the most “visible” to the external publics, it is the
operational level that does the necessary background work which leads to success. By research, a
public relations practitioner can establish the needs and concerns of any identified public, as well as
assess opinions on various matters. After analysis of the research, information can be fed back to the
relevant managers for consideration which, hopefully, will be taken into account when actions are
taken. This does not just involve the drawing up of plans for the future, but also means that current
activities can be amended if they are causing any problems. It follows, therefore, that if public
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relations is to be successful it must be organised in such a way that activities can be undertaken in a
logical and sensible fashion.
Public Relations and the Marketing Mix

Despite the fact than most marketing writers claim public relations is part of the marketing effort,
Frank Jefkins in Public Relations for Marketing Management claims that public relations and
marketing are not the same thing. He agrees that they are very close in that they are both dealing with
human relations but he is of the opinion that public relations is really the “sociological” side of
marketing which, in its own way, enhances the marketing mix elements. He claims that if the
communications, good behaviour, understanding and goodwill aspects of marketing are “nurtured”
(by public relations) much will be done to effect the desired shifts in attitude that marketers seek to
achieve.
I am afraid that I cannot subscribe to his opinion that public relations and marketing are “different”.
In my opinion they are indivisible aspects of the efforts undertaken by an organisation to create and
develop relationships with its target audiences. However, I do agree with his proposition that public
relations can, and does, help with the elements of the marketing mix.
! Product
Information gathered in the public relations function may have a direct impact on product
policy within an organisation provided the information is fed back to the relevant section of the
production process. This may be at any stage – design, production, packaging, etc. Complaints
received from customers can often act as a catalyst which will result in a new version of a
product being produced. Criticisms in trade press reviews or even snippets of information
overheard at an exhibition can all bring new ideas into a company. The trick is to see that the
public relations function is capable of both gathering this type of information and getting it to
the right people. We could argue that intelligence gathering, such as this, is a task of the
product manager, but it is equally a responsibility of the public relations function. Anything
which helps to create better relationships cannot be overlooked.
! Price
You could argue that the added cost of having a public relations function can only serve to
increase the prices charged to customers, but this is a short-sighted point of view. Good public
relations will “enhance” the image of the company in the eyes of the buying customers and
thus confer a degree of security in the company and its offering. If a company is seen to be
lacking in some way (aggressive stance, production policies, ethics, etc.), the buyers may well
object to its pricing structure. On the other hand, a company with a good market standing and
image is less likely to have problems when setting prices as buyers will accept them more
readily. Public relations working towards achieving this “good standing” certainly helps in
controlling price levels and fluctuations.
! Place (Distribution)
It is likely that the main effect public relations can have on the distribution channel will be with
the channel members – distributors, warehouses, retail outlets, etc. Marketing planning will
take care to see that the distribution channel chosen is suited to the needs of the actual buying
customer or end-user, but public relations will help to keep the distribution channel members
satisfied. It is not enough to simply issue product literature to a member of a distribution
channel – they may need something more. If a channel member is kept informed it means,
ultimately, that customers, too, will benefit. Public relations can help in this by providing
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additional information and support as and when necessary, thereby helping to maintain the
marketing effort.
! Promotion (Communications)
Public relations is very much concerned with communications in that it adds to, and enhances,
the other promotional efforts. We have already seen that public relations at its highest level
will seek to ensure that the company has a good image which is communicated to the public
and, at its operational level, will see that the promotional tools used are in keeping with the
image that the company wishes to project. The relationship between “promotion” and “public
relations” is one of the stronger linkages that we can see where the marketing mix is
concerned. If these two aspects do not match you will soon have a company that is struggling
either with its image or in its advertising campaigns. However, for the company that gets them
balanced success is guaranteed.
For example, take a high profile organisation such as the Virgin group of companies. The
group includes a diverse assortment of companies but, broadly speaking, advertises itself and
its products as being go-ahead and keeping up to date with people’s requirements in the modern
world. All the promotional literature is presented in glowing warm colours, with messages
meant to reassure the buyers that they are dealing with a company that cares. Promotion is
geared very effectively to all sectors – young and not so young – and in all types of media. In
addition to this the group has Richard Branson as its founder and chief executive. He is a
highly visible and well-publicised personality who is very much presented as a “man of the
people”, with a caring and modern attitude.
There can be no doubt that Richard Branson is an extremely astute businessman and yet he
commands tremendous liking and respect from many quarters. Because of this he himself is
one of the best public relations tools that Virgin could have. Every time he is seen in public his
Virgin group of companies reaps the benefit of publicity. But this is no accident. He and his
executives know very well that all the advertising they do, and the product literature they
produce, will not be as effective on their own. They fully utilise the public liking for Branson
in a very effective way. Consider only one of the products they have – Personal Equity Plans.
Can you think of another financial company where you would instantly recognise not only the
name of the company, but the chief executive too? A very difficult task for most people!
Virgin are to be congratulated on their effective use of promotion and public relations as joint
marketing tools.
! Soft Elements
People – one of the so called “soft” elements of the mix – actually refers to one of the most
important resources of any organisation, its personnel. Good internal public relations means
“happy” people. Happy people usually means good customer relations so it follows that public
relations is a definite help in respect of employees who are working towards satisfying
customer needs. This type of internal public relations is relatively easy to arrange and effect,
providing the company recognises the need for it.
The existence, or otherwise, of a public relations function within an organisation may, at first
glance, appear not to have a great deal of impact on the two remaining elements of the mix –
Physical Evidence (concerned with appearances, ambience etc.) and Processes (concerned
with systems used to deal with customers and business in general). But consider for a moment
the company which has to provide waiting areas for customers. If there is no public relations
policy these waiting areas could be poorly designed and uncomfortable and give a completely
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wrong impression to the customers. Likewise, if a company presents itself as being “customer
friendly” the processes or systems used should reflect that.
Intelligence gathered by those in the public relations function will be added to that gathered by
those in the marketing function. This intelligence will then help to ensure that both the
Physical Evidence and Processes elements of the mix are amended in accordance with the
company’s attitude to its customers and in line with the strategic policies which have been
decreed, as well as in keeping with the customer needs as identified by the marketing people.
The Public Relations Message

We know, from the overall communications process, that there will be a sender – the organisation
which has a message to get across – and a receiver – the public that we are trying to influence in one
way or another. What we need now is to have a structured and credible message which will be
accepted and believed by our public(s) – badly worded or designed messages can actually work
against the interests of the organisation.
Messages must always be designed and structured from the point of view of the public rather than
from the point of view of the organisation.
Any message can be informative or persuasive or a mixture of the two types.
! Informative messages will contain straightforward information on whatever the problem is.
There may also be contact telephone numbers or addresses to write to for information and so
on.
This type of message is often used in public relations for corporate issues when reassuring the
various publics on some issue (such as when Perrier had to reassure the general public that they
had solved the problem of the traces of benzene which had been found in some of their bottles)
or in the event of any major problems (such as product recalls because of a technical failure in
one or more components).
! Persuasive messages play on the personality of the recipient or target public. They will
concentrate on needs, wants, aspirations and desires and will use emotional aspects to win
support.
Messages can be designed to play on emotion and manipulate public opinion in particular
ways, even though they may really be aimed at achieving a completely different objective.
This practice is quite common and is acceptable in the public relations field as long as the
message does not mislead and give false information.
The nature of the problem and of the public(s) will largely determine the type of message which
needs to be sent and the messages might be “adapted” somewhat if circumstances change.
The type of message which is to be communicated to the public will be dependent upon what needs to
be said in the prevailing circumstances, but it is worth mentioning that people are more likely to
accept messages which meet with their own beliefs, e.g. political leanings/type of newspaper
read/public image of the communicating organisation and so on. In addition, the message must be
capable of being sent out in a suitable format and by an appropriate channel, or medium, which will
reach the target public.
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Methods of Public Relations

Earlier in this course you will remember that we considered various methods of sales promotion:
! Direct mail ! Exhibitions ! Conferences/seminars
! Sales literature ! Merchandising
All of these methods are seen as being “below-the-line” in that, although they could be used to
supplement the advertising effort, they are not using media controlled by others and do not attract
commission from any media owners. Thus, they are not advertising in its truest sense. We have also
seen that public relations is not advertising, so it follows that communication methods used must also
be “below-the-line”. From there, we can see that many of the methods we have already considered in
respect of marketing to the target audience are also suitable for us to communicate with our publics.
Not all will apply in every case, but some of them certainly will be of use. The difference is that
instead of trying to “effect a sale” we are trying to “get the message across” in order to influence
attitude and opinion.
Some of the more typical channels for public relations are considered below in relation to the
audience which is the objective is to reach.
(a) Internal Publics
! Newsletters or In-house Publications
These can be an excellent method of keeping everyone informed of current
developments and can be used as motivational tools. Simple things like monthly
competitions, awards for good performance, etc. can be promoted and, if it is well done,
the in-house publication in itself becomes a factor in the satisfaction of employees with
their employer. If people are kept informed they become “involved” and are more likely
to be loyal and supportive to their company.
! Briefing Meetings
If briefing meetings are held as a regular event, or in the case of some important
development, they give employees the opportunity to ask questions and to see that the
company is not trying to hide anything. Announcements can be made on changes in
company policy, new product launches or impending mergers. These meetings are also
very useful for quelling any rumours that may have started to circulate and, even more
so, to reassure on the future stability of the company and its employees.
! Family Days and Parties
Any opportunity which allows employees to bring together their work and personal lives
can only be for the good. Events such as these are an excellent opportunity for all levels
of the company to mix together – especially if there is some activity involved which acts
as a “leveller”, e.g. races and other sports. Including families in activities not only
makes the employees feel better, but it means that the families can begin to understand
the nature of the company that their loved one works for. Everything that helps to keep
employees happy is to be applauded. This type of activity could also be regarded as
being part of the public relations effort in the local community. After all, the employees
live in the community too!
The difficulty here, of course, is that events such as these cost money. However, many
companies feel that the benefits gained outweigh the costs and are happy to host family
events – even if it is only a buffet supper at Christmas for employees and their partners.
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(b) External Publics

! The “Media”
When people refer to “the media” they are often thinking in terms of those which give
national coverage, but there is much to be gained from local media. Local newspapers,
radio and television are all interested in news items relating to local organisations.
Another aspect to consider is that often local reporters have links with national, or even
international, newsgroups and will pass on a story. It is amazing how often a simple
little story concerning a company can soon be reproduced in media around the world.
I was once very impressed to read an article in a newspaper about an achievement of one
company which is based near where I live in the UK. What made it so impressive was
that this is a very small company and I was in the Middle East at the time! The article
had been reproduced in a local English language paper, for the region I was visiting, only
two days after it had first appeared in the company’s local paper in the UK. Gaining
international exposure in this way must be an advantage to companies.
News items may be good or bad, but the relationships between the organisation and the
media may well determine how they are presented to the public. For instance, if a
company regularly refuses to give interviews to reporters, or refuses to comment on
something that has been reported, it will gain the reputation of being secretive or
obstructive.
The local media (national and international, too) will soon be presenting articles which
reflect this attitude, and the company can lose a great deal of goodwill. Conversely, if
the company works with the media it is more likely to have favourable reports published.
Good media relations means that an organisation can have its successes publicised and
its failures treated gently. The public relations officer who fails in media relations does
not deserve to succeed.
! Press Releases
It is common practice for press releases to be issued to the media giving information on a
range of topics. These can include current or intended activities, some particular
achievement of which a company is very proud, or even to counteract bad press which
has arisen for some reason. Such press releases do not necessarily get published.
Publication will depend on just how newsworthy the item is and whether or not any
particular medium wants to use the release.
Many companies use what is known as syndicated press releases. A syndicated press
release is one which is drawn up at Head Office by the chief public relations officer and
is then distributed to regional offices for publication in the local press under the name of
the local manager. This method gives the advantage of a common, or consistent, press
release, but with the added benefit that local names and contact telephone numbers can
be added. Of course, great care must be taken to ensure that there is no overlap of
publications. For example, if the same release was then used in the national, or
international, press the company could look very foolish.
! Press Conferences
Perhaps the most important question that needs to be asked in the case of press
conferences is: “Do we need one?” Press conferences should really only be used when
there is a major announcement to make or a major problem to overcome; holding a press
conference when it is not needed will often prove to be counterproductive. Press
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conferences involve inviting media representatives to a suitable location and then

“presenting a case”.
The people who are entrusted with speaking at a press conference must be well briefed
on what they have to say and they must prepare in advance. If reporters and
commentators are given a free hand with regard to the topics and questions they can put,
the end result may be something akin to chaos with a resulting loss of face for the
organisation.
Quite often the organisation hosting a press release will take the opportunity of
“courting” the press by providing information packs, refreshments, and so on. However,
media people may be suspicious if the hospitality is overdone so, once again, great care
must be taken.
! Open Days
If customers, and members of the local community, are invited to visit the premises of an
organisation it gives the opportunity to publicise future activities, to give reassurances
on current financial strength, and to highlight the trial of testing of new products, etc.
but, more than anything, it gives the organisation a chance to show that they do care
about their publics and their opinions. Hospitality need not be expensive, but the
goodwill it fosters can be incalculable.
! Sponsorship
You only have to watch a sports event on television, or visit a theatre, to see just how
important sponsorship has become in the modern world. Vast sums of money are paid
out in a variety of ways: sponsoring a sports personality for training; a team of racing
cars; a snooker championship; a football competition; a drama festival; an individual
theatre, and numerous other events.
The main reason behind this form of support is, of course, to gain corporate exposure,
particularly when the sponsored event is televised throughout the world, e.g. tobacco
companies who are restricted in their promotional activities use sponsorship to very
good effect. However, there are also other reasons for sponsorship.
If a company can be seen to be sponsoring something which is regarded as being
“worthwhile” or “good for society” it benefits greatly as far as its publics are concerned.
The company gains image, prestige and standing in the marketplace, all of which
increase the power and influence of the company.
An added benefit of this heightened stature, of course, is the “spillover” effect of the
image. Subconscious impressions will be imposed upon the minds of the latent publics
which, if ever the public becomes active, may work to the advantage of the organisation.
After BT’s Global Challenge (a sponsored round-the-world yacht race), the head of BT’s
global marketing commented that the investment in the sponsorship had “...pound for
pound, delivered three and a half times more exposure than advertising”. And, as he
said, “... that is just the beginning....”
You can see from this comment alone that sponsorship can be a powerful tool to use in
marketing and public relations.
Sponsorship in many cases is related to advertising. Consider the use of the sponsored
personalities in adverts: for hotels, sports equipment, soft drinks, car tyres, and so on.
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But the underlying reason for sponsorship is the increased exposure that companies gain
and the add-on benefits of increased stature in the eyes of the public at large.
It is worth mentioning the dangers that exist when a company sponsors a “personality”
rather than an “event”. If the personality falls foul of the law or public opinion in some
way, the image of the sponsoring company may be affected rather badly. In such cases
companies usually react very quickly and drop that particular personality.
Even though a lot of companies spend vast amounts of money on sponsorship, it need
not be expensive to have your name publicised. It depends on who you are trying to
reach and influence.
A lot of companies do not recognise the importance of local sponsorship, although it is
fair to say that many companies do. Local sponsorship is an important aspect of
community relations and can be very effective in gaining public goodwill. Whether it is
support of a local rugby team, a hospice, a scout group or even a local mother and baby
group, there is a great deal to be gained by any organisation that involves itself with the
community in this way.
! Lobbying
In dictionaries you will find lobbying defined as:
“... to attempt to influence legislators in the formulation of policy ...”
“... to apply pressure or influence the passage of a piece of legislature ...”
and a lobbyist as:
“... a person employed, by a particular interest, to lobby ....”
These definitions suggest that lobbying is very much a “political” activity which some
companies may be involved with infrequently, if ever. There are, however, many
companies which have representatives who are engaged in dealing with politicians on a
full-time basis. These representatives may be actual employees of the company or they
may be agencies who deal in this sort of activity. Their intention is two-fold:
(i) Intelligence – to keep the company aware of what is happening politically;
(ii) Influence – to see that the interests of the company are maintained and protected.
Being aware of what is happening, and is likely to happen, means that a company can
make preparations for any eventuality (e.g. the transport companies and the duty-free
problems discussed earlier). Having influence on whether a politician will vote for or
against some proposal can be very important to the future stability of a company which
is why so much lobbying takes place.
Governments recognise that lobbying does take place and, in many cases, facilities are
made available for this purpose, e.g. offices set aside where people can meet. In
Washington, USA, many companies have set up their own offices so that they can have
easy contact with politicians and be ready to mount (and monitor) campaigns aimed at
achieving both positive and negative shifts of attitude on a wide range of issues.
In itself lobbying can work for the good of society as it means that the interests of some
major organisations are being listened to. We must not forget that those huge
organisations which do lobby politicians have an impact on the public at large – with
jobs and financial security often being affected in some way. Public relations in this
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respect is quite legitimate and is a useful tool for companies. The danger lies in
allowing influence which does not reflect the view of society as a whole.
Needless to say, of course, predominantly because of the wealth of some organisations,
accusations of corruption and bribery abound and there have been many instances of
public hearings against politicians being accused of taking bribes of money, goods or
services, in exchange for presenting a company’s interests.
Public accusations, denials and hearings may, or may not, mean that corruption is
controlled. A cynic might argue that these public hearings only come about because a
politician has refused to, or stopped, supporting a company. For example, in late 1997
one British politician accused of taking money for putting questions to Parliament (on
behalf of the owner of a world-famous department store in London) said, at his hearing:
“... I am here not because I am corrupt, but because I refuse to be corrupt...”. Others
would have you believe that allegations of corruption are a direct result of the “jealousy”
of some other party. Yet more will tell you that these allegations are to “protect society”.
Who knows?
Whether or not we approve of it, and whatever our opinion of the level of honesty
involved, lobbying is going on daily in every part of the world and is a recognised and
established part of corporate public relations.
Importance of Integrated Activities

The methods of communication that we have outlined can all be very effective in their own right. If
an organisation chooses to use only one method, it can achieve its objective; on the other hand, if a
company chooses to use a combination of methods it will be even more successful. You can begin a
public relations campaign with a news release, follow up with letters and leaflets, then carry on and
arrange open days or a special meeting and so on.
There are no rules as to how and when you should use a particular public relations technique. The
trick is in using a combination of them. They will each support the other and, providing the message
sent is consistent, should be much more successful than using any one on its own.
A survey undertaken in 1997 by CHJS (a business-to-business research agency) and the University of
Strathclyde (Scotland), indicates that the benefits of public relations and integrated communications
are now widely recognised by professionals and organisations alike. Respondents in the survey voted
public relations as giving the best return on investment of any type of communication, and, even more
telling, 95% of the respondents believed in an integrated approach.
One particularly good example of public relations at its best is Sun Life of Canada, an insurance
company which has a network of branch offices throughout the UK. Public relations activities are
planned and coordinated from within the company’s Head Office in Hampshire, but encompass the
entire country. The company has adopted a totally integrated approach whereby they use all forms of
communication to get their message across and to establish their image with their many publics. This
is shown in Figure 10.9.
This quite extensive coverage of the public relations activities in Sun Life is included simply to get
the message across – integration works! The management team of Sun Life of Canada consists of
successful business people in a highly competitive industry. They have to make a profit but they do
not ignore the needs of their internal and external publics. Instead, they are involved with their
publics and they reap the resulting benefits. They make full use of all the communications and public
relations techniques available to them.
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External Face of the Company

Media
Syndicated press releases to maintain the “local” perspective
National press releases/conferences as and when any major announcements are made
Corporate advertising to reinforce image and reassure clients
Spokespeople who are trained to comment on both local and national news broadcasts
Sponsorship
In one year alone, more than 100 major UK charities were supported by a National Charities
Initiative which was coordinated from the Head Office of Sun Life of Canada. The charities
supported included: the British Heart Foundation; the Royal National Lifeboat Institution; the
Multiple Sclerosis Society; and the Royal National Institute for the Deaf, to name but a few.
Hundreds of local charities are supported each and every year by the company’s Head Office
and its local branches.
Strategic Alliances
Special financial packages are designed where Sun Life of Canada works with various
organisations to give their members preferential rates, e.g. with the National (British) Kidney
Foundation where special rates apply to investors, which results in financial benefit to the
Foundation; this money can then be used for further research.
Internal Face of the Company

Communications
Regular magazines are sent to all employees giving up-to-date information on what is
happening both at company business level and in respect of the employees themselves.
Promotions, marriages and so on are all publicised.
Special publications to celebrate major events. One such publication was to celebrate the
company’s 100-year anniversary in 1993 and even now a copy is kept very carefully by the
marketing director as a “souvenir” of the company.
Sports and Other Activities
There are numerous activities, such as fishing, walking, etc. for employees to take part in, and
interest clubs have been formed by the employees – all supported by the company.
Training and Development
The company has a very proactive policy on training for their employees. In-house courses are
run by their own training officers and much specialist external training is also funded. What
makes Sun Life of Canada rather special, in this respect, is that they actually reward their
employees when they gain certain professional qualifications – an excellent motivational tool.
Managers take an active interest in the personal development of their employees and, as part of
their ongoing activities, seek to ensure that employees are actually in the roles most suited to
their individual skills and experience.
Figure 10.9: Sun Life of Canada – Integrated Public Relations Activities
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315
Study Unit 11
The International Dimension to Marketing
Contents Page
A. Globalisation of Markets 316

Analysis of Foreign Markets 316
Exploiting Overseas Opportunities 316
International Marketing 317
B. The International Environment 317

Economic Environment 317
Political-Legal Environment 318
Cultural Environment 319
Technological Environment 320
Geography 320
Communications Network and Transportation Facilities 321
C. Obtaining Information about International Markets 321

Government Sources 322
Semi-Official Bodies 323
D. The Influence of Regional Trading Alliances 324

The European Single Currency 325
E. Working in International Markets 326

Exporting 326
Joint Venturing 327
Direct Investment 329
F. Adapting the Marketing Mix 329
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316 The International Dimension to Marketing
A. GLOBALISATION OF MARKETS
It is almost a cliché to say that we now live in a global village, but firms increasingly have to view the
world market as just an extension of their domestic market. The globalisation of markets represents
not only opportunities for domestic producers to earn revenue from overseas but also threats to
domestic producers from overseas competition.
Various factors have contributed to the globalisation of business:
! Goods and services are increasingly traded between economies in order to exploit the concept
of comparative cost advantage – i.e. an economy will export those goods and services that it is
particularly well suited to producing and import those where another country has an advantage.
! The removal of many restrictions on international trade (such as the creation of the Single
European Market) has allowed countries to exploit their comparative cost advantages.
Nevertheless, restrictions on trade remain, especially for trade in services.
! Cultural convergence that has resulted from improved communications and increasing levels of
overseas travel has led to a homogenisation of international market segments. Combined with
the decline in trade barriers, convergence of cultural attitude allows many organisations to
regard parts of their overseas markets as though they are part of their domestic market.
Analysis of Foreign Markets

Exploiting overseas opportunities can be quite a challenge for most organisations. Overseas markets
can represent very different opportunities and threats compared with those that an organisation has
been used to in its domestic market. Before a detailed market analysis is undertaken, an organisation
should consider in general terms whether the environment of a market is likely to be attractive. By
considering in general terms such matters as political stability or cultural attitudes, an organisation
may screen out potential markets for which it considers further analysis cannot be justified by the
likelihood of success.
Where an exploratory analysis of an overseas marketing environment appears to indicate some
opportunities, a more thorough analysis might suggest important modifications to a product format
which would need to be made before it could be successfully offered to the market.
Exploiting Overseas Opportunities

Having analysed an overseas market and decided to enter it, an organisation must make marketing
mix decisions that will allow it to successfully penetrate that market. Marketing mix decisions focus
on the extent to which the organisation will adapt its product offering to the needs of the local market,
as opposed to the development of a uniform marketing mix that is globally applicable in all of its
markets. Subtle changes in the product formulation are often needed – McDonald’s fast-food
restaurants, for example, offer the same basic service around the world, but adapt some details of the
menu to satisfy local tastes (e.g. rice is offered in many parts of the Far East, as well as fries).
A new overseas market represents both a potential opportunity and a risk to an organisation. A
company’s market entry strategy should aim to balance these two elements. The least risky method
of developing an overseas market is to supply that market from a domestic base. This is often not a
cost-effective method of serving a market, and may not be possible in the case of many types of
services. Where an exporter needs to set up production facilities overseas, risk can be minimised by
gradually committing more resources to a market, based on experience to date.
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The International Dimension to Marketing 317
Companies often use joint ventures or strategic alliances in order to exploit overseas market
opportunities. A company with production expertise may join up with a company that has specialised
knowledge of an overseas market to jointly develop the market. At other times, a company with
expert knowledge in its own domestic market may join up with a foreign company that has expertise
in a product area and seeks to work with local companies in order to expand its markets.
International Marketing
In order to penetrate the international market, the marketer must have adequate market information.
Some, of course, will be accessible and free in the UK, e.g. by contacting the DTI. However, in many
cases it will be desirable, if not essential, for the marketing manager to instigate market research in a
particular market and this may be done directly by the company or by the appointment of a market
research agency in the overseas market or by the appointment of a UK agency with overseas branches
or associates. The expense of such market information has to be evaluated, reviewed and appropriate
budgets prepared in line with the objectives.
The environment within which international marketing environment can have a tremendous impact on
marketing plans and, in particular, the marketing mix, i.e. product policy, advertising, pricing and
distribution. Careful consideration must be given to the selection of brand names, packaging design,
colours, symbols and so on, particularly in consumer goods marketing, and that is just the start!
However, it is normal for most companies to go into international marketing gradually, rather than all
at once, so the information tends to build up. In addition, many companies take on an agent who
deals with much of the information that the company needs.
B. THE INTERNATIONAL ENVIRONMENT

The CIM definition of marketing is not restricted to the UK – it is equally applicable to international
marketing, and that means we must find ways in which to satisfy the customers. We therefore have to
find out where they are, what they are like, how they buy, what they would like to buy and how we
can tell them about our products or services.
In short, we need to analysis the environment.
Economic Environment
One of the most common ways of analysing the economic environment is to classify it according to
some economic indicator which relates to marketing and the potential for sales.
(a) Classification by industrial structure
! Subsistence Economies
Here the majority of people are engaged in simple agriculture, producing only enough to
survive and so there is little opportunity for exporters.
! Raw Material Exporting Economies
These countries provide opportunities for exporting extractive equipment, tools and
supplies, trucks and materials handling equipment. They may also contain a wealthy
section of the population to which luxury goods and Western-style commodities are
exported. Examples are Chile (tin and copper) and Saudi Arabia (oil).
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! Industrialising Economies
Manufacturing is beginning to play an important role here, e.g. in Egypt, India, Brazil,
the Philippines, South Korea and Taiwan.
Reliance may be put on importing textile raw materials, steel and heavy machinery.
! Industrial Economies
This, in effect, means much of the Western world.
(b) Classification by income level
Economies can also be classified according to national incomes:
! Very low family incomes – the subsistence economies.
! Mostly low family incomes – largely Eastern European countries.
! Very low and very high family incomes – largely found in the Middle East, Latin
American countries and in some industrialising nations, with those enjoying the high
incomes tending to be a tiny minority of the population.
! Low, medium and high family incomes – found in many of the industrialising nations
and the advanced nations.
! Gross national product per capita – most firms want to know how much income
potential consumers in a country have to spend. The higher the GNP per capita, the
better the chance a firm has to sell consumer products in the higher price bracket. The
fully developed Western nations offer excellent markets on the basis of per capital GNP.
However, you have to be careful about the GNP per capita measure which, in effect, is
found by dividing a country’s population into its total income. Some of the Middle
Eastern countries, e.g. Kuwait, may have a very high GNP per capita, but this is due to
the influence of a very wealthy sector of the community.
Political-Legal Environment
A company will be influenced in its internal operations by the degree to which a country welcomes
foreign firms and the degree to which it is accepted by the indigenous population, e.g. anti-American
feeling in many Middle-Eastern countries.
The level of political stability will influence international marketing operations and if a country is
politically unstable, a company may favour export marketing to direct foreign investment. The type
of parties, political philosophies and nationalistic tendencies will all have an effect and may result in
expropriation (confiscation of property), exchange controls, import restrictions, tax and price controls,
and labour problems.
Under the legal aspects pertaining to marketing, we can list the following:
! Rules of competition
! Retail price maintenance laws
! Cancellation of distributor or wholesaler agreements
! Product quality laws and controls
! Packaging laws
! Price controls
! Patents
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! Trade marks
! Copyright laws and practices
! Pollution and safety laws, e.g. cars.
Many overseas countries, e.g. Germany, Nigeria and the United States, are organised on a federal
basis. Different states within these federal countries may well have different laws, and different
taxation and regulations.
A marketer would also have to consider local regulations, e.g. a company is likely to have to obtain
planning permission if it wants to build a factory in a certain province.
Cultural Environment
Culture is man’s entire social heritage – “all the knowledge, beliefs, customs and skills he possesses
as a member of society”.
The elements of culture include the material culture in terms of technology and economics; the social
institutions embracing social organisation, education and political structures; beliefs, particularly of
the religious variety; aesthetics, which includes graphic and plastic arts, folklore, music, drama and
dance; and language. A complete and thorough appreciation of the dimensions of a culture may well
be the most important attribute to a foreign marketer in the preparation of marketing plans and
strategies.
A country may be distant geographically but close in terms of culture, e.g. Australia has a very similar
culture to the United Kingdom. Cultural distance, therefore, is not the same thing as physical
distance. Often firms will prefer to be involved with countries on the other side of the world rather
than a relatively close country because in terms of cultural distance the more distant country is nearer.
For example, the USA is closer to the UK in terms of culture than it is to Mexico and many Central
American countries.
! Material Culture
The material culture can affect the level of demand, the quality and types of product demanded,
and their functional features, as well as the means of production of these goods and their
distribution, e.g. electrical appliances are unlikely to have a market where less than 1% of the
homes have electricity. Even if electricity is available, certain electrical goods may not have a
market due to the level and distribution of income, e.g. many electrical devices used in the
kitchen.
! Social Institutions
Under social institutions we can mention, for example, the position of men and women in
society, e.g. the Singer Sewing Machine Company tried to sell sewing machines in Moslem
countries where a woman’s position is a secluded and protected one. Women were not allowed
to attend the sewing classes. Singer overcame the problem by inviting the men along to sewing
lessons and demonstrating to them how much additional work the women could do with sewing
machines after taking sewing lessons. Another example of a social institution is that of
education which affects literacy which, in turn, affects promotion.
! Religion
Religion can influence people’s habits, their outlook on life, the products they buy and the
newspapers they read. Religion can influence whether or not promotional messages are
accepted, e.g. an advertisement based on puritanical principles, whereby Frenchmen were
threatened that if they did not brush their teeth regularly they would develop cavities or would
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not find a lover, was unsuccessful. This was attributed to the fact that in Catholic countries
cleanliness was not regarded as being next to godliness.
! Aesthetics
Aesthetics are important to the marketer, particularly in terms of product styling, advertising
and package design.
! Language
A thorough understanding of the language is required, particularly for advertising purposes.
The marketer must appreciate the true meaning of a language and avoid resorting to dictionary
translations.
There is literally an infinite number of experiences and examples of marketing in a foreign cultural
environment. The framework we have looked at should enable you to be aware of examples and
experiences of your own.
Technological Environment
Technology includes the techniques used in the creation of material goods. It is the technical know-
how possessed by the people of a society. In tradition-bound societies relatively little technology may
be used and the output may be correspondingly small. In modern economies, on the other hand,
technological development is in operation to a great extent.
We must also consider the technology of marketing. This will involve the communications media and
systems within a country, plus the distribution systems.
The Internet and the Worldwide Web are also beginning to affect world trading patterns and practices.
Admittedly, at the moment the amount of global trading on the Internet is relatively small in
comparison to other methods for facilitating world trade. However, its impact is growing and it is
likely to have a major effect on the nature, patterns and practices of world trade in the future. So
much so that no marketer can afford to ignore this aspect of the world trading environment.
Geography
The marketer should consider the effects of climate, altitude, physical terrain, humidity and
temperature upon his or her product and marketing in general. He or she must also assess the impact
of geography upon distribution and communication systems and upon the state of the economy.
In Britain we have few geographical hazards, but sudden falls of snow can throw our road and rail
systems into chaos. In many overseas countries there are the hazards of mountains, difficult roads
with bad services, and roads which may disappear if the weather turns bad. The impact of the
topography and climate may mean that sales have to be made and the goods delivered at certain times
of the year.
Consider the effect of geography on product design. Motor vehicle manufacturers in Britain,
Germany and France will normally fit heaters to all their products. Such equipment in vehicles for
export to Central Africa and South East Asia would be unnecessary. Rainfall and snow may
sometimes affect the required product quality, e.g. in Scandinavia some imported cars have a poor
image because their bodies are not built to withstand sub-zero conditions and the strong chemicals
sprayed on the roads to control ice. The topography can affect products used in the open, e.g.
excessively hilly terrain may necessitate special gear ratios in cars.
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Communications Network and Transportation Facilities

The developed countries usually have a satisfactory communications network for the physical
transportation of goods. This is backed up by a good audio communications system. In the
developing countries the audio communications are often of a poor standard and it may take a day to
make a telephone call because the lines are inadequate and there is a queue of callers.
In countries characterised by great distances it is necessary to consider transport as an important
element in the cost of the product. Buying patterns tend to be influenced by the transportation
arrangements.
The means of communication must be assessed when making decisions about stock levels, spare parts
and service arrangements.
The local transport can be an important consideration with consumer goods and consumer durables,
e.g. in one market we may find demand for small unit sizes because housewives have to carry their
shopping some distance, whilst other environmentally similar markets may demand larger units of the
same product because their shopping is delivered or women use cars to do their shopping.
Perhaps also under this heading we need to consider the nearness of the market. The EU countries
count for well over 50% of the UK’s trade. Consider merely on distance alone how attractive France,
Germany or Holland would be compared to, say, Chile, Australia or Thailand. The extra costs
involved in delivering to these latter three countries would far outweigh the costs of delivery to the
first three.
You would also have to consider the unfamiliarity of the terrain plus, in some cases, the unfamiliarity
with the market itself.
C. OBTAINING INFORMATION ABOUT INTERNATIONAL

MARKETS
Obtaining information from overseas sources is always a problem. Firstly, there is the long lead time
in obtaining a reply; some overseas correspondents are extremely slow in replying to letters.
Secondly, it is difficult to find sources which have the information. Some countries are well
documented; others leave much to be desired. The developed countries tend to be better documented
than the developing ones, but even so, many of the developed countries produce their statistics too
late for them to be of real value for taking tactical marketing decisions. It is not much use to a
marketing manager to have information about the trends in usage of certain kinds of industrial
machinery for a period ending two, three or even five years ago.
Even in developed countries which are comparatively well documented, it is always advisable to
compile a “bank” of sources composed of people who know the industry in which the researcher is
interested.
The opinions given by knowledgeable people in an industry may be of greater value than the statistics
which are available. The “expert” may not be able to quantify his or her views to a fine degree of
accuracy, but this is not always necessary. His or her views and knowledge will be up to date and the
information which he or she gives is likely to be sound.
Always remember that industry and commerce are both living activities which are subject to pressures
from markets and respond to initiative. Often the need for information arises after the events have
taken place. It is often impossible to go back and collect information in retrospect. Sometimes the
information is required by a limited number of people and they or a specialised group collect it for
their own uses.
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It is, therefore, not surprising that information about any market is rarely completely available from
one source. Many sources have to be approached if a balanced and, as near as possible, total body of
knowledge is required. Some of the kinds of source which should be approached are set out below.
Government Sources
There are, of course, usually at least two government sources. The first is our own government and
the second is the government of the country(ies) concerned. Each of these may have information
which is not available from the other.
(a) British Government
During the last few years our export services have been reorganised and the information
available about overseas markets has been centralised at the Export Services section of the
Department of Trade. Much of the information is contained in a computer bank and can be
“recalled” quickly and accurately. The information available is generally the basic economic
data which is published in the country concerned. It approximates to the information published
in our Annual Digest of Statistics, but is rarely as complete.
In addition to published information, there are reports from the commercial officers in overseas
countries. Those dealing with general economic matters and industrial and commercial subjects
which have not been compiled for specific projects are also available. Sometimes, if the
enquiry appears to be one of substance, the commercial officers will undertake an enquiry on
behalf of an individual exporter.
Individual enquiries are subject to the available workload in the overseas post, but in most cases
the officers concerned are able to find some information. Obviously, our overseas posts are not
staffed by full-time, professional marketing research investigators and, if a detailed enquiry is
necessary, such an investigation will have to be commissioned.
Our overseas commercial officers may be able to give advice about suitable research
organisations which are capable of doing work in the overseas country. They will also give
advice about the appointment of agents but will not, of course, appoint the agents themselves.
The British Overseas Trade Board (BOTB) directs the official government export promotion
services and can also give a wide range of information regarding overseas markets, especially
from its Statistics and Marketing Intelligence Library. In certain circumstances, financial
assistance may be available for marketing research carried out overseas.
(b) Foreign Governments
The arrangements for, and organisation of, the collection of statistics vary from country to
country. Obviously, certain basic information is required by the governments of most countries
and this is usually available. But it may be total information without detailed analyses, regional
breakdowns, or information by industrial sectors.
The main source to try in overseas countries is usually the Central Statistics Office, if there is
one. It is often attached to the Prime Minister’s Office but may be independent, e.g. part of the
State Planning Office. The Ministries of Industry and Trade may also be useful; these may be
combined in one ministry but are usually separate.
In addition to the three sources mentioned above, there are all the other ministries. Obviously,
the ministries to approach will depend upon the nature of the enquiry, but useful ones include
(if such exist):
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! Technology
! Energy
! Transport
! Communications
! Labour
! Finance
! Education (industrial and commercial training sometimes being the responsibility of this
ministry)
! Agriculture
! Mines
! Rural Development
! Public Works
! Reconstruction and Development.
It is not possible to define precisely the names of the various ministries which exist in all
countries, but the above list is a guide.
State–controlled industries and public corporations may also be in a position to provide
information.
Semi-Official Bodies
In Britain we have numerous semi-official bodies which are not wholly government-controlled but
have the support of the government or local authorities and are sometimes supported by a contribution
from the Exchequer. They include such organisations as chambers of commerce and/or trade,
research institutes, management bodies, and training and industrial organisations. Other such
organisations could include the Meat and Livestock Commission, the Confederation of British
Industry and the Trades Union Congress, the latter two having substantial research departments. The
British Standards Institution can also often provide information on markets.
! National Bodies
Most of the semi-official bodies are organised on a national basis and the information is
available from one source for the whole country for a particular industry or trade. The embassy
or consulate of the country concerned can usually give guidance about the information
available and the addresses to be contacted.
! Regional Bodies
It often happens that an industry or trade develops on a local basis. This is demonstrably true of
Britain where pottery was based in Staffordshire, cotton in Lancashire and wool in Yorkshire;
there are numerous other examples of regional development.
The same situation applies overseas with similar consequences. There are often local, semi-
official bodies which have a wealth of information about the industry and direct contact needs
to be made. The body serves the industry and it is obviously more convenient for it to be
organised on a local basis.
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D. THE INFLUENCE OF REGIONAL TRADING

ALLIANCES
The Treaty of Rome established what was then called the European Community (EEC) on 1 January
1958. The original six member countries – Germany, France, Italy, Belgium, The Netherlands and
Luxembourg – have, over the years, been joined by nine other countries:
1973 The UK, Ireland and Denmark
1981 Greece
1986 Spain and Portugal
1995 Sweden, Finland and Australia.
The alliance is obviously now referred to as the European Union. The logic for its creation was to
improve the performance of Europe. The EU with over 370 million people is larger than the United
States (250 million) and Japan (125 million).
There are other trading groups too, and they are changing so you need to read the newspapers in order
to keep up to date with the latest names. The following are a few of the more important groups:
! NAFTA: the North American Free Trade Association, formed in 1993 by the USA, Canada and
Mexico.
! LAFTA/LAIA: the Latin American Free Trade Association, formed in 1960 and changed to the
Latin American Integration Association in 1981, although it is still better known by the old
name. Its members are Argentina, Bolivia, Brazil, Chile, Equador, Mexico, Paraguay, Peru,
Uruguay and Venezuela.
! ASEAN: the Association of South East Asian Nations, formed in 1967, for political and trade
purposes. Composed of Indonesia, Malaysia, the Philippines, Singapore and Thailand.
! CARICOM: the Caribbean Community and Common Market, formed in 1973.
! COMECON: the Council for Mutual Assistance, formed in 1949 by the Eastern European
nations and closed down following the break-up of the USSR.
! EFTA: the European Free Trade Association, formed in 1959 partly to counteract the growing
EEC. However, several countries, including Britain, left EFTA and joined the EEC in 1973.
EFTA is now a dwindling group.
! MAHGREB: the free trade area consisting of Algeria, Morocco and Tunisia.
! ECOWAS: the Economic Community of West African States.
! MERCOSUR: Southern common market composed of Argentina, Brazil, Paraguay and
Uruguay.
! APEC: the Asian Pacific Economic Co-operation consisting of some 23 Asia Pacific nations
including the US.
All these associations have, or had, the intention of manipulating the terms of international marketing
in the favour of their members, in various ways. The EEC established a “common customs tariff”, by
which all imports into the EEC had to pay a standard customs tariff, no matter which country they
came into. Sales between member countries of the EEC were exempt from this tariff, and that
encouraged trade between members. GATT negotiations (see below) brought the external tariff down,
but the attraction of having a manufacturing base within the EEC was soon evident, and factories have
been set up in Britain as a result.
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Groupings such as those mentioned above – and there are many more – may present the international
marketing manager with opportunities and difficulties, which he or she must be aware of.
There are also organisations which operate worldwide – GATT was the best known and stands for the
General Agreement on Tariffs and Trade. It was started in 1947 to help world trade after the end of
the 1939-1945 war. There have been seven negotiating ‘rounds’, each lasting an average of nine
years, which clearly demonstrates the complexities of the issues which GATT tried to address in a fast
changing world trading environment.
Following the approval of the Final Act of the Uruguay Round of GATT in 1993, the World Trade
Organisation (WTO), a permanent trading body with a status commensurate with that of the
International Monetary Fund or the World Bank, effectively replaced GATT. It is the responsibility of
the WTO to monitor agreements to reduce barriers to trade, such as tariffs, subsidies, quotas and
regulations which discriminate against imported goods. Currently, the WTO has 132 members and a
further 29 countries have observer status.
There are other international trade organisations, such as UNCTAD (United Nations Conference on
Trade and Development) which was formed in 1964 as a permanent institution of the United Nations
General Assembly with the objective of stimulating economic development through international
trade.
There is no need for you to remember a long list of international trade groupings, but you should have
a general idea of the scale of the activities.
The European Single Currency

Probably the biggest problem arising from the use of separate national currencies for trade is that their
value in relation to each other fluctuates through time. The exchange rate of the Deutschmark to
sterling will determine how many Deutschmarks a German car maker will receive in exchange for the
sterling it has been paid for cars it has sold to UK-based customers.
From an importer’s point of view, fluctuations in exchange rates cause considerable uncertainty.
Companies selling goods or services abroad may not be certain what revenue they will actually
receive if they invoice in a foreign currency, since a change in the exchange rate – between agreeing
the price and receiving payment – can earn them more or less than anticipated. Where imports are
priced in a producer’s currency, importers of goods or services may be uncertain about the final price
of their purchases.
The launch of the Euro in 1999 as a common currency for most EU member states has helped to
overcome problems of fluctuating exchange rates between traders in countries that have adopted the
Euro. Its use reduces the costs of trade between EU member states and allows for the development of
a ‘hard’ currency backed by substantial reserves which is able to match the US dollar as a world
currency.
The UK did not join in the launch of the Euro, arguing that a single currency reduces the scope for
national governments to manage their economies. For a common currency to be stable over the
longer term, it is important that all economies converge in terms of such factors as inflation rates and
government spending. Without being able to adjust exchange rates and interest rates, national
economic policy may be unable to tackle economic problems that are specific to a nation state.
Despite the UK’s reservations about joining the Single European Currency, it is likely that UK
companies trading with other EU companies may nevertheless adopt the Euro. For some, this may be
a requirement of their EU trading partners, while others will see benefits in using a strong currency, in
much the same way as the US dollar is used.
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The debate about whether the UK will join the single currency seems set to continue for some time,
exposing UK manufacturers to greater levels of uncertainty compared with competitors who are in the
Euro zone. However, there are a number of measures which UK firms can take in the meantime to
reduce this uncertainty:
! Where it is important for a firm to be certain of the future cost of materials imported from
overseas, it can buy contracts which provide it with a specified amount of foreign currency at
an agreed time in the future, at an agreed exchange rate. So even if the value of a currency
changes in the meantime, a company can buy its materials from overseas at its budgeted price,
using an overseas currency whose value was fixed during its budgeting process.
! Where the buyer’s or seller’s currency has a history of volatility, they may decide to use a third
currency which is regarded as a relatively stable or hard currency. Many sectors of
international trade, such as oil and civil aviation, are routinely priced in US dollars, regardless
of the nationality of the buyer and seller.
! The impact of currency fluctuations on a large multinational company can be reduced by trying
to plan for expenditure (on components, etc.) in one currency to roughly equal the revenue it
expects to earn in that currency. Any change in exchange rates therefore has an overall broadly
neutral effect on the organisation.
! Fluctuating exchange rates can become an opportunity to companies who can rapidly shift their
resources to take advantage of imports from countries where they have suddenly dropped in
price. Commodity traders operating in ‘spot’ markets may be able to switch supply sources
according to changes in exchange rates.
E. WORKING IN INTERNATIONAL MARKETS

There are several ways in which a company can organise its international marketing activities, and we
can look at all the basic possibilities. Remember, though, that the following ideas do not exhaust all
the possibilities, there is always scope for inventive marketing.
Exporting
The basic method by which a manufacturer becomes involved in a foreign market is to produce at
home and transport the goods to the foreign market. His production facilities remain in his own
country and he may do little in the way of adapting his product to meet the needs of the foreign
market. This method enables him to enter foreign markets with a minimum of change in his product
line, company organisation, investment and objectives.
(a) Indirect Export
In the first place, the company can hire independent international marketing middlemen. This
is usually popular with the firm just commencing its international exporting activity, because it
involves less investment in that no salesforce or set of contacts is required. It also involves less
risk because the middleman brings know-how, expertise and services to the relationship.
The company can use different types of middleman.
! It may use a domestic-based export merchant who buys the product and sells it abroad
on his own account. The company is only involved in selling to the export merchant.
! Alternatively, the company may engage a domestic-based export agent. In this
situation the manufacturer retains some of the work and all of the risk in that the agent
simply agrees to seek overseas buyers for a commission.
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! The company may join a co-operative organisation that conducts exporting activities on
behalf of several producers.
(b) Direct Export
Direct exporting will most likely be used by large sellers, or when foreign buyers approach
sellers, or where a market has grown to sufficient size to justify direct exporting. Although the
investment and risk can be great, the potential return can be high.
! The company may set up a domestic-based export department consisting of an export
sales manager with some clerical assistants. Its main responsibility would be for selling,
whilst drawing on the company for overall marketing assistance.
Alternatively, the export department could be self-contained, carrying out all the export
activities.
! In addition to, or instead of, a domestic export department, the company may set up an
overseas sales branch (or subsidiary) allowing it to achieve greater presence and
supervision in the foreign market. The sales branch would be involved in sales
distribution and perhaps warehousing and promotion. Furthermore it could be used as a
display centre and customer service centre.
! Another alternative would be to use travelling export salespeople. A company’s home-
based salespeople may travel abroad from time to time to take orders or find business.
! Finally, direct exporting can be contracting with foreign-based distributors or agents to
sell the company’s goods. Distributors would buy the goods; agents would sell on behalf
of the company. They may act as sole importers because they have been given exclusive
rights to represent the manufacturer.
Joint Venturing
(a) Joint Ventures
For a variety of reasons, a company may decide to share management with one or more
collaborating foreign firms and enter into a joint venture. One of the strongest reasons for
participating in joint ventures is that they reduce political and economic risks substantially by
the amount of the partner’s contribution to the venture. In fact, many countries, especially the
developing ones, require joint ventures as a means of foreign investment.
Market access is usually the chief marketing reason for joint ventures. Mergers with companies
which have well-established local distribution may provide rapid market entry. Joining with a
local firm can mean gaining market information and know-how which otherwise would take
years for a foreign company to acquire.
Companies join forces to broaden their merchandise offering, thereby gaining marketing
efficiency and a better public image.
Joint ventures are appropriate when:
! A company lacks capital or personnel capabilities to expand its international activities.
! A company seeks to enter a market where wholly-owned activities are prohibited.
! It enables the company to utilise the skills of a local partner.
! It enables the company to gain access to a partner’s local distribution system.
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(b) Licensing
Licensing is a relatively simple means of gaining a foothold in foreign markets without large
capital outlays. It basically involves a licensor entering into an agreement with a licensee in the
foreign market, offering him the right to use a technological/manufacturing process, trade mark,
patent, trade secret or some other thing of value for a fee or royalty. It enables the licensor to
gain entry at little risk and the licensee to gain production expertise, or a well-known product or
name.
Licensing is a legitimate means of exploiting a foreign market when capital is scarce, when
import restrictions forbid any other means of entry, when a country is sensitive to foreign
ownership, or when it is necessary to protect patents and trade marks against cancellation for
non-use.
Gerber Products Company gained entry for its baby foods in the Japanese market by means of a
licensing arrangement. The reasons were lack of staff to develop and operate its own
production facility, plus the risk factor whereby a large capital loss could be incurred if the
Japanese were not receptive to its products. Coca-Cola is well known for its licensing of
bottles round the world, or rather the franchising of bottles, because it supplies the syrup
needed to produce the product.
Licensing does possess some disadvantages for the licensor in that he has less control over the
licensee than if he had set up his own production facilities. Also the licensor may lose out in
terms of profits if the licensee is very successful; at the termination of the licence, the licensor
may find that he has set up a successful competitor. To overcome this, the licensor should give
particular attention to continuous innovation so that the licensee continues to depend upon him.
(c) Management Contracting
This is quite a different kind of arrangement, where the domestic firm agrees to supply the
management know-how to a foreign company which is willing to supply the capital. In return
for exporting this service, the domestic firm will be remunerated in the form of fees, a share of
the profits, and sometimes an option to purchase stock in the company at a given price.
Management contracting permits participation in a foreign venture without capital risk or
investment and is a major tool for maintaining managerial control in situations where a
government requires nationals to own a majority of stock interest.
It is not a sensible arrangement if the company can put its scarce management talent to better
use, or if there are greater profits to be made by undertaking the whole venture.
(d) Contract Manufacturing
This differs from licensing in that the company wishes to retain the marketing responsibility.
Before a company is ready to invest in its own foreign production facilities, it may contract
with local manufacturers to produce the product. This arrangement does suffer from the
disadvantages of less control over the manufacturing process and loss of potential profits on
manufacturing.
On the plus side, it offers a manufacturer the opportunity to gain entry to a foreign market with
less risk, and if the facility is seen to be operating efficiently, there may be opportunities to
form a partnership or buy out the local manufacturer.
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Direct Investment
This is the ultimate form of involvement in a foreign market, taking the form of foreign-based
assembly or manufacturing facilities. A company may manufacture locally to capitalise on low-cost
labour, avoid high import taxes, reduce the high cost of transportation to market and gain access to
cheaper raw materials.
A company may gain a better image in the host country by setting up a manufacturing plant and this
may also encourage the development of sound relationships with government, customers, local
suppliers and distributors.
Of utmost importance is the fact that the company can retain full control over the investment and it
can develop its operations in concert with the local marketing environment. There are, however, risks
involved, e.g. devalued currencies, deteriorating markets, or expropriation. Direct investment may be
the only way to avoid the high tariffs imposed on an outside exporting company to countries of the
European Union. Furthermore, lower labour and manufacturing costs within a foreign country enable
a company to export to its domestic base at prices lower than when manufacturing at home.
F. ADAPTING THE MARKETING MIX

Many things are slightly different in other countries and the marketing mix is no exception. You must
choose the elements of the mix to suit the specific market which you are aiming at, which may be
spread across two or three countries. Despite the attempts to unify Europe, there are still differences
in the laws in the 15 countries of the European Union, so it is not possible just to transfer advertising
campaigns across borders.
We can take a few examples to show the possible complexities of international advertising.
! “Marketing Business” reported in February 1994 the case of Yves Rocher, a company well-
known in cosmetics. A standard catalogue was used for all the EC which showed a former
price, crossed out, alongside which was the new, lower price in bold red. This was acceptable
in all EC countries except Germany, where the law forbids “eye-catching” price comparisons.
However, the company was big enough to find out that German law contravened the EC law by
creating a barrier to trade and banning the promotion.
! In the December 1993/January 1994 issue of “Marketing Week” Louella Miles mentioned that
France does not allow the use of children in advertisements and that in Holland advertisements
for sweets cannot be shown before 8.00 pm. Even then they have to show a toothbrush logo to
remind children to clean their teeth.
! In October 1993 “Marketing Week” reported on “Brands Across Borders”, and quoted the
experience of Schweppes, with a fruity drink called Gini, very popular in France. Test
marketing showed that the British wanted a lower level of quinine and did not respond to the
advertisements used in France. A new formulation and a new campaign got Gini off to a good
start – achieving 2.9% market share, against a target of 2% in 1991, but this was achieved by
finding out what the market wanted, and then supplying it.
! In the same article Derwent Foods reported that they found the retail trade to be different in
each country. Holland was similar to the UK, but in France, there could be decisions on
stocking taken at several levels within the same retail group. In Spain things were even more
fragmented with decisions being taken at store level, and the German store managers preferred
to deal with Germans. There are signs of more concentrated retail groupings, which will help
to smooth such matters out.
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These simple examples of product, promotion and place having to be given special attention lead us to
the remaining one of the four Ps – price. The true marketing-minded manager will set prices to suit
the market, not to suit a cost-plus-profit equation, and that will involve finding out the prices and
value perceptions (as seen by the customers) for competing products – not just now, but in the next
few years.
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331
Study Unit 12
Marketing Issues: Responsibility and Change
Contents Page
A. Introduction 332
B. Social Responsibility and Corporate Strategy 332

Consumerism 332
Ecological Challenges 333
The Corporate Response 335
Ethics in the Marketing Mix 336
C. Constraints on Marketing 338

Legal Controls 339
Statute Law 340
Voluntary Controls 341
Codes of Conduct 342
D. The Changing Marketing Landscape 346

Information Technology 347
Changing Social Roles 348
A New Marketing Landscape? 349
Coping with Change 350
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332 Marketing Issues: Responsibility and Change
A. INTRODUCTION
The marketing environment is continually changing and marketers need to be aware of the current
developments, issues and concerns to which they need to respond in their activities. In this study unit
we shall examine the rise of consumerism and notions of ethics and social responsibility which
present a challenge to the marketing industry. These issues, and others, have led to constraints being
placed on marketing and it is essential that you are clear about the controls that govern what is – and
what is not – permissible.
B. SOCIAL RESPONSIBILITY AND CORPORATE

STRATEGY
Social responsibility can be defined as:
“The obligations and accountability to society of individuals and organisations above
and beyond their primary functions and interests”.
Manufacturers need to care for consumers in terms of the environmental or health consequences of
their products, and increasingly, the social costs and benefits of products must also be examined. This
has an impact on marketing in that marketers must reflect the concerns and requirements of their
target audience.
John F. Kennedy (USA President) declared his “bill of rights” for consumers in 1962 which is as valid
today as it was then:
Consumers have the right:
! To safety
! To be informed
! To choose, and
! To be heard.
The organisations who use these “rights” as guidelines in their marketing approach are more likely to
succeed than those who ignore them.
Consumerism
Although consumers have had rights, enforceable by law, for many years they have not really been
effective because of the cost of taking legal action. However, more recently, there has been a huge
increase in the influence of the “consumer movement” based around such diverse aspects as:
! the holding of companies to account for the impact of their products, claims and actions – by
individuals and groups – in the courts (mainly in the USA) and through the media;
! consumer “watchdogs” – high profile organisations (such as the Consumers’ Association, the
publishers of Which? magazine) and television and radio programmes;
! direct action groups opposing specific projects (such as the building of roads) or protesting
about the impact of corporate activities in general.
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Marketing Issues: Responsibility and Change 333
Consider the following two definitions of consumerism:

“Consumerism is an organised movement of concerned citizens and government to
enhance the rights and power of buyers in relation to sellers.” (P. Kotler, “Marketing for
Non-Profit Organisations”)
“It is a social force designed to protect the consumer by organising legal, moral and
economic pressures on business.” (D. Cravens and G. Hills, “Consumerism: A
Perspective for Business”, Business Horizons, August 1970)
In both these definitions there is a suggestion of an alienation from business and industry and a feeling
that the consumer’s point of view is neglected.
Gordon Borrie, formerly Director-General of the Office of Fair Trading, argues that consumerism is:
“....concerned with human emotions. You simply cannot put a cash value on satisfaction
or disappointment, pride and pleasure in a new possession; annoyance and anger if it
proves defective. Consumerism is the desire for a fair bargain – a good buy, an article or
service that gives satisfaction.”
These concerns with the interest and rights of consumers have, over the years, been enshrined in
consumer protection law, whereby manufacturers and suppliers have legal duties to consumers. The
most notable three pieces of legislation are:
! Trade Descriptions Act 1968 and 1972
! Consumer Safety Act 1978
! Consumer Credit Act 1974.
Aside from legislative requirements, though, the commercial environment has undergone great change
in the area of consumer rights. The dictum caveat emptor – let the buyer beware – was for centuries
the controlling factor in commercial exchange. It was for the buyer to ascertain for himself the truth
of the seller’s claims, and there was no obligation on the seller to reveal the truth about his offers.
Wise buyers, when they could, secured contractual commitment from the sellers, but for most
transactions “caveat emptor” applied.
It remains good sense to follow the dictum when buying, but today sellers are under both legal and
voluntary obligations to give the purchaser a considerable level of protection. This is due partly to the
ever more complex offers being made, about which the customer could not reasonably be expected to
form an accurate judgment. Therefore the buyer has to trust the seller – and the seller has to be
trustworthy if normal commercial transactions are to be possible. It is also, and more recently, due to
the consumer movement of which Ralph Nader was the champion and which has spread from the
USA throughout the civilised world. “Caveat emptor” is giving way to “caveat vendor”.
Ecological Challenges
Business organisations operate in a physical environment that provides them with raw material inputs
and also provides space to receive their waste materials, either directly from the organisation’s
production processes or indirectly after consumption.
Businesses face challenges with regard to the ecological environment:
! There is growing pressure on natural resources, which is evidenced by the extinction of species
of animals and the disappearance of agricultural land to housing and industrial development.
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! The public is becoming increasingly aware of environmental issues and, more importantly,
more willing and able to spend money to alleviate the problems associated with ecologically
harmful practices.
There is argument about whether ecological problems are actually worse today than they were a
century ago, or whether it is mainly our perceptions of problems that have changed. If we look at
stories of manufacturing industry in Victorian England and compare these with industry today we
would consider that ecological issues are lessening their impacts. Supporters of this view will point to
rivers in England which only a couple of decades previously supported very little marine life but now
support extensive fish stocks.
It can be challenging for an organisation to know just what is meant by being “friendly to the
ecological environment”. Consumers may be confounded by alternative arguments about the
consequences of their purchase decisions, with goods that were once considered to be
environmentally “friendly” becoming seen as “unfriendly” within a short space of time. The public
are not generally technical experts to judge ecological arguments, and only larger businesses generally
have employees who can understand such arguments at a technical level. The following are recent
examples to illustrate how technical evaluations of products in terms of their ecological credentials
have changed over a short space of time:
! In the 1980s diesel was seen as a relatively clean fuel because it produced less “greenhouse”
gas and diesel engines were more efficient than petrol engines. By the 1990s, particulates
released into the environment by diesel engines had become linked with increasing levels of
asthma.
! Considerable technical debate about ecological impacts surrounded the decision by Shell to
dump its redundant Brent Spar oil platform at sea rather than to dismantle it on land.
! Both the supporters and opponents of proposals to build bypasses around towns use
environmental issues to support their arguments. Opponents typically argue that a new road in
itself will create more road traffic, which is environmentally harmful, while supporters argue
that environmental damage will be lessened by moving traffic out of town where it causes less
harm.
The challenge for companies is to try and stay ahead of such ecological assessments. From the
perspective of customers, this will allow the company to go on the offensive, rather than continually
being seen as a laggard that is doing harm to the ecological environment. From a production
perspective, an understanding of ecological concerns can allow a company to change production
techniques ahead of key inputs becoming scarce or banned from use altogether.
Rather than seeing environmentalism as a means of adding to an organisation’s costs, many have
turned ecological concern into an opportunity to reduce costs. Being proactive can bring a number of
benefits to companies, as well as improving their image with the public. Consider the following
examples:
! Often, changing existing environmentally harmful practices primarily involves overcoming
traditional mindsets about how things should be done.
! In Western developed economies, legislation to enforce environmentally-sensitive methods of
production is increasing. A company that adopts environmentally-sensitive production methods
ahead of compulsion can gain experience ahead of other companies, giving it a competitive
advantage.
! The use of environmental impact assessments may prevent a company gaining planning
permission for expansion of production facilities unless it has fully thought through the
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environmental impacts of its actions. At best, a failure to recognise environmental issues will
result in increased cost and delay to a planning application.
Taken to its logical extreme, consumption of the vast majority of goods and services can itself result
in ecological harm. For example, the most environmentally-friendly means of transport is to avoid the
need for transport in the first place. The most environmentally-friendly holiday is for an individual to
stay at home. Individuals with a true concern for preserving their ecological environment would
choose to reduce their consumption of goods and services in total. At the moment, such attitudes are
held by only a small minority in Western societies, but the development of a widespread anti-
consumption mentality would have major implications for marketers.
The Corporate Response

Companies have responded in different ways to the pressures of consumerism and environmental
concern. Some have resisted and actively lobbied against consumer pressures; others have ignored it
and gone about their business as if the consumer movement did not exist; many have responded to
pressures and adapted their policies to meet consumer concerns. Indeed, evidence from the USA
suggests that those companies which have reacted to the consumer movement positively, have
increased their market shares and profits quite substantially and it is recognised now that most
companies have come round to accepting the new buyers’ rights, at least in principle.
Why do companies react in different ways to consumer pressures? The following are some of the
responses of businesses:
! Ignore consumerism – a reaction which encourages government legislation in the marketing
area, as companies believe/hope that consumerism is a passing phase.
! Counter consumerism – the stronger elements in the business sector will endeavour to resist
consumerist pressures by lobbying government. This is really a delaying tactic, as a
government wins more votes from consumers than from big business.
! Profit from consumerism – to respond to consumerist pressures by creating new means of
profit is the most acceptable alternative long-term strategy for business.
! Voluntary adaptation – this is, in fact, treading the tightrope between meeting consumerist
demands, but over a longer period than the government would want. This approach could
misfire.
! Accept government intervention – business has traditionally resisted government
interference, but it is now becoming more acceptable, and certain politicians talk of a
government/business partnership.
A company can, then, be proactive or reactive: in other words the company can actively seek out
ways to address consumer and ecological concerns, or it can wait for complaints and then try to
rectify the situation. The latter approach is attractive in many ways in that it preserves the status quo
until change is forced, but it can have serious financial implications as well as a high cost in the loss
of goodwill. All companies try to respond to complaints – that will be part of their “customer care”
ethic – but that is no substitute for the effective design and implementation of plant, materials,
systems and procedures in the first place.
One thing is certain – consumerism will not go away, and demonstrations against the building of more
and more roads have shown that people have a level of determination that cannot be ignored.
The same applies to the more recent “green” movement, which aims to preserve the natural order of
things and reduce pollution. Quite often the improvement of processes which is necessary to reduce
pollution is a once only capital cost and the process runs at lower costs after the improvement.
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It is clear that the ideas of consumerism and anti-pollution make some sense, even if manufacturers do
not like the details of some of the claims, and it is essential to have a policy on these matters.
Reduction of pollution, either in factory processes or in lower-cost wrappings, is a matter which can
be used as a topic for favourable publicity. The benefits to the public are obvious and non-
controversial, so no harm can come from showing progress in these matters.
It would make sense to run a social audit, in much the same way as a marketing audit can be done.
The difference would be that the results could be used for publicity purposes, either to show existing
good practice, or to report progress on matters that need attention.
Perhaps Tom Brannan (Editorial Director of “Marketing Business”) got near to the point when he
proposed a new definition of marketing, in the issue dated November 1993:
“Marketing is the corporate attitude of mind that recognises that success comes only
from delighted customers......”
If we accept that delighted customers are happy customers we can see that this definition of marketing
should ensure that organisations consider all aspects of customer satisfaction, including ethical
behaviour. They should not simply be concerned with what is being bought and sold.
Ethics in the Marketing Mix

Ethics is concerned with behaviour and most of the people in the marketing profession work within
the limits that are accepted as normal by the majority of people. So it has not been necessary for most
of us to be able to define ethics. However, the world is getting more competitive and different
nationalities have different views on what is good behaviour. As international trade becomes ever
more widespread, it is worthwhile having some sort of definition of “ethics”. Steven Skinner writes
in the book “Marketing” (Houghton Mifflin):
“Marketing ethics is the moral evaluation of marketing activities and decisions as right
or wrong, based on commonly accepted principles of behaviour.”
This is a very wide definition, and could be interpreted differently in various parts of the world. A
book that goes into more detail is that written by Dibb, Simkin, Pride and Ferrell entitled
“Marketing: Concepts and Strategies” (Houghton Mifflin). The authors stated that:
“product-related ethical issues arise when marketers fail to disclose risks associated
with the product, or information about its function, nature or use. As competition
intensifies and profit margins diminish, pressures can build to substitute inferior
materials or product components so as to reduce costs. An ethical issue arises when
marketers fail to inform customers about changes in product quality: this failure is a
form of dishonesty about the nature of the product.”
There are not many written examples of items on ethics, but an interesting one to note is in the same
book.
! Jerome Licari was Director of Research for Beech-Nut Nutrition Corporation and he found
that the company’s claim about their apple juice sold for babies was not true: it was not made
from pure apple concentrate, but was a chemical concoction. Instead of taking that up with the
suppliers of the concentrate, Beech-Nut took no action and continued to sell the apple juice,
calling it “100% juice from fruits low in acid”. As Licari was a man of principle he resigned
and reported the facts to the government. When Beech-Nut were charged with 450 offences,
they stalled the court hearings until they had time to sell off $3.5 million of stock. In the court
case Licari was criticised for his naivety when he said that he thought apple juice should be
made from apples!
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! As a further example, you may want to follow the case of the tobacco industry and its struggles
over the ethics of selling – and marketing in particular ways – a product which has such serious
side effects.
Commercial activity is, by its very nature, competitive – and marketing is very much part of that
competitive environment. The temptation, and often the pressure, to use dubious practice to obtain a
competitive advantage is always there – blatant fraud is rare, bribery less so, especially where there
are large financial gains to be made from winning contracts (as in the armaments industry). In
marketing, perhaps the key areas of concern are the following.
! Manipulating the customer – for example, offering a low cost model then switching to a higher
priced model, or providing dubious “free” gifts or benefits as promotional enticements to buy
or stay loyal.
Offers of after-sales support which cannot be sustained to the service levels indicated are
unfortunately not uncommon, particularly in the computer and consumer durables markets. A
similar example is the infamous Hoover promotion which appeared to offer free flights when
purchasing a new vacuum cleaner – sales were certainly impressive, but the problems
encountered by customers in taking up the heavily oversubscribed offer ended up costing the
company an estimated £40 million as well as an enormous loss of faith in their marketing
! Making false (or at least dubious) claims about products – such as in the Beech-Nut case
referred to above, or falsifying market research.
For example, I saw a book advertised which appeared to be about half an inch thick. The total
cost was £7.99, including £1.99 postage, which looked about right for a book that size. When
the “book” came it was no more than about ten pages of paper stapled together, and the postage
was 19 pence, not 199 pence charged. The magazine in which the advertisement appeared
received many complaints and refunded my money in full, as the advertiser had disappeared
without trace.
In marketing research there are many temptations. A researcher working in a shopping streets
researchers when the weather turns bad and who needs two more “middle-aged ladies who look
fairly prosperous” may well be tempted to make up the outstanding responses – and who is to
know? Calling on people at home offers less scope for falsification – the research company can
phone to confirm that the researcher has visited, and check his or her actions – but telephone
surveying offers plenty of opportunities. Filling in the forms with some average responses is
unlikely to affect the result, and payment is often on questionnaires filled in.
In summary, we can do no better than Kotler who puts it neatly:
“The law defines what the company cannot do. This does not mean that everything else,
because it is legal, is right.”
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C. CONSTRAINTS ON MARKETING
The constraints on marketing come in two basic forms:
! Legal controls – which, in the UK, originate from both common and statute law.
! Voluntary or self-regulatory controls – which are established by the industry itself.
The large proportion of controls that are voluntary rather than legal is peculiar to Britain, where the
desire is for as much control to lie in voluntary hands as possible. Partly this is attributable to the
tradition of personal freedom, partly it is because in many cases voluntary controls are more effective
than statutory.
(a) Legal Controls
The law warns people not to behave in a certain way, and establishes penalties for those who do
and are successfully prosecuted. But, although preventative to a point, a legal case can take
several years to pass through the courts, especially if judgments of lower courts are appealed to
higher. Even then the law may have to be interpreted in the courts, thus establishing precedent
that will amend the law in practice.
By the time that a decision is reached, it may be far too late to be of practical value to those
involved in the case. Perhaps the situation could have been righted if prompt action had been
taken, but not after time has passed.
Taking a case to law can be a very expensive process – you need to secure some examples from
the contemporary press – and this gives an unfair advantage to the substantial organisations,
especially those unscrupulous enough to force the case through a long-drawn-out legal process
that they can afford, but the complainant cannot. In some cases an organisation will incur costs
far in excess of the settlement claimed simply out of principle.
Obviously there are differences between criminal and civil law. When there is risk of a prison
sentence, the legal process has far more than money riding upon the outcome and litigants react
accordingly. But most consumer issues are civil in nature, and civil courts have a large backlog
of cases waiting to be heard.
The greatest strength of legal controls, therefore, lies in their preventative nature.
(b) Voluntary Controls
Perhaps better called self-regulated, voluntary controls are established and monitored by the
industry itself, in many cases to prevent government stepping in to establish legal controls.
The voluntary system as a whole is the more flexible:
! Voluntary controls can be applied quickly – an offending advertisement can be modified
or withdrawn in hours (or not appear at all if there has been advance consultation).
! It is far easier to modify self-regulations – there is no need for the whole parliamentary
process.
! The regulations are administered by industry experts in association with lawyers – and so
the interests of those controlled are understood and taken into account within the law.
! It is (almost) always possible to take an issue to law if it is not settled within the
appropriate code. (The Advertising Standards Authority can resort to legal action, but
very rarely has to.)
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The two control systems deal with different offences. A false trade description can be illegal, but a
misleading or exaggerated claim can offend against a code. A breach of contract is a legal tort, but
knocking copy is unethical. Illegalities incur legal fees and are subject to penalties, code violations
are far more expeditiously dealt with.
Legal Controls
Legal controls protect the customer/consumer with the force of law and penalties can be extracted
from offenders. Thus a false trade description is illegal, as is “passing off” a product by designing it
to resemble an existing brand. Famous examples include the imitation “Rolex” watches, “Chanel”
perfumes and pop cassettes on sale from a variety of outlets from market stalls to High Street shops.
Not only do these “pass off” by virtue of their packaging, but they are also either or both imitations
and in breach of copyright, trade-mark or patent law.
(a) Common Law
This covers civil wrongs and “torts” which require the plaintiff to take legal proceedings
against the defendant with a judge deciding the facts of the case and awarding remedies as
appropriate. Common law is unwritten and relies upon precedents that have been established in
courts since 1066.
The law of contract relies upon common law, and is particularly important to marketers because
it will apply in the many transactions between themselves (or their organisation) and their
agencies and suppliers. It is essential to secure a contract in writing, however well one knows
the other party because:
! Both sides then know exactly what has been agreed between them.
! The individual making the agreement on behalf of the other party may leave (for a
variety of reasons) and his or her successor may or may not know the agreement’s terms
and may or may not be willing to honour them.
! There may be genuine misunderstanding of exactly what has been agreed. (This is
particularly the case when dealing in a foreign country. Not only will their legal system
differ, but even basic terminology can have vastly different meanings.)
! The individual may change his or her mind, or the matter may be taken up by a superior.
A legal contract requires four elements:
! An offer.
! An acceptance of the offer.
! A consideration, with both sides making a sacrifice such as payment and supply of goods
and services.
! Consent must be genuine and not obtained by deceit.
There are four kinds of contract:
! A simple contract, not made under seal, which can be oral, written or implied.
! An express contract in which both sides set out the terms in words, whether orally or in
writing.
! An implied contract where nothing is written, as when reserving a room at a hotel.
! An executed contract, which exists if a task is performed and paid for, and is usually
applicable to oral contracts.
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Two other important areas of concern to the marketer are:

! Passing off, which has briefly been described, above. Great care must be taken to ensure
that from package design to in-store merchandising a product is shown to be unique.
Imitation refers to the product, passing-off to the package.
! Defamation, which can be slander of a person, slander of goods or libel. If a person,
organisation or product is intentionally or unintentionally brought into disrepute, the
aggrieved person can seek damages through the court. “Knocking copy” is normally bad
policy because it can so easily set up a negative reaction, runs the risk of overstepping
the line into defamation, and shows that there is little unique to say about the product
anyway!
“Comparative” copy – such as when the attributes of a range of cars are listed with an
indication of which cars have which attributes – has been acceptable, but not if it is so biased as
to exclude the major benefits of the competition.
The EU Directive on Comparative Advertisements is targeted on regulating this complex area
and bringing all member states into one common legal position. The Directive came into force
in January 1993, and it is likely that comparative advertising will disappear from the EU (but
not from the USA and most of the rest of the world). The EU directive is complex and requires
strict compliance with objective comparisons of fairly selected features. Thus features that do
not show the advertiser’s product in a good light cannot be omitted, and all claims have to be
scientifically verified. Within the UK it will take this area of defamation out of common and
into statute law.
Statute Law
This consists of written laws that have been entered upon the Statute Book, having passed through
Parliament and received the Royal Assent. Ministers of the Crown in some cases have the legal right
and/or duty to issue Statutory Orders or Regulations or Statutory Instruments and these have the full
force of law even though they will not have passed through Parliament in their own right.
Statute law covers an exceedingly wide range of concern to the marketing communicator but,
fortunately, there is no requirement for you to be familiar with detailed legislation. The cardinal
principle you must be guided by, however, is to ensure that any planned promotion is checked
by your organisation’s lawyer before you commit to it. This is especially important when entering
an area of promotion in which you have no experience, but it is good practice even when repeating a
series of advertisements that have been run before. Can you be certain that new statutory legislation
has not been introduced in the meantime?
For example, the European Commission officially “frown upon designation by country” and “prefer
designation by the EU”. There is no law – not even a proposal – to make the EU designation a
statutory requirement.
Possibly such a regulation will be accepted in time. If a marketer judges this to be the case, when will
it be appropriate to begin the switch from “Britain” to “EU”? Will he or she know about the change?
Is the management information system providing updated information in this complex area? Are the
legal advisers involved as deeply as they should be?
There are at least 200 laws and statutory regulations that impact on promotion – not all will apply to
the area in which any one individual works, but it is crucially important not to miss one that does have
an impact on your plans. A marketer cannot reasonably be expected to keep up-to-date in this
specialised area. It follows, therefore, that even when specialist agencies are used they should not be
trusted to interpret the law correctly. Always run proposals across the desk of your lawyer.
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! The Data Protection Act

Before March 2000 any company undertaking direct marketing had to comply with the Data
Protection Act 1984. This act required any organisation or individual who held names,
addresses or data on computer to be registered.
As communication systems improved over the years, it became obvious that there were
limitations to the Act. Towards the end of the 1990s the opportunity was taken to review the
1984 Act culminating in a new Act, the Data Protection Act 1988 the main requirements of
which came into force on 1 March 2000.
The overriding requirement is that personal data, however it is stored, must be kept secure. The
new act also contains provisions such as the right of the data subject not to have direct
marketing information sent to them if that is what they request.
Voluntary Controls
Without legal force, voluntary controls rely upon the integrity and self-interest of the individual
members of an industry. Constraint is exercised through specific requirements in respect of
advertising and more general codes of conduct relating to ethical practice in marketing.
(a) Advertising
Until 1926 there was virtually no control over what advertisers chose to say in their
advertisements. Most advertisers were ethical, of course, but too many were unscrupulous and
unethical. In particular, the purveyors of patent medicines made outrageous claims for their
products – considerably above the legitimate “puff” which everybody expects an advertisement
to contain.
Two unique strengths of the British are their unwillingness to submit to bureaucracy, and their
ability to form effective committees. To pre-empt legislation, the advertising business set about
defining its good name by setting up the National Vigilance Committee in 1926. This led in a
short time to the creation of the Advertising Association.
The AA campaigned against misleading advertising throughout the 1930s and its Advertisement
Investigation Department Committee established the ground rules which led in 1948 to the
British Code of Standards in relation to the advertising of Medicines and Treatments. This
code, and the AIDC, were the bedrock upon which the Independent Advertising Standards
Authority and the British Code of Advertising Practice were based. Both were established in
1962.
The ASA supervises the system of control in all non-broadcast media – print, cinemas, leaflets,
direct marketing, viewdata, teletext, etc. Its role is to protect the interest of the consumer by
improving and maintaining good standards of advertising.
The ASA is independent of the advertising industry. It is funded by a surcharge of 0.1% on all
display advertising. The levy is collected by the Advertising Standards Board of Finance
which was set up in 1974 to ensure that the ASA can exercise independent judgment. The ASA
is not a passive body, nor does it wait for complaints to reach it. It is very active in monitoring:
! National press advertisements every day.
! Regional and specialist publications on a statistically-based rolling sample.
! Direct mailings when sent to the ASA from the Direct Mail Services Standards Board.
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Codes of Conduct
It is a long road to the professional status that many people would like to achieve and those at the top
of their professions guard their status carefully. It is well known that the British Medical Association
can order a doctor’s name to be struck off the list of people allowed to work as doctors – whatever
qualifications the person has. This punishment is not applied lightly: the investigation of a complaint
is similar in intensity to that which would happen in a court of law. Most doctors therefore take good
care to avoid running the risk of even being accused of anything which would run against the code of
conduct to which they subscribe.
There are few professions which impose such strict rules on their members, but many regard them as
a model for other professional bodies to follow, within the limitations of their working activities.
Most professional bodies do, though, publish codes of conduct which set out the minimum standards
of conduct which are considered to be necessary for their members, and the punishments for members
who are found to have contravened the code. Such codes primarily consist of normal good behaviour,
and most people work that way anyway.
The Institute of Marketing worked very hard to achieve the Royal Charter, which was granted by the
Queen in February 1989, and members are rightly proud of the achievement of this status. The CIM
code of conduct sets out guidelines for its members to ensure that the practice of marketers is carried
out ethically, and provide a detailed summary in the following pages to ensure you are aware of the
constraints that apply. Note that the marketing associations of other countries have similar codes of
conduct.
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Chartered Institute of Marketing’s Code of Practice
Marketing’s Professional Responsibility

The professional marketing executive has responsibilities to his employer, to customers – both
ultimate and intermediate – to his colleagues and to the public. The Institute requires its
members, as a condition of membership, to recognise these responsibilities in the conduct of
their business, and to adhere to the following Code of Practice. All members shall be
answerable to the Council of the Institute for any conduct which in the opinion of the Council
is in breach of this Code and the Council may take disciplinary action against any member
found to be in breach thereof.
Professional Conduct
! General
A member shall at all times conduct himself as a person of integrity and shall observe the
principles of this Code in such a way that his reputation, that of the Institute and that of
marketing shall be enhanced.
! Instruction of others
A member who knowingly causes or permits another person or organisation to act in a
manner inconsistent with this Code or is party to such action shall himself be deemed to
be in breach of it.
! Injury to other members
A member shall not knowingly, recklessly or maliciously injure the professional
reputation or practice of another member.
! Honesty
A member shall at all times act honestly and in such manner that customers – both
ultimate and intermediate – are not caused to be misled. Nor shall he in the course of his
professional activities knowingly or recklessly disseminate false or misleading
information. It is also his responsibility to ensure that his subordinates conform with
these requirements.
! Professional competence
It is expected that, in the exercise of a member’s profession as a marketing executive, he
shall seek at all times to ensure that he attains and retains the appropriate levels of
competence necessary for the efficient conduct of such tasks as are entrusted to him by
his employers. He shall seek to ensure that all who work with him or for him have the
appropriate levels of competence for the effective discharge of the marketing tasks
entrusted to them and where any shortcomings might exist he will seek to ensure that
they are made good as speedily as possible.
! Conflict of interest
A member shall use his utmost endeavour to ensure that the provisions of this Code and
the interests of his customers are adequately and fairly reported to his company in any
circumstances where a conflict of interest may arise.
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! Conflict of interest (continued)

A member holding an influential personal interest in any business which is in
competition with his own employer, shall disclose that interest to his employer.
A member having an influential personal interest in the purchase or sale of goods or
services as between his own company and another organisation shall give his company
prior information as to that interest.
! Confidentiality of information
A member shall not disclose, or permit the disclosure of, to any other person, firm or
company, any confidential information concerning a customer’s business without the
written consent of the customer except where required by statute.
A member shall not disclose, or permit the disclosure of, to any other person, firm or
company or use to his own advantage, any confidential information concerning his
employer’s business without the written consent of his employer except where required
by statute.
! Securing and developing business
No member may seek to obtain or obtain business in a manner which, in the opinion of
the Council of the Institute, is unprofessional. In determining whether or not any
behaviour is unprofessional, the Council will be guided, inter alia, by this Code and by
any professional Codes of Practice in effect at the time the behaviour occurs. The
Council of the Institute will always, unless it has determined to the contrary and so
informed members, accept such other Codes of Practice as a minimum level to be
expected of members of the Institute.
! Other relevant codes of practice
Members should be aware of other relevant Codes of Practice. The most important
amongst these are:
• Advertising
British Code of Advertising Practice (Advertising Standards Authority);
International Code of Advertising Practice (International Chamber of Commerce).
• Sales promotion
International Code of Sales Promotion Practice (International Chamber of
Commerce).
• Market research
Code of Conduct (Market Research Society/Industrial Marketing Research
Association).
• Public relations
Code of Professional Conduct (Institute of Public Relations).
The Council of the Institute also issues from time to time Schedules for the Guidance of
Members on facets of the marketing process to supplement such Codes of Practice.
These Schedules for the Guidance of Members are statements of minimal expected
practice and do not preclude the Council from concluding that behaviour not covered in
such Schedules is, in fact, unprofessional.
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Enforcement of the Code

! Role of the individual member
It is the duty of all members to assist the Institute in implementing this Code and the
Institute will support any member so doing.
! Misuse of the code
Unfair, reckless or malicious use of this Code by members or others to damage the
reputation and/or professional practice of a member and/or his organisation shall be
deemed a breach of this Code.
! Procedures for handling complaints
The Council of the Institute may nominate, at its discretion, a person or persons whose
task will be to decide if there is a prima facie case to answer. If there is such a case, the
Council shall initiate the necessary procedure for its investigation.
! Sanctions for breach of this code
If the Council of the Institute, having duly and properly examined an alleged breach of
this Code by a member, finds that member in breach of the Code, it shall be empowered
to take such disciplinary action as it shall deem appropriate. If the Council decides to
expel a member from the Institute, it shall act in strict accordance with the provisions of
the Articles of Association of the Institute, of which Article 19 is set out below:
“Any member of any class who shall fail in observance of any of the regulations or by-
laws of the Institute or whom the Council in their absolute discretion deem an unfit or
unsuitable person to be a member of the Institute may be expelled from the Institute by
the Council. Such member shall have seven clear days’ notice sent to him of the meeting
of the Council at which the proposal for his expulsion is to be considered and he may
attend and speak at the meeting, but shall not be present at the voting upon such
proposal nor (except as aforesaid) take part in the proceedings otherwise and as the
Council allows. A member so expelled shall forfeit all claims to the moneys paid by him
to the Institute, whether upon admission or for fees or subscriptions or otherwise and
shall cease to be a member of the Institute.”
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D. THE CHANGING MARKETING LANDSCAPE

If there is anything that we can be certain of in life, it is that there will be change. What the change
will be, of course, is often a matter of conjecture. Consider the following examples of aspects of life
which we now accept as commonplace, but could not have been realistically envisaged in the
(sometimes not too distant) past.
! There are people still living today who were born when transport was not “the car” as we are all
used to today. There was a time when only relatively rich people could travel widely, whereas
now people think little of taking a plane to some exotic location for a holiday or for business.
! It is not so long ago that telephones in the home were the exception rather than the norm. Now
we carry our mobile phones and can speak to anyone anywhere in the world whenever we want
to.
! We have advanced in terms of entertainment from listening to crackling valve radios in our
homes, to watching coloured films and programmes on wide screen televisions with wrap-
around sound.
! We can eat seasonal foods at any time thanks to new storage and growth techniques and so on.
But it is perhaps in the business world where we can see, most readily, the dramatic effects of change.
In respect of marketing, and taking the elements of the marketing mix in turn, some of the changes we
now accept as being standard are as follows.
Product
! There is an ever-increasing choice available for purchase.
! Manufacturing is safe and hygienic with high levels of quality control.
Price
! Intense competition has led to many prices being stabilised or reduced.
! Credit and finance facilities make it easy for customers to buy.
Place
! There are numerous outlets for products with fast deliveries.
! Products are available for sale over telephone and computer links.
Promotion
! There is a wider variety of media than in years gone by.
! Communications between companies and customers are now more “open”.
People
! Companies train their personnel on service aspects.
! Customer care is now the norm.
Physical evidence
! Retail outlets are more attractive and bright.
! Product and company information material is more honest and easier to understand.
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Processes
! Shopping from home is now possible.
! Ordering and follow-up systems have been improved.
All the changes listed above, and many others, have resulted in the current situation where buyers
now expect an almost instantaneous response. Customers do not appreciate having to wait for
products or for answers to problems. Those companies who do not keep up with the speed of change
often find that they are losing customers to their competitors.
We can examine two elements of the marketing environment to illustrate just how fundamental
change may be.
Information Technology
Advances in technology are allowing companies to manage huge volumes of information in
databases. The main impact of this, for marketing, has been to enable closer targeting of potential
customers and more specific promotional activities aimed at them.
More recently, the greatest growth has been in the world of e-commerce, based on the vast rise in the
use of the Internet. The Internet or World Wide Web (www) is an open system that anyone can log
onto via a personal computer with a modem to link their computer to the worldwide computer
network. No one person, organisation or government controls or owns the Internet. It was developed,
initially, as a military system in the USA, but was soon used as a means of transferring large volumes
of information between academic and government research centres. As the personal computer
developed and more universities and commercial companies became involved, so did the software to
facilitate searching for information and to relay messages and information quickly between users.
Initially the system was used by technical experts to send data, and then messages. Commercial
companies began to post web pages on the Internet so those interested could browse through the
information. Soon web sites were developed which provided more information and eventually led to
two-way interaction. With the development of protocols for encoding financial and other sensitive
information, the Internet can now be used to purchase services and products using a credit card.
Recent developments mean that the screen can be integrated with a telephone call so that the web
page can be viewed at the same time as using the phone to talk to the telesales operator. The system is
now proving popular with business-to-business users and individual consumers. It is borderless and
cheap to use, access being via the price of a local phone call.
Such a deregulated system operating across international boundaries poses new challenges as it
develops from an information service, to a promotional tool, and finally a sales and distribution
channel. Concerns have been expressed in four areas:
! confidentiality of individual information;
! consumer protection for those purchasing goods;
! identifying under which legal system transactions take place; and
! concern over the difficulty of governments collecting sales taxes.
The rapidly changing business environment of e-commerce is making it very hard to predict what will
happen in the near future. Pure service industries such as banking, insurance and travel agents are
likely to experience a major restructuring of their industries. Simple items such as books, music CDs
and videos can be sold easily via the Internet. Without the high costs of the high-street store, price
discounts can be offered. However, if shopping is seen as a leisure activity and impulse purchases are
a way of life then the best high-street stores are likely to survive.
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While actual transactions over the Internet are growing very fast, the bulk of activity is still
information search. The most likely scenario for consumer purchases is that the Internet will become
an additional channel to market for many companies, providing the customer with an alternative
means of purchase. Some new companies will be created and operate as niche providers in the
electronic marketplace. Some of the most pronounced changes will be in business-to-business sales
and service, where contacts are ongoing and where exchange of information and data is intense. Here
the Internet is likely to continue to develop at a fast pace.
Over the longer term, a major difficulty arises in forecasting technological developments. This is key
for the health of a nation’s economy. Those nations and companies who are first to develop a
technological lead tend to grow as the technology is embedded in new industries and products.
Changing Social Roles

The “typical” family of husband, wife and two or three children is becoming less common as a higher
divorce rate, later marriage, and smaller families reshape the typical household unit. Yet this family
model still appears to be the format to strive for and is depicted in many advertisements for household
goods and services.
There is evidence of change in the way that families operate as a unit. Many household products have
been traditionally considered to be dominated by either the male or female partner, but these
distinctions are becoming increasingly blurred as gender roles change. In the United Kingdom, a
report entitled Social Focus on Women published in 1998 by the Office for National Statistics
highlighted some of the changes in family roles that have been occurring. For example:
! Although men may say they believe household tasks should be shared, only 1% say they always
do the washing and ironing. Household cleaning is carried out mainly by women in nearly two-
thirds of households, and this proportion has been falling gradually.
! Just over a quarter of all men and a fifth of women agreed with the view that “a husband’s job
is to earn money; a wife’s job is to look after the family and home”. This is about half the level
of agreement noted in 1987.
! The number of women stating that the home and children are more important than a job fell
from 15% in 1987 to 7% in 1997.
! The main evening meal is made mainly by women in just over a third of households, this
proportion having halved in two decades.
There has been much debate about the fragmentation of families into cellular households in which
family members essentially do their own activities independently of other members. This is reflected
in individually-consumed meals rather than family meals, and leisure interests that are increasingly
with a family member’s peer groups rather than other family members.
Marketers have responded to the needs of the cellular household with products such as microwave
cookers and portable televisions which allow family units to function in this way. It can also be
argued, however, that new product developments are actually responsible for the fragmentation of
family activities. The microwave cooker and portable television may have lessened the need for
families to operate as a collective unit, although these possible consequences were not immediately
obvious when they were launched.
The family unit can expect to come under further pressures as new products, such as on-line
entertainment and information services, allow individual members to consume in accordance with
their own preferences rather than the collective preferences of the family.
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A New Marketing Landscape?

Many academics and practitioners have been talking about “paradigm changes” in marketing, or the
emergence of a completely new marketing landscape. Supporters of this view point to the increasing
level of competition which has developed in many markets. Moreover, buyers have become
increasingly discerning and what they may have happily accepted a few years ago, they will now
reject. If a company does not meet their needs, then there is probably somebody else who will.
Consumers’ tastes have changed more rapidly than ever before and it is becoming increasingly
difficult to categorise individuals into neat market segments. An individual may flit between
segments depending upon a whole range of circumstances – some rational, others apparently quite
irrational.
Amidst this new marketing landscape, a number of issues have arisen which may well define the
approach to marketing in the future. For example:
! Sell the Relationship, Not the Product
We saw in an earlier study unit that many firms have attempted to create close relationships
with their customers. At first this happened mainly in the business-to-business sector, but has
since become very common among firms selling to private consumers. Firms have put a lot of
effort into understanding their customers so well that they know what they will want to buy
next. You can refer back to our discussion of relationship marketing and assess whether its
aims have really been met. Do customers really want a relationship with suppliers? What
benefits do they really receive?
! Information is at a Premium
Knowing about customers has become crucial to business success, so many companies have put
a lot of effort into collecting, analysing and disseminating marketing information to their
managers. Some people call this knowledge management, and doing this well can give a firm
a great competitive advantage. Think about companies that you most admire for their
knowledge management. Are these companies that you would go back to repeatedly? And is
that likely to make them profitable? Also think about the consequences for companies who do
the opposite – collect inadequate information and never have the right knowledge available to
the right people in the right place at the right time.
! Is Marketing an Art or a Science?
To many people, marketing has no credibility if it does not take a rigorous, scientific method of
enquiry. This implies that research should be carried out in a systematic manner and results
should be replicable. So a model of buyer behaviour should be able repeatedly to predict
consumers’ actions correctly, based on a sound collection of data and analysis. In the scientific
approach, data is assessed using tests of significance and models accepted or rejected
accordingly.
There is an alternative view which sees this scientific process as essentially backward-looking.
The scientific approach is good at making sense of historic trends, but less so at predicting what
will happen following periods of turbulent change. During the early 1990s, for example,
models based on the scientific approach failed to predict accurately the change in consumer
spending following changes in such variables as household income, taxation levels and interest
rates. These had traditionally been associated with changes in consumer spending. A more in-
depth analysis of consumers’ attitudes suggested that feelings of greater insecurity (brought
about by the casualisation of many jobs), and the memory of the fall in house prices, had served
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as a warning to consumers which rendered many previously-developed models of consumer

spending obsolete.
It is a challenge to combine scientific analysis with creativity that can sometimes be quite
idiosyncratic. The scientific approach to marketing planning has a tendency to minimise risks,
yet many major business successes have been based on entrepreneurs using their own judgment
in preference to that of their professional advisers – examples include Virgin airlines and the
Sony Walkman. On the other hand, the reformulation of the taste of Coca Cola in the late
1980s had followed the scientific process of conducting large-scale research into consumers’
preferences and product testing, but when it was relaunched it was a major failure, forcing the
company to reinstate its original formulation as Classic Coke.
It is a challenge for marketers to use both scientific and more creative processes to understand
and respond to their environments.
Coping with Change

As I said earlier, the one thing we can be certain of is that there will be change. Marketing managers
need to be aware of this and, wherever possible, should prepare for changes which may take place.
This is no easy task, of course, as we can never know what lies around the corner. However, it is fair
to say that we can expect some, if not all, of the following:
! Shortened product life cycles
! Increased demand for specialist products
! Ever-improving technology in transport and electronics
! Pressure on companies from customers and governments
! Changing tastes of buyers
To cope with these, and any other likely changes, marketing managers must:
! Be aware of the growth in awareness of rights on the part of customers.
! Deal fairly and honestly with customers, suppliers and competitors.
! Be ready to adapt to social changes such as changing tastes or priorities.
! Make the best use of research information gathered to keep abreast of change.
! Develop an awareness of the longer-term implications of short-term changes.
! Constantly monitor both internal and external environments.
In other words, marketing managers of the future will have to behave in much the same manner as the
marketing managers of today. They need to identify and anticipate in order to satisfy customer
requirements profitably. They must continue to practice marketing.
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Diploma

The Association of Business Executives

© Copyright under licence to ABE from RRC Business Training abc

Study Title Page

1 Marketing Culture and Orientation 1

2 Markets and the Marketing Environment 29

6 Understanding Consumers and Consumer Behaviour 143

7 Product Management and Development 179

8 Pricing Policies and Price Setting 219

9 Distribution Policy and Management 241

10 Marketing Communications 269

12 Marketing Issues: Responsibility and Change 331

Diploma in Business Administration – Part 2

7. Marketing communications policy - the integrated marketing communications mix. Students

Programme Content and Learning Objectives

After completing the programme, the student should be able to:

! de Mooij, M. (1997), Global Marketing and Advertising: Understanding Cultural Paradoxes;

A. The Development of Marketing 2

C. The Strategic Orientation of Business 4

D. Developing a Marketing Orientation 9

E. Strategic Implications of a Marketing Orientation 11

F. Coordination of Marketing with Other Management Functions 13

G. Organisation for Marketing 20

A. THE DEVELOPMENT OF MARKETING

The Industrial Revolution

The 20th Century

C. THE STRATEGIC ORIENTATION OF BUSINESS

Level of production 4,000 6,000

D. DEVELOPING A MARKETING ORIENTATION

The Need for Integration

Introducing the Marketing Concept

E. STRATEGIC IMPLICATIONS OF A MARKETING

F. COORDINATION OF MARKETING WITH OTHER

Marketing and Production

It is exciting to contemplate the prospect of a successful market research and advertising

Marketing and Finance

! Average cost per call

Relations with Other Departments

Computation of Sales Price Per Unit

Production cost 8.36

Transfer to sales 9.20

Cash sales price 11.64

3 months’ credit – 2½% additional 11.93

6 months’ credit – 5% additional 12.22

Above prices valid up to 1 dozen

(c) Requirements of Particular Departments

Conflict between Marketing and Other Departments

Functions Source of Conflict

Production Production often stress long production runs of standardised items,

Purchasing Purchasing specialists will stress the need to choose between

Design Engineering design will seek to standardise, while marketing will

G. ORGANISATION FOR MARKETING

Managing Director – Directors

Finance Design Production Marketing

! Vertical and Horizontal

Vertical Organisation Horizontal Organisation

First Sales Sales Persons

Third Sales, etc.