Principles of Marketing NEW

Principles of Marketing
CHAPTER ONE: MARKETING AND ITS ENVIRONMENT
Contents
1.1 Learnintg Objectives

1.2 Introduction
1.2.1 Definition of Marketing
1.2.2. Levels of Marketing
1.3 Basic Concepts of Marketing
1.3.1 Marketing and Consumer Needs
1.3.2 Marketing Management
1.3.3 How Marketing Relates to Product
1.3.4 Importance of Marketing
1.4 Performance of Marketing Functions
1.5 Philosophy of Marketing
1.6 Marketing Environment
1.7 Summary
1.8 Answer Key to Check Your Progress Exercise
1.1 Learning Objectives
After completing this chapter you should be able to:

1. Define marketing as focused on customers
2. Identify the difference between Macro Marketing and Micro Marketing
3. Learn the functions of marketing
4. Comprehend the definition of marketing management
5. Become aware on how marketing relates to product
6. Understand the functions of marketing
7. Understand the importance of marketing environment to getting competitive advantage
1.2 Introduction to Marketing
1.2.1 Definition of Marketing
Marketing is the process of creating, distributing, promoting, and pricing goods, services, and ideas to facilitate
satisfying exchange relationships with customers in a dynamic environment. As the purchasers of the products
that organizations develop, promote, distribute, and price, customers are the focal point of all marketing
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activities. The essence of marketing is to develop satisfying exchanges from which both the customers and
marketers benefit. Organizations focus their marketing efforts on a specific group of customers, called a target
market.
Marketing involves developing and managing a product that will satisfy customer needs, making the product
available in the right place and at a price that will be acceptable to buyers, and communicating information that
will help customers determine if the product will satisfy their needs. These activities- product, distribution,
promotion, and pricing- are known as the marketing mix because marketing managers decide what type of each
element to use and in what amounts. Marketing executives strive to develop a marketing mix that matches the
needs of the customers in the target market. Before marketers can develop a marketing mix, they must collect
in-depth, up-to-date information about customer needs. The product variable of the marketing mix deals with
researching customers' needs and wants and designing a product that satisfies them.
The product can be a good, service, or an idea. When dealing with the distribution variable, a marketing
manager tries to make products available in the quantities desired to as many customers as possible. The
promotion variable relates to activities used to inform individuals or groups about an organization and its
products. The price variable involves decisions and actions associated with establishing pricing policies and
determining product prices. These marketing mix variables are often viewed as controllable because they can be
changed, but there are limits to how much they can be altered.
Individuals and organizations engage in marketing to facilitate exchanges. Four conditions must exist for an
exchange to occur:
 There are at least two parties;

 Each party has something that might be of value to the other party;
 Each party has confidence and trust on the other party's products or services;
 Organizational activities should attempt to create and maintain satisfying exchange relationships.
Marketing is more than just persuading customers and selling. Some companies think that the job of marketing
is to "get rid of" whatever the company happens to produce. Some managers, say that marketing means
"selling" or "advertising." It's true that these are parts of marketing. But marketing is much more than selling
and advertising.
In fact, the aim of marketing is to identify customers' needs—and meet those needs so well that the product
almost "sells itself." This is true whether the product is a physical good, a service, or even an idea. If the whole
marketing job has been done well, customers don't need much persuading. They should be ready to buy. And
after they do buy, they'll be satisfied and ready to buy the same way again the next time.
1.2.2 Levels of Marketing

a) Macro-Marketing
Macro marketing takes a broad view of our whole production-distribution system. It focuses on the economic
welfare of a whole society. Difference between the two definitions may be less obvious. Macro marketing is a
social process that directs an economy's flow of goods and services from producers to consumers in a way that
effectively matches supply and demand and accomplishes the objectives of society.
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Macro marketing is concerned with the flow of need-satisfying goods and services from producer to consumer.
However, the emphasis with macro marketing is not on the activities of individual organizations. Instead, the
emphasis is on how the whole marketing system works. This includes looking at how marketing affects society,
and vice versa.
Every society needs a macro-marketing system to help match supply and demand. Different producers in a
society have different objectives, resources, and skills. Likewise, not all consumers share the same needs,
preferences, and wealth.
The role of a macro-marketing system is to effectively match this heterogeneous supply and demand and at the
same time accomplish society's objectives.
The effectiveness and fairness of a particular macro-marketing system must be evaluated in terms of that
society's objectives. Obviously, all nations don't share the same objectives. Let's look more closely at macro
marketing. And to make this more meaningful to you, consider what kind of a macro-marketing system you
have and how effective and fair it is.
b) Micro Marketing
Micro marketing is the performance of activities that seek to accomplish an organization's objectives by
anticipating customer or client needs and directing a flow of need-satisfying goods and services from producer
to customer or client. Micro marketing focuses on activities performed by an individual organization. It looks at
customers and the organizations that serve them.
Most modern economies have advanced well beyond the five-family village, but the same ideas still apply. The
main purpose of markets and market intermediaries is to make exchange easier and allow greater time for
production, consumption, and other activities—including leisure.
Check Your Progress Exercise
1. What is Marketing?
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1.3 Basic concepts of Marketing
1.3.1 Marketing and Customer Needs

Marketing should begin with potential customer needs—not with the production process. Marketing should try
to anticipate needs. And then marketing, rather than production, should determine what goods and services are
to be developed—including decisions in relation to:
 product design
 prices or fees;
 use of middlemen;
 credit and collection policies;
 packaging;
 advertising and sales policies;
 transporting and storing policies;
 after the sale and installation if necessary;
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 customer service, warranty;

That's why it is emphasized that marketing concerns a flow of need-satisfying goods and services to the
customer. Often, that flow is not just for a single transaction but rather is part of building a long-lasting
relationship that is beneficial to both the firm and the customer.
According to the marketing concept, an organization should try to provide products that satisfy customers,
needs through a coordinated set of activities that also allows that organization to achieve its goals. Customer
satisfaction is the marketing concept's major objective. To implement the marketing concept, a marketing
organization adopts a marketing orientation approach that provides value to the customer.
1.3.2 Marketing Management
Marketing management is the process of:
 Planning;
 Organizing;
 Implementing;
 Controlling; of programs to create, build and maintain mutually beneficial exchanges and relationships
with target market for the purpose of achieving organization objectives.
The above processes are required in order to facilitate effective and efficient exchanges. Effectiveness and
efficiency are important dimensions in marketing management. Planning is a systematic process of assessing
opportunities and resources, determining marketing objectives, developing a marketing strategy, and preparing
for implementation and control. Organizing marketing activities involves developing the marketing unit's
internal structure. Proper implementation of marketing plans depends on coordinating marketing activities,
motivating marketing personnel, and communicating effectively within the unit.
The marketing control process consists of establishing performance standards, comparing actual performances
with established standards, and reducing the difference between desired and actual performance. Marketing is
important in our society in many ways. Marketing costs absorb about half of each buyer's money. Marketing
activities are performed in both business and non-business organizations. They also help business organizations
generate profits as well as help fuel the increasingly global economy. Knowledge of marketing also enhances
consumer awareness.
New technology improves marketers' ability to connect with customers. Socially responsible marketing can
promote the welfare of customers and society. Finally, marketing offers many exciting career opportunities
1.3.3 How Marketing Relates to Production
Production is a very important economic activity. Whether for lack of skill and resources or just lack of time,
most people don't make most of the products they use. The point is that production and marketing are
both important parts of a total business system aimed at providing consumers with need-satisfying goods and
services. Together, production and marketing supply five kinds of economic utility-form, time, place, and
possession utility-that are needed to provide consumer satisfaction. Here, utility means the power to satisfy
human needs.
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This is how marketing thinking guides the production side of business. Marketing decisions focus on the
customer and include decisions about what goods and services to produce. It doesn't make sense to provide
goods and services consumers don't want when there are so many things they do want or need. Marketing is
concerned with what customers want, and it should guide what is produced and offered. This is an important
idea that we will develop more completely later.
Even when marketing and production combine to provide form or task utility, consumers won't be satisfied until
possession, time, and place utility are also provided.
Form utility is associated primarily with production, the physical or chemical changes that make a product more
valuable. Mostly, points such as design, color, and quantities produced, or some other aspects of a product are
taken into consideration. Possession utility means obtaining a good or service and having the right to use or
consume it. It is created when a customer buys the product. In this case, ownership is transferred to the buyer.
Customers usually exchange money or something else of value for possession utility.
Time utility means having the product available when the customer wants it. And place utility means having the
product available where the customer wants it. Time and place utility are very important for services too.
1.3.4 The Importance of Marketing

Another important reason for learning about marketing is that marketing affects almost every aspect of your
daily life. All the goods and services you buy, the stores where you shop, and the radio and TV programs paid
for by advertising are there because of marketing.
 Marketing Verses Economic Growth

An even more basic reason for studying marketing is that marketing plays a big part in economic growth and
development. Marketing stimulates research and new ideas—resulting in new goods and services. Marketing
gives customers a choice among products. If these products satisfy customers, fuller employment, higher
incomes, and a higher standard of living can result. An effective marketing system is important to the future of
all nations.
2. Is it important that enterprises should satisfy customers' need? State why.
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1.4 Performance of Marketing Functions
Producers, consumers, and marketing specialists from a macro-level viewpoint, are all part of the marketing
process. None of them can be eliminated. In a planned economy, some of the functions may be mostly
performed by government agencies. Others may be left to individual producers and consumers. Where as in a
market-directed system, marketing functions are performed by the following:
 Producers or manufacturers;
 Consumers;
 Whole sellers;
 Retailers;
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 Agents
 Other marketing specialists.
However, regardless of who performs the marketing functions, in general they must be performed effectively.
For example, producers based in one nation may serve consumers in another country, perhaps with help from
intermediaries and other specialists.
Marketing functions may be performed not only by middlemen but also by a variety of other facilitators—firms
that provide one or more of the marketing functions other than buying or selling. These include advertising
agencies, marketing research firms, independent product-testing laboratories, public warehouses, transporting
firms, communications companies, and financial institutions (including banks). It is important to note that:
Responsibility for performing the marketing functions can be shifted and shared in a variety of ways, but no
function can be completely eliminated.

3. In a market- driven system, by whom are marketing functions performed?
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1.5 The Philosophies of Marketing

Different business organizations follow different concepts. Despite the fact that market oriented concept may
boost performance many firms focus on various philosophies. There are five competing concepts under which
organizations can choose to conduct their marketing activities. These are:
 The Production Concept;

 The Product Concept;
 The Marketing Concept;
 The Selling Concept;
 The Societal Marketing Concept.
a. The Production Concept
Firms who follow this Philosophy focus their attention and resources on such functions as product and
process engineering, in order to acquire and manage the resources necessary to keep pace with the growing
demand.
The production concept is one of the oldest concepts in business. It holds that consumers will favor products
that are widely available and low in cost. Managers of production-oriented organization concentrate on
achieving high production efficiency and wide distribution.
The assumption that consumers are primarily interested in product availability and low price holds in at least
two situations. The first is where the demand for a product exceeds supply. Here consumers are more interested
in obtaining the product that in its fine points, and supplies will concentrate on finding ways to increase
production. The second is where supply exceeds demand. In this situation, consumers get advantage of
reduced price and manufacturers need to conduct heavy promotion in order to win competition.
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b. The Product Concept

Some other organizations follow the " product concept". These firms focus on improving their products in
order to have quality product. The product concept holds that consumers will favor those products that offer
the most quality, performance or innovative features. Managers in product oriented organization focus their
energy on making superior products and improving them over time. Under this concept, enterprises assume that
buyers admire well-made products and can appraise product quality and performance.
Product-oriented companies often design their products with little or no customer input. They trust that their
engineers will know how to design or improve the product.
c. The Marketing Concept

Marketing oriented organizations tend to operate according to the business philosophy known as "market
concept". This concept holds that the planning and coordination of all organization activities around the primary
goal of satisfying customer needs in the most effective way.
The marketing concept is a business philosophy that challenges the three concepts we just discussed. Its central
tents crystallized in the mid 1950s. The marketing concept holds that the key to achieving organizational goals
consists of being more effective than competitors in integrating marketing activities toward determining and
satisfying the needs and wants of target markets. This concept put its facts on the following:
 target market;
 customer needs;
 marketing;
 profitability;
The marketing concept takes an outside in perspective. It starts with a well-defined market, focuses on
customers' needs, integrates all the activities that will affect customers, and produces profit by satisfying
consumers. A brief discussion of the following concept is indicated below.
 Target market:
No company can operate in every market and satisfy every market and every need. Nor can it always do a good
job in this one broad market. Even Microsoft cannot offer the best solution for all information processing need.
Companies do best when they define their target market(s) carefully and prepare a tailored marketing program.
With in market targets, organizations can pursue a number of business-unit strategies to aid in the marketing of
product.
 Customer Needs:
An enterprise can define its target market but fail to fully understand the customer's needs. Although marketing
is about meeting needs profitably, understanding customer needs and wants is not always a simple task.
Customer oriented thinking requires the company to define customer needs from the customer's point of view.
Every buying decision involves trade-offs, and management cannot know what these are without researching
customers.
In general, a company can respond to customers request by giving customers what they want, or what they
need, or what they really need. The key to professional marketing is to understand their customer real needs and
meet them better than any other competitor can.
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 Marketing
When all the company's department work together to serve the customer's interest, the result is integrated
marketing. Unfortunately, not all employees are trained and motivated to work for the customer, an engineer
may complain that the sales people are "always protecting the customer and not thinking of the company's
interest". It takes place on two levels. First the various marketing functions such as sales force, advertising,
product management, marketing research, and so on must work together.
 Profitability
The ultimate purpose of the marketing concept is to help organizations achieve their goals. In the case of private
firms, the major goal is profit. In the case of non-profit and public organizations, it is surviving and attracting
enough funds to perform their work. In for-profit organizations, the key is not to aim for profits as such but to
achieve them as the by-product of doing the job well.
d. The Selling Concept

This concept focuses on selling what the firm wants to make rather than on customer needs. Competitors can
just easily match such aggressive sales strategies. The selling concept is another common approach. The selling
concept holds that consumers, if left alone, will ordinarily not buy enough of the organization product. The
organization must, therefore, undertake an aggressive selling and promotion effort. .
This concept assumes that consumers typically show buying inertia or resistance and must be convinced to buy.
It also assumes that the company has made available a whole battery of effective selling and promotion tools to
stimulate more buying.
Most firms practice the selling concept when they have over capacity. Their aim is to sell what they make rather
than producing what the market wants. Therefore, people are surprised when they are told that the most
important part of marketing is not selling; selling is only the tip of marketing iceberg.
In this philosophy the selling agents take over the whole marketing job of producers, not just the selling
function. A selling agent may handle the entire output of one or more producers- even competing producers
with almost complete control of pricing, selling, and advertising. In effect, the agent becomes each producer’s
marketing manager.
e. The Societal marketing Concept
The societal marketing concept holds that the organization should determine the needs, wants and interests of
target markets. It should then deliver the desired satisfactions more effectively and efficiently than competitors
in a way that maintains or improves the consumers and the society's well being.
The societal marketing concept questions whether the pure marketing concept is adequate in an age of
environmental problems, resource shortages, rapid population growth, world wide economic problems, and
neglected social services. It asks if the firm that senses, serves and satisfies individual wants is always doing
what is best for consumers and society in the long run. According to the societal marketing concept, the pure
marketing concept overlooks possible conflicts between short-run consumer wants and long run consumer
welfare.
4. Discuss the various marketing concepts.
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1.6 Marketing Environment

The marketing environment, which includes competitive, economic, political, legal and regulatory,
technological, and socio-cultural forces, surrounds the customers and the marketing mix. These forces can
create threats to marketers, but they also generate opportunities for new products and new methods of reaching
customers. These forces can fluctuate quickly and dramatically.
Finding target market opportunities takes a real understanding of what makes customers tick. Understanding the
marketing environment is also important in planning marketing strategy and evaluating opportunities.
The marketing environment falls into five basic areas:
1. Objectives and resources of the firm.

2. Economic and technological environment.
3. Political and legal environment.
4. Cultural and social environment.
5. Competitive environment.
A marketing manager controls the choice of marketing strategy variables within the framework of the broader
marketing environment and how it is changing. In the short run enterprises do not control environmental
variables. That's why it's sometimes useful to think of them as uncontrollable variables. Although the marketing
manager may not be able to control these environmental variables directly, they must be considered carefully
when evaluating opportunities and selecting marketing strategies. Here after, we'll see how these variables
shape opportunities—limiting some possibilities and making others more attractive.
When choosing target markets and developing the four Ps, they must work with many variables in the broad
marketing environment. The marketing environment consists of external forces–including competitive,
economic, political, legal and regulatory, technological, and socio-cultural forces–that directly or indirectly
influence an organization's acquisition of inputs and generation of outputs. Marketers monitor changes in these
forces with environmental scanning and environmental analysis. Marketing management may assume either a
passive, reactive approach or an aggressive, proactive approach in responding to these fluctuations.
All businesses compete for customers' Birr , but a marketer generally defines competition in a broader sense.
Competitors can be classified into one of four types: brand competitors; product competitors; generic
competitors; and total budget competitors. The number of firms controlling the supply of a product may affect
the strength of competitors. Types of competitive structures include monopoly, oligopoly, monopolistic
competition, and pure competition.
The overall state of the economy fluctuates in a general pattern known as the business cycle. The stages of the
business cycle include prosperity, recession, depression, and recovery. The economic factors that can strongly
influence both marketers' and customers' decisions and activities are general economic conditions, buying
power, and willingness to spend. Financial sources of buying power are income, credit, and wealth. Marketers
are especially concerned about levels of disposable income and discretionary income.
 Economic Environment
The economic and technological environment affects the way firms—and the whole economy—use resources.
We will treat the economic and technological environments separately to emphasize that the technological
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environment provides a base for the economic environment. Technical skills and equipment affect the way
companies convert an economy's resources into output. The economic environment, on the other hand, is
affected by the way all of the parts of a macro-economic system interact. This then affects such things as
national income, economic growth, and inflation. The economic environment may vary from one country to
another, but economies around the world are linked.
Economic conditions change rapidly. The economic environment can—and does—change quite rapidly. The
effects can be far-reaching—and require changes in marketing strategy.
Even a well-planned marketing strategy may fail if the country goes through a rapid business decline. As
consumers' incomes drop, they must shift their spending patterns. They may simply have to do without some
products. When consumer confidence is low, people delay purchasing—especially big ticket items. Similarly,
firms cut back on their own purchases. Many companies aren't strong enough to survive in bad times.
It is important to see how interest rates and inflation affect buying. Changes in the economy are often
accompanied by changes in the interest rate—the charge for borrowing money. Interest rates directly affect the
total price borrowers must pay for products. So the interest rate affects when—and if—they will buy. This is an
especially important factor in some business markets. But the decisions of individual marketing managers to
raise prices add to macro-level inflation. That can lead to government policies that reduce income, employment,
and consumer spending.
In this aspect it is also important to see into the global economy. In the past, organizations often focused their
attention on the economy of their home country. It's no longer that simple. The economies of the world are
connected—and at an increasing pace changes in one economy affect others. One reason for this is that the
amount of international trade is increasing—and it is affected by changes in and between economies.
Changes in the exchange rate—how much one country's money is worth in another country's money—have an
important effect on trade. An organization may not be safe from the forces of changing exchange rates. New
competition may arise in domestic markets as foreign products gain a competitive edge with lower prices. Many
companies find themselves helpless during such economic change. In fact, a country's whole economic system
can change as the balance of imports and exports shifts—affecting jobs, consumer income, and national
productivity.
 Political Environment
The political forces of the marketing environment determine what laws and regulations affecting marketers are
enacted and how much and from whom government purchases are made. These forces also can be important in
helping organizations secure foreign markets.
The attitudes and reactions of people, social critics, and governments all affect the political environment.
Consumers in the same country usually share a common political environment, but the political environment
can also have a dramatic effect on opportunities at a local or international level. Some organizations have
become very successful by studying the political environment and developing strategies that take advantage
 The Legal Environment
Changes in the political environment often lead to changes in the legal environment—and in the way existing
laws are enforced. It's hard for marketing managers to know all the relevant laws, but it's important that they do
because the legal environment sets the basic rules for how a business can operate in society. The legal
environment may severely limit some choices, but changes in laws and how they are interpreted also create
new opportunities.
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Self-regulation may be less expensive than government regulation, and its guidelines are generally more
realistic. However, such regulation cannot ensure compliance as effectively as government agencies.
 Technological Environment
Technology influences how we, as members of society, satisfy our physiological and social needs. Consumer
demand, product development, packaging, promotion, prices, and distribution systems are all influenced
directly by technology.
Technological environment includes factors and trends related to innovations that affect the development of
new products or the marketing process. Rapid technological advances make it imperative that marketers take a
technology perspective. These technological trends can provide opportunities for new- product development;
affect how marketing activities are performed or both. For example advancement in the metal industry or plastic
industries can provide new products for firms to market and the buyers of these products often use them to
change the way they market their own products. Using these technological products can help marketers be more
productive.
New technologies can spawn new industries, new business, or new products for existing business enterprises.
Organizations at the leading edge of technological development are in a favorable position. Thus, marketers
need to monitor the technological environment constantly as well as enhance them. To compute successfully
organizations must monitor developments in specific technologies.
 Socio-cultural Environment
Socio-cultural forces determine what, where, how, and when people buy products. Major socio-cultural issues
directly affecting marketers include demographic characteristics, diversity, cultural values, and consumerism.
Changes in a population's demographic characteristics, such as age, income, race, and ethnicity, can lead to
changes in that population's consumption of products. Changes in cultural values, such as those relating to:
 Health;
 Family;
 Natural environment;
The above issues which social and cultural issues have striking effects on people's needs for products.
Consumer rights organizations inform and organize consumers, raise issues, help businesses develop consumer-
oriented programs, and pressure lawmakers to enact consumer protection laws.
The cultural and social environment affects how and why people live and behave as they do—which affects
customer buying behavior and eventually the economic, political, and legal environment. Many variables make
up the cultural and social environment. Some examples are the languages people speak, the type of education
they have, their religious beliefs, what type of food they eat, the style of clothing and housing they have, and
how they view marriage and family.
Because the cultural and social environment has such broad effects, most people don't stop to think about it, or
how it may be changing, or how it may differ for other people.
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An organization can't afford to take the cultural and social environment for granted. Although changes tend to
come slowly, they can have far-reaching effects. A marketing manager who sees the changes early may be able
to identify big opportunities. Further, within any broad society , different subgroups of people may be affected
by the cultural and social environment in different ways. In most countries, the trend toward multiculturalism is
making such differences even more important to marketers. They require special attention when segmenting
markets.
In fact, dealing with these differences is often one of the greatest challenges organizations face when planning
strategies, especially for international markets.
 Competitive environment.
Competitive environment consists of all the organizations that attempt to serve similar customers. Two types of
competitors are of major concern. They are:
 Brand competitors
 Product competitors
Brand competitors provide the most direct competition, offering the same type of products as competing firms.
Product competitors offer different types of products to satisfy the same general need. They attempt to satisfy a
consumer need by offering a specific product, which is different from another firm. The competitive
environment for most firms is often fierce. Marketers need to identify their relevant brand and product
competitors in order to identify market opportunities and develop appropriate marketing strategies.
Keeping track of the number, type and actions of competitors is becoming increasingly important. Now-a-days
competition is much more severe, complex and difficult and new competitors are entering the market especially
through Internet and business organizations cannot ignore that issue.

5. Explain the various marketing environments.
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1.7 Summary
Marketing mix is a set of controllable variables that must be managed to satisfy target markets and to achieve
organizational objectives. The purpose of marketing is to recognize that customers are of critical importance to
an enterprise and that profit and the long term survival of an enterprise depends upon continuing to satisfy
customer needs. In addition, the purpose of this marketing concept is to revert the attention of marketing
managers or serving broad classes of customer needs rather than on the firm's current products. In making
marketing analysis the six environmental issues namely economic, political, social and cultural, legal,
technological and competitive factors have to be considered.
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Companies realize that the marketing environment presents a never-ending series of opportunities and threats.
The major responsibility for identifying significant changes in the macro environment falls to a company's
marketers. More than any other group in the company, marketing managers must be the trend truckers and
opportunity seekers.
An organization has typically some type if philosophy that directs the efforts of every one in it. The philosophy
might be stated formally as in a mission statement or it might become established informally through the
communication and actions of top management. The main concepts are namely product concept, production
concept, selling concept, marketing concept and societal concept.
1. Marketing is the process of creating, distributing, promoting, and pricing goods, services, and ideas to
facilitate satisfying exchange relationships with customers in a dynamic environment.
2. Yes, consumers are one of the most important players in the market.
3. Marketing functions are performed by producers, consumers and marketing specialists
4. Marketing concepts include production concept, product concept, marketing concept, societal concept
and selling concept.
5. The marketing environments are namely economic, political, social and cultural, legal, technological and
competitive issues.
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CHAPTER TWO: STRATEGIC PLANNING AND THE MARKETING

MANAGEMTN PROCESS
Contents
2.1. Learning Objectives

2.2. What is Strategic Planning?
2.2.1. Strategic planning and marketing management
2.2.2. The strategic planning process
2.3. The marketing management process
2.3.1. Situational analysis
2.3.2. Marketing planning
2.3.3. Implementation and control of the marketing plan
2.4. Summary
2.5. Answer key to check your progress
This chapter will examine the strategic planning and pay special attention towards the marketing
management process.
After the completion of this chapter you should be able to,
 Explain the strategic planning
 Understand the strategic planning process
 Know the management process
2.2 What is Strategic Planning?

Strategic planning is a managerial process of developing and maintaining a match between an
organization’s resources and its market opportunities.
It’s also defined as, a means of finding attractive opportunities and developing profitable marketing
strategies.
A marketing planning strategy specifies a target market and a related marketing mix, which is a “big
picture” of what a firm will do in some market. In order to fulfill the task two interrelated parts are
needed, these are a target market and a marketing mix.
Target Market: Similar/homogenous/ group of customers whom a producer wishes to appeal.

Marketing mix: The controllable variables the producer puts to gather to satisfy this target group
(Marketing mix variables / sometimes called the 4ps include product, price, promotion and physical
distribution /Place)
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There is a larger context for planning activities. Let us assume that we are dealing with a large business
organization that has several business divisions and several product lines within each division, before any
marketing planning can be done by individual divisions or departments, a plan has to be developed for the
entire organization. This means that senior managers must look towards the future and evaluate their ability
to shape their organization's destiny in the years and decades to come. The output of this process is objectives
and strategies designed to give the organization a chance to compete effectively in the future. The objectives
and strategies established at the top level provide the context for planning in each of the divisions and
departments by divisional and departmental managers. It is worth noting that, depending on the environmental
challenges faced by the organization, different planning approaches may be called for.
2.2.1 Strategic Planning and Marketing Management

The most successful business organizations are here today because some years back they
offered the right product at the right time to a rapidly growing market. The same can also be
said for nonprofit and governmental organizations. Many of the critical decisions of the past
were made without the benefit of strategic thinking or planning. Whether these decisions were
based on wisdom or were just luck is not important; they worked for these organizations.
However, a worse fate befell countless other organizations For example over three-quarters of
the world largest corporations of 70 years ago have fallen from the list. These corporations at
one time dominated their markets, controlled vast resources, and had the best- trained workers,
but at the end, they all made the same critical mistake. Their managements failed to recognize
that business strategies need to reflect changing environments and emphasis must be placed on
developing business systems that allow for continuous improvement. Instead, they attempted
to carry on business as usual.
The present-day managers are increasingly recognizing that wisdom and innovation alone are no longer
sufficient to guide the destinies of organizations, both large and small. These same managers also realize that
the true mission of the organization is to provide value for three key constituencies: these are customers,
employees and investors without such type of outlook no one including shareholders will profit in the long run.
Strategic planning includes all the activities that lead to the development of a clear organizational mission,
organizational objectives, and appropriate strategies to achieve the objectives for the entire organization. The
form of the process itself has come under criticism in some quarters for being too structured; however, strategic
planning, if performed successfully, plays a key role in achieving an equilibrium between the short and the long
term by balancing acceptable financial performance with preparation for inevitable changes in markets,
technology, and competition, as well as in economic and political arenas. Managing principally for current cash
flow, market share gains, and earnings trends can mortgage the firm's future. An Intense focus on the near term
can produce an aversion to risk that dooms a business to stagnation. Conversely overemphasis on the long run is
just as inappropriate. Companies that over extend themselves betting on the future may penalize short-term
profitability and other operating results to such an extent that the company is vulnerable to takeover and other
threatening actions.
In the strategic planning process the organization gathers information about the changing elements of its
environment. Managers from all functional areas in the organization assist in this information-gathering
process. This information is useful in aiding the organization to adapt better to these changes through the
process of strategic planning. The strategic plants and supporting plan are then implemented in the environment.
The results of this implementation are fed back as new information so that continuous adaptation and
improvement can take place.
15
2.2.2 The Strategic Planning Process
The output of the strategic planning process is the development of a strategic plan. Figure 2.1
indicates four components of a strategic plan: Mission, Objectives, Strategies and Portfolio
plan. Let us carefully examine each components of the strategic plan.
i) Organizational Mission: The organization's environment provides the resources that sustain the
organization, whether it is a business, or a government agency. In exchange for these resources, the
organization must supply the environment with quality goods and services at an acceptable price. In other
words, every organization exists to accomplish something in the larger environment and that purpose,
vision, or mission usually is clear at the organization's inception. As time passes, however, the organization
expands, and the environment and managerial personnel change. As a result, one or more things are likely to
occur. First, the organization's original purpose may become irrelevant as the organization expands into new
products, new markets, and even new industries. Second, the original mission may remain relevant, but
managers begin to lose interest in it. Finally, changes in the environment may make the original mission
inappropriate. The result of any or all three of these conditions is a "drifting" organization, without a clear
mission, vision, or purpose to guide critical decisions. When this occurs, management must search for a
purpose or emphatically restate and reinforce the original purpose.
a) The organization's history; Every organization-large or small, profit or nonprofit has a history
of objectives, accomplishments, mistakes, and policies. In formulating a mission, the critical
characteristics and events of the past must be considered.
b) The organization's distinctive competencies: While there are many things an organization may
be able to do, it should seek to do what it can do best. Distinctive competencies are things that an
organization does well: so well in fact that they give it as advantage over similar organizations.
c) The organization's environment: The organization's environment dictates the opportunities,
constraints, and threats that must be identified before a mission statement is developed. For
example, managers in any industry that is affected by technology breakthroughs should
continually be asking, how will the changes in technology affect my customers' behavior and the
means by which we need to conduct our business?
However, it is extremely difficult to write a useful and effective mission statement. It is not uncommon for
an organization to spend one or two years developing a useful mission statement. When completed, an
effective mission statement will be focused on markets rather than products, achievable, motivating, and
specific.
ii) Organizational Objectives: It’s the end points of an organization's mission and are what it seeks
through the ongoing, long-run operations of the organization. The organizational mission is distilled into a
finer set of specific and achievable organizational objectives. These objectives must be specific, measurable,
action commitments by which the mission of the organization is to be achieved.
As with the statement of mission, organizational objectives are more than good intentions. In fact as it’s
formulated properly can accomplish the following:
16
 They can be converted into specific action.

 They will provide direction. That is, they can serve as a starting point for more specific and detailed
objectives at lower levels in the organization. Each manager will then know how his or her objectives relate
to those at higher levels.
 They can establish long-run priorities for the organization. .
 They can facilitate management control because they serve as standards against which overall
organizational performance can be evaluated.
iii) Organization Strategies: When an organization has formulated its mission and developed its objectives,
it knows where it wants to go. The next managerial task is to develop a "grand design" to get there. This
grand design constitutes the organizational strategies. Strategy involves the choice of major directions the
organization will take in pursuing its objectives. Towards this end, it is critical that strategies are consistent
with goals and objectives and that top management ensures strategies are implemented effectively. As many
as 60% of strategic plans have failed because the strategies in them were not well defined and, thus, were
unable to be implemented effectively. What follows is a discussion of various strategies organizations can
pursue.
iv) Organizational Portfolio Plan: The final phase of the strategic planning process is the formulation of
the organizational portfolio plan. In reality, most organizations at a particular time are a portfolio of
businesses that is, product lines, divisions, schools. To illustrate, an appliance manufacturer may have
several product t' lines (e.g., televisions, washers and dryers, refrigerators, stereos) as well as two
divisions, consumer appliances and industrial appliances. A college or university will have numerous
fields,
(e.g. education, business, law, architecture) and several programs within each school.
Managing such groups of business made a little easier if resources (human/nonhuman) are available and each is
experiencing growth and profits. Unfortunately, providing larger and larger budgets each year to all
businesses is seldom feasible. Many are not experiencing growth, and profits and resources (financial and non-
financial) are becoming more and scarcer. In such a situation, choices must make, and certain method is
necessary to help management make the choices. Management must decide which businesses to build, maintain,
eliminate, or which new businesses to add. Indeed, much of the recent activity in corporate restructuring has
centered on decisions relating to which groups of businesses management should focus on.
Obviously, the first step in this approach to identify the various divisions’ product lines and so on that can be
considered as a "business." When identified, these referred to as strategic business units (SBUs) with the
following characteristics:
 They have a distinct mission.
 They have their own competitors.
 They are a single business or collection of related businesses.
 They can plan independently of the other businesses of the total organization.
Thus, depending on the type of organization, a strategic business units could be a single product, product line,
or division; a college of business administration; or a state mental health agency. Once the organization has
identified and classified all of its strategic business units some method must establish to determine how
resources should be allocated among the various SBUs. These methods are known as portfolio models.
17
v) The Complete Strategic Plan: The strategic planning process (Figure 2.1) indicates that at this point,
the strategic planning process is complete, and the organization has a time-phased blueprint that outlines its
mission, objectives, and strategies. Completion of the strategic plan facilitates the development of marketing
plans for each product, product line, or division of the organization. The marketing plan serves as a subset
of the strategic plan in that it allows for detailed planning at a target market level. This important
relationship between strategic planning and marketing planning is the subject of the final section of this
chapter.
Check your progress exercise

1.Define a strategic planning
…………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………
…………………………………………………………………………………………………………
2.3 The Marketing Management Process
Marketing management can be defined as "the process of planning and executing the conception,
pricing, promotion, and distribution of goods, services, and ideas to create exchanges with target groups
that satisfy customer and organizational objectives. It should be noted that this definition, is entirely
consistent with the marketing concept, since it emphasizes the serving of target market needs as the key
f to achieving organizational objectives.
2.3.1 Situation Analysis
The marketing manager with a clear understanding of organizational objectives and mission
must then analyze and monitor the position of the firm and, specifically, the marketing
department, in terms of its past, present, and future situation. Of course, the future situation is
of primary concern. However, analysts of past trends and the current situation are most useful
for predicting the future situation.
The situation analysis is further classified into six major areas of concern:
a) The cooperative environment
b) The competitive environment
c) The economic environment
d) The social environment
e) The political environment
f) The legal environment.
In analyzing each of these environments, the marketing executive must search both for opportunities and for
constraints or threats to achieve the objectives. Opportunities for profitable marketing often arise from changes
in these environments that bring about new sets of needs to be satisfied. Constraints on marketing activities,
such as limited supplies of scarce resources, also arise from these environments.
a) The Cooperative Environment: The cooperative environment includes all firms and individuals who
have vested interest in the firm accomplishing its objectives. Parties of primary interest to the marketing
executive in this environment are,
18
 Suppliers
 Resellers
 Other departments in the firm
 Sub departments and employees of the marketing department.
Opportunities in this environment are primarily related to methods of increasing efficiency. For example, a
company might decide to switch from a competitive bid process of obtaining materials to a single source that is
located near the company's plant. Likewise, members of the marketing, engineering, and manufacturing
functions may utilize a teamwork approach to developing new products versus a sequential approach.
Constraints consist of such things as unresolved conflicts and shortages of materials. For example, a company
manager may believe that a distributor is doing an insufficient job of promoting and selling the product, or a
marketing manager may feel that manufacturing is not taking the steps needed to produce a quality product.
b) The Competitive Environment: The competitive environment includes primarily other firms in the
industry that rival the organization for both resources and sales. Opportunities in this environment include
such things as:
 Acquiring competing firms

 Offering demonstrably better value to consumers and attracting them away from
competitors
 In some cases, driving competitors out of the industry.
For example, one airline purchases another airline, a bank offers depositors a free checking account with no
minimum balance requirements, or a grocery chain engages in an everyday low-price strategy that competitors
can't meet. The primary constraints in these environments are the demand stimulation activities of competing
firms and the number of consumers who cannot be lured away from competition.
c) The Economic Environment: The state of the macro economy and changes in it also bring about
marketing opportunities and constraints. For example, such factors as high inflation and unemployment
levels can limit the size of the market that can afford to purchase a firm's top-of-the-line product. At the
same time, these factors may offer a profitable opportunity to develop rental services for such products or to
develop less expensive models of the product. In addition, changes in technology can provide significant
threats and opportunities. For example, in the communications industry, technology has developed to a level
where it is now possible to pro vide cable television using phone lines. Obviously such a system poses a
severe threat to the existence of the cable industry as it exists today.
d) The Social Environment: This environment includes general cultural and social traditions, norms, and
attitudes. While these values change slowly, such changes often bring about the need for new products and
services. For example, a change in values concerning the desirability of large families brought about an
opportunity to market better methods of birth control. On the other hand, cultural and social values also
place constraints on marketing activities. As a rule, business practices that are contrary to social values
become political issues, which are often resolved by legal constraints. For example, public demand for a
cleaner environment has caused the government to require that automobile manufacturers’ products meet
certain average gas mileage and emission standards.
19
e) The Political Environment: The political environment includes the attitudes and reactions of the
public, social and business critics, and other organizations, such as the Better Business Bureau.
Dissatisfaction with such business and marketing practices as unsafe products, products that waste
resources and unethical sales procedures can have adverse effects on corporation image and customer
loyalty. However, adapting business and marketing practices to these attitudes can be an opportunity. For
example, these attitudes have brought about markets for such products as unbreakable children's toys, high-
efficiency air conditioners, and more economical automobiles.
f) The Legal Environment: This environment includes a host of federal state and local legislation directed
at protecting both business competition and consumer rights. In past years, legislation reflected social and
political attitudes and has been primarily directed at constraining business practices. Such legislation usually
acts as a constraint on business behavior, but again can be viewed as providing opportunities for marketing
safer and more efficient products. In recent years, there has been less emphasis on creating new laws for
constraining business practices. As an example, deregulation has become more common as evidenced by
recent events in the airlines, financial services, and telecommunications industries.
2.3.2 Marketing Planning

In the previous sections, it was emphasized that:
(1) Marketing activities must be aligned with organizational objectives; and
(2) Marketing opportunities are often found by systematically analyzing situational
environments.
Once an opportunity is recognized, the marketing executive must then plan an appropriate
strategy for taking advantage of the opportunity. This process can be viewed in terms of three
interrelated tasks:
(1) Establishing marketing objectives;
(2) Selecting the target market; and
(3) Developing the marketing mix.
1) Establishing Objectives: Marketing objectives usually are derived from organizational objectives; in
some cases where the firm is totally marketing oriented, the two are identical. In either case, objectives must
be specified and performance in achieving them should be measurable. Marketing objectives are usually
stated as standards of performance (e.g., a certain percentage of market share or sales volume) or as tasks to
be achieved by given dates. While such objectives are useful, the marketing concept emphasizes that profits
rather than sales should be the vending objective of the firm and marketing department. In any case, these
objectives provide the framework for the marketing plan.
2) Selecting the Target Market: The success of any marketing plan hinges on how well it can identify
customer needs and organize its resources to satisfy them profitably. Thus, a crucial element of the
marketing plan is selecting the groups or segments of potential customers the firm is going to serve with
each of its products. Four important questions must be answered:
i) What do customers want or need?

ii) What must be done to satisfy these wants or needs?
iii) What is the size of the market?
iv) What is its growth profile?
20
Present target markets and potential target markets are then ranked according to:
 Profitability;
 Present and future sales volume; and
 The match between what it takes to appeal successfully to the segment and the organization’s capabilities.
Those that appear to offer the greatest potential are selected. One cautionary note on this process involves the
importance of not neglecting present customers when developing market share and sales strategies. In a recent
study, It was found that for every ten companies that develop strategies aimed at increasing the
number of first-time customers, only four made any serious effort to develop strategies geared toward
retaining present customers and increasing their purchases.
3) Developing the Marketing Mix: The marketing mix is the set of all controllable variables that must be
managed to satisfy the target market and achieve organization objectives. These controllable variables are
usually classified according to four major decision areas, the major portion of this text is devoted to analyze
them in different chapters to product and new product strategies; promotion strategies in terms of both non
personal and personal selling; also in the area of distribution strategies; and to pricing strategies, In addition,
marketing mix variables are the focus of analysis in separate chapter on marketing in special fields, that is,
the marketing of services Thus, it should be clear to the reader that the marketing mix is the core of the
marketing management process.
The output of the foregoing process is the marketing plan. It is a formal statement of decisions that have been
made on marketing activities; it is a blueprint of the objectives, strategies, and tasks to be performed.
2.3.3 Implementation and Control of the Marketing Plan

Implementing the marketing plan involves putting the plan into action and performing
marketing tasks according to the predefined schedule. Even the most, carefully developed
plans often cannot be executed with perfect timing. Thus, the marketing executive must closely
monitor and coordinate implementation of the plan. In some cases, adjustments may have to be
made in the basic plan because of changes in any of the situational environments. For example,
competitors may introduce a new product. In this event, it may be desirable to speed up or
delay implementation of the plan. In almost all cases, some minor adjustments or fine- tuning
will be necessary in implementation.
Controlling the marketing plan involves three basic steps. First, the results of the implemented marketing plan
are measured. Second, these results are compared with objectives. Third, decisions are made on whether the
plan is achieving objectives. If serious deviations exist between actual and planned results, adjustments may
have to be made to redirect the plan toward achieving objectives.
In well-managed organizations, therefore, a direct relationship exists between strategic planning and the
planning done by managers at all levels. The focus and r time perspectives will, of course, differ, Figure 2.5
illustrates the cross-functional perspective of strategic planning. It indicates very clearly that all functional area
f plans should be derived from the strategic plan while at the same time contributing r to the achievement of the
strategic plan.
If done properly, strategic planning results in a clearly defined blueprint for management action ill all functional
areas of the organization. Figure 2.5 clearly illustrates this blueprint using only one organizational objective and
two strategies from the strategic plan (above the dotted line) and illustrating how these are translated into
21
elements of the marketing department plan and the production department plan (below the dotted line). Note
that in Figure 2.5, all objectives and strategies are related to other objectives and strategies at higher and lower
levels in the organization, that is, a hierarchy of objectives and strategies exists. We have illustrated only two
possible marketing objectives and two possible production objectives. Obviously, many others could be
developed, but our purpose is to illustrate the cross-functional nature of strategic planning and how objectives
and strategies from the strategic plan must be translated into objectives and strategies for all functional areas
including marketing.
Check your progress

1.Explain the different situation analysis
…………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………
………………………………………………………………………………………………………
2.4 Summary
This chapter has described the marketing management process in the context of the organization's
overall strategic plan. Clearly, marketers must understand their cross-functional role in joining the
marketing vision for the organization with the financial goals and manufacturing capabilities of the
organization. The greater this ability, the better the likelihood is that the organization will be able to
achieve and sustain a competitive advantage, the ultimate purpose of the strategic planning process.
2.5 Answer key to your progress questions
1) Strategic planning is a means of finding attractive opportunities and developing profitable marketing
strategies.
A marketing planning strategy specifies a target market and a related marketing mix, which is a big picture
of what a firm will do in some market. In order to fulfill the task the existence of a target market and
application of marketing mix variables is essential.
A target market holds a group of customers with similar interest whom a producer wishes to appeal.
Marketing mix are the marketing tools (product, price, promotion, physical distribution) put together in
order to satisfy the selected target group by the marketer.
2) The situation analysis can be classified into six major areas.

a) The cooperative environment d) The competitive environment
b) The political environment e) The economic environment
c) The social environment f) The legal environment
a) The Cooperative Environment: The cooperative environment includes all firms and individuals who
have vested interest in the firm accomplishing its objectives. Parties of primary interest to the marketing
executive in this environment are,
 Suppliers
 Resellers
22
 Other departments in the firm

 Sub departments and employees of the marketing department.
b) The Competitive Environment: The competitive environment includes primarily other firms in the
industry that rival the organization for both resources and sales. Opportunities in this environment
include such things as:
 Acquiring competing firms
 Offering demonstrably better value to consumers and attracting them away from competitors
 In some cases, driving competitors out of the industry.
For example, one airline purchases another airline, a bank offers depositors a free checking account with
no minimum balance requirements, or a grocery chain engages in an everyday low-price strategy that
competitors can't meet. The primary constraints in these environments are the demand stimulation
activities of competing firms and the number of consumers who cannot be lured away from competition.
c) The Economic Environment: The state of the macro economy and changes in it also bring about
marketing opportunities and constraints. For example, such factors as high inflation and unemployment
levels can limit the size of the market that can afford to purchase a firm's top-of-the-line product. At the
same time, these factors may offer a profitable opportunity to develop rental services for such products
or to develop less expensive models of the product. In addition, changes in technology can provide
significant threats and opportunities. For example, in the communications industry, technology has
developed to a level where it is now possible to pro vide cable television using phone lines. Obviously
such a system poses a severe threat to the existence of the cable industry as it exists today.
d) The Social Environment: This environment includes general cultural and social traditions, norms, and
attitudes. While these values change slowly, such changes often bring about the need for new products
and services. For example, a change in values concerning the desirability of large families brought about
an opportunity to market better methods of birth control. On the other hand, cultural and social values
also place constraints on marketing activities. As a rule, business practices that are contrary to social
values become political issues, which are often resolved by legal constraints. For example, public
demand for a cleaner environment has caused the government to require that automobile manufacturers’
products meet certain average gas mileage and emission standards.
e) The Political Environment: The political environment includes the attitudes and reactions of the public,
social and business critics, and other organizations, such as the Better Business Bureau. Dissatisfaction
with such business and marketing practices as unsafe products, products that waste resources and
unethical sales procedures can have adverse effects on corporation image and customer loyalty.
However, adapting business and marketing practices to these attitudes can be an opportunity. For
example, these attitudes have brought about markets for such products as unbreakable children's toys,
high-efficiency air conditioners, and more economical automobiles.
f) The Legal Environment: This environment includes a host of federal state and local legislation directed
at protecting both business competition and consumer rights. In past years, legislation reflected social
and political attitudes and has been primarily directed at constraining business practices. Such legislation
usually acts as a constraint on business behavior, but again can be viewed as providing opportunities for
marketing safer and more efficient products. In recent years, there has been less emphasis on creating
23
new laws for constraining business practices. As an example, deregulation has become more common as
evidenced by recent events in the airlines, financial services, and telecommunications industries.
CHAPTER THREE : MARKETING RESEARCH AND INFROMATION

SYSTEMS
Contents
3.2 Introduction to Marketing Research
3.2.1 Characteristic of Marketing Research
3.2.2 The Importance of Marketing Research
3.2.3 The Contribution of Marketing research to Foreign Markets
3.3 The Process of Marketing Research
3.3.1 Step 1 Defining the Research Topic
3.3.2 Step 2 Designing the Research Project
3.3.3 Step 3 Gathering Data
3.3.4 Step 4 Data Analysis and Interpretation
3.3.4. 1. Qualitative Versus Quantitative Analysis
3.3.5 Step 5 Conclusion and Report Writing
3.4 Marketing Information System
3.4.1 Overview to Marketing Information System
3.4.2 Support Through Information System
3.5 Hypothesis
3.5.1 What Hypothesis is
3.5.2 The importance of Hypotheses
3.6 Sampling
3.7 Summary

After completing this chapter, you should be able to:
1. Define marketing research

2. Figure out the nature of Marketing Research
24
3. Learn how to design a research Project

4. Gain knowledge about Information systems
5. Know the importance of the various tools for collecting data
6. Understand how to interpret data and information
7. Discover the various types of questionnaire
8. Understand the advantages and disadvantages of not interviewing respondents appropriately
9. Understand why researchers rely on sampling
10. Know the difference between primary and secondary data
11. Learn how to write a research report properly
12. Be familiar with the theory of hypothesis
3.2 Introduction to Marketing Research
3.2.1 Characteristics of Market Research
Marketing research is a systematic designing, collecting, analyzing and report writing in relation to a specific
problem or in finding any marketing opportunity.
To implement the marketing concept, marketers need information about the characteristics, needs, and wants of
a target market. Marketing research and information systems that furnish practical, unbiased information help
firms avoid assumptions and misunderstandings that could lead to poor marketing performance. To maintain the
control needed to obtain accurate information, marketers approach research as a process with logical steps.
3.2.2 The Importance of Marketing Research
Successful planning of marketing strategies requires information—information about potential target markets
and their likely responses to marketing mixes as well as about competition and other marketing environment
variables. Information is also needed for implementation and control. Without good marketing information,
managers have to use intuition or guesses—and in today's fast-changing and competitive markets, this invites
failure.
Yet managers seldom have all the information they need to make the best decision. Both customers and
competitors can be unpredictable. Getting more information may cost too much or take too long. For example,
data on international markets is often incomplete, outdated, or difficult to obtain. So managers often must
decide if they need more information and—if so—how to get it.
The marketing concept says that marketing managers should meet the needs of customers. But managers
cannot personally keep up with all of the changes taking place in their markets. Instead, they rely on help from
marketing research--procedures to develop and analyze new information to help them make decisions. One of
the important jobs of a marketing researcher is to get the "facts" that are not currently available.
Managers in some consumer product companies don't make any major decisions without the support--and
sometimes even the official approval--of the marketing research department. As a result, some marketing
research directors rise to high levels in the organization. Marketing managers should be able to explain what
exactly they want and should also know some of the basic decisions made during the research process so they
know the limitations of the findings.
25
Most large companies have a separate marketing research department to plan and carry out research projects.
These departments often use outside specialists including interviewing and tabulating services to handle
technical assignments.
With the experimental method, researchers compare the responses of two or more groups that are similar except
on the characteristic being tested. For example, a researcher might be interested in comparing
responses of consumers who had seen an ad for a new product with consumers who had not seen the ad. The
"response" might be an observed behavior, like the purchase of a product, or the answer to a specific question
such as: "How interested are you in this new product?" The most widely used form of qualitative questioning
in marketing research is the focus group interview.
3.2.3 The Contribution of Research to Foreign Market
Marketing research on overseas markets is often a major contributor toward international marketing success.
Conversely, export failures are often due to a lack of home-office management expertise concerning customer
interests, needs,
and other segmenting dimensions as well as environmental factors such as competitors' prices and products.
Effective marketing research can help to overcome these problems.
Whether a firm is small and entering overseas markets for the first time or already large and well established
internationally, there are often advantages to working with local market research firms. These research suppliers
know the local situation and are less likely to make mistakes based on misunderstanding the customs, language,
or circumstances of the customers they study.
As we've emphasized, however, it's still important for a marketing manager to work closely with the
researchers to be certain that they're not just "doing their own thing" with research that doesn't solve the
manager's problem. Just because researchers are experts on doing research in their local settings doesn't mean
that they are experts on the specific marketing problems the manager needs to solve. Finding a research supplier
with relevant experience helps to reduce the likelihood of problems.
When a firm is doing similar research projects in different markets around the world, it makes sense for the
marketing manager to coordinate the efforts. If the manager doesn't establish some basic guidelines at the
outset, the different research projects may all vary so much that the results can't be compared from one market
area to another. When key questions and issues are studied in similar ways, comparisons across markets are
possible. Such comparisons give a home-office manager a much better chance of understanding how the
markets are similar and how they differ. This can be a key to knowing if it is appropriate for marketing
strategies to be standardized across markets, or alternatively what customized approaches are necessary.
The scientific method is a decision-making approach that focuses on being objective and orderly in testing ideas
before accepting them. With the scientific method, managers don't just assume that their intuition is correct.
Instead, they use their intuition and observations to develop hypotheses —educated guesses about the
relationships between things or about what will happen in the future. Then they test their hypotheses before
making final decisions.
26
The scientific method forces an orderly research process. Some organizations don't carefully specify what
information they need. They blindly move ahead hoping that research will provide "the answer." Other
organizations may have a clearly defined problem or question but lose their way after that.
Check your Progress Exercise
1. What is the importance of conducting Marketing Research?

..............................................................................................................................................................................
..............................................................................................................................................................................
..............................................................................................................................................................................
3.3 Process of Marketing Research
The marketing research process is a five-step application that includes:
1. Defining the research topic;

2. Designing the research project;
3. Getting data;
4. Data analysis and interpretation;
5. Conclusion and report writing;
The marketing research process can be illustrated in details in the proceeding page
Fig. 3 Marketing Research process by stage
Primary Secondary Final stage

stage stage
Defining Gathering Conclusion

the data and report
research writing
question
Designing Data
the analysis and
research 27
interpretatio
project n
Figure 1
3.3.1 Step 1: Defining the Research Topic
Defining the problem is the most important—and often the most difficult step in the marketing research
process. Sometimes it takes over half the total time spent on a research project. But it's time well spent if the
objectives of the research are clearly defined. The best research job on the wrong problem is wasted effort.
Finding the right problem level almost solves the problem. It can help the researcher identify the real problem
area—and what information is needed. Do we really know enough about our target markets to work out all of
the four Ps? Do we know enough to decide what celebrity to use in an ad—or how to handle a price war in
Addis Ababa or Awassa
The problem definition step sounds simple—and that's the danger. It's easy to confuse symptoms with the
problem. Suppose a firm's marketing information system shows that the company's sales are decreasing in
certain territories while expenses are remaining the same—resulting in a decline in profits. Will it help to define
the problem by asking: How can we stop the sales decline? Probably not. This would be like fitting a hearing-
impaired patient with a hearing aid without first trying to find out why the patient was having trouble hearing.
It's easy to fall into the trap of mistaking symptoms for the problem. When this happens, the research objectives
are not clear, and researchers may ignore relevant questions—while analyzing unimportant questions in
expensive detail.
Setting research objectives may require more understanding. Sometimes the research objectives are very clear.
A firm wants to know if the targeted households have tried a new product and what percent of them bought it a
second time. But research objectives aren't always so simple. The firm might also want to know why some
didn't buy—or whether they had even heard of the product.
One good way is to develop a list of research questions that includes all the possible problem areas. Then
managers can consider the items on the list more completely—in the situation analysis step—before they
narrow down to final research objectives.
3.3.2 Step 2: Designing the research
What information do we already have? When the marketing manager thinks the real problem has begun to
surface, a situation analysis is useful. A situation analysis is an informal study of what information is already
available in the problem area. It can help define the problem and specify what additional information—if any—
is needed.
 Planning Marketing Research Methodology
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There is a clear-cut demarcation between research methods and research methodology. Research methods, as it
has been stated earlier refer to all those methods that are used for conduction of research. Thus, research
methods are concerned with the methods the researcher use in performing research operations. Keeping
research at center of solving a given problem, research methods can be put into the following three groups:
 Those methods which are concerned with collection of data;

 Those statistical techniques which are used for establishing relationships between the data and
unknowns;
 Those methods which are used to evaluate the accuracy of the results obtained.
Research methods are generally taken as the analytical tools of research.

On the other hand, research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically. Researcher not only need to know how
to develop certain indices or instruments; how to calculate measures of central tendency, dispersion or
association; how to apply particular research techniques; but they also need to know which of these methods or
techniques are relevant and which are not, and what would they mean and indicate, and why. Researchers also
need to understand the assumptions underlying various techniques and they need to know the criteria by which
they can decide that certain techniques and procedures will be applicable to certain problems and others will
not. All this means that it is necessary for the researcher to design his/her methodology for his/her problem
carefully as the same may differ from problem to problem.
This, the scope of research methodology is wider than that of research methods. Of course, research methods
do constitute a part of the research methodology. To sum up, when we talk of research methodology we not
only talk of the research methods but also consider the logic behind the methods we use in the context of our
research study and explain why we are using a particular method or technique and why we are not using others
so that the research results are capable of being evaluated either by the researcher himself or by others.
When planning, the researcher must make sure that interviewees can diligently fill the questionnaires. The
point is that if respondents don't take the questionnaire seriously then the researchers can make mistakes in their
analysis.
3.3.3 Step 3: Gathering Data
Data can be collected both from primary and secondary data. There are a wide variety of primary and as well
secondary data gathering tools available to researchers in the social sciences; deciding which to use depends
on:
 the particular methodology or type of research that has been selected;

 what is feasible in a given research situation;
 what is likely to yield the most appropriate information.
All these items are decided upon in the context of the particular research problem. Some of the more important
data collecting methods for survey or descriptive research studies are questionnaire, schedules, interview,
observation, focus group discussions and case study methods.
In general, if a greater precision of results in an investigation is needed (with the exception of an intensive
laboratory research where many measurements are taken upon each subject), the sample should be larger.
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Therefore, the determination of the size of a sample should be seen in view of the degree of the precision of the
research used, the parameters of interest in a research study, the size of the population variance, and the costs of
the research.
a) Primary Data
The primary data are those, which are collected afresh and for the first time, and thus happen to be original in
character. Original data related to the past events could also be considered as primary data. The major sources
of primary data include documents such as diaries of eyewitness, court records, statistical reports (census us
results), tape-records, films, letters and autobiographies.
There are different methods for collecting primary data. Which approach to use depends on the nature of the
problem and how much time and money are available.
In most primary data collection, the researcher tries to learn what customers think about some topic—or how
they behave under some conditions. There are two basic methods for obtaining information about customers:
questioning and observing. Questioning can range from qualitative to quantitative research. Quantitative
research is based on the measurement of quantity or amount. It is applicable to phenomena that can be,
expressed terms of quantity. Qualitative research, on the other hand, is concerned with qualitative
phenomenon- phenomenon relating to or involving quality or kind. For example studies related to human
behavior fall into this category of research.
And many kinds of observing such as the following are possible:

Non-direct participatory observation;
Participatory observation;
Mass observation;
b) Secondary Data
On the other hand, secondary data are those which have already been gathered by someone else and which have
already been passed through the statistical process. These include history textbooks or historical studies based
on the actual data, statistical research based on census data, newspaper reports of an event not written by an
eyewitness, biographies and other second-hand descriptions.
Researchers often rush to gather primary data when relevant secondary information has already been published.
Ideally, much secondary data is already available from the firm's MIS. Data that has not been organized in an
MIS may be available from the company's files and reports. Secondary data also is available from libraries,
trade associations, and government agencies.
However, one of the first places a researcher should look for secondary data is on the Internet. Although much
information relevant to your situation analysis may be on the Internet, it won't do you much good if you can't
find it. Fortunately, there are a number of good tools for searching on the Internet, and reference books that
explain the details of the different tools. However, the basic idea is simple. And, usually, the best way to start
is to use a search engine.
Most popular Internet browsers, like Netscape Navigator and Microsoft Internet Explorer, have a menu
selection or button to activate an Internet search. In addition, there are hundreds of more specialized search
engines. In general a user specifies words or a phrase to find and the search engine produces a list of hyperlinks
to web sites where that search string is found. Usually all you do is type in the search string, click on search,
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wait while the reference list of links is assembled, and then click on the hyperlink of interest. Then, the browser
shows the relevant page for that hyperlink on screen. If you want, you can go back to the list and check out
another hyperlink.
Secondary data may provide the answers—or some background. The situation analysis should also find relevant
secondary data—information that has been collected or published already. Later, in Step 3, we will cover
primary data—information specifically collected to solve a current problem. Too often researchers rush to
gather primary data when much relevant secondary information is already available—at little or no cost.
Many computerized database and index services are available through libraries and private firms. Many private
research organizations—as well as advertising agencies, newspapers, and magazines—regularly compile and
publish data. A good business library is valuable for sources such as Sales and Marketing Management.
Most trade associations compile data from and for their members. Some also
publish magazines that focus on important topics in the industry. CD-ROM discs that include all of the
businesses in the country. Resources such as these may be a big help in estimating the amount of competition in
certain lines of business—and where it is located.
The methods of gathering primary and secondary data differ since primary data are to be originally collected,
while in case of secondary data the nature of data collection work is merely that of compilation. Therefore, a
considerable care should be taken by the researcher while choosing data gathering tools for the two types of
data sources. The following section is devoted to the description of various data gathering instruments in
greater details.
c) Data Gathering Tools

 Questionnaire
Qualitative research seeks in-depth, open-ended responses, not yes or no answers. The researcher tries to get
people to share their thoughts on a topic—without giving them many directions or guidelines about what to say.
A researcher might ask different consumers, "What do you think about when you decide where to shop for
food?" One person may talk about convenient location, another about service, and others about the quality of
the fresh produce. The real advantage of this approach is depth. Each person can be asked follow-up questions
so the researcher really understands what that respondent is thinking. The depth of the qualitative approach gets
at the details—even if the researcher needs a lot of judgment to summarize it all. Some types of qualitative
research don't use specific questions. A consumer might simply be shown a product or an ad and asked to
comment.
Questionnaire is the most popular type of data gathering instrument. It is practiced by individual researchers,
private and public organizations, and even by governments. The questionnaire is usually mailed (or
administered personally) to the respondents who are expected to be literate and able to understand the items and
provide answers properly. The respondents are expected to answer the questions by themselves.
 Types of Questionnaires
As far as the format (nature) of the items in a questionnaire is concerned, the questionnaire is classified as either
open-ended or closed-ended type.
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Questionnaires that call for short or check responses are known as closed form or restricted type. They include a
set of questions to which respondents can reply in a limited number of ways.
On the other hand, the open-form or unrestricted type of questionnaire calls for a free response in the
respondent's own words.
 Structured questioning
When researchers use identical questions and response alternatives, they can summarize the information
quantitatively. Samples can be larger and more representative, and various statistics can be used to draw
conclusions. For these reasons, most survey research is quantitative research—which seeks structured responses
that can be summarized in numbers, like percentages, averages, or other statistics. For example, a marketing
researcher might calculate what percentage of respondents has tried a new product—and then figure the
percentage of the satisfied buyers.
Survey questionnaires usually provide fixed responses to questions to simplify analysis of the replies. This
multiple-choice approach also makes it easier and faster for respondents to reply. Simple fill-in-a-number
questions are also widely used in quantitative research. A questionnaire might ask an industrial buyer, on how
many accessories for specific machinery they currently purchase. Fixed responses are also more convenient for
computer analysis, which is how most surveys are analyzed.
One common approach to measuring consumers' attitudes and opinions is to have respondents indicate how
much they agree or disagree with a questionnaire statement. Another approach is to have respondents rate a
product, feature, or store. Decisions about what specific questions to ask--and how to ask them--are usually
related to how respondents will be contacted--by mail (or electronic mail), on the phone, or in person.
What question and response approach is used may also affect the survey. There are many possibilities. For
example, whether the survey is self-administered or handled by an interviewer, the questionnaire may be on
paper or in a computer-assisted form. The computer can be programmed to skip certain questions, depending
on answers given, or show pictures or play audio messages. In an automated telephone interview, questions
may be prerecorded on an audiotape or computer and the subject responds by pushing touch-tone buttons on the
phone.
Dependable information can be expensive but companies that are willing and able to pay the cost often find
that marketing information pays for itself. They are more likely to select the right target market and marketing
mix or to be alert to a potential problem. Marketing managers must take risks because of incomplete
information. That's part of their job. But they must weigh the cost of getting more data against its likely value.
If the risk is not too great, the cost of getting more information may be greater than the potential loss from a
poor decision. The marketing manager should only seek help from research for problems where the risk can be
reduced at a reasonable cost.
 Mail surveys
Mail surveys are the most common and convenient tools. The mail questionnaire is useful when extensive
questioning is necessary. With a mail questionnaire, respondents can complete the questions at their
convenience. They may be more willing to fill in personal or family characteristics—since a mail questionnaire
can be returned anonymously. But the questions must be simple and easy to follow since no interviewer is there
to help.
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A big problem with mail questionnaires is that many people don't complete or return them. Also, respondents
may not be representative. People who are most interested in the questionnaire topic may respond—but answers
from this group may be very different from the answers of a typical "don't care" group.
Mail surveys are economical if a large number of people respond. But they may be quite expensive if the
response rate is low. Further, it can take a month or more to get the data—too slow for some decisions.
Moreover, it is difficult to get respondents to expand on particular points. In markets where illiteracy is a
problem, it may not be possible to get any response. In spite of these limitations, the convenience and economy
of mail surveys make them popular for collecting primary data.
 Telephone surveys
Telephone interviews are growing in popularity. They are effective for getting quick answers to simple
questions. Telephone interviews allow the interviewer to probe and really learn what the respondent is thinking.
On the other hand, some consumers find calls intrusive—and about a third refuse to answer any questions.
Moreover, the telephone is usually not a very good contact method if the interviewer is trying to get confidential
personal information—such as details of family income. Respondents are not certain who is calling or how such
personal information might be used. In addition, with computer-aided telephone interviewing, answers are
immediately recorded on a computer, resulting in fast data analysis. The popularity of telephone surveys is
partly due to their speed and high response rates.
 Syndicated /Focus Group
In addition to sampling and validity, the marketing manager must be concerned with the interpretation of
results. Some people draw misleading conclusions--on purpose--to get the results they want. A marketing
manager must decide whether all of the results support the interpretation--and are relevant to the problem.
The best results come from a joint effort by the marketing researcher and the marketing manager. Then the
interpretation step can move quickly to decision making-and solving the problem. A focus group interview
involves interviewing 6 to 10 people in an informal group setting. The focus group uses open-ended questions,
but the interviewer wants to get group interaction to stimulate thinking and get immediate reactions.
A skilled focus group leader can learn a lot from this approach. Sessions are usually videotaped so different
managers can form their own impressions of what happened. A typical problem, and serious limitation, with
qualitative research is that the results may depend on the viewpoint of the researcher. In addition, people who
are willing to participate in a focus group may not be representative of the broader target market.
Focus groups can be conducted quickly and at relatively low cost. But focus groups are probably being
overused. It's easy to fall into the trap of treating an idea that comes out of a focus group as a "fact" that applies
to a broad target market. To avoid this trap, some researchers use qualitative research to prepare for
quantitative research. The most widely used form of qualitative questioning in marketing research is the focus
group interview, which involves interviewing about 6 to 10 people in an informal group setting. The focus
group also uses open-ended questions, but here the interviewer wants to get group interaction—to stimulate
thinking and get immediate reactions.
A skilled focus group leader can learn a lot from this approach. A typical session may last an hour, so
participants can cover a lot of ground. Different managers can form their own impressions of what happened.
However, conclusions reached from watching a focus group session vary depending on who watches it. A
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typical problem—and serious limitation—with qualitative research is that it's hard to measure the results
objectively. The results seem to depend so much on the viewpoint of the researcher. In addition, people willing
to participate in a focus group—especially those who talk the most—may not be representative of the broader
target market.
 Personal interview
Personal interview surveys—can be in-depth. A personal interview survey is usually much more expensive per
interview than a mail or telephone survey. But it's easier to get and keep the respondent's attention when the
interviewer is right there. The interviewer can also help explain complicated directions—and perhaps get better
responses. For these reasons, personal interviews are commonly used for research on business customers. To
reduce the cost of locating consumer respondents, interviews are sometimes done at a store or shopping mall.
This is called a mall intercept interview because the interviewer stops a shopper and asks for responses to the
survey.
Researchers have to be careful that having an interviewer involved doesn't affect the respondent's answers.
Sometimes people won't give an answer they consider embarrassing. Or they may try to impress or please the
interviewer. Further, in some cultures people don't want to give any information. Sometimes questioning has
limitations. Then observing may be more accurate or economical.
 Observation
With the observation method, researchers try to see or record what the subject does naturally. They don't want
the observing to influence the subject's behavior. Observing—as a method of collecting data—focuses on a
well-defined problem. Here we are not talking about the casual observations that may stimulate ideas in the
early steps of a research project. With the observation method, researchers try to see or record what the subject
does naturally. They don't want the observing to influence the subject's behavior.
It is the process in which one or more person observes what is occurring in some real -life situation, and they
classify and record pertinent happenings according to some planned scheme. Observation method appears to be
very valuable instrument in a wide range of research studies. As a good research tool, observation needs proper
planning, expert execution, and adequate recording and interpretation.
Observation data can be plotted on graphs or maps. A shopping center developer wondered if one of its
shopping centers was attracting customers from
all the surrounding areas. The developer hired a firm to record the license plate numbers of cars in the parking
lot. Using registration information, the firm obtained the addresses of all license holders and plotted them on a
map. Very few customers were coming from one large area. The developer aimed direct-mail advertising at that
area and generated a lot of new business.
In some situations, consumers are recorded on videotape. Later, researchers can study the tape by running the
film at very slow speed or actually analyzing each frame. Researchers use this technique to study the routes
consumers' follow through a grocery store—or how they select products in a department store.
 Recording of the interview.
In this case, the interviewer may make use of a schedule, a structured format, rating scale or a tape recorder to
record the responses of the interviewee. The use of a tape recorder during the conduct of interview not only
eliminates the omissions, distortions, elaborations and other modifications of data usually found in written
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interviews, but it also provides an objective basis for evaluating the adequacy of the interview data in relation to
the performance of the interviewer.
The use of tape recorder also allows the interviewer to devote f attention to the interviewee and save much time
of the interviewer, which may have to utilize in recording the responses during or after the interview. The
interviewer needs to be conscious on the selection of the interview. In a tape recorder interview, any irrelevant
question should be avoided. If a tape-recorder is not available, the interviewer may take notes of responses.
The notes should include unusual and significant behavior as well as the responses to questions of the
interviewees.
Observation methods are common in advertising research. Some organizations use a special device called the
"people meter" that adapts the observation method to television audience research. This machine is attached to
the TV set in the homes of selected families. It records when the set is on and what station is tuned in. Some
members of the consumer panel are also tied into a special TV cable
system. With this system, a company can direct advertisements to some houses and not others. Then researchers
can evaluate the effect of the ads by comparing the purchases of consumers who saw the ads with those who
didn't.
 Scanner as a research tool

The use of scanners to "observe" what customers actually do is changing consumer research methods.
Companies can turn to firms like Information resources as a single source of complete information about
customers' attitudes,shopping behavior, and media habits.
Data captured by electronic scanners is equally important in business-to- business markets. Increasingly, firms
mark their shipping cartons and packages with computer-readable bar codes that make it fast and easy to track
inventory,shipments, orders, and the like. As information about product sales or shipments
becomes available, it is instantly included in the MIS. That way, a manager can access any detailed piece of
information or do an analysis to summarize trends and patterns. Here, as with scanner data on consumers, the
information availableis so detailed that the possibilities are limited more by imagination—and money— than by
technology.
 Experimental method
A marketing manager can get a different kind of information—with either

questioning or observing—using the experimental method. With the experimental method, researchers compare
the responses of two (or more) groups that are similar except on the characteristic being tested. Researchers
want to learn if the specific characteristic—which varies among groups— causes differences in some response
among the groups. For example, a researcher might be interested in comparing responses of consumers who had
seen an ad for a new product with consumers who had not seen the ad. The "response" might be an observed
behavior—like the purchase of a product—or the answer to a specific question—like "How interested are you in
this new product?"
Researchers don't use the experimental method as often as surveys and focus groups because it's hard to set up
controlled situations where only one marketing variable is different. But there are probably other reasons too.
Many managers don't understand the valuable information they can get from this method. Further, they don't
like the idea of some researcher "experimenting" with their business.
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With the experimental method, researchers compare the responses of two or more groups that are similar except
on the characteristic being tested. For example, a researcher might be interested in comparing responses of
consumers who had seen an ad for a new product with consumers who had not seen the ad. The "response"
might be an observed behavior, like the purchase of a product, or the answer to a specific question such as:
"How interested are you in this new product?"
The experimental method isn't used as often as surveys and focus groups because it's hard to set up controlled
situations where only one marketing variable is different. And many managers may not understand the valuable
information they can get from this method and they don't like the idea of some researcher "experimenting" with
their business.
3.3.4 Step 4 Data Analysis and Interpretation
For decision makers to benefit from the data they need an interpreted data. The researcher is required to analyze
and interpret the data. In this section, the researcher describes how to organize, analyze, and interpret data. The
details of the statistical techniques and the rationales for using such techniques should be described in the
research proposal.
The situation analysis usually involves informal talks with informed people. Informed people can be others in
the firm, a few good middlemen who have close contact with customers, or others knowledgeable about the
industry. In industrial markets—where relationships with customers are close—researchers may even call the
customers themselves. Informed customers may have already worked on the same problem—or know about a
source of helpful information. Their in puts can help to sharpen the problem definition too.
Situation analysis yields a lot—for very little. The virtue of a good situation analysis is that it can be very
informative but takes little time. And it's inexpensive compared with more formal research efforts—like a large-
scale survey. Situation analysis can help focus further research—or even eliminate the need for it entirely. The
situation analyst is really trying to determine the exact nature of the situation—and the problem. Too-hasty
researchers may try to skip this step in their rush to get out questionnaires. Often these researchers find the real
problem only when the questionnaires come back—and they must start over. One marketing expert put it this
way: "Some people never have time to do research right the first time, but they seem to have time to do it over
again.
The situation analysis is especially important if the researcher is a research specialist who doesn't know much
about the management decisions to be made—or if the marketing manager is dealing with unfamiliar areas.
They both
must be sure they understand the problem area—including the nature of the target market, the marketing mix,
competition, and other external factors. Otherwise, the researcher may rush ahead and make costly mistakes—
or simply discover facts that management already knows.
3.3.4.1 Quantitative Versus Qualitative Analysis
a) Qualitative Analysis
Some authorities divide research into quantitative and qualitative Quantitative research is based on the
measurement of quantity or amount. It is applicable to phenomena that can be, expressed in terms of
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quantity. Qualitative research, on the other hand, is concerned with qualitative phenomenon- phenomenon
relating to or involving quality or kind. For example studies related to human behavior fall into this category of
research.
Qualitative research aims at discovering the underlying motives and desires by applying the techniques that
include focus group interviews, in depth interviews, word association tests, sentence completion tests, story
completion tests and similar other projective techniques. Attitude or opinion research i.e., research designed to
find out how people feel or what they think about a particular subject or institution is also qualitative research.
It is to be noted that qualitative research generates research. It is to be noted that qualitative research generates
results either in non-quantitative form or in the form, which are, not subject to rigorous quantitative and
analysis.
Qualitative research can provide good ideas-hypotheses. Researchers can then test these ideas by using
identical questions and response alternatives, which they can summarize the information quantitatively. With
quantitative research, samples can be larger and more representative, and various statistics can be used to draw
conclusions. A market researcher tries to get people to share their thoughts on a topic--without giving them
many directions or guidelines about what to say.
Qualitative research seeks in-depth, open-ended responses, not "yes" or "no" answers. Some types of
qualitative research don't use specific questions. For example, a cartoon may show a situation--such as a
woman and a man buying coffee in a supermarket. The respondent may be asked to explain what the woman is
saying to the man. Or the consumer might simply be shown a product or an ad and asked to comment.
b) Quantitative Analysis
One common approach to measuring consumers' attitudes and opinions is to have respondents indicate how
much they agree or disagree with a questionnaire
statement. A researcher interested in what target consumers think about food service, for example, might
include statements like those at the top of Surveys by mail, phone, or in person. Decisions about what specific
questions to ask—and how to ask them are usually related to how respondents will be contacted—by mail, on
the phone, or in person.
3.3.5 Step 5: Conclusion and Report Writing
Based on the data available a report on the findings can be prepared. When writing a research project the
following important issues need to be considered:
 The researcher needs to read a number of encyclopedias, books, or periodical references, and synthesize
the information in a written report. Merely recognizing or restating what is already known or written,
can be a learning experience, but is not a good research. It adds nothing to what is known.
 Report writing requires expertise. The researcher knows what is already known about the problem and
how others have investigated it. He has searched the related literature carefully.
 Report should be based on the original objective. Data collected, and the conclusion has to be relevant to
the main issue. The report should eliminate personal bias.
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 The report should contain each important issues and conclusions.
 A good report should include the applied procedures and means’.
 The research report should be written and presented in an efficient and effective manner
 The written report and accompanying data are made available to the scrutiny of associates or other
scholars.
 The report should not be based on assumptions, beliefs, and untested generalizations.
 It should include items such as:

 what population was studied
 procedures and techniques used for gathering data;
 a clear statement of the research problem;
 methods used in processing and analyzing data;
 time and cost breakdowns utilized for the whole project.
 methods used to process and analyzing data;
 Conclusions should be confined to those justified by the data of the research and limited to those
for which the data provide an adequate basis.
 Test Marketing
Test marketing of new products is another type of marketing experiment. In a typical approach, a company tries
variations on its planned marketing mix in a few geographic market areas. The results of the tests help to
identify problems or refine the marketing mix—before deciding to go to broader distribution. However, alert
competitors may disrupt such tests—perhaps by increasing promotion or offering retailers extra discounts. To
avoid these problems, some
small firms conduct some of their tests in foreign markets.
Marketing managers from many different firms may have to make the same kinds of decisions—and need the
same type of data. The most economical approach in a situation like this is for one specialist firm to collect the
data and distribute it to the different users, who share the cost. Many other firms collect and distribute
specialized types of data.
A firm who relies only on intuition might introduce a new product without testing consumer response. If for
example at least 60 percent of the consumers prefer our product, the firm can introduce it in a regional test
market. If it doesn't pass the consumer test there, it can make some changes and try again.
Check your progress Exercise
1.How many types of questionnaires exist and do you think a firm can only use one type
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3.4 Marketing Information Systems

3.4.1 Overview to Marketing Information Systems
A marketing information system (MIS) is an organized way of continually gathering and analyzing data to
provide marketing managers with information they need to make decisions. The input of marketing managers is
important in the design of an MIS system-they know what data they have routinely needed in the past and can
foresee what types of data might be useful in the future.
Basic marketing information system concepts are not very different today than they were 20 years ago.
However, recent developments in information technology are having a radical impact on what information is
available to marketing managers and how quickly. A big difference today is how easy it is to set up and use an
Basic marketing information system.
A short time ago, connecting remote computers or exchanging data over networks was very difficult. Now, it's
standard and almost automatic. And even a manager with little computer experience can quickly learn to use an
Basic marketing information system. As a result, managers everywhere could have access to more information.
It's instantly available, and often just a mouse click away.
Equally important, the type of information available is changing dramatically. As recently as 1995, most
marketing managers with information needs relied on computers mainly for "number crunching." The
multimedia revolution in computing has quickly lifted that limitation. Now it doesn't matter whether marketing
information takes the form of a marketing plan, report, memo, spreadsheet, database, presentation, photo,
graphic, or table of statistics. It is all being created on computer. So, it can be easily stored and accessed by
computer.
Many firms use computer technology to create a marketing information system (MIS). This system will likely
contain a database that includes a variety of information. This database may contain single-source data. Using a
marketing decision support system (MDSS) marketing managers are aided in decision making by anticipating
the effects of certain decisions. Online information services and the Internet also enable marketers to
communicate with customers and obtain information.
Eliminating unethical marketing research practices and establishing generally acceptable procedures for
conducting research are important goals of marketing research. Both domestic marketing and international
marketing use the same marketing research process, but for international marketing, data gathering methods
may require modification to address regional differences.
3.4.2 Support through Information Systems
Dependable information can be expensive but companies that are willing and able to pay the cost often find that
marketing information pays for itself. They are more likely to select the right target market and marketing mix
or to be alert to a potential problem.
The high cost of good information must be balanced against its probable value to management. Managers never
get all the information they would like to have. Very detailed surveys or experiments may be "too good" or
"too expensive" or "too late" if all the company needs is a rough sampling of retailer attitudes toward a new
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pricing plan--by tomorrow. Money is wasted if research shows that a manager's guesses are wrong-and the
manager ignore the facts.
Marketing managers must take risks because of incomplete information. That's part of their job. But they must
weigh the cost of getting more data against its likely value. If the risk is not too great, the cost of getting more
information may be greater than the potential loss from a poor decision. The marketing manager should only
seek help from research for problems where the risk can be reduced at a reasonable cost.
Successful planning of marketing strategies requires information about potential target markets and their likely
responses to marketing mixes as well as about competition and other marketing environment variables. Without
good marketing information, managers have to use intuition or guesses--and in today's fast-changing and
competitive markets, this invites failure.
Moreover, new computer programs help to find whatever information is available--even if it is "lost" on the
computer hard disk of a manager in an office across the ocean. When we talk about a database of marketing
information, keep in mind that it may include all types of information, not just numbers.
There are many important ways that the Internet is making more information available-and changing marketing.
In addition, many firms, even very small ones, have their own intranet-a system for linking computers within a
company. However, to maintain security, access to web sites on an intranet is usually limited to employees.
Even so, information is available on demand. Further, it's a simple matter to "publish" new information to a
web site as it becomes available. So, information can be constantly updated. Prior to this decade managers
could only dream about this sort of capability.
Information technology is expanding what Marketing Information System can do-and how well it works. Even
so, you seldom have all the information you need. Both customers and competitors can be unpredictable.
Getting the precise information you want may cost too much or take too long. For example, data on
international markets is often incomplete, outdated, or difficult to obtain. So a manager often must decide what
information is really critical and how to get it.
A decision support system makes information not only available, but also accessible.
2.Describe Marketing Information System

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3.5 Hypothesis
3.5.1 Description of Hypothesis
Once the selection and definition of the problem have been accomplished, the derivation of working hypotheses
is the most important step in the research process.
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The term hypothesis is defined as " a proposition that is stated in testable form and predicts a particular
relationship between two (or more) variables. Some experts define hypothesis as " attentive assumption made in
order to draw out and test its logical or empirical consequences. Hypothesis implies insufficiency of presently
attainable evidence and therefore a tentative explanation."
The above definitions ascertain the fact that a hypothesis is a tentative explanation for which the evidence
necessary for testing is at least potentially available. By test we mean either to confirm it to our satisfaction or
to prove it wrong. The task of research is to test and establish such a hypothesis (or hypotheses). It is also
worthwhile noting at this juncture that all statements of wish-full thinking, merely opinions, value judgments or
normative do not represent hypotheses. Instead, hypotheses are statements of fact susceptible to empirical
investigation. They are a set of suggested tentative solutions of explanations of a research problem, which may
or may not be the real solutions. For example, the statement that 'in the Ethiopian culture as many people as
possible has to attend a funeral and stay in a mourning until forty days is a normative statement which cannot be
proved through research. It is a statement of what ought to be, not a factual statement that can be shown
through investigation to be right or wrong.
3.5.2 Importance of Hypothesis

A well-grounded hypothesis provides the following advantages:
 represents specific objectives, which determine the nature of the data needed to test the
propositions.
 offers basis for selecting the sample, the research procedures, and the statistical analysis needed.
 keeps the study restricted in scope thereby preventing it from becoming too broad.
 sets a framework for reporting the conclusion of the study.
Criteria of Usable Hypotheses
Hypotheses can be useful if and only if they are carefully formulated. It include the following:
 Hypotheses should be clearly and precisely stated.

 Hypotheses should be formulated in such a way that they can be tested or verified. They should be
testable.
 Hypotheses should state explicitly the expected relationship between variables.
 Hypotheses should be limited in scope. Hypotheses of global significance are not usable as they are
not specific and simple for testing and drawing conclusions.
 Hypotheses should be consistent with most known facts. In other words, hypotheses should be
grounded in the well-established facts, theories or laws.
 Hypotheses should be stated as far as possible in simple terms and in
reasonable time.
The inspiration for hypothesis comes from a number of sources that include the following:
 Experience: The daily life experiences or the day-to-day observation of the correlation
(relationship) between various phenomena leads the researcher to hypothesize a relationship and to
conduct a study to see if his/her suspicions are confirmed.
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 Past research or Common beliefs: Hypotheses can also be inspired by tracing past research or by
commonly held lay beliefs. For example, a number of studies in America have shown that college
freshmen are more politically conservative than college seniors, suggesting a correlation between
year in school and political belief. Such hypothesis could be used either to replicate the past studies
or to extend the test of a familiar hypothesis to a sample of persons with different characteristics.
 Through direct analysis of data or deduction from existing theory. Hypotheses may also be
generated through direct analysis of data in the field or may be deduced from a formal theory.
Through attentive reading, the researcher may be able to get acquainted with relevant theories,
principles and facts that may alert him/her to identify valid hypotheses for his/her study.
3. Explain in detail what hypothesis is.
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3.6 Sampling
 Selecting a representative sample.
After defining a population and preparing a sampling frame, a researcher selects a sample of units from the
source list. The process of such a selection is known as sampling. To serve a useful purpose sampling should
be unbiased representative. A good sample must be as nearly representative of the entire population as possible
and ideally it must provide the whole of information about the population from which the sample has been
drawn.
 Obtaining an adequate sample.
The size of sample should be optimum, which is neither excessively large nor too small. An optimum or
adequate sample is one, which fulfills the requirements of efficiency, representatives, reliability and flexibility.
In principle, a small sample is sufficient for homogeneous population, but a much larger sample is necessary if
there is greater difference in the units of the population.
4. When do researchers use small as compared to larger sample?

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3.7 Summary
The focal point of every research activity is a research problem. Research starts with a felt difficulty. It takes
place when there is a problematic situation and a need to solve the problem. Thus, a researcher must find the
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problem and formulate it so that it becomes susceptible to research. But what is a research problem? Often we
say that a research problem exists if there is an individual or a group, which has some difficulty/problem, or if
there is a certain objective to be attained at. In addition, the chapter discusses the five processes of marketing
research namely:
 Defining the research topic;
 Designing the research project;
 Gathering data;
 Data analysis and interpretation;
 Conclusion and report writing
Marketing research on overseas markets is often a major contributor toward international marketing success.
Conversely, export failures are often due to a lack of home-office management expertise concerning customer
interests, needs. For a research to be conducted applying a variety marketing research tools would be
appropriate.
3.8 Answer key to check your Progress Exercise
1. Conducting marketing research has many advantages. Some of the advantages are: It helps enterprises
understand market situations, market problems, situation of competitors, needs and requirements of
target markets, existing price structures etc.
2. There are two types of questionnaire namely; open ended and closed end type of questionnaires.
Whether a firm should use both types and only one king, depends on other factors. Each has its own
advantages and disadvantages thus, which one to use will depend on the survey type.
3. Marketing information system (MIS) is an organized way of continually gathering and analyzing data
to provide marketing managers with information they need to make decisions.
4. Hypothesis is defined as " a proposition that is stated in testable form and predicts a particular
relationship between two or more variables. It is also defined as " attentive assumption made in order to
draw out and test its logical or empirical consequences. Hypothesis implies insufficiency of presently
attainable evidence and therefore a tentative explanation."
5. In principle, a small sample is sufficient for homogeneous population, but a much larger sample is
necessary if there is greater difference in the units of the population.
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CHAPTER FOUR: CONSUMER BUYING BEHAVIOR
Contents

4.2. Factors influencing consumers behavior
4.2.1. Marketing influences on consumers behavior
4.2.2. Other Factors
4.3. Types of buying decision behavior
4.4. Steps in Buyers decision process
4.5. Consumer satisfaction, dissatisfaction and complaint behavior
4.6. Summary
4.7. Answers for your progress questions
The main objective of this chapter is to show how consumers buying behavior is the core factor at any
level of a marketing activity, it outlines the different stages which are more pertinent in the consumer
decision process on top of that how the psychological influences on consumers behavior can be reflected
on their purchase decisions. It also clearly identifies the major socio cultural influences on consumer
behavior and it’s reflection on their purchase decisions. In general, it recognizes how marketers can
develop and use knowledge of consumers buying behavior to understand and influence individual and
family purchases.
4.2. Factors Influencing Consumers Behavior
The consumer buying behavior can be influenced from different angles. These factors will affect
consumers buying tendency directly or indirectly, which can be noticed in every day’s activities of a
human being. Here are some of the facts, which are found as influential part in different places.
4.2.1 Marketing influences on consumers behavior

Marketing strategies are often designed to influence consumer decision making and lead to profitable
exchange. Each element of the marketing mix/4ps’ (product, price, promotion, place/ physical
distribution) can affect consumers in different ways.
A) Product Influences
Many attributes of a company’s products, including the brand name, quality, newness and complexity,
can affect consumers’ behavior. For instance the physical appearance of the product, (including the
design, shape and model), package (the eye catching color, attractiveness) and labeling (detailed
information availability) can simply influence consumers. One of the key tasks of marketers is to
differentiate their products from those of competitors and create consumer perceptions that the product is
worth purchasing
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B) Price influences
The price of products and services often influences either consumers will purchase them at all or not; if so
which competitive offering is selected. Some shops/supermarkets are perceived to charge the lowest
prices attract many consumers based on this factor alone, for some offerings higher prices may not deter
purchase, because consumers believe that the products or services are higher quality or more prestigious.
However, most of today’s value conscious consumers may buy products more on the basis of price than
other attributes.
C) Promotion Influences
The promotional tools such as advertising, personal selling, sales promotion, publicity / public relations,
direct marketing, with a high skilled sales persons can influence what consumers think about products,
what emotions they experience in purchasing and using them and what behaviors they perform, including
shopping in particular shops and purchasing specific brands. Since consumers receive so much
information from marketers and screen out a good deal of it, it is important for marketers to devise
communications that,
 Offer consistent messages about their products
 Are placed in media that consumers in the target market are likely to use.
In general, marketing communications /the promotion tools play a critical role in informing consumers
about products and services, where they can be purchased and in creating favorable images and
perceptions.
D) Place / Physical distribution influences

The marketers’ strategy for distributing products can influence consumers in several ways. First, products
which are convenient to buy in a variety of shops increase the chances of consumers finding and buying
them. When consumers are seeking low-involvement products, they are unlikely to engage in extensive
search, so prompt service and ready availability is important. Secondly, products sold in exclusive outlets
infact one of the ways marketers create brand equity, that is, favorable consumer perceptions that the
products are innovative, exclusive, or tailored for specific target markets.
4.2.2 Other Factors

A number of external influences directly or indirectly affect consumers’ behavior and purchase decision
process.
A) Cultural Factors
Culture is defined as, “The whole set values, ideas’ and attitudes of a homogeneous group of people that
are transmitted from one generation to the next.
Values are the building blocks of culture. Even if it varies from place to place/country to country/ every
society has his/her own culture.
For example: The culture of Ethiopians is not totally similar to the culture of Germans or
Koreans, because of this factor there will be a great difference on customers behavior on their buying
decision what’s been exercised by Ethiopians may not evenly reflected by Germans and Koreans,
therefore marketers should understand the cultural differences and their customers accordingly.
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Marketing planning strategies that consider cultural differences in international markets can be even
harder and such cultures usually vary more. Each foreign market may need to be treated as a separate
market with its own sub-markets. Ignoring cultural differences or assuming that they are not important
almost guarantees failure in international markets. From a target-marketing point of view, a marketing
manager probably wants to aim at people within one culture or subculture. A firm developing strategies
for two cultures often needs two different marketing plans.
i) Sub culture
Each culture consists of smaller subcultures, which provide more specific identification and
socialization for its members, which really distinguish one from another.
A subculture is a group of people with shared value systems which is based on the common life
experiences and situations, these subcultures contribute an important input to segment markets into
different parts.
Sub Cultures Include:

 Religions
 Racial groups
 Geographic Regions, etc.
ii) Social Class

A more subtle influence on consumer behavior than direct contact with others is the social class to
which people belong. Social class can be defined as the relatively permanent, homogeneous divisions in
a society into which people thing similar values income (not level of income) and education determine
his or her social class.
To some degree persons within social classes exhibit common attitudes, lifestyles, and buying behaviors.
Compared with the middle classes, people in the lower classes have a more short-term time orientation,
are more emotional than rational in their reasoning, think in concrete rather than abstract terms, and see
fewer personal opportunities. Members of the upper classes focus on achievements and the future and
think in abstract or symbolic terms.
Companies use social class as a basis for identifying and reaching particularly good prospects for their
products and services.
In general, people in the upper classes are targeted by companies for items such as financial investments,
expensive cars, and evening wear. The middle classes represent a target market for home improvement
centers, automobile parts shops, and personal hygiene products. The lower classes also targeted for
products such as plastic figurines. Firms also recognize differences in media preferences among classes:
lower and working classes prefer sports and magazines, middle classes; read fashion. romance, and
celebrity (People) magazines, and upper classes tend to read literary, travel, and news magazines.
B) Social Factors
The social factors including reference groups, family, roles and status are the most powerful inputs,
which affect the consumer buying behavior.
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i) Reference groups
A person’s reference groups consists of the groups that have a direct /face-to-face/ influence or those
who have indirect influence on the person’s attitudes. Reference groups are people to whom an
individual looks as a basis for self- appraisal or as a source of personal standards. Reference groups
affect consumer purchases because they influence the information, attitudes, and aspiration levels that
help set a consumer's standards. For example, one of the first questions one asks others when planning to
attend a social occasion is "What are you going to wear?" Reference groups have an important influence
on the purchase of luxury products but not of necessities-reference, groups exert a strong influence on
the brand chosen when its use or consumption is highly visible to others.
Consumers have many reference groups, but three groups have clear marketing implications.
♦ A membership group is one to which a person actually belongs, including fraternities, social clubs, and the
family. Such groups are easily identifiable and are targeted by firms selling insurance, insignia products,
and charter vacations.
♦ An aspiration group is one that a person wishes to be a member of or wishes to be identified with, such as a
professional society, Firms frequently rely on spokespeople or settings associated with their target market's
aspiration group in their advertising.
♦ A dissociative group is one that a person wishes to maintain a distance from because of differences in values
or behaviors. Believing that motorcycle ownership and usage has a "black leather-jacketed biker with
helmet “A, motor cycle company can focus it’s
Marketers/manufacturers of different products and brands where group’s influence is strong should determine
how to reach and influence the opinion leaders in reference groups; opinion leaders are people within a
reference group who exert influence on others because of their special skill, knowledge personality or other
unique characteristics. These opinion leaders are found at all levels of the society. In fact one person may be an
opinion leader (individuals who exert direct or indirect social influence over others) in certain product areas, but
an opinion follower in others.
ii) Family Influence
Family members are believed to be the most influential primary reference group.
Family influences on consumer behavior result from three sources: consumer socialization, passage through the
family life cycle, and decision-making within the family.
Consumer Socialization: The process by which people acquire the skills, knowledge, and attitudes necessary to
function as consumers is consumer socialization. Children learn how to purchase:
 interacting with adults in purchase situations and

 Their own purchasing and product usage experiences. As children mature into adults, brand
preferences emerge that may last a lifetime. Knowledge of this has prompted Sony to introduce
"My First Sony”, a line of portable audio equipment for children; the accompanying Marketing
Action Memo details why marketers are focusing on children as consumers.
a) Family Life Cycle
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Consumers act and purchase differently as they go through life. The family life cycle concept
describes the distinct phases that a family progresses through from formation to retirement, each
phase bringing with it identifiable purchasing behaviors.
Young singles' buying preferences are for nondurable items, including prepared foods, clothing, personal care
products, and entertainment. They comprise about nine percent of households and represent a target market for
recreational travel, automobile, and consumer electronics firms. Young married couples without children are
typically more affluent than young singles, because usually both spouses are employed. These couples account
for about ten percent of households and exhibit preferences for furniture, house wares and gift items for each
other. Young married with children represent about seventeen percent of households and are driven by the
needs of their children. They make up a sizeable market for various children's products and home furnishings.
Single parents with children (Eight percent of households) are the least financially secure of households with
children. Their buying preferences are affected by a limited economic status and tend toward convenience
foods, childcare services, and personal care items.
Middle-aged married couples with children comprise about twenty-three percent of households and are typically
better off financially than their younger counterparts are. They are a significant market for leisure products and
home improvement, items, represent the fastest-growing family life cycle stage Middle-aged couples with our
children account for twenty percent of householders, and typically have a large amount of discretionary income.
These couples buy better home furnishings, status automobiles, and financial services.
Old married and older unmarried are a sizeable market for prescription drugs, medical services, gift for younger
relatives/ participate indifferent social activities. In general family life cycle is the stage through which families
might pass as they mature our time.
Table 4.1 Family Life cycle Stages
Young Middle Aged Older

 Single  Single  Older married
 Married without children  Married without children  Older unmarried
 Married with children  Married without dependent
 Divorced with children children
 Divorced without children
 Divorced with children
 Divorced without dependent
children
b) Roles and Status

A person belongs to many groups like family, clubs, associations, etc. The person’s position in each
group can be defined in terms of both role and status.
A role consist of the activities that a person is expected to perform.
For example: - A person in his/her own family may play the role of husband/wife in your organization
you may play the role of secretary/accountant /manager medical director, therefore each of a person’s roles.
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May influence the buying behavior, because knowingly or unknowingly that individual will be governed by
his/her role and prefer products, which can reflect the status to the society.
c)Personal Factors
The other influential factor that can be reflected on consumers buying behavior is the personal factors,
which includes buyers’ age and the lifecycle stage, occupation, the economic circumstances, life style,
personality and the self-concept.
1) Age and stages in the life cycle

People buy different goods and services over a lifetime. For instance, staple goods like food staffs
consumed by people from the early child years to mature years differ in relation with other
products like clothes, furniture taste also relate with ages. Consumption is also shaped by the
family cycle. As the stage differs from bachelor stage (young, single, not married) to full nest III
(older married couples with dependent children)
2) Occupation and economic circumstances

Occupation clearly matters the consumption patterns. Those who are factory worker will buy
inexpensive items whereas those who are highly placed people can buy expensive suits, cars and
soon., therefore marketers are expected to identify the occupational groups that have interest and
keep on producing according to this needy target group.
Product choice is greatly affected by the economic circumstances; spendable income (level, time
pattern and stability), savings and assets, debts and borrowing power and attitudes towards
spending and saving.
Marketers of income sensitive goods continuously monitor trends in personal income, savings and
interest rates. If economic indicators point to a recession, marketers can take steps to redesign,
reposition and re-price their products, so they continue to offer value to target customers.
3) Life Style
People who are from the same sub culture, social class and occupation may not lead similar
lifestyles. A life style is a person’s pattern of living in the world as expressed in activities,
interests and opinions lifestyle describes the whole person interacting with his/her environment.
4) Personality
Personality is a set of distinguishing human psychological traits that lead to relatively consistent
and lasting responses to environmental stimuli. Personality usually described in terms of traits
such as self-confidence, dominance, sociability, autonomy, defensiveness, adaptability and
aggressiveness. Personality can be useful to analyze consumer behavior for certain product or
brand choice.
d)Psychological Factors
a. Motivation
Motivation is the energizing force that causes behavior that satisfies a need. Everybody is motivated by needs
and wants. Needs are the basic forces that motivate a person to do something. Some needs involve a person’s
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physical well-being, others the individual’s self-view and relationship with others. Needs are more basic than
wants. Wants are “needs” that are learned during a person’s life. For example, everyone needs water or some
kind of liquid, but some people also have learned to choose packed water like Highland water or Ambo mineral
water.
Physiological needs are concerned with biological needs such as food, drink, rest, and safety needs are
concerned with protection and physical well being (perhaps involving health, food, medicine, and exercise).
Social needs are concerned with love, friendship, status, and esteem things that involve a person’s interaction
with others. Personal needs, on the other hand, are concerned with an individual’s need for [personal
satisfaction unrelated to what others think or do. Examples include self-esteem, accomplishment, fun, freedom,
and relaxation.
When a need is not satisfied, it may lead to a drive. The need for liquid, for example, leads to a thirst drive. A
drive is a strong stimulus that encourages action to reduce a need. Drives are internal they are the reasons
behind certain behavior patterns. In marketing, a product purchase results from a drive to satisfy some need
patterns. In marketing, a product purchase results from a drive to satisfy some need.
Some critics imply that marketers can somehow manipulate consumers to buy products against their will. But
trying to get consumers to act against their will is usually a waste of time. Instead, a good marketing manager
studies what consumer drives, needs, and wants already exist and how they can be satisfied better.
b. Perception
It’s the process that an individual selects, organizes and interprets information in order to create a meaningful
picture of the world.
If we take two people who are ready to act, both acts are influenced by their perception and the situation, but the
same people with the same motivation by the same situation may not act similarly instead, act differently
because they perceive the situation differently.
It’s noticed that people can form different perceptions of the same stimulus because of three perceptual process.
a) Selective attention
b) Selective distortion
c) Selective retention
a) Selective Attention
Marketers try their level best to reach their customer in a very interesting way through
different means of marketing communication tools, because this people are exposed to a
tremendous amount of daily stimuli. A person can’t possibly attend to all commercials, most
stimuli will be screened out in which the process is called selective attention.
 People are more likely to notices stimuli that relate to a current need. (For instance if
one person wants to buy computer will notice the computer advertisements rather than the
television advertisements)
 People are more likely to notices stimuli that they anticipate (a person who entered
electronics shop don’t expect the shop to store food staffs)
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 People are more likely to notices stimuli whose deviations are large in comparison to
the normal stimuli. (people will mostly notice advertising with Eighty Birr discount from
the list price of a certain product than a Five birr discount)
b) Selective Distortion
It describes the tendency of people to interpret information in a way that will support what
they already believe.
c) Selective Retention
People will forget much that they learn, but will tend to retain information that supports their
attitudes and beliefs.
c. Learning
When marketers set out to influence consumers, they typically try to share certain knowledge through
advertising, and personal selling methods, which are efficient and can be controlled by the marketer. Marketers
hope consumers will attend to, comprehend and then remember these messages. Yet, consumers also learn by
experience. Experimental learning is highly interactive and consumers often give it special status as it’s said,
experience is the best teacher. Consumer learning happens when changes occur in knowledge or behavior
patterns.
Learning as behavior is also a critical outcome, because successful marketing depends on repeat purchase
behavior, providing positive reinforcement for the desired behavior is crucial. In general, learning is based on
the combination of individual drives (which is need), stimuli in the environment, responses (consumer behavior)
and reinforcement of those behaviors.
d. Beliefs and Attitudes

1.Beliefs
A belief is a descriptive thought that a person holds about something. People’s beliefs about a product or brand
influence their buying decisions.
Beliefs are based on personal experience, advertising and discussions with other people. Beliefs about product
attributes are important, because along with personal values, they create the favorable or unfavorable attitude
the consumer has towards certain products and services.
2.Attitudes
Attitudes play a central role in consumer decision making and related marketing actions.
Attitudes are learned predispositions to respond favorable or unfavorable to a product or brand. Attitudes are
instrumental in determining which alternative products or brands will be purchased and used.
Attitudes have certain characteristics that make understanding them important to marketers trying to convince
consumers either to buy their products for the first time or to remain loyal. Attitudes can be positive, negative
or neutral.
Firms use creative messages and allocate huge amounts of funds to create or encourage positive attitudes.
Understanding of consumers’ attitudes has very basic implications for marketing especially for two reasons.
Attitudes are based on beliefs consumers hold about the attributers (quality, price, level of service) of the
products they are evaluating. In many instances, these attributes form the basis for the development of
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marketing strategies. On the other hand attitudes are primary causes of behavior which makes them very
relevant to marketers who want to understand why consumers buy or don’t buy their products.
e. Situational Factors
Situational influences can be defined as all those factors particular to a time and place of observation that have a
demonstrable and systematic effect on current behavior. In terms of purchasing situations, there are five groups
of situational influences which may be perceived either consciously or sub consciously and may have
considerable effect on product and brand choice.
f. Physical Surroundings
The most readily apparent features of a situation. These features include geographical and
institutional location, décor, sounds, weather, lighting, aromas (Pleasant smell, a subtle impression)
and visible configurations of merchandise or other material surrounding the stimulus object.
g. Social Surroundings
It provides additional depth to a description of a situation, other persons presence, their
characteristics, their apparent roles and interpersonal interactions are potentially relevant examples.
h. Temporal Perspective
It’s a dimension of situations that may be specified in units ranging from time of day to season
of the year. Time also may be measured relative to some past or future event for the situational
participant. This allows such conceptions as time since last purchase, time since or until meals or
paydays, and time constraints imposed by prior or standing commitments.
 Task Definition
The task definition features of a situation include the requirement to select, shop for or obtain
information about a general or specific purchase. An additional task may reflect different buyer and
user roles anticipated by the individual.
For Example: A person shopping for a small appliance as weeding gift for a friend is in
a different situation than when shopping for the same small appliances or a personal use.
 Antecedent States
The antecedent states makeup a final feature that characterizes a situation. These are momentary
moods (such as acute anxiety, pleasantness, hostility) or momentary conditions (such as cash on
hand, fatigue, illness) rather than chronic individual traits. These conditions are further stipulated to
be immediately antecedent to the current situation to distinguish the states the individual brings to
the situation from states of the individual resulting from the situations.
For Example: People may choose a certain motion picture because they feel depressed
(an antecedent state and a part of the choice situation), but the fact that the movie causes them to
feel happier is a response to the consumption situation. This altered state then may become
antecedents for behavior in the next choice situation encountered, such as passing a street vendor
on the way out of the cinema hall.
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1. Outline the four marketing influences on consumers behavior
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2.How do situation factors influence consumers behavior
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4.3 Types of Buying Decision Behavior
Consumers decision making differs with the type of buying decision. The decision to buy a wedding
suit, a house utensil, a personal computer and a new car are all different. Complex and expensive
purchases are likely to involve more buyer deliberation and participation.
Here are the well known four types of consumer buying behavior, based on the degree of buyers
involvement and degree of differences among brands.
i) Complex Buying Behavior
Complex buying behavior involves a three-step process. First, the buyer develops beliefs about the product.
Second, he or she develops attitudes about the product. Third, he or she makes a thoughtful choice. Consumers
engage in complex buying behavior when they are highly involved in a purchase and aware of significant
differences among brands. This is usually the case when the product is expensive, bought infrequently, risky
and highly self-expressive, like an automobile.
The marketer of a high-involvement product must understand consumers’ information gathering and evaluation
behavior. The marketer needs to develop strategies that assist the buyer in learning about the product’s
attributes and their relative importance, and which call attention to the high standing of the company’s brand on
the more important attributes. The market needs to differentiate the brand’s features, use print media to describe
the brand’s benefits, and motivate sales personnel and the buyer’s acquaintances to influence the final brand
choice.
ii) Dissonance Reducing Buyer Behavior
Sometimes the consumer is highly involved in a purchase but sees little difference in brands. The high
involvement is based on the fact that the purchase is expensive, infrequent, and risky. In this case, the buyer will
shop around to learn what is available. If the consumer finds quality differences in the brands, he or she might
go for the higher price. If the consumer finds little difference, he or she might simply buy on price or
convenience.
After the purchase, the consumer might experience dissonance that stems from noticing certain disquieting
features or hearing favorable things about other brands, and will be alert to information that supports his or her
decision. In this example, the consumer first acted, then acquired new beliefs, then ended up with a set of
attitudes. Marketing communications should supply beliefs and evaluations that help the consumer feel good
about his or her brand choice.
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iii) Habitual Buying Behavior

Many products are bought under conditions of low involvement and the absence of significant brand
differences. Consider salt. Consumers have little involvement in this product category. They go to the store and
reach for the brand. If they keep reaching for the same brand, it is out of habit, not strong brand loyalty. There is
good evidence that consumers have low involvement with most low-cost, frequently purchased products.
With these products, consumer behavior does not pass through the normal sequence of belief, attitude, and
behavior. Consumers do not search extensively for information, evaluate characteristics, and make a decision.
Instead, they are passive recipients of information in television or print advertisements. The repetition of
advertisements creates brand familiarity rather than brand conviction. After purchase, they may not even
evaluate the choice. For low-involvement products, the buying process begins with brand beliefs formed by
passive learning and is followed by purchase behavior, which may be followed by evaluation.
Marketers of such products find it effective to use price and sales promotions to stimulate product trail.
Television advertising is more effective than print because it is a low-involvement medium that is suitable for
passive learning.
Marketers use four techniques to try to convert a low-involvement product into one of higher involvement.
First, they can link the product to some involving issue, as when Crest toothpaste is linked to avoiding cavities.
Second, they can link the product to some involving personal situation for instance, by advertising a coffee
brand early in the morning when the consumer wants to shake off sleepiness. Third, they might design
advertising to trigger strong emotions related to personal values or ego defense. Fourth, they might add an
important feature (for example, fortifying a plain drink with vitamins). These strategies at best raise consumer
involvement from a low to a moderate level; they do not propel the consumer into highly involved buying
behavior.
iv) Variety-Seeking Buying Behavior

Some buying situations are characterized by low involvement but significant brand differences. Here consumers
often do a lot of brand switching. Think about cookies. The consumer has some beliefs about cookies, chooses a
brand of cookies without much evaluation, and evaluates the product during consumption. Next time, the
consumer may reach for another brand out of a wish for a different taste. Brand switching occurs for the sake of
variety rather than dissatisfaction.
The market leader and the minor brands in this product category have different marketing strategies. The market
leader will try to encourage habitual buying behavior by dominating the shelf space, avoiding out-of-stock
conditions, and sponsoring frequent reminder advertising. Challenger firms will encourage variety seeking by
offering lower prices, deals, coupons, free samples, and advertising that presents reasons for trying something
new.

3. Describe any two types of consumer’s buying decision behavior
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4.4 Steps in Buyers Decision Process

Buyers naturally pass certain steps before they reach into a final decision to buy a product.
Consumer Decision Making

The process by which consumers recognize a need for a product, search for information about alternatives to
meet the need, evaluate the information, make purchases, and evaluate the decision after the purchase can be
viewed as consumer decision making. In general, there are three types of decision making, which vary in terms
of how complex or expensive a product is and how involved a consumer is in purchasing it.
Extensive decision-making requires the most time and effort since the purchase involves a highly complex or
expensive product that is important to the consumer.
Group influences Marketing influences Situational influences
Consumer
Consumerdecision
decisionmaking
making
Need Alternative Alternative Purchase Post purchase

recognition search evaluation decision evaluation
For example, the purchase of a car, house, or computer often involves considerable time and effort comparing
alternatives and deciding on the right one. In terms of the number of purchases a consumer makes, extensive
decision making is relatively rare, but it is critical for marketers of highly complex or expensive products to
understand that consumers are willing to process considerable information to make the best choice. Thus,
marketers should provide consumer information that highlights competitive advantages for such high-
involvement products.
Limited decision-making is more moderate but still involves some time and effort searching for and comparing
alternatives. For example, when buying shirts or shorts, consumers may shop several stores and compare a
number of different brands and styles. Marketers of products for which consumers usually do limited decision
making often use eye-catching advertising and in-store displays to make consumers aware of their products and
encourage consumers to consider buying them.
Routine decision-making is the most common type and the way consumers purchase most packaged goods.
Such products are simple, inexpensive, and familiar, and consumers often have developed favorite brands that
55
they purchase without much deliberation. For example, consumers often make habitual purchases of soft drinks,
candy bars, or canned soup without carefully comparing the relative merits of different brands. Marketers of
such products need to have them readily available for purchase in a variety of outlets and price them
competitively if price is an important criterion to consumers. Marketers of these low-involvement products
often use celebrity spokespeople and other non-product-related cues to encourage purchases.
i) Need Recognition
The starting point in the buying process is the recognition of an unsatisfied need by the consumer. Any number
of either internal or external stimuli may activate needs or wants and recognition of them. Internal stimuli are
such things as feeling hungry and wanting some food, feeling a headache coming on and wanting some
Excedrin, or feeling bored and looking for a movie to go to. External stimuli are such things as seeing a
McDonald’s sign and then feeling hungry or seeing a sale sign for winter and remembering that last year’s coat
is worn out.
It is the task of marketing managers to find out what needs and wants a particular product can and does satisfy
and what unsatisfied needs and wants consumers have for which a new product could be developed. In order to
do so, marketing managers should understand what types of needs consumers may have. A well-known
classification of needs was developed many years ago by Abraham Maslow and includes five types. “Maslow’s
view is that lower-level needs, starting with physiological and safety, must be attended to before higher-level
needs can be satisfied. Maslow’s hierarchy is described below.
Physiological needs: This category consists of the primary needs of the human body, such as food, water, and
sex. Physiological needs will dominate when all needs are unsatisfied. In such a case, none of the other needs
will serve as a basis for motivation.
Safety needs: With the physiological needs met, the next higher level assumes importance. Safety needs consist
o such things as protection from physical harm, ill health, economic disaster, and avoidance of the unexpected.
Belongingness and love needs: These needs are related to the social and gregarious/ very friendly/ nature of
humans and the needs for companionship. This level in the hierarchy is the point of departure from the physical
or quasi-physical needs of the two previous levels. Non-satisfaction of this level of need may affect the mental
health of the individuals.
Esteem needs: These needs consist of both the need for the self-awareness of importance to others (self-
esteem) and actual esteem from others. Satisfaction of these needs leads to feelings of self-confidence and
prestige.
Self-actualization needs: This need can be defined as the desire to become more and more what one is, to
become every one is capable of becoming. This means that the individual will fully realize the potentialities of
given talents and capabilities. Maslow assumes that satisfaction of these needs is only possible after the
satisfaction of all the needs lower in the hierarchy.
While the hierarchy arrangement of Maslow presents a convenient explanation, it is probably more realistic to
assume that the various need categories overlap. Thus, in affluent societies, many products may satisfy more
than one of these needs. For example, gourmet foods may satisfy both the basic physiological need of hunger as
well as esteem and status needs for those who serve gourmet foods to their guests.
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ii) Alternative search

Once a need is recognized, the individual then searches for alternatives for satisfying the need. There are five
basic sources from which the individual can collect information for a particular purchase decision.
a) Internal Soruces: In most cases the individual has had some previous experience in dealing with a
particular need. Thus, the individual will usually “search” through whatever stored information and
experience is in his or her mind for dealing with the need. If a previously acceptable product for satisfying
the need is remembered, the individual may purchase with little or no additional information search or
evaluation. This is quite common for routine or habitual purchases.
b) Group sources: A common source of information for purchase decisions comes from communication
with other people, such as family, friends, neighbors, and acquaintances. Generally, some of these (i.e.,
relevant others) are selected that the individual views as having particular expertise for the purchase
decision. Although it may be quite difficult for the marketing manager to determine the exact nature of this
source of information, group sources of information often are considered to be the most powerful influence
on purchase decisions.
c) Marketing Sources: Marketing sources of information include such factors as advertising, salespeople,
dealers, packaging, and displays. Generally, this is the primary sources of information about a particular
product. These sources of information will be discussed in detail in the promotion chapters of this text.
d) Public Sources: Public sources of information include publicity, such as a news-paper article about the
product, and independent ratings of the product, such as consumer reports. Here product quality is a highly
important marketing management consideration since such articles and reports often discuss such features as
dependability and service requirements.
e) Experiential sources: Experiential sources refer to handling, examining, and perhaps trying the product
while shopping. This usually requires an actual shopping trip by the individual and may be the final source
consulted before purchase.
The consumer then processes information collected from these sources. However, the exact nature of how
individuals process information to form evaluations of products is not fully understood. In general, information
processing is viewed as a four-step process is which the individuals is,
 exposed to information
 becomes attentive to the information
 understands the information
 retains the information.
iii) Alternative Evaluations

During the process of collecting information or, in some cases, after information is acquired, the
consumer evaluates alternatives based on what he or she has learned. One approach to describing the
evaluation process can be found in the logic of attitude modeling. The basic logic can be described as
follows:
 The consumer has information about a number of brands in a product class.
 The consumer perceives that at least some of the brands in a product class are viable alternatives
for satisfying a recognized need.
 Each of these brands has a set of attributes (color, quality, size, and so forth).
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 A set of these attributes is relevant to the consumer, and the consumer perceives that different
brands vary in how much of each attribute they posses.
 The brand that is perceived as offering the greatest number of desired attributes in the desired
amounts and desired order will be the brand the consumer will like best.
 The brand the consumer likes best is the brand the consumer will intend to purchase.
iv) Purchase Decision

If no other factors intervene after the consumer has decided on the brand that is intended for purchase, the
actual purchase is a common result of search and evaluation. Actually, a purchase involves many
decisions, which include product type, brand, model, dealer selection, and method of payment, among
other factors. In addition, rather than purchasing, the consumer may make a decision to modify, postpone,
or avoid purchase based on an inhibitor to purchase or a perceived risk.
Traditional risk theorists believe that consumers tend to make risk-minimizing decisions based on their
perceived definition of the particular purchase. The perception of risk is based upon the possible
consequences and uncertainties involved. Consequences may range from economic loss, to
embarrassment if a new food product does not turn out well, to actual physical harm. Perceived risk may
be either functional (related to financial and performance considerations) or psychosocial (related to
whether the product will further one’s self or reference group image). The amount of risk a consumer
perceives in a particular product depends on such things as the price of the product and whether other
people will see the individual using.
The perceived risk literature emphasizes that consumers generally try to reduce risk in their decision
making. This can be done by either reducing the possible negative consequences or by reducing the
uncertainty. The possible consequences of a purchase might be minimized by purchasing in small
quantities or by lowering the individual’s aspiration level to expect less in the way of results from the
product. However, this cannot always be done. Thus, reducing risk by attempting to increase the certainty
of the purchase outcome may be the more widely used strategy. This can be done by seeking additional
information regarding the proposed purchase. In general, the most information the consumer collects
prior to purchase, the less likely post purchase dissonance is to occur.
v) Post purchase Evaluation

In general, if the individual finds that a certain response achieves a desired goal or satisfies a need, the
success of this prompt response pattern will be remembered. The probability of responding in a like manner
to the same or similar situation in the future is increased. In other words, the response has a higher
probability of being repeated when the need and cue appear together again, and thus it can be said that
learning has taken place. Frequent reinforcement increases the habit potential of the particular response.
Likewise, if a response does not satisfy the need adequately, the probability that the same response will be
repeated is reduced.
For some marketers this means that if an individual finds a particular product fulfills the need for which it
was purchased, the probability is high that the individual will repurchase the product the next time the need
arises. The firm’s promotional efforts often act as the cue. If an individual repeatedly purchases a product
with favorable results, loyalty may develop toward the particular product or brand. This loyalty can result in
habitual purchases, and such habits are often extremely difficult for competing firms to alter.
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Although many studies in the area of buyer behavior center on the buyer’s attitudes, motives, and behavior
before and during the purchase decision, emphasis has also been given to study of behavior after the purchase.
Specifically, studies have been undertaken to investigate post purchase dissonance, as well as post purchase
satisfaction.
The occurrence of post decision dissonance is related to the concept of cognitive dissonance. This theory states
that there is often a lack of consistency or harmony among an individual’s various cognitions, or attitudes and
beliefs, after a decision has been made that is, the individual has doubts and second thoughts about the choice
made. Further, it is more likely that the intensity of the anxiety will be greater when any of the following
conditions exist:
i)The decision is an important one psychologically or financially, or both.

ii)There are a number of forgone alternatives
iii) The forgone alternatives have many favorable features
These factors can relate to many buying decisions. For example, post purchase dissonance might be expected to
be present among many purchasers of such products as automobiles, major appliances, and homes. In these
cases, the decision to purchase is usually an important one both financially and psychologically, and there are
usually a number of favorable alternatives available.
These findings have much relevance for marketers. In a buying situation, when a purchaser becomes dissonant
it is reasonable to predict such a person would be highly receptive to advertising and sales promotion that
support the purchase decision. Such communication presents favorable aspects of the product and can be useful
in reinforcing the buyer’s wish to believe that a wise purchase decision was made. For example, purchasers of
major appliances or automobiles might be given a phone call or sent a letter reassuring them that they have
made a wise purchase.
As noted, researchers have also studied post purchase consumer satisfaction. Much of this work has been based
on what is called the disconfirmation paradigm. This approach views satisfaction with products and brands
because of two other variables. The first variable is the expectations a consumer has about a product before
purchase. These expectations concern the beliefs the consumer has about the product’s performance.
The second variable is the difference between expectations and post purchase perceptions of how the product
actually performed. If the product performed as well as expected or better than expected, the consumer will be
satisfied with the product. If the product performed worse than expected, the consumer will be dissatisfied with
it.
One implication of this view for marketers is that care must be taken not to raise pre purchase expectations to
such a level that the product cannot possibly meet them. Rather, it is important to create positive expectations
consistent with the product’s likely performance.

4. Discuss the consumers’ decision making process
…………………………………………………………………………………………………………………
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4.5 Consumer Satisfaction, Dissatisfaction, and Complaint Behavior

Consumer satisfaction, dissatisfaction, and complaint behavior are also important outcomes of consumer
purchase-decision processes. Satisfaction and dissatisfaction describe the positive, neutral, or negative
feelings that may occur after purchase; consumer complaints are overt expressions of
dissatisfaction. Consumer satisfaction is central to the marketing concept and is a dominant cause of
customer loyalty. Increased loyalty enhances revenues, lowers the costs of individual transactions, and
decreases price sensitivity. Satisfaction also has benefits within the firm; costs associated with handling
returns and warranty claims are reduced, as are those associated with managing complaints.
Judgments of satisfaction and dissatisfaction are generally thought to result from comparisons between a
person's expectations about a purchased product and the product's actual performance. Purchases that
turn out worse than expected result in negative disconfirmation and negative feelings. Purchases that
turn out better than expected (resulting in positive disconfirmation) are evaluated positively.
A simple model of consumer satisfaction-dissatisfaction relationships is depicted in Exhibit 4.1. First,

the consumer's prior experiences with products and brands establish expectations. Marketing
communications, including advertising, and word of mouth communications also influence expectations.
When you take your car to be serviced or repaired, what expectations do you have? Consumers thus
develop expectations about what a product or service should be able to provide. Comparison between
the buyer's expectations and the product or service performance levels results in the confirmation or
disconfirmation of expectations and the outcomes of satisfaction or dissatisfaction. These positive or
negative feelings serve as input into the formation of future attitudes and expectations. Although
disconfirmation is generally considered the most important determinant of satisfaction, expectations and
performance directly influence satisfaction also. This is consistent with research showing that consumers
with higher expectations experience higher levels of satisfaction and that performance, independent of
positive or negative disconfirmation, exerts a direct effect on feelings of satisfaction. Similarly, research
on cars shows that consumers with high product involvement tend to be more satisfied with their
purchases than less –involved car owners. Regardless, however, firms adopting a customer value
perspective must employ marketing communications that convey realistic expectations.
Companies now regularly .measure satisfaction and recognize it as an important determinant of customer
retention. However, the measurement of satisfaction must consider not only what the customer did
receive but what he or she could have received. That is, companies must study their competition as well.
Overall quality has been shown to be a better predictor than satisfaction of customers' willingness to keep
buying. Practitioners now agree that only stellar performance makes a real difference in customer loyalty.
The success of programs that measure satisfaction levels are dependent on benchmarking, either against
competitor performance or performance goals established by management. Customer satisfaction
measurement is useful for identifying areas in need of improvement to strengthen relationships with
customers, as well as subsequent assessment of how efficiently and satisfactorily services and products
are being provided.
Besides influencing subsequent expectations, purchase behavior, and loyalty, dissatisfaction can result in
several forms of consumer complaints: voice responses (seeking satisfaction directly from the seller),
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private responses (bad-mouthing to friends), and third-party responses (taking legal action, filing
complaints with consumer affairs agencies). Remember that word-of-mouth personal communications are
very credible an influential. Complaints are customer feedback about products, services, and company
performance that marketers should never take lightly.
Dissatisfied customers talk to more people than satisfied customers often dissatisfied customers never make a
complaint to the company. Because new customers are harder to find, maintaining satisfaction among
existing customers should be paramount.
To gain feedback, some companies even encourage their customers to complain. Companies that know what is
bothering their customers have a better chance of correcting problems, retaining sales, and preventing
further damage. At Dell Computer Corporation ( U.S. based well known computer manufacturer). the
mail-order PC (personal computer) marketer, staff, and managers meet every Friday morning to review
customer complaints. The Dell vision is that every customer must be pleased, not merely satisfied. In the
same way, Coca-Cola wants to hear from its customers when they have a problem. According to its
consumer affairs department, "Consumers who have a good experience with our company tell an average
of five other people; but those who have a bad experience will tell twice as many people.”

5. How do consumers’ satisfaction and dissatisfaction outcomes contribute on their purchase decision
process?
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4.6 Summary
Consumers’ behavior is influenced by different marketing tools which are known as the 4ps’ (product,
price, promotion, physical distribution/place). These well designed marketing instrument have
influential power towards the offer of the marketer on the other side these four cultural factors (culture,
sub culture and social class), social (reference groups, family, social roles and statues), personal factors
(age, life cycle stage, occupation, economic circumstances), psychological factors (motivation,
perception, beliefs, learning), situational factors can provide clues to reach and serve consumers more
effectively.
In order to understand how consumers actually make buying decisions, marketers must identify who
makes and has inputs into the buying decision. People can be initiators, influencers, deciders, buyers,
users and different marketing campaigns might be targeted to each type of persons.
The typical buying decision process passes through certain levels, problem recognition, and information
search, evaluation of alternatives, purchase decision, and post purchase behavior. It’s very important to
understand the buyers’ behavior at each stage.
4.7 Answers for your Progress Exercise
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1) Marketers design their marketing strategies to convince customers and make their regular users of their
product, which setting their strategies the major powerful instruments they use are the marketing mix
(product, price, promotion, physical distribution/place)
A) Product Influences: Many attributes of a company’s products, including the brand name, quality,
newness and complexity, can affect consumers’ behavior.
B) Price influences: The price of products and services often influences either consumers will purchase
them at all or, if so, which competitive offering is selected. Some shops/supermarkets are perceived to
charge the lowest prices attract many consumers based on this factor alone, for some offerings higher
prices may not deter purchase, because consumers believe that the products or services are higher quality
or more prestigious. However, most of today’s value conscious consumers may buy products more on the
basis of price than other attributes.
C) Promotion Influences: The promotional tools such as advertising, personal selling, sales promotion,
publicity / public relations, direct marketing, with a high skilled sales persons can influence what
consumers think about products, what emotions they experience in purchasing and using them and what
behaviors they perform, including shopping in particular shops and purchasing specific brands.
D) Place/Physical distribution influences: The marketers’ strategy for distributing products can
influence consumers in several ways. First, products which are convenient to buy in a variety of shops
increase the chances of consumers finding and buying them. When consumers are seeking low-
involvement products, they are unlikely to engage in extensive search, so prompt service and ready
availability is important. Secondly, products sold in exclusive outlets in fact one of the ways marketers
create brand equity, that is, favorable consumer perceptions that the products are innovative, exclusive, or
tailored for specific target markets.
2) Situational influences can be defined as all those factors particular to a time and place of observation that
have a demonstrable and systematic effect on current behavior. In terms of purchasing situations, there are
five groups of situational influences which may be perceived either consciously or sub consciously and may
have considerable effect on product and brand choice.
i) Physical Surroundings
The most readily apparent features of a situation. These features include geographical and institutional
location, décor, sounds, weather, lighting, aromas and visible configurations of merchandise or other
material surrounding the stimulus object.
ii) Social Surroundings

It provides additional depth to a description of a situation, other persons presence, their characteristics,
their apparent roles and interpersonal interactions are potentially relevant examples.
2) Complex Buying Behavior: Complex buying behavior involves a three-step process. First, the buyer
develops beliefs about the product. Second, he or she develops attitudes about the product. Third, he or
she makes a thoughtful choice. Consumers engage in complex buying behavior when they are highly
involved in a purchase and aware of significant differences among brands. This is usually the case when
the product is expensive, bought infrequently, risky and highly self-expressive, like an automobile.
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Consumers often do a lot of brand switching (changing brands) in which such occurs for the sake of variety
rather than dissatisfaction.
4) Steps in consumers decision making
1st Need Recognition:

- A step where consumers noticed their unsatisfied need.
- Either internal or external stimuli activate the need.
2nd - Alternative Search

- Once a need is recognized, the next move would be to look for alternatives in order to satisfy
needs.
Basic sources to get information
A) Group sources (family, friends, neighbors, etc)
B) Internal sources (own previous experience
C) Marketing sources (Advertising, salespersons, displays etc)
D) Experiential sources (handling, examining products while shopping)
The consumer then processes information collected from these sources. However, the exact nature of how
individuals process information to form evaluations of products is not fully understood. In general,
information processing is viewed as a four-step process is which the individuals is,
 exposed to information
 becomes attentive to the information
 understands the information
 Retains the information.
3rd Alternative Evaluations
During the process of collecting information or, in some cases, after information is acquired, the
consumer evaluates alternatives based on what he or she has learned. One approach to describing the
evaluation process can be found in the logic of attitude modeling. The basic logic can be described as
follows:
♦ The consumer has information about a number of brands in a product class.
♦ The consumer perceives that at least some of the brands in a product class are viable
alternatives for satisfying a recognized need.
♦ Each of these brands has a set of attributes (color, quality, size, and so forth).
♦ A set of these attributes is relevant to the consumer, and the consumer perceives that different
brands vary in how much of each attribute they posses.
♦ The brand that is perceived as offering the greatest number of desired attributes in the desired
amounts and desired order will be the brand the consumer will like best.
♦ The brand the consumer likes best is the brand the consumer will intend to purchase.
4th Purchase Decision

If no other factors intervene after the consumer has decided on the brand that is intended for purchase,
the actual purchase is a common result of search and evaluation. Actually, a purchase involves many
decisions, which include product type, brand, model, dealer selection, and method of payment, among
other factors. In addition, rather than purchasing, the consumer may make a decision to modify,
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postpone, or avoid purchase based on an inhibitor to purchase or a perceived risk. Postpone, or avoid
purchase based on an inhibitor to purchase or a perceived risk.
5th Post purchase Evaluation

After purchasing the product, consumers will experience some level of satisfaction or dissatisfaction.
The marketer’s job does not end when the product is bought; instead monitor the post purchase
satisfaction, post purchase actions and post purchase product uses of consumers.
5) The out come from consumers side or the post purchase reaction of consumers have a great impact. On their
next purchase decision reaction, it’s obvious every purchase outcome will show either satisfaction or
dissatisfaction and sometimes neutral.
Consumers satisfaction is central to the marketing concept and it’s a dominant cause of customer loyalty.
Increased loyalty enhances revenues, lowers the costs of individual’s transactions and decreases price
sensitivity. On the other side satisfaction also benefits within the firm, costs associated with handling returns
and warranty claims are reduced, as its associated with management complaints.
Judgment of satisfaction
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CHAPTER FIVE:- MARKET SEGMETNTATION AND TAREGET

MARKETS
Contents

5.2 Market Segmentation
5.2.1 Overview to Market Segmentation
5. 2.2 Aggregating
5.2.3 Levels of Market Segmentation
5.2.3.1 Segmenting Markets
5.2.3.2 Niche Marketing
5.2.3.3 Local marketing
5.2.3.4 Individual markets
5.2.4. Consumer Market Segmentation Variables
5.3 Applying Segmentation Concept
5.4 Targeting
5.5 Positioning
5.5.1 Physical Positioning
5.5.2 Perceptual Positioning
5.5.3 Positioning versus Market Analysis
5.6 Summary

When you have mastered this chapter, you should:
1. Understand what market segmentation is.
2. Learn the processes in segmentation
3. Comprehend what aggregation means
4. Know how segmentation is related to targeting
5. Recognize what targeting means
6. Understand all about positioning
7. Learn the levels of market segmentation.
8. Learn the limitations in positioning
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5.2 Market Segmentation

5.2.1 Overview to Market Segmentation
Most people have unsatisfied needs—and alert marketers who see these needs find opportunities all around
them. Unfortunately, some opportunities seem "obvious" only after someone else identifies them. Marketers
need a framework for thinking about the kinds of opportunities they may find.
A market is an aggregate of people who, as individuals or as organizations, have needs for products in a product
class and who have the ability, willingness, and authority to purchase such products. The main types of markets
are consumer markets. The type of market affects the development and implementation of a firm's marketing
strategy.
Market segmentation is a two-step process. The steps are established in order to select target markets and
develop suitable marketing. They are classified as:
(1) Naming broad product-markets;

(2) Segmenting these broad product-markets;
This two-step process isn't well understood. First-time market segmentation efforts often fail because beginners
start with the whole mass market and try to find one or two demographic characteristics to segment this market.
Customer behavior is usually too complex to be explained in terms of just one or two demographic
characteristics. For example, not all old men—or all young women—buy the same products or brands. Other
dimensions usually must be considered—starting with customer needs.
5.2.2 Aggregating
Marketing-oriented managers think of segmenting as an aggregating process—clustering people with similar
needs into a "market segment." A market segment is a (relatively) homogeneous group of customers who will
respond to a marketing mix in a similar way.
Naming broad product-markets is disaggregating. The first step in effective market segmentation involves
naming a broad product-market of interest to the firm. Marketers must "break apart"— disaggregate—all
possible needs into some generic markets and broad product- markets in which the firm may be able to operate
profitably. Disaggregating, a practical rough-and-ready approach, tries to narrow down the marketing focus to
product-market areas where the firm is more likely to have a competitive advantage—or even to find
breakthrough opportunities. It looks easy, but disaggregating actually requires a lot of thought and judgment
about what the firm may be able to do for some consumers—do better than some or all competitors—so it will
have a competitive advantage.
Segmenters start with the idea that each person is one of a kind but that it may be possible to aggregate some
similar people into a product-market. They see each of these one-of-a-kind people as having a unique set of
dimensions. Consider a product-market in which customers' needs differ on two important segmenting
dimensions: need for status and need for dependability.
The segmenter wants to aggregate individual customers into some workable number of relatively homogeneous
target markets—and then treat each target. The number of segments that should be formed depends more on
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judgment than on some scientific rule. But the following guidelines can help. Criteria for segmenting a broad
product-market ideally, "good" market segments meet the following criteria:
1. Homogeneous (similar) within—the customers in a market segment should be as similar as possible with
respect to their likely responses to marketing mix variables and their segmenting dimensions.
2. Heterogeneous (different) between—the customers in different segments should be as different as possible

with respect to their likely responses to marketing mix variables and their segmenting dimensions.
3. Substantial—the segment should be big enough to be profitable.
4. Operational—the segmenting dimensions should be useful for identifying customers and deciding on
marketing mix variables.
It is especially important that segments be operational. This leads marketers to include demographic dimensions
such as age, income, location, and family size. Information on these dimensions, usually readily available, can
be very useful in determining the size of markets and planning marketing mixes. In fact, it is difficult to make
some Place and Promotion decisions without such information.
Avoid segmenting dimensions that have no practical operational use. For example, you may find a personality
trait such as moodiness among the traits of heavy buyers of a product, but how could you use this fact?
Salespeople can't give a personality test to each buyer.
Should we segment or combine?
Which approach should a firm use? This depends on the firm's resources, the nature of competition, and—most
important—the similarity of customer needs, attitudes, and buying behavior. Target marketers develop and
implement whole strategies—they don't just segment markets. In practice, cost considerations probably
encourage more aggregating—to obtain economies of scale—while demand considerations suggest less
aggregating—to satisfy needs more exactly.
Another difficulty with segmenting is that some potential customers just don't fit neatly into market segments.
Further, forming additional segments for them probably couldn't be profitable. They are too few and not very
similar in terms of the two dimensions. They may be simply too unique to be catered to and may have to be
ignored—unless they are willing to pay a high price for special treatment.
5.2 3 Levels of market segmentation
Market segmentation is an effort to increase a company's precision marketing. The starting point of any
segmentation discussion is mass marketing. In mass marketing, the seller engages in the mass production, and
mass promotion of one product for all buyers. The arguments of mass marketing is that it creates the largest
potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher margins.
5.2.3.1 Segmenting Markets
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A market segment consists of a large identifiable group within a market with similar wants and different
background such as purchasing power, geographical location, buying attitudes, or buying habits. For example
an auto company may identify four broad segments: car buyers who are primarily seeking basic transportation
or high performance or luxury or safety.
Segmentation is an approach midway between mass marketing and individual marketing. Each segment's buyers
are assumed to be quite similar in wants and needs, yet no two buyers are really alike. Segment marketing offers
several benefits over mass marketing. The company can create a more fine-tuned product or service offering
and price it appropriately for the target audience. The choice of distribution channels and communications
channels becomes much easier. The company also may face fewer competitors in the particular segment.
5.2.3.2 Niche Marketing

A niche is a more narrowly defined group, typically a small market whose needs are not well served. Marketers
usually identify niches by dividing a segment into sub segments or by defining a group seeking a distractive mix
of benefits. The segment of heavy smokers includes those who are trying to stop smoking and those who don't
care.
Segments are fairly large and normally attract several competitors. Whereas, niches are fairly small and
normally attract only one or two. Large companies lose pieces of their market to niches. Niche marketers
presumably understand their customers' needs so well that the customers willingly pay a premium.
An attractive niche is characterized by: The customers in the niche have a distinct set of needs; they will pay a
premium to the firms that best satisfies their needs; the niche is not likely to attract other competitors; the niche
gains certain economies through specialization; and the niche has size, profit and growth potential.
5.2.3.3 Local Marketing

Target marketing is leading to marketing programs being tailored to the needs and wants of local customer
groups such as trading areas, neighborhoods, and even individual stores.
Those favoring localizing a company's marketing see national advertising as wasteful because it fails to address
local needs. Those against local marketing argue that it drives up manufacturing and marketing costs by
reducing economies of scale. Logistical problems become magnified when companies try to meet varying local
segments. A brand overall image might be deleted if the product and message differ in different localities.
5.2.3.4 Individual Marketing

The ultimate level of segmentation leads to "Segments of One" customized marketing, "or" one-to-one
marketing. For countries, consumers were served as individuals: The tailor made the suit and the cobbler
designed shoes for the individual. Much business-to business marketing today is customized, in that a
manufacture's will customize the offer, logistics, communications, and financial terms for each major accounts.
New technologies like computers, databases, and robotic production, E-mail, and Fax-permit companies attempt
to return to customized marketing, or what is called "Mass customization". Mass customization is the ability to
prepare on a mass basis individually designed products and communications to meet each customer's
requirements.
Today customers are taking more individual initiative in determining what and how to try. They log on to the
Internet, look up information and evaluators of product or services offers; dialog with suppliers, users, and
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product critics; and make up their own minds about {he best offers. Marketers will still influence the process
but in new ways. They will need to set up toll-free phone numbers and e-mail addresses to enable buyers to
reach them with questions, suggestions, and complaints. They will involve customers more in the product-
specification process. They will sponsor an Internet home page that provides full information about the
company's products, guarantees, and locations.
5.2.4 Consumer market segmentation variables
Dividing the total market into ultimate consumer and business user segments results in segments that are still
broad and varied for most products. The customer market may be divided into further segments using the
following characteristics:
 Geographic
 Demographic
 Psychographics
 Buying Behavior
As an example let's take the demographical and geographical Market segments based on geographic distribution
-the regions, countries, cities, and towns where people live and work -is usually used. The reason for this is
simply that consumers wants and products usage often are related to one or more of these subcategories.
Geographic characteristics are also measurable and accessible -two of the conditions for effective
segmentations. That is many firms market this products in a limited number of geographic regions, or they may
market nationally but prepare a separate marketing mix for each region.
The regional distribution of population is important to marketers because people within a given region generally
tend to share the same value, attitude and style preference. However, significant differences do exist among
regions because of differences, in climate, social customs, and other factors.
Let us also have a look at the demographic segmentation, the market is divided into groups on the basis of
variable such as age, family size, family lifecycle, gender, income, occupation, education, religion, race,
generation, nationality, social class. Demographic variables are the most popular bases for distinguishing
customer groups. One reason so that consumer wants, preferences and usage rates are often associated with
demographic variables. Another is that demographic variables are easier to measure. In demographic
segmentation reference can be made to the following issues:
 Family lifecycle
 Age
 Gender
 Occupation
 Religion:
 Ethnic Background:
Even when the target market is described in non-demographic term (say, a personality types), the link lack to
demographic characteristic is needed in order to estimate the size of the target market and the media that should
be used to reach it efficiently. Here is how certain demographic variables have been used to segment markets.
If we take for example age, consumer's wants and abilities change with age and as a result the life cycle of the
products in that segments can increase. Consequently producers become motivated to work hard and to exploit
promising niche markets. Again if we take the income issue, segmentation is a long-standing practice in such
product and service categories such as cloths, cosmetics, shoes and travel. However, income does not always
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predict the best customs for a given product. Sometimes people with middle income may be big purchasers of
color television sets.
Behavioral segmentation also requires emphasis. Some marketers regularly attempt to segment their markets on
the basis of product related behavior -they utilize behavioral segmentation. In psychographics segmentation,
buyers are divided into different groups on the bases of lifestyle or personality and values. People with the same
demographic group can exhibit very different psychographics profiles.
1.What are the two-step processes in Market segmentation?

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5.3 Applying Segmentation Concepts
 A Seven-Step Approach to Segmenting Product-Markets
This is a logical, seven-step approach to market segmentation. All of the ideas discussed here are discussed in
the text. However, this integrating framework puts the concepts in a "how-to-do-it" sequence that works well in
most segmenting situations.
Marketing research could help fine-tune some of the decisions made with this approach. It is especially useful
for finding the determining dimensions for product types. To get down to dimensions for specific brands more
sophisticated techniques, such as positioning, may be needed.
Each of the following seven steps is discussed in more detail below:
Step 1. Name the broad product-market.

Step 2. List potential customers' needs.
Step 3. Form homogeneous sub-markets.
Step 4. Identify the determining dimensions.
Step 5. Name (nickname) the possible product-markets.
Step 6. Evaluate why product-market segments behave as they do.
Step 7. Make a rough estimate of the size of each product-market segment.
1. Decide what broad product-market the firm wants to be in. This may be stated in the firm's objectives.
Or if the firm is already successful in some product-market, its current position might be a good starting point.
Try to build on the firm's strengths and avoid its weaknesses—and competitors' strengths. Available resources,
both human and financial, will limit the possibilities— especially if the firm is just getting started.
There has to be some balance between naming the product-market too narrowly (same old product, same old
market) and naming it too broadly (the whole world and all its needs). Here the firm decides on the whole
market of motel users in one city—because this is where the firm has some experience.
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2. List potential customers' needs. Write down as many relevant needs as you can—considering all of the
potential customers in the broad product-market. The list doesn't have to be complete yet but should provide
enough input to help stimulate your thinking in the next steps. To see possible needs, think about why some
people buy the present offerings in this broad product-market.
3. Form "homogeneous" sub-markets—that is, "narrow" product-markets. Assuming that some
people have different needs from others, form different sub-markets based on each market's needs. Start by
forming one sub-market around some typical type of customer and then aggregate similar people into this
segment as long as they can be satisfied by the same marketing mix. To help the marketing officer to do the
segmenting effectively and to decide whether each new customer type should be included in the first segment, it
would be necessary to write down the important customer-related characteristics (including demographic
characteristics) of each market. This will also help when naming the sub-markets become an issue.
4. Identifying the determining dimensions. Review the list of need dimensions for each possible segment
and identify the determining dimensions (perhaps by putting an asterisk beside them). Although the qualifying
dimensions are important—perhaps reflecting, "core needs" that should be satisfied—they are not the
determining dimensions we are seeking now. To help identify the determining dimensions, think carefully
about the needs and attitudes of the people in each possible segment. They may not seem very different from
market to market, but if they are determining to those people then they are determining!
5. Name (nickname) the possible product-markets. Review the determining dimensions—market by

market—and name (nickname) each one based on the relative importance of the determining dimensions (and
aided by your description of the customer types). A market grid is a good way to help visualize this broad
product-market and its narrow product-markets.
6. Evaluate why product-market segments behave as they do. After determining the dimensions the
markets or sub markets, they have to be evaluated. The evaluation should be on the basis of the characteristic of
the markets. Besides, looking into how they behave and why they behave that way is requires evaluation.
7. Make a rough estimate of the size of each product-market segment. Remember, we are looking for
profitable opportunities. So now we must try to tie our product-markets to demographic data—or other
customer-related characteristics—to make it easier to estimate the size of these markets. We aren't trying to
estimate our likely sales yet. Sales depend on the competition as well as the particulars of the marketing mix.
Now we only want to provide a basis for later forecasting and marketing mix planning. The more we know
about possible target markets, the easier those jobs are.
Fortunately, we can obtain a lot of data on the size of markets—especially demographic data. And bringing in
demographics adds a note of economic reality. Some possible product-markets may have almost no market
potential. Without hard facts, we risk aiming at such markets.
Market dimensions suggest a good mix. Once we follow all seven steps, we should be able to outline the kinds
of marketing mixes that would appeal to the various markets.
2. Discuss the seven steps in Market segmentation.
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5.4 Targeting
When companies understand their target markets, they may see breakthrough opportunities. But a target
market's real needs—and the breakthrough opportunities that can come from identifying and serving those
needs—are not always obvious. So let's look at some ways to better understand a company's target markets.
Identifying a company's market is an important but sticky issue. In general, a market is a group of potential
customers with similar needs who are willing to exchange something of value with sellers offering various
goods and/or services—that is, ways of satisfying those needs.
To select target segments, a firm must consider a combination of factors, including:
 the segment's potential sales volume

 profits obtained
 competitors currently selling to the segments
 the firms abilities and objectives
 competitors general strength
Although large segments with a substantial number of buyers seem to promise high potential sales volume and
profits, smaller segments served by a unique marketing mix may also provide lucrative business opportunities.
For example smaller stores can serve many if these segments.
Large markets may also attract the greatest number of competing firms. In general, a firm will have to assess
market potential in light of competitive issues. If a firm has competitive advantage that cannot be easily copied,
it may attempt to approach the larger market segments. The selection of target markets has a lot to do with the
firm's objectives and distinctive competence. A firm specializing in innovative technological products, for
example, may compete on total value, rather than on price alone, focusing on one segment or a few segments
where high quality, innovative products appeal.
Targeting into requires designing advertising and promotional mixes to reach the intended segments. Resources
are wasted if the advertising results in duplication of audience or reaches non-target market consumers.
Accurate identification of the marketing segments appropriate for a particular product is critical if firms are to
target those segments efficiently. Technology brings new precision to both the selection of specific target
segments and the ability to reach them. Usually, marketers employ a five-step process when selecting a target
market:
Step 1 is to identify the appropriate targeting strategy–undifferentiated targeting strategy, concentrated targeting
strategy, or differentiated targeting strategy. A homogeneous market requires an undifferentiated targeting
strategy, whereas a heterogeneous market requires market segmentation, which is used in the implementation of
a concentrated targeting strategy and a differentiated targeting strategy. Market segmentation divides the total
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market into groups of people and organizations, called market segments so that those within market segments
have relatively similar product needs. These segments help marketers design a marketing mix that matches
those needs.
Step 2 is determining which segmentation variables to use. Segmentation variables for consumer markets can
be grouped into four categories: demographic (age, gender, income, ethnicity, family life cycle), geographic
(population distribution, market density, and climate), psycho-graphic (personality traits, motives, lifestyles),
and behaviorist (volume usage, end use, expected benefits, brand loyalty, price sensitivity). Variables for
segmenting organizational markets include geographic location, type of organization, customer size, and
product use. Some marketers use geo-demographic segmentation, allowing them to engage in micro marketing.
Among the behaviorist variables, benefit segmentation is especially useful for some marketers.
Step 3 in the target market selection process is to develop market segment profiles. Profiles describe the
similarities among potential customers within a segment and explain the differences among people and
organizations in different market segments.
Step 4 is evaluating relevant market segments for sales, competition, and estimated costs associated with each
segment. During this process, market potential and company sales potential are evaluated. Company sales
potential can be measured using the breakdown approach or the buildup approach.
Step 5 involves the final selection of specific target markets. In this final step, companies consider whether
enough differences in customers' needs exist to warrant the use of segmentation and which segments to focus
on.
Marketers try to determine a sales forecast by using executive judgment, surveys, time series analysis,
regression analysis, and market tests. Within surveys, customer-forecasting surveys, sales-force forecasting
surveys, and expert forecasting surveys are used. Time series analysis employs four major types of analyses–
trend analysis, cycle analysis, seasonal analysis, and random factor analysis' in developing the sales forecast.
Many companies employ multiple forecasting methods.
 Market penetration
Market penetration means trying to increase sales of a firm's present products in its present markets—probably
through a more aggressive marketing mix. The firm may try to strengthen its relationship with customers to
increase their rate of use or repeat purchases, or try to attract competitors' customers or current nonusers.
Obviously, to do effective analysis and planning, marketers need to really understand why some people are
buying now and what will motivate them to buy more, begin or resume buying, or change brands.
 Market development
Market development means trying to increase sales by selling present products in new markets. It also means
offering new or improved products for present markets. By knowing the present market's needs, a firm may see
ways to add or modify product features, create several quality levels, or add more types or sizes to better satisfy
customers.
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Firms may try advertising in different media to reach new target customers. Or they may add channels of
distribution or new stores in new areas, including overseas. Market development may also involve searching
for new uses for a product.
 Product Diversification
Diversification means moving into totally different lines of business—perhaps entirely unfamiliar products,
markets, or even levels in the production-marketing system. Diversification presents the most challenging
opportunities. Diversification involves both new products and new markets. The further the opportunity from
what the firm is already doing, the more attractive it may look to the optimists—and the harder it will be to
evaluate. Opportunities very different from a firm's current experiences involve higher risks.
A generic market is a market with broadly similar needs--and sellers offering various-often diverse-ways of
satisfying those needs. A product-market is a market with very similar needs and sellers offering various close
substitute ways of satisfying those needs.
The seven-step approach can be used for markets where the customers (or final users) are business
organizations rather than individual consumers. The major change is in the first step--selecting the broad
product-market. Business and organizational customers usually make purchases to meet basic functional needs.
Their demands are derived from final consumer demands--so the business (or nonprofit organization)
market is concerned with purchases that help produce finished goods or services.
As with consumer markets, it is better to focus on needs satisfied by products, not product characteristics
themselves. New ways of satisfying the need may be found--and completely surprise and upset current
producers--if the product-market is defined too narrowly. After the first step in the seven-step approach, the
other steps are similar to segmenting consumer markets.
Success in international marketing requires even more attention to segmenting. With many nationals across the
world (more than 200 nations), there can be big differences in language, customs, beliefs, religions, race, and
income distribution patterns from one country to another. There is often less dependable data as firms move
into international markets. While the number of variables increases, the quantity and quality of data decrease.
Segmenting international markets may require more dimensions. But a practical method adds just one step
before the seven-step approach. First, segment by country or region--looking at demographic, cultural influence,
and other characteristics, including stage of economic development. This may help find reasonably similar sub-
markets. Then--depending on whether the firm is aiming at final consumers or business markets--apply the
seven-step approach.

3.Discuss Targeting and its function.
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5.5 Positioning
5.5.1 Physical positioning
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One way to access the current position of a product offering relative to competitors is on the basis of how the
various offerings compare on some set of objective physical characteristics. In many cases, a physical
positioning analysis can provide useful information to a marketing executive, particularly in the early stages of
identifying and designing new product offerings. Despite being based primarily on technical rather than on
market data, physical comparison can be an essential step in undertaking a positioning analysis. This is
especially true with the competitive offerings of many industrial goods and services, which buyers typically
evaluate largely on the basis of such characteristics.
In addition, it contributes to a better marketing research and development interface by determining key physical
product characteristic helps define the structure of competition by revealing the degree to which the various
brands compete with one another; and may indicate the presence of meaningful product gaps which may reveal
opportunities for a new product entry.
 Limitations of Physical Positioning
A physical comparison of only the physical dimensions of alternative offerings usually do not provide a
complete picture of relative position because, as we noted earlier positioning ultimately occurs in customers'
minds. Some physical uniqueness such as:
 A products physical characteristics;

 Package;
 Brand name;
 Price;
 Ancillary services can be designed to achieve particular position in the market.
Although customers may attach less importance to some of the above characteristics than or perceive them
differently from what the firm expects. Also customers' attitude towards a product is often based on social or
psychological attributes not amendable to objective comparison.
Once segments have been selected and targeted, the firm must position its products and services in the minds of
its customers. Positioning a product or service involves designing a marketing program, including the product
mix that is consistent with how the company wants its products or services to be perceived. The strategy a firm
adapts is driven them by the desired positioning. Positioning aims to influence or adjust customer perceptions of
a product or brand.
5.5.2 Perceptual Positioning
Consumers know very little about the essential physical attributes of many products especially house hold
goods. And even if they did they would not understand the physical attributes well enough to use them as a
basis for choosing between competitive offerings. Many consumers do not want to be bothered about product's
physical characteristics because they are not buying these physical properties but rather the benefits they
provide. While the physical properties of a product certainly influence the benefits provided, a consumer can
typically evaluate a product better on the basis of what it does than what it is.
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To illustrate the above situation lets us discuss some issues. For example to a sick person (a patient with
headache) what is important to him is that he wants the medicine to heal him quickly from his headache rather
than the characteristic or composition of the medicine. Same with toothpaste the consumer's interest is on the
freshness of breath the paste provides. The evaluation of many products is subjective. Other than physical
properties, it is influenced by factors such as:
 The way products are presented;

 Our past experience;
 The type of advertising
 The brand names
 The opinions of others.
Customers or prospective customers perceive physical as well as other differences between goods and services
with a product. Marketing decision makers seeking to win customers, with various kinds of attributes, may be
categorized as follows:
 simple physical based attributes. These are directly related to a single physical dimension such as
price, quality, and size. While there is a direct correspondence between a physical dimensions and a
perpetual attributes an analysis of consumers' perception of products on these attributes may unveil
phenomena of interest to a marketing strategy.
 complex physical based attributes. Because of the presence of a large number of physical
characteristics, consumers may use composite attributes to evaluate competitive offerings.
 essential abstract attributes. Although these perpetual attributes are influenced by physical
characteristics, they are not related to them in any direct way. Example perfume, wine, prestige of
cars attributes are highly subjective and difficult to relate to physical characteristics other than by
experience.
5.5.3 Positioning verses Market Analysis
Positioning helps managers understand how customers see their market. It is a visual aid to understanding a
product-market. The first time such an analysis is done, managers may be shocked to see how much customers'
perceptions of a market differ from their own. For this reason alone, positioning is useful. But positioning
usually focuses on specific product features and brands that are close competitors in the product-market. Thus,
it is a product-oriented approach. Important customer-related dimensions—including needs and attitudes—may
be overlooked.
Premature emphasis on product features is dangerous in other ways as well. Let us take the example of bar-
soaps as a product. Starting with a product-oriented definition of a market and how bar soaps compute against
other form of soaps can make a firm miss more basic shifts in markets. For instance, bars might be losing
popularity to liquid soaps. Or other products, like bath oils or facial cleansers, may be part of the relevant
competition. Managers wouldn't see these shifts if they looked only at alternative bar soap brands—the focus is
just too narrow.
Once segments have been selected and targeted, the firm must position its products and services in the minds of
its customers. Positioning a product or service involves designing a marketing program, including the product
mix that is consistent with how the company wants its products or services to be perceived. The strategy a firm
adopts is driven then by the desired positioning. Positioning aims to influence or adjust customer perceptions of
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a product or brand. An effective position lets a brand occupy a preferred and unique position in the customers’
minds while being consistent with the firm’s overall marketing strategy. As such, positioning involves the
selection of target segments and the formulation of product attributes that make up the brand communications,
pricing, and destitution strategies. Forecasts for other areas can then be obtained from sales in the test markets.
As we emphasize throughout the text, you must understand potential needs and attitudes when planning
marketing strategies. If customers treat different products as substitutes, then a firm has to position it against
those products too. It can't just focus on a few product characteristics or benefits if they aren't the determining
dimensions of the target market. Thus, it's usually best to rely on positioning approaches when they are part of a
broader analysis—which in turn helps to ensure that the whole marketing mix is positioned for competitive
advantage.
The reason to focus on a specific target market is to fine-tune the whole marketing mix to best meet the needs of
a group of customers. But customers' actual perceptions of a brand may not match the firm's own perception of
its product. Positioning shows how customers locate proposed and/or present brands in a market. Like cluster
analysis, successful positioning efforts usually require some formal marketing research. But, effective position
may be crucial when competitive offerings are quite similar.
The results of positioning research are usually plotted on graphs to help show where the products are positioned
in relation to competing products. Usually, the products' positions are related to two or three features of the
product (or marketing mix) that are important to the target customers.
Assuming the positioning research is reasonably accurate, managers then decide whether they want to leave
their product (and marketing mix) alone or reposition it. This may mean physical changes in the product or
simply image changes based on promotion. The graphs for positioning decisions are obtained by asking
product users to make judgments about different brands-including their ideal brand-and then using computer
programs to summarize the ratings and plot the results.
4. Is positioning important in market Analysis? If yes explain its importance.

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5.6 Summary
Segment marketing offers several benefits over mass marketing. The company can create a more fine-tuned
product or service offering and price it appropriately for the target audience. The choice of distribution channels
and communications channels becomes much easier. The company also may face fewer competitors in the
particular segment.
Over the long run, a business must generate a profit to survive. A seller should not enter a market that is
already saturated with competition. It needs to have a unique differential advantage that will enable it to take
customers from existing firms.
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A market is an aggregate of people who, as individuals or as organizations, have needs for products in a product
class and who have the ability, willingness, and authority to purchase such products. The main types of markets
are consumer markets. The type of market affects the development and implementation of a firm's marketing
strategy.
It is especially important that segments be operational. This leads marketers to include demographic dimensions
such as age, income, location, and family size. Information on these dimensions, usually readily available, can
be very useful in determining the size of markets and planning marketing mixes. In fact, it is difficult to make
some Place and Promotion decisions without such information.

1) The two-step process of market segmentation is: (1) naming broad product-markets and (2) segmenting these
broad product-markets in order to select target markets and develop suitable marketing mixes.
2) The seven steps in Market segmentation are namely:
a) Naming the broad product-market,

b) Listing potential customers' needs,
c) Forming homogeneous sub-markets,
d) Identifying the determining dimensions,
e) Naming (nickname) the possible product-markets,
f) Evaluate why product-market segments behave as they do,
g) Making a rough estimate of the size of each product-market segment.
3) When companies understand their target markets, they can see breakthrough market opportunities.
Identifying a company's market is an important issue. A market is a group of potential customers with
similar needs who are willing to exchange something of value with sellers offering various goods and/or
services—that is, ways of satisfying those needs.
4) Yes, positioning is an important issue when analyzing markets. It helps managers understand
how customers see their market. It is a visual aid to understanding a product-market. It enables marketing
managers to see how much customers' perceptions of a market differ from their own. For this reason alone,
positioning is useful.
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CHAPTER SIX: PROUDUCT STRATEGY
Contents

6.2. What is a product?
6.3. Classification of products
6.3.1. Consumer products
6.3.2. Business products
6.4. Product Mix and product line
6.4.1. Product component
6.5. New product overview
6.5.1. New product development process
6.5.2. Causes for new products failure
6.6. Product life cycle
6.7. Summary
6.8. Answer Keys to check your progress
Under this chapter, we will draw attention to learn about product, which is the first element of the
marketing mix. It simply begins from the term product which mainly classified into two then end up with
life cycle of a product.
After completing this chapter, you should be able to,

 Understand what a product means
 Differentiate between consumer and business products
 Discuss about product mix and product line
 Identify the product components
 Know about new product and it’s development
 Define what a product life cycle is
6.2. What is a product?

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The way in which the product variable is defined can have important implications for the survival,
profitability and long run growth of the firm.
A product can be defined as,
 “An idea, a physical entity (A good), a service, or any combination that is an element of exchange to
satisfy individual or business objectives.”
 “Anything that can be offered to a market for attention, acquisition, use that might satisfy a need or
want.”
 A product is a set of attributes assembled in an identifiable form.”
 Satisfactions the buyer derives from purchase, ownership and consumption.”
In general, products are customer-satisfying objects that include such things as accessories, packaging and
service.

1.Explain a product.
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6.3. Classification of Products

Marketers classify products into specific categories. We focus on the categories of goods and services,
consumer and business products.
1) Goods and services
Books
Such as Cars
Shoes
All are tangible in which a customer can touch, see, and fondle it.
Services in contrast are normally defined as non-physical products, which is intangible. Customers
cannot see, touch it, but sense the product and fulfill their needs and wants.
Education
Products such as Hair cut
Doctor’s diagnoses
Products, however, do not necessarily fall into one category or the other almost all products
incorporate some characteristics of both goods and services.
6.3.1 Consumer products
- Consumer products are a type of product intended for purchase and use by household
consumers for non-business purposes.
- Consumer products are meant for final users for personal consumption
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Convenience goods
Consumer products are Shopping goods
Further classified into Specialty goods
Unsought goods
a) Convenience goods: A tangible product that the consumer knows enough about before going out to
buy it and then actually buys it with a minimum of effort is termed as convenience good. Normally the
advantages resulting from shopping around to compare price and quality are not considered worth the extra
time and effort required to shop and compare. A consumer is willing to accept any of the several brands and
thus will buy the one that is most accessible. For most buyers, convenience goods include food items,
inexpensive candy, medicine like aspirin, toothpaste, and staple, hardware items such as light bulbs and
batteries.
Convenience goods typically have a low unit price, are not bulky, and are not greatly affected by fad and
fashion. They usually are purchased frequently, although this is not a necessary characteristic. Items such as
Christmas tree lights or Mother’s Day cards are convenience goods for most people, even though they may
be bought only once a year.
Because a convenience good must be readily accessible when consumer demand arise, a manufacture must
be prepared to distribute it widely and rapidly. However, because most retail stores sell only a small volume
of the total output of a convenience good (such as General Electric and Day light bulbs). Thus any
advertising by one retailer would help its competitors. As a result, virtually the entire advertising burden is
shifted to the manufacturer.
b) Shopping goods: A tangible product for which consumers want to compare quality, price, and perhaps style
in several stores before making a purchase is considered a shopping good. Examples of shopping goods – at
least for most consumers – are fashionable apparel, furniture, major appliances, and automobiles. The
process of searching and comparing continues as long as the customer believes that the potential benefits
from a better purchase more than offset the additional time and effort spent shopping, A better purchase
might be saving several hundred dollars on the purchase of a new car or finally finding a software package
that prepares financial statements in the manner desired by the buyer.
With shopping goods, buying habits affect the distribution and promotion strategies of both intermediaries
(as retail stores) and manufacturers. Shopping-goods manufacturers require fewer retail outlets because
consumers are willing to look around for what they want. To facilitate comparison shopping, manufacturers
that believe their products are superior in price and/or quality try to place their products in stores located
near other stores carrying competing items, Similarly, department stores and other retailers that carry
primarily shopping goods like to be near each other.
c) Specialty Goods: A tangible product for which consumers have a strong brand preference and are willing to
expend substantial time and effort in locating the desired brand is called specialty goods. The consumer is
willing to forgo more accessible substitutes to search for and purchase the desired brand. Examples of
products usually categorized as specialty goods include expensive men’s suits, stereo sound equipment
health foods, photographic equipment, and for many people, new automobiles and certain home appliances.
Various brands, such as ARMANI, CANON, and MERSEDESE, have achieved specialty-good status in the
minds of some consumers.
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Since consumers insist on a particular brand and are willing to expend considerable effort to find it,
manufacturers can use fewer retail outlets. Ordinarily the manufacturer deals directly with these retailers.
The retailers are extremely important, particularly the manufacturers uses only one in each area. And where
the opportunity to handle the product is highly valued, the retailer may be quite willing to abide by the
producers policies regarding the amount of inventory that needs to be maintained, how the product should
be advertised, or other marketing factors.
Because relatively few outlets are used and the product’s brand name is important to buyers, both
manufacturers and retailer advertise the product extensively. Often the manufacturer pays a portion of the
retailer’s advertising costs; and the name of the store carrying the specialty good frequently appears in the
manufacturer’s advertisements.
d) Unsought goods: There’s one more, quite different category of goods. In fact, it’s so unlike to other three
categories.
Unsought goods are those the consumer does not know about or a product that the consumer is aware of but
does not normally think of buying it. Life insurance, fire extinguishers, gravestones, even lotteries are
examples of this pr5oduct category.
As the name suggests, a firm faces a very difficult, perhaps impossible, advertising and personal selling job
while trying to market unsought goods. The best approach may be to make consumers aware of the products
so they will buy the advertise brand when the need arises.
6.3.2 Business products
Business products can be classified in terms of how they enter the production process and their relative
costliness. We can distinguish three groups of the business goods:
i) Materials and parts
ii)Capital items
iii)Supplies and business services
i) Materials and parts: are goods that enter the manufacturer’s product completely. They fall into two
classes: raw materials and manufactured materials and parts.
a) Raw Materials: fall into two major classes; farm products (e.g., wheat, cotton, live stock, fruits, and
vegetables) and natural products (e.g., fish, lumber, crude petroleum, iron ore).
Farm products- are supplied by many producers, who turn them over to marketing intermediaries, who
provide assembly, grading, storage, transportation, and selling services. Their perishable and seasonal
nature gives rise to special marketing practices. Their commodity character results in relatively little
advertising and promotional activity, with some exceptions. At times, commodity groups will launch
campaigns to promote their product – potatoes, prunes, milk. Some producers brand their product
Sunkist oranges, Chiquita bananas.
Natural products -are limited in supply. They usually have great bulk and low unit value and must be
moved from producer to user. Fewer and larger producers often market them directly to industrial users,
because the users depend on these materials, long amount of demand creation activity. Price and
delivery reliability are the major factors influencing the selection of suppliers.
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b) Manufactured materials and parts fall into two categories: component materials (iron, yarn, cement,
wires) and component parts (small motors, tires, castings). Component materials are usually fabricated
further pig iron is made into steel, and yarn is woven into cloth. The standardized nature of component
materials usually means that price and supplier reliability are key purchase factors. Component parts
enter the finished product with not further change in form, as when small motors are put into vacuum
cleaners, and tires are put on automobiles. Most manufactured materials and parts are sold directly to
industrial users. Price and service are major marketing considerations, and branding and advertising
tend to be less important.
ii) Capital items- are long-lasting goods that facilitate developing or managing the finished product. They
include two groups: installations and equipment. Installations consist of buildings (factories, offices) and
equipment generators, drill presses, mainframe computers, elevators). Installations are major purchases.
They are usually bought directly from the producer, with the typical sale preceded by a long negotiation
period. The producer’s sales force includes technical personnel. Producers have to be willing to design to
specification and to supply post sale services. Advertising is much less important than personal selling.
*Equipment- comprises portable factory equipment and tools (hand tools, lift trucks) and office equipment
(personal computers, desks). These types of equipment do not become part of a finished product. They
have a shorter life than installations but a longer life than operating supplies. Although some equipment
manufacturers sell direct, more often they use intermediaries, because the market is geographically
dispersed, the buyers are numerous, and the orders are small. Quality, features, price, and service are
major considerations. The sales force tends to be more important than advertising, although the latter can
be used effectively.
iii) Supplies and business services- are short-lasting goods and services that facilitate developing or managing
the finished product. Supplies are of two kinds: maintenance and repair items (paint, nails, brooms), and
operating supplies (lubricants, coal, writing paper, pencils). Supplies are the equivalent of convenience
goods; they are usually purchased with minimum effort on a straight buy basis. They are normally
marketed through intermediaries because of their low unit value and the great number and geographic
dispersion of customers. Price and service are important considerations, because suppliers are standardized
and brand preference is not high.
Business services include maintenance and repair services (window cleaning, copier repair) and business
advisory services (legal, management consulting, and advertising). Maintenance and repair services are
usually supplied under contract by small producers or are available from the manufacturers of the original
equipment. Business advisory services are usually purchased based on the supplier’s reputation and staff.
Check your Progress exercise

2.Show the difference between consumer and business products.
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6.4. Product Mix and Product Line
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Product mix or product assortment is a set of all products and items that a particular seller offers for sale.
For example Midroc Ethiopia - Construction, service, and poultry farming.
The company's product mix has a certain width, length, depth and consistency.
 Width of product mix -refers to the number of product line the company offers.
 Depth of product mix -refers to the variety of products under each product line.
 Length of a product mix -refers to the total number of items in the product mix i.e. the
summation of all product depth.
 Consistency of the product mix -This refers to the interrelatedness of the product lines that
the company is offering.
These four dimensions of the product mix express the company's product strategy. The company can
expand its business in four ways. The company can add new product lines, widening its product mix; it
can also lengthen each product and deepen its mix. Finally the company can pursue more product lines
consistency or less depending up on whether it wants to acquire a strong reputation in a single field or
participate in several fields.
Product Line -A product mix consists of various product lines. A product line is a group of products that are
closely related because they perform similar function, are sold to the same customer group, are marketed
through the same channel of distribution or fall within a given price ranges.
An integral component of product line planning revolves around the question of how many product variant
should be included in the line. Manufacturing costs are usually minimized through large volume production
runs, and distribution costs tend to be lower if only one product is sold or stocked. At a given level of sales,
profit will usually be highest if these sales have been achieved with a single product. However, many variant
are offered by many firms.
There are three reasons why organization offer varying products within a given product line. First, potential
customers rarely agree on a single set of specifications regarding their ideal product differing greatly in the
importance and value they place on specific attributes. Second customers prefer variety. For example, a
person may like the Ethiopian cultural food but does not want to eat 'Doro wet' only. Third, the dynamics of
competition lead to multi product lines. As competitors seek to increase market share, they find it
advantageous to introduce new products that sub segment on existing market segment by offering more
precisely tailored to the specific needs of a portion of that segment.
Before reaching the decision on product line addition, organizations need to evaluate either total profit will
decrease or the quality/value associated with current product will suffer.
6.4.1 Product components
We have said that consumers purchase products to satisfy needs. Another way to say this is that people
really want a “bundle” of benefits when they purchase a product, and different consumers are likely to want
different benefits from the same type of product. For example, some consumers purchase Rollerblade skates
for fun, others as a way to increase health and fitness, and others because of the excitement involved with
in-line roller skating.
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To provide the benefits consumers want, marketers need to integrate the components that make up a product
effectively. These consist of the product and customer service features. Product features include quality,
design, branding, and packaging. Customer service encompasses various purchase and usage services.
Different blends of product features and customer service provide different benefit bundles.
Table 6.2 product component
Product
Components
Product features Customer service
 Quality  Purchase services
 Design  Usage services
 Branding
 Packaging
 Labeling
Some firms are practicing mass customizations offering each customer a customized bundle of benefits. New
information and communications technologies are making this possible. For example, many Internet sites allow
each individual user to select specific types of information to be continuously downloaded and displayed on the
user's screen. Each customer can select the cities for weather forecasts, the types of sports information desired,
and other specific types of information to be communicated.
Product Features
a) Quality
As a product component, product quality represents how well a product does what it is supposed to do as
defined by the customer.
Improving product quality as consumers define it can be an effective way to increase product sales.
Marketers, however, cannot always be sure consumers have accurate perceptions of the quality of their
products.
Quality is what consumers consider it to be. Marketers should ensure that their products provide the desired
level of quality, work to constantly improve this quality, and convey to consumers an accurate picture of the
quality. These are difficult tasks, but they are essential for success in today’s competitive marketplace.
b)Design
Product design includes the styling, aesthetics, and function of a product. How a product is designed affects
how it works, how it feels, how easy it is to assemble and fix, and how easy it is to recycle.
Product design decision can be pivotal in a product’s success.
Much of the current focus on product design is to improve the performance of a product and to reduce the cost
of producing it. Boeing did this when it designed the fighter jet for the twenty-first century. The design was
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very innovative with a modular wing, a front-mounted engine, and stealth capabilities. This design improved jet
fighter performance, but it also significantly reduced production costs.
c) Branding
The most distinctive skill of professional marketers is their ability to create, maintain, protect and enhance
brands. Branding is the art and cornerstone of marketing.
A brand is, a name, term, sign, symbol, design or combination of them, intended to identify the goods/services
of a seller or group of sellers to differentiate them from competitors, thus a brand identifies the seller or maker.
A brand is a complex of symbol that can convey up to six levels of meaning.
*Attribute: A brand brings to mind certain attributes.
For Example: Mercedes car suggests expensive, well-built, durable high prestige
automobiles.
*Benefits: Attributes must be translated into functional and emotional benefits. The attribute
“durable” could translate into the functional benefit. The attribute “expensive” translates into the
emotional benefit.
*Values: The brand says something about the product’s values.
For Example: Mercedes stands for high performance, safety and prestige.
*Culture: The brand may represent a certain culture. For instance, a Mercedes car represents
German culture as it is manufactured in German and popular in the world.
*User: The brand suggests the consumers who buy or uses the product, we would expect to see a
middle aged top executive behind the wheel of a Mercedes.
i) Brand Name:- Consists of words, letters and numbers that can be vocalized.
Example: Coca Cola, Sony, Gullele 555 Soap
Characteristics of a good brand name

 Easy to spell, read, pronounce and recognize
 Precise and simple
 Suggestive about the product’s benefit Adaptable to any advertising medium
 Pronounceable in all languages
ii) Brand Mark:- Part of the brand, which appears in the form of symbol, design or
distinctive color or lettering.
Example:  (NIKE), (Volkswagen)
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iii) Trademark:- a brand or part of a brand that has been adopted by a seluer and given a
legal protection.
It includes the brand mark as well as the brand name.

Example: ® … Registered, , PEPSI®
Importance of Branding
Branding is important to both consumers and marketers. From a consumer’s viewpoint, branding facilitates
buying. If there were no brands, consumers would have to evaluate the non-branded products available every
time they went shopping. They could never be sure they were purchasing the specific desired products and
would have difficult evaluating the quality of some. When selecting from among branded products, consumers
can purchase specified ones and be reasonably certain of their quality. For example, one study found that 67%
of consumers felt more confident buying familiar brands.
Branding also provides psychological benefits to consumers. Some buyers derive satisfaction from owning
brands with images of prestige. These brands convey status. Example is Mercedes – Benz automobiles.
From a marketer’s viewpoint, branding has considerable value. A brand differentiates a firm’s product from
those of competitors and helps to focus and facilitate marketing efforts. To build a strong brand, marketers need
to determine the brand identity at first. A brand identity is the brand concept from the brand owner’s viewpoint.
It should be relatively simple and clearly understood by everyone in the company. All marketing
communications should be designed to support and reinforce this brand identity.
A brand name, which is easy to pronounce, recognize, and remember helps in establishing brand awareness.
The name should also be distinctive. Brand names that meet these criteria are Kodak, Nokia. Sometimes a brand
name can be effective and not really mean anything in real words. A brand name should be translatable into
different languages for global business.
d) Packaging
Physical products have to be packaged. Some packages such as Ambo water/ Coca Cola bottle are popular.
Marketers have called packaging a fifth P, along with price, product, promotion, place/physical distribution. In
most cases, packaging can be treated as an element of product strategy.
Packaging is the activities of designing and producing the container for a product, but a package is the actual
container or wrapper that holds the product.
Importance of a package
i) Multiple packaging in large sizes encourages to increase the product’s usage when packages are
reusable
ii) Well-packaged products increase profits as it stimulates customers to pay moiré in order to get the
special package
iii) An effective package performs the sales tasks. Such as attract attention, describe the product’s
features, create consumer’s confidence, and make a favorable overall impression.
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iv) It helps as a promotional tool (sometimes known as a silent salesperson as it serves customers by
identifying the product or brand from similar competing products).
Development of a package
Developing a package requires large number of decisions. The first task is to establish the packaging concept.
Another important decision is it’s design, size, shape, materials, color, etc. Each packaging element must be
harmonized with other packaging elements.
For instance: Size suggests certain things about materials, whereas materials suggest certain things about
colors and soon.
The packaging elements also must be guided by decisions on pricing, distribution, advertising and other
marketing elements.
e) Labeling
It’s part of a product that carries information about the product and the seller.
A label may be part of a package or a tag attached to the product. Which express some features of the product
such as ingredients, weight, measure, use, warning, etc.
 There is a close relationship among labeling, packaging and branding.
Brand label
Types of Labels Grade label
Descriptive label
i) Brand label: Simply the brand alone applied to the product/package
Example: NIKE
ii) Grade Label: Which identifies the product’s judged quality with a letter, number or word.
Example: Coffee labeled as, “KAFFA”
Teff Labeled as, “MAGNA”
iii) Descriptive Label: Gives objective information about the product’s use, care, performance,
construction/and other important features.
Example: “shake well before use”
“For external use only”
“best before 02/09/2005”
Customer Service
The final product component is customer service, which describes the assistance provided to help a customer
with the purchase or use of a product. Customer service applies to both goods and services. For example, a
consumer purchasing telephone lines from, Telecommunication Corporation for a new home is buying the basic
service of being able to communicate by phone from specified locations within the home. These are the basic
features of the phone service. However, customer service concerns all the contacts the customers has with
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telecommunications employees. This includes the person taking the order and service according to how well the
service options were explained, whether the installer arrived on time, and whether the work was completed as
promised.
Providing exceptional customer service can give a firm a marketing advantage. Since competitors can quickly
copy changes in basic product components, the key to success in many industries is beating the competition in
customer service. An innovative customer service can sometimes provide exceptional and unique value to
customers as indicated in “Earning Customer Loyalty: Thanking Customers.”
Important elements of customer service during the purchasing process include providing information about
product alternatives, training in product use, and credit and financing services. Exceptional customer service
prior to a purchase can produce competitive advantages.
Important elements of customer service after the purchase include fast and reliable delivery, quick installation,
accessible technical information and advice, repair services, and warranties. Sometimes just showing concern
for customers after the sale can do wonders.
The critical task facing marketers is to combine quality, design, branding, packaging, and customer service
components into an effective product offering. A product must meet the needs of the target market and have
advantages over competitors on important product components. Moreover, business must constantly be ready to
alter product components to adapt to a dynamic marketing environment.

3. Define branding.
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4. What’s the importance of package?
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6.5 New Product Overview
New product development is a key element of success for many firms. Developing successful new
products drive sales and profits growth for many companies.
Getting new products to market quickly is critical to success in today’s competitive business
environment. If a company cannot be the first to market, it will run the risk.
Types of new products

New to the world products: Product inventions
New category entries: Products new to the producers, but not to the world
Additions to product lines: Line extensions or flankers on the firm’s current markets
Product improvements: Current products produced better than before
Repositioning: Products retargeted for new use or applications
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6.5.1 New product development process
In order to achieve strong sales and healthy profits, every producer of business goods or consumer goods should
have an explicit strategy with respect to develop and evaluate new products. This strategy should guide every
step in the process of developing a new product.
Steps for developing new products
1st : Idea generation

2nd : Idea Screening
3rd : Concept testing
4th : Business analysis
5th : Pro type development
6th : Market Test
7th : Commercialization
Step 1: Idea generations

New product development starts with an idea, which is intangible and the starting point for the development of
a new product. The search for product ideas should be systematic that stimulate new ideas promptly. In order to
generate a new idea internal or external sources play a vital role, as both sources fed the necessary information
regarding the positive as well as the negative side of existing products.
Step 2: Idea screening
After the firm has identified a set of potential product idea, it must screen them. In idea screening poor,
unsuitable or unattractive ideas are weeded out from further considerations. Moreover screening requests for
developing a checklist for requirements that the idea must fulfills and product ideas that do not fulfill the criteria
will be rejected.
Step 3: Concept testing
A firm needs to acquire consumer feed back about its product idea so the screened ideas must be tested with
appropriate group of target consumers. For this consumers are asked about the product idea and express their
own opinion and enthusiasm about the product. .
This stage involves asking potential consumers to react to the picture, written statement, or oral description of
the product, thus enabling the firm to determine initial attitude of consumer prior to expensive and time-
consuming prototype development.
Step 4: Business analysis
The stage requires the study of the attractiveness of the business such as the extent of demand for the product;
sales, cost and profit estimates.
Step 5: Prototype development
This stage converts a product idea in to a physical form and identifies a basic marketing strategy. The goal of
product development is to find the prototype that the consumer sees embodying the key attributes desired in the
product concept. The prototype can be supplied to consumers so that they can test and give reactions.
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Step 6 : Market testing

This involves placing a fully developed new product for sale in one or few selected area and observing its
performance. It helps to learn about consumer real behavior and competitors’ action and responses.
Based on the result of market testing the firm can decide whether to go ahead with its plan (production) in large
sale, modify the product, modify the marketing plan or drop the product.
Step 7: Commercialization
After testing is completed, the firm will be ready to introduce the product to its full target market these stage
requires considerable expenditure and commitment on promotion and distribution.
Sources for New Product Ideas
i) Customers
 Customers requests
 Customers complaints
 Customers compliments
ii) Distribution Channels
 Suppliers
 Distributors
 Retailers
iii) Research & Engineering

 Product testing
 Product endorsement
 Brainstorming meetings
 Accidental discovery
iv) Competitors
 Monitoring competitors’ developments
 Monitoring competitors’ products
 Monitoring of industry movements
v) Other Internal Sources
 Management
 Sales force
 Employee suggestions
 Innovation group meetings
 Stock holders
vi) Other External Sources

 Consultants
 Academic journals
 Periodicals and other press
6.5.2 Causes for new products failure
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Many new products with satisfactory potential have failed to make the grade. Many of the reasons for new
product failure relate to execution and control problems. The following is a brief list of some of the more
important causes of new product failures after they have been carefully screened, developed, and marketed.
i) No competitive point of difference, unexpected reactions from competitors, or both.

ii) Poor positioning.
iii) Poor quality of product
iv) Non delivery of promised benefits of product
v) Too little marketing support
vi) Poor perceived price/quality(Value) relationship
vii) Faulty estimates of market potential and other marketing research mistakes.
viii) Faulty estimates of production and marketing costs.
ix) Improper channels of distribution selected
x) Rapid change in the market (economy) after the product was introduced
Some of these problems are beyond the control of management: But it is clear that successful new
product planning requires large amounts of reliable information in diverse areas. Each department
assigned functional responsibility for product development automatically becomes an input to the
information system needed by the new product decision maker. For example, when a firm is developing
a new product, it is wise for both engineers and marketers to consider both the kind of market to be
entered (e.g., consumer, organizational, international) and specific target segments. These decisions will
be of paramount influence on the design and cost of the finished good, which will, of course, directly
influence price, sales, and profits.
Keys to new product success

1) Market driven and customer focused new product process.
2) Unique, superior, differentiated product that delivers unique benefits and superior value to customer.
3) Emphasize completeness, consistency, quality of execution
4) More pre development work before development gets under way.

5. List the steps required for new product development.
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6. What are the causes for new products failure?
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6.5 Product Life Cycle
Products, like people have been viewed as having a life cycle. The product life cycle concepts describes the
stages a new product goes through in the market place.
A product life cycle consists of,
 Introduction
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 Growth
 Maturity
 Decline
These two curves in this figure show the total industry sales revenue and total industry profit which represent
the sum of sales revenue and profit of all firms producing the product.
v) Introduction
At this stage, a product is launched to the market in a full-scale marketing program. This stage
(sometimes called pioneering) is the most risky and expensive one, because substantial money must
be spent to seek consumers acceptance, but many products are not accepted by a sufficient number
of consumers and fail at this stage. At this stage, there is very little direct competition thus the
promotional program is designed to stimulate demand for the entire product category rather than
the brand.
vi) Growth
It’s also called market acceptance stage. Sales and profits rise at a rapid rate. Competitors enter the
market, often in large numbers if the profit outlook is particularly attractive. Mostly because of
competition, profit start to decline near the end of the growth stage.
vii) Maturity
During the first part of this stage, sales continue to increase, but at a decreasing rate. When sales
level off, profits of both producers and intermediaries decline. The main reason would be the
intense price competition some firms extends their product lines with new models. During the latter
part of this stage, marginal producers those with high cost or without a differential advantage are
forced to drop out of the market as their market share reduced and could not get profits.
viii) Decline
This stage occurs when sales and profits begin to drop. Frequently, a product enters this stage not
because of any wrong strategy on the part of the company, but because of environmental changes.
New technology introduction, the unpredictable consumers’ attitudes towards brands cause
products to rest at this stage.

7. Distinguish the difference between the growth and decline stages of a product life cycle.
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6.8 Summary
A product is a good, service or idea consisting of a bundle of tangible and intangible attributes that satisfies
consumers and received in exchange for money or some other unit of value. Products can be classified by
tangibility and user. By the degree of tangibility, products are divided into non-durable goods, durable goods
and services. By user the major distinctions are consumer and business products in which the consumer
products consists of convenience, shopping, specialty and un sought products used by the ultimate final users,
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on the other hand the business products such raw materials, accessories, etc. needed either for production or for
other business activities.
The existence of a new product is essential in every sector in order to fulfill the unlimited needs and wants of
customers. When a new product is introduced, it may be new to the world (product invention) or improved
products. While developing a new product there are seven steps that should be followed by marketers, which
requires a special investigation and appropriately converting the idea into new product. Products have a finite
lifecycle consisting of four stages. Introduction, growth, maturity, decline. The marketing objectives and
strategies for each stage differ.
Branding enables firms to distinguish it’s product from its competitors. A good brand name suggests the
product benefits, be memorable, simple and emotional, packaging also provides communication and gives a
great protection towards the product. Whenever buyers want the necessary information either about the
product’s standard or others labeling contributes a lot in fulfilling the necessary responses. Although product
strategy consideration is extremely important, focusing on product alone without considering of the other mix
variables would be incomplete approach to overall marketing strategy.
6.9 Answer key for your Progress Exercises
1) Products are customer satisfying objects which can be physical goods (tangible) and service (intangible)
A product can be defined as
“ A set of attributes assembled in identified form” or
“Anything that can be offered to a market for attention, acquisition, use that might satisfy a need or want.”
2) Marketers in order to identify the different kinds of products they classified it mainly into two parts, namely
consumer products and business products. There is a big difference between these two categories of products,
which really differentiate the type of customers.
a) Consumer products
* These type of products meant for final users or purchased/used for personal consumption only, and those
who purchase consumers products intention would be for fulfilling their personal need/s wants.
Consumer products are further classified into (convenience, shopping, specialty and unsought goods.
b) Business products
* On the other hand all business products mean for non personal or for a business purpose which can be
based on making type of the business (selling/and renting purposes). Business products are also
classified into materials and parts, capital items, supplies and business service.
3) A brand is a name, term, sign, symbol design or the combination of all, which identifies one product form
others or competing products and simply it’s one of the instrument to identify the seller/maker.
i) Brand name: Part of a brand which consists of words, letters/and numbers that can be vocalized,
Example: Sony, PEPSE
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ii) Brand mark: Part of the brand which appears in the form of symbol, design or distinctive color or
lettering.
Example:  (NIKE)
iii) Trade mark: A brand that has been adopted by a seller and given a legal protection, which includes the
brand mark as well as the brand name.
Example: Sony ®
4) Packaging is the activities of designing and producing the container or wrapper that holds the product. A
package has a lot of importance such as,
a) It increases the product’s usage when packages are reusable.
b) It’s one of a promotional tool
c) It protects product from damage, evaporation.
d) it creates convenience to the buyer to hold it appropriately
5) There are so many reasons to develop new products now and then by manufacturers, part of the reasons will
be the unpredictable needs and wants with a changing habits of customers and on the other side the state of
competition which exists in every industry made producers to think more about product invention and
product innovation.
Steps for developing new products

 Idea Generation
Every product starts an idea, but not all new product ideas have equal merits or potential for economic or
commercial success, sources from internal and external contribute a lot to feed the necessary information.
 Idea Screening
It’s time to screen the available idea, if the idea fulfills the criteria it will be acceptable, it will proceed to
the next step, but if not it will be left out at this stage.
 Concept Testing
The third stage of the new product development process involves internal and external evaluations of the
new product ideas to eliminate those warrant no further effort.
 Business analysis
It focuses to the extent of the product’s cost, sales and profit.
 Prototype development
A stage to convert the product idea into tangible and sample of the product.
 Market testing
It’s introducing the new product to selected markets by expecting the feedback from the selected market.
The response will have a great impact on the newly introduced product, because it would be right time to
identify the strong and weak side of the product.
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 Commercialization
It’s time to enter the market with the new product by applying a heavy promotional campaign and
intensive distribution
6) Causes for new product failures

There are so many reasons for newly developed products, some of the causes will be as follows.
- Poor quality of a product

- Faulty estimates of production and marketing costs
- Little marketing support
- Inefficiency on promised product’s benefit
- Poor positioning
- In appropriate selection of channels
- Changes in the market (economy)
7) Products pass through different stages, which consist of four major stages.
1st introduction 3rd Maturity
2nd Growth 4th decline
i) Growth
This stage is noticed by rapid sales and profit rise. It’s also known as market acceptance stage.
Distribution outlets are increased, and consider, as distribution efficiency is the key element for success.
Profits may decrease at the end of this stage.
ii) Decline
This stage is marked when new products gradually replace products or better/less, expensive product is
developed to full fill customers need.
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CHAPTER SEVEN: PRICING CONCEPT
Contents
7.2 Introduction
7.2.1 Price as a Part of Marketing Mix
7.2.2. Price as a Measure of Value
7.3 Setting Price Objectives
7.3.1 Profitability
7.3.2 Changing Price as needed
7.3.3 Determination of Cost
7.3.4 Setting the Right Price
7.4 Factors that Influence Price
7.5 Policies and Objectives Based Pricing
7.5.1 Pricing Policies
7.5.2 Pricing Objectives
7.6 Pricing Strategies
7.6.1. Pricing Dimensions
7.6.2 Alternative Pricing
7.7 Summary
7.1 Learning Objective

After completing this chapter, you should be able to:
1. Understand the relationship between pricing and the other marketing mixes.
2. Comprehend how price is said to be the measure of value
3. Understand why being profitable is important to business organizations
4. Know how to use costing analysis for pricing objective,
5. Understand the various factors that influence price
6. Discover the advantages of reduced prices verses high price options
7. Understand the advantages and disadvantages of average cost pricing.
8. Know how to use break-even analysis to evaluate possible prices.
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9. Recognize the many ways of setting pricing policies and objectives

10. Understand the advantages and disadvantages of some pricing strategies
7.2 Introduction
7.2.1. Price as a Part of Marketing Mix
The four "Ps" make up a marketing mix. It is useful to reduce all the variables in the marketing mix to four
basic ones: Product, place, Promotion, and Price. All four Ps are needed in a marketing mix. In fact, they should
all be tied together. But is any one more important than the others? Generally speaking, the answer is no—all
contribute to one whole. When a marketing mix is being developed, all (final) decisions about the Ps should be
made at the same time, that's why the four Ps are arranged around the customer in a circle-to show that they all
are equally important. The illustration below can support the statement.
Fig. 7.1 Customers as Core Center of All the Marketing Mixes
PRODUCTIO
N
DISTRIBU CUSTOMER PRICE

TION
PROMOTIO
N
A common mistake in marketing is setting a product's price independently of the rest of the marketing mix
rather than as an intrinsic part of market positioning strategy. In making pricing decisions, marketers should
consider the role of price in consumer perceptions of product quality and image. Prices should be set such that
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all parties in the distribution chain are able to add profitable markups. In addition, prices should not be set
without knowledge of market changes and differences between market segments.
In addition al marketing messages and communications supporting a product should be integrated. Pricing
objectives must consistent with the overall objectives of the firm as they relate to products and their prices.
Prices, as with any ingredient in the marketing mix, are often coordinated with promotion. The two variables are
sometimes so interrelated that the firm’s pricing is very promotion oriented.
Let's sum up this discussion of marketing mix planning thus far. We develop a Product to satisfy the target
customers. We find a way to reach out target customers' place. We use Promotion to tell the target customers
(and intermediaries in the channel) about the product that has been designed for them. And we set a Price after
estimating expected customer reaction to the total offering and the costs of getting it to them.
7.2.2 Price is a Measure of Value
Price is the amount of money a buyer pays to a seller in exchange for products and services. It reflects the
economic sacrifice a buyer must make to acquire something. This is the traditional economic concept or price.
Where barter and exchange of pass for currency, prices may be non-monetary.
When a seller quotes a price, it is related to some assortment of goods and services. So Price is what is charged
for "something." Of course, price may be called different things in different settings such as hotels post a room
fares, colleges and universities charge tuition, banks ask for interest when they loan money, transportation
companies have fares, Employees want a wage. People may call it different things, but any business transaction
in our modern economy can be thought of as an exchange of money—the money being the Price—for
something. The something can be a physical product in various stages of completion, with or without supporting
services, with or without quality guarantees, and so on. The nature and extent of the goods and services
determine the amount of money exchanged. Some customers pay list price. Others obtain large discounts or
allowances because something is not provided.
Prices in the market place are rough measures of how society values particular goods and services. If consumers
are willing to pay the market prices, then apparently they feel they are getting at least their money's worth.
Similarly, the cost of labor and materials is a rough measure of the value of the resources used in the production
of goods and services to meet these needs. New consumer needs that can be served profitably-not just the needs
of the majority-will probably be met by some profit-minded businesses.
In general, in a market-directed economic system the prices in both the production sector (for resources) and the
consumption sector (for goods and services) vary to allocate resources and distribute income according to
consumer preferences. Eventually, the result is a balance of supply and demand and the coordination of the
economic activity of many individuals and institutions.

1. In setting price why is it important to consider all the other marketing mixes?
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7.3 Setting Pricing Objectives
Developing pricing objectives is critical because pricing objectives form a foundation on which the decisions
associated with subsequent stages are based. Businesses may use numerous pricing objectives, both short-term
and long-term ones, and different ones for different products and market segments. Pricing objectives are
overall goals that describe the role of prices in a firm’s long-range plans.
Given a product or service designed for a specific target market, the pricing process begins with a clear
statement of the pricing objectives. Theses objectives guide the pricing strategy and should be designed to
support the overall marketing strategy. Because pricing strategy has a direct bearing on demand for a product
and the profit obtained, efforts to set prices must be coordinated with other functional areas. Even though
determining a price of a product or service is a complicated process, firms who refer to their objectives could be
success less easily.
When considering setting pricing objective the strategy should reflect what the firm hopes to accomplish with
the product in its target market. The positioning strategy for the product is all clearly defined, then formulating
objectives and policies for the marketing program elements including price can be relatively simple. The price
strategist needs to examine marketing objectives for different market and competitive situations and their
implications for the marketing mix components.
7.3.1 Profitability
Maximization of profits is a frequently stated objective for many enterprises. Profit maximization requires
complete understanding of cost and demand relationships; and estimates of cost and demand for different price
alternatives are difficult to obtain. If prices are too low marketers' profits are insufficient. If prices are set high,
no one will buy the items. Enterprises are sensitive to change in profits over time. In creases in prices can affect
profitability three to four times more than increases in sales volume at constant price.
The most fundamental pricing objective is the business’ survival. Price can often be adjusted to increase sales
volume or to combat competition so that the organization can stay alive. Businesses often set profit objectives
and sales growth objectives, as well as objectives for cash flow, status quo, and product quality.
Some managers are more concerned about sales growth than profits. They think that, in the long run, sales
growth always leads to more profits. This kind of thinking causes problems when a firm's costs are growing
faster than sales--or when firms don't keep track of their costs, because enterprises could have declining profits
in spite of growth in sales. Now a-days business organizations pay more attention to profits--not just sales.
Some nonprofit organizations set prices to increase market share-precisely because they are not trying to earn a
profit.
Sometimes managers let their profit margins shrink much too quickly, without really thinking through the
question of how they might add more value to the marketing mix. It's crucial to remember that the marketing
mix that offers customers the best value is not necessarily the one with the lowest price.
7.3.2 Changing price as needed

There are many reasons why an initial price structure may need to be changed. Some of the reasons are:
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 Channel members may bargain for greater margin;

 Competitors may lower their prices;
 Costs may increase with inflation;
In the short term, discounts and allowances may have to be larger or more frequent than planned to get greater
marketing effort to increase demand to profitable levels. In the long term, price structures tend to increase for
most products as production and marketing costs increase.
Assessing the target market’s evaluation of price tells a marketer how much more emphasis to place on price
and may help determine how far above or below the competition the firm can set its prices. Understanding how
important a product is to customers in comparison with other products, as well as customers’ expectations of
quality, helps marketers assess the target market’s evaluation of price.
A marketer needs to be aware of the prices charged for competing brands. Even when non-price competition is
used, a marketer needs to be aware of the prices charged by competitors. If a company uses price as a
competitive tool, it can price its brand below competing brands.
7.3.3 Determination of Cost
There are three kinds of cost namely:
 Total fixed cost is the sum of those costs that are fixed in total--no matter how much is produced.
Among these fixed costs are rent, depreciation, managers' salaries, property taxes, and insurance.
Such costs stay the same even if production stops temporarily.
 Total variable cost, on the other hand, is the sum of those changing expenses that are closely related
to output--expenses for parts, wages, packaging materials, outgoing freight, and sales commissions.
At zero output, total variable cost is zero. As output increases, so do variable costs.
 Total cost is the sum of total fixed and total variable costs. Changes in total cost depend on
variations in total variable cost--since total fixed cost stays the same. The pricing manager usually is
more interested in developing a cost per unit figure than total cost because prices are usually quoted
per unit. This makes important to know average cost for a company's products.
7.3.4 Setting the Right Price
In addition to developing the right product, place, and promotion, marketing managers must also decide the
right Price. In setting a price, they must consider the kind of competition in the target market—and the cost of
the whole marketing mix. They must also try to estimate customer reaction to possible prices. Besides this, they
also must know current practices as to markups, discounts, and other terms of sale. Further, they must be aware
of legal restrictions on pricing. If customers won't accept the Price, all of the planning effort will be wasted. So
you can see that Price is an important area in marketing.

2. What are the main reasons for changing prices?
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7.4 Factors that influence price
Different factors and situations predominate the setting up of final price. From market point of view the main
elements that rule price can be stated as:
 Demand and supply

 Competitors situation
 Target market purchasing Power
 Market size and composition
 Product life cycle
a) Demand and Supply

Basic economics explain price as the result of supply and demand interaction. It is meant that if demand is
higher than supply, prices will go up encouraging higher production. Conversely, if demand is lower than
supply prices will go down discouraging production. However, this statement is true if there is no any
interference with the market forces or if there are no any other artificial barriers.
Demand and supply being the basic price influencers, the level of price will vary according to the type of
demand that exists. Some different demand situations will be outlined below:
b) Competitors' Situation
Competitor's market position has a direct influence in the pricing decision. Before setting price and estimating
sales volume, the following market issues have to be carefully taken into account.
 Estimation of competitors' market share

 Evaluation of competitors' strength
 Evaluation of competitors' price to see whether it is too high or too low for the given product value.
In addition, enterprises engaged in foreign market need to consider situation of competition if they have to enter
and win markets, because as stated earlier competition is increasing. If consequently, it is discovered that
competitors are vulnerable to the product and that they have higher market share, then setting a strategy that can
cut competitors' market share is necessary.
A firm may be unable to avoid highly competitive situations if it is established in an industry before it becomes
intensely competitive. Then, as some competitors fail new firms enter the market. New entrants may not even
know how competitive the market is-but then they stick it out until they run out of money. Production-oriented
firms are more likely to make such a mistake.
c) Target Market Purchasing Power
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For setting effective pricing strategy it is important to understand the purchasing power of target markets.
Purchasing power is one factor that influences price. Thus, organizations need to evaluate the purchasing power
of potential markets. It can also be seen against the company's objective.
Understanding the capacity of target markets leads to good strategies because, the needs of a target market
virtually determine the nature of prices to set. Therefore marketers need to analyze the potential target markets
with great care.
d) Market Size and Composition
Before setting price for a product, the annual sales volume has to be known. To be able to know how much the
sales quantity will be in a given period, the size of the market has to be studied. Depending on the consumer
type and product category, the issues listed below have to be critically considered.
 assessment of target market;

 making sales volume sensitivity test at various prices;
 examining competition;
 etc.
Based on the above study the potential market share can be estimated and that will give a clue to sales revenue
and profit level to expect. When equating price versus sales quantity, factors such as promotional mix,
distribution method, number of outlets, and capability of sales force have an influence in the conclusion.
e) Product Life Cycle
Price decision is much affected by the life cycle of the product. As we understand and experience human being
has a stage of development. Likewise, products have different stages of development. Most products have
characteristics of declining and even phasing out of market completely. Some items have very long life cycle
while others have short life cycle. Consequently, the pricing strategy for products with long life can differ from
those that have short life.
Nowadays, with the high advancement of technology and high consideration to product research and
development, there is very little time before a new product with similar function is developed. Some studies
indicate that for some products there is only as little as 6-12 month time. Consequently, introductory price
period is decreased to match the accelerated product life. Such situations create difficulty to recover investment
cost, because ones a life cycle of a product is over, it is difficult to get the predicted sales volume.
To a certain level, an organization can set its strategy as to lengthen the life cycle of a product. For example, if
there is a cooking pan that heats within twenty minutes, it can be upgraded by making it heat in only five
minutes. If an existing electric bulb is easily breakable, upgrading its quality by making it more durable can
make it more demanded. Therefore, the life of a product can be elongated by modifying its features, benefit,
design etc.
In relation to product life cycle, some experts in marketing and research explain that at present product life
cycle is very much short and that technology is altering very rapidly. They emphasize that consumer's taste is
equally changing fast.
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3. What are the main factors that influence price?
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7.5 Policies and Objectives Based Pricing
7.5.1 Pricing Policies
Specific pricing policies are vital for any firm. Otherwise, the marketing manager has to rethink the marketing
strategy every time a customer asks for a price. If a firm doesn't sell directly to final customers, it usually wants
to administer both the price it receives from middlemen and the price final customers pay. After all, the price
final customers pay will ultimately affect the quantity it sells.
Yet, it is often difficult to administer prices throughout the channel. Some channel members may also wish to
administer prices to achieve their own objectives. To reduce excess inventory, firms may have to reduce
product's price from its normal price. However, some firms expect the wholesalers to pass most of the discount
along to their customers. The result could be that the quantity to be sold may not increase much, and thus the
enterprise can still have excess inventories.
Some firms don't even try to administer prices. They just meet competition—or worse, mark up their costs with
little thought to demand. They act as if they have no choice in selecting a price policy. Remember that Price
has many dimensions. Firms do have many choices. They should administer their prices. And they should do it
carefully because, ultimately, customers must be willing to pay these prices before a whole marketing mix
succeeds. In the rest of this chapter, we'll talk about policies a marketing manager must set to do an effective job
of administering price.
7.5.2 Pricing objectives

a. Market share objectives
This objective is a popular one. Many firms seek to gain a specified share (percent) of a market. A benefit of a
market share objective is that it forces a manager to pay attention to what competitors are doing in the market.
In addition, it's usually easier to measure a firm's market share than to determine if profits are being maximized.
b. Target returns objective

A target returns objective sets a specific level of profit as an objective. Often this amount is stated as a
percentage of sales or of capital investment. The target for some companies might be minimal return on sales.
A target return objective has administrative advantages in a large company. Performance can be compared
against the target. Some companies eliminate divisions—or drop products—that aren't yielding the target rate of
return.
Some organizations, aim for only satisfactory returns. They just want returns that ensure the firm's survival and
convince stockholders they're doing a good job. Similarly, some small family-run businesses aim for a profit
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that will provide a comfortable lifestyle. Many private and public nonprofit organizations set a price level that
will just recover costs. In other words, their target return figure is zero.
Organizations that are leaders in their industries may pursue only satisfactory long-run targets. They could be
well aware that their activities are in public view. The public—and government may expect —expect them to
follow policies that are in the public interest when they play the role of price leader or wage setter. As an
example some firms that provide critical public services such as insurance companies and transportation can be
considered.
c. Profit maximization Objective

A profit maximization objective seeks to get as much profit as possible. It might be stated as a desire to earn a
rapid return on investment. Or, more bluntly, to charge all the traffic will bear. Some people believe that
anyone seeking a profit maximization objective will charge high prices—prices that are not in the public
interest. However, this point of view is not correct. Pricing to achieve profit maximization doesn't always lead
to high prices. Demand and supply may bring extremely high prices if competition can't offer good substitutes.
But this happens if and only if demand is highly inelastic.
If demand is very elastic, profit maximization may charge relatively low prices. Low prices may expand the size
of the market—and result in greater sales and profits. For example, when prices of tape recorders or cameras are
very high, only wealthy people buy them. When competitors lower prices, more people can buy them. In other
words, when demand is elastic, profit maximization may occur at a lower price.
Profit maximization objectives can also produce desirable results indirectly. Consumers vote with their
purchase dollars for firms that do the right thing. The results of this voting guide other firms in deciding what
they should do. If a firm is earning a very large profit, other firms will try to copy or improve on what the
company offers. Frequently, this leads to lower prices.
 High markups don't always mean big profits
Some people—including many traditional retailers—think high markups mean big profits. Often this isn't
true. A high markup may result in a price that's too high—a price at which few customers will buy. And you
can't earn much if you don't sell much—no matter how high your markup. But many retailers and wholesalers
seem more concerned with the size of their markup on a single item than with their total profit. And their high
markups may lead to low profits—or even losses.
Lower markups can speed turnover. Some retailers and wholesalers, however, try to speed turnover to increase
profit—even if this means reducing their markups. They realize that a business runs up costs over time. If they
can sell a much greater amount in the same time period, they may be able to take a lower markup—and still
earn higher profits at the end of the period.
d. High Price Option
For a business organization to deal with foreign market, it needs to have different options. Two options will be
discussed below. Starting with high price is as risky as starting with low price. The most appropriate price is the
one that is based on market survey.
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Increase of price is the most difficult issue to handle especially in the case of international market. A customer
being the one to make the decision for buying, if he resists the price increase then, sales will not be effected.
Pricing being the center point for relating product with customer, the decision does not have to be by guess and
wish, it has to be based on facts, marketing principles, competition, profit concepts and company policy.
There could be instances where the strategy of starting with high price and decreasing steadily results in good
sales. Nevertheless, if it does not give good result, the price needs to be revised.
 Reasons for Price Increase
The price of a product can be increased for different reasons such as: -
 Increased demand
 Short supply
 Increased raw material price
 Increased cost of components
 Increased cost of processing
 Improvement of quality, features or benefit
 Increased competitors price
 Improvement of internal and external package
In the above situations, the company may be forced to increase the price. Price increase is not easy, because
market may not absorb the increase and consequently, sales may be affected for sometime. When there is price
increase because of increase of production cost, it takes time for buyers to accept the price, since they cannot
check the increase of production cost.
In price decision, market survey is necessary and if the survey proves that raising price can boast sales, an
increase to a certain percentage can be considered. A manufacturer or sellers can decrease the level of the price
for various reasons such as:
 To allow discount for specific period
 To encourage volume sales
 To decrease the high profit level since it was not the original goal
 To defend itself against competitors
 Consequence of high Price
Charging ridiculously high price on products has negative effect on long-term sales. Some of the consequences
will be:
 Potential buyers get scared and do not want to ask quotations
 Product remains unsold and as a result, it may deplete or loss its value and quality
 The organization gets misled by the forecasted high revenue
 Product Modification as a justification for price increase
Price increase can be made by modifying the product or by making small changes in the composition and
quality of the item. Besides, improving the inner and outer package of the product can give adequate ground for
price increase. In product modification, care has to be taken not to cheat the buyer in any condition.
However, in some instances the buyer may not readily accept any increased price because of product
modification. Therefore, appropriate selling skills have to be used to convince the buyer of the improvement
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and modification. The reason for price increase has to be relevant with the prospect’s interest. Some
convincing reasons can be such as: -
 Increase of product quality
 Increase of product benefit
 Improvement of brand image
 Making product more fashionable
 Making package more convenient to open or operate
 Etc.
In relation to price increase because of up grading product, the enterprise has to examine the below listed
factors before setting the increase.
 Do domestic and as well international consumers really value the upgraded product
 Does the add on feature mean add-on benefit that the customer gets
 What is the general reaction and behavior of the consumer
In the case of increased price due to high competitor's price, buyers can accept the charge because, they can
easily prove the addition. In any case, it is not always safe to make the price on the high side.
e. Reduced price Option

When there is high competition, supply exceeds demand causing lower prices. Such situation calls for good
selling tactics and the firm needs to be relatively tolerant and fearless of the situation. Price reduction has to be
strategic because it can have negative impact in market. Some of the negative impacts are:
 Nominal price reduction can cause decrease in profit, unless it is counter balanced through volume
sales because of the lowered prices.
 If products are distributed with the agreement that commission is based on sales value, some agents
may reject price decrease, unless the company compensates them through other means.
 Buyers who bought earlier feel cheated for having bought it at higher price.
 If price decrease was for longer period, to go back to formal price is difficult because, customers
may resist the increase.
 Price decrease for longer period on durable items allows buyers to stock. Thus, after the increase of
price, sales may slop down for some time.
 When price is decreased, buyers enjoy the decrease but, they become suspicious about the product in
terms of:
 Change in product composition

 Quality degrading
 Decrease of unit volume and weight
 Enterprise filing bankruptcy
 Product going out of fashion
 Item expiring soon
 Price Decrease Versus Competition
As earlier mentioned, it is easier to discount prices than to raise them. In price reduction, the organization
has to expect competitors to react offensively or defensively to the lower price deals to customers. In many
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instances, competitors who are eager to gain foreign market share with offensively low prices may not
succeeded as expected.
Buyers who are brand oriented do not immediately shift to other lower priced products. Thus, firms with
known brands can be successful in keeping their customers irrespective of the low price offered by
competitors. Therefore, the strategy has to be in such a way that the company can win the fierce
competition. It is often the practice that discounted offer is given by big enterprises as a promotional means
and to protect and defend against smaller enterprises.
 Advantages of Low Prices
All other market factors being the same, well-planned price reduction strategy can have some advantages
such as:
 Increasing sales volume
 Gaining good market share
 Making customer happy and encourage them for repeat purchase
 Disadvantages of Low Prices
As a consequence of offering low price the firm will have:
 Shortage of operating cost

 Lose of money because of thin or minimal profit margin.
 Low priced image and thus, prices can be conceived as less value items
4. What are the major consequences of high price?

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7.6 Pricing Strategies
7.6.1 Pricing Dimensions
It should be clear that effective pricing decisions involve consideration of many factors and different industries
may have different pricing practices.
Price is one of the four major variables a marketing manager controls. Price level decisions are especially
important because they affect both the number of sales a firm makes and how much money it earns. Guided by
the company's objectives, marketing managers must develop a set of pricing objectives and policies. They must
spell out what price situations the firm will face and how it will handle them. These policies should explain:
 how flexible prices will be,

 at what level they will be set over the product life cycle,
 to whom and when discounts and allowances will be given,
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 how transportation costs will be handled.
It's not easy to define price in real-life situations because prices reflect many dimensions. People who don't
realize this can make big mistakes.
7.6.2 Alternative Pricing Strategies
A pricing strategy is an approach or course of action designed to achieve pricing and marketing objectives.
Pricing strategies help marketers solve the practical problems of establishing prices. Different price strategies,
based on market situation can be adapted. Pricing strategies can be applicable only for short term and some for
a continuous period depending on the company's policy. The most effective strategies are those that can bring
together target markets and marketing mixes.
Firms can't just learn about and adopt the same "good" marketing strategy being used by other firms. That just
leads to head-on competition--and a downward spiral in prices and profits. So target marketers try to offer a
marketing mix better suited to customers' needs than competitors' offerings.
Pricing strategy has to be designed correctly, in order to achieve one or any of the following objectives:
 Increased sales value

 Increased average order size
 Decreased stock
 Increased number of prospects
 Reduced sales expenses
 improved company financial stand
 Get profit results as per specified company goals and objectives.
Managers who decide to lower prices to solve some problems have to understand the long-term consequence in
market although, or a short period that may be the easiest solution. In conclusion, before deciding to decrease
the price of a product making 'price sensitivity test' is appropriate. Although, it is not easy to measure correctly
price level versus sales volume, because some products are highly sensitive to price while some are not very
reactive.
There is no such as “x is the right price," it all depends on different factors and variables. However, the right
price is the one that is fair and acceptable by the buyer and the seller. To the buyer, the one that gives the value
equivalent to the price is the right one. Starting with low price has the advantage of attracting and familiarizing
consumers with the product. If buyers like the product and develop the test, price can be safely and steadily
increased.
Whatever price to be fixed, has to be flexible to give room to both increase and decrease because after a price is
fixed and the product is on sales, sometimes there is a necessity to increase or decrease the price.
Some pricing strategies will be discussed below:
a. Bait pricing
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Bait pricing is setting some very low prices to attract customers—but trying to sell more expensive models or
brands once the customer is in the store. For example, a furniture store may advertise a radio for Birr 100. Bait
pricing is something like leader pricing. But here the seller doesn't plan to sell many at the low price.
If bait pricing is successful, the demand for higher-quality products expands. This approach may be a sensible
part of a strategy to trade-up customers. And customers may be well-served if—once in the store—they find a
higher-priced product offers better value, perhaps because its features are better suited to their needs. But bait
pricing is also criticized as unethical.
b. Market Penetration
Market penetration price strategy has direct impact in consumer’s decision to buy. It has to be appropriately
designed in order to respond to the situation in foreign competition. The strategy requires serious knowledge
and consideration of the following market situations.
 Target market sensitivity to price

 The purchasing power of buyers
 Strength of competitors
 Profit margin level of competitors and how low they can afford to go
Introductory Price – could go as low as breakeven point. In many Ethiopian business organizations, there is a
debate between the marketing and finance authorities, on the issue of 'selling at market entry price'. The finance
authorities mostly expect profit right from the start of sales while the marketing authorities, view entry price as
a strategy that will give positive result stage by stage. Marketing professionals justify entry price strategy for the
following reasons: -
 To be competitive in market so that to grab some share from competitors.

 To influence buyers to like the taste and brand with the objective of making them dependable
buyers.
 To encourage more sales and therefore to facilitate larger economies of scale which will result in
minimizing unit cost of production and distribution.
c. Competitive Price
The main goal of setting competitive price is to meet competition. It considers the actual sales price of the same
or similar competing products. If the price is un competitive the product will remain unsold for longer time than
expected. In relation to competition oriented pricing approach, buyer's concentrate mostly on the three below
stated items:
In a price sensitive market, the product features and value being the same, the one with competitive price will
win better. Nevertheless, a keen buyer looks into the total competition and not only into the price list of
suppliers.
d. Price Discrimination Strategy
The objective of discriminatory price is to allocate attractive price in order to encourage sales. At the same
time, it is to give incentive to buyers to put continuous and big orders. This strategy considers different prices
for different buyers and different condition of sale. The difference can be based on either cost or other aspects
of buying.
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The question could be 'why do we use different prices for different customers, won’t it be pleasing one and
dissatisfying another customer?' The answer is that every type of price discrimination has to have logic and
reason behind it. For instance buyers may prefer to agree to purchase for a given period with the expectation of
getting discounted price. However, the interest of the seller should be to ask the buyer to get committed to
minimum purchase quantity. If there is an agreement to buy fixed quantity and unfortunately the buyer cancels
his order then the seller has the right to sue the buyer and be compensated for the damage.
 Entire Output Sales
Another example is that an enterprise can employ "buyer discriminatory price" for buyers who:
 are dependable
 are long time customer
 have potential for putting more orders
 have strong financial position
e. Prestige pricing
Prestige pricing is setting a rather high price to suggest high quality or high status. Some target customers want
the best, so they will buy at a high price. But if the price seems cheap, they worry about quality and don't buy.
Prestige pricing is most common for luxury products—such jewelry, perfume and some items with special
brands.
It is also common in service industries—where the customer can't see the product in advance and relies on
price to judge its quality. Target customers who respond to prestige pricing give the marketing manager an
unusual demand curve. Instead of a normal down-sloping curve, the curve goes down for a while and then
bends back to the left again.
Sensitive segment of market prefers products that are quality, and more so, that are not available elsewhere.
This market understands the cost of prestige items. Hence, the organization can base its facts on the value of the
product to buyers. Prestigious price is the charge for the: -
 Product's feature
 Product's brand
 Product's attractiveness.
However, market analysis of the below stated issues has to be made before deciding to consider 'prestige
pricing strategy'.
 Value of the product to consumer

 Value of trade mark to consumer
 Outlet uniqueness to buyer
 Income level of buyer
f. Demand-backward pricing
Demand-backward pricing is setting an acceptable final consumer price and working backward to what a
producer can charge. It is a reverse cost-plus pricing process. This is commonly used by producers of final
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consumer products—especially in shopping products, such as women's and children's clothing and shoes. In
this case a reverse can be applied. That is, the producer starts with the retail (reference) price for a particular
item and then works backward—subtracting the typical margins that channel members expect.
This strategy gives the approximate price the producer can charge. Then, the average or planned marketing
expenses can be subtracted from this price to find how much can be spent producing the item. Some producers
of consumable or food items such as biscuit companies and bakeries exercise this strategy by reducing the size
or altering the composition to keep the item at the expected price.
Demand estimates are needed for demand-backward pricing to be successful. The quantity that will be
demanded affects production costs—that is, where the firm will be on its average cost curve. Also, since
competitors can be expected to make the best product possible, it is important to know customer needs to set the
best amount to spend on manufacturing costs. By increasing costs a little, the product may be so improved in
consumers' eyes that the firm will sell many more units. But if consumers only want novelty, additional quality
may not increase the quantity demanded—and shouldn't be offered.
g. Quality product pricing strategy
In relation to sales, it is more appropriate to define quality 'as the conformity of product with customer
recognition and satisfaction' rather than remarking 'Defect Free' reasoning.
If a product is qualitative and it is well understand by prospects, then the price can be significantly higher. The
issue of price in relation to quality has to be assessed carefully. Nowadays, consumers are very much aware
about the value they pay. No buyer is willing to pay for the manufacturer’s inefficiency. Once a price is
determined by using one or more pricing strategies, it will need to be refined to a final price consistent with the
pricing strategies in a particular market or industry.
h. High Stock Product pricing strategy
High stocks of products require critical examination. Availability of high stock may depress prices therefore;
the analyst has to look deeply into elements such as:
 Is the high stock only temporary

 Is domestic as well as international price expected to go higher
 Will a better season/month come where stock can be sold at better price?
 Is it better to sell only part of the stock for strategic reasons
 Is the stock as a reason to temporary foreign trade barrier
 What the cost of storage will be, if the product is not sold out
5. Mention three alternative pricing strategies.
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7.7 Summary
Price is taken as the value prospects pay to acquire a product. It is an important factor in selling. A basic
principle is that the relation ship between the price of a product and the value it gives to customers has to be fair
and proper. Customers are aware of the money they pay and thus they want to compare the value they get
against what they pay. Setting pricing strategies could have many goals such as:
 to enter market
 to clear stock
 to sale sell more
 to discourage competition
 etc
In order to develop correct pricing strategies, it is mandatory to be aware of any factor that could influence the
buying decision of the consumer. When prospective customers consider a price, their main interest is the value
they obtain from the product, even though different customers could have different value for a given product in
a different condition. Some of the strategies can be directly fitted to some organizations, where as some may
require modifications. This depends mainly on the type of the enterprise and the characteristic of the target
market.
The best strategy is one that is more efficient, less costly in terms of money and time and that can be
successfully performed. To have sound pricing, some facts on marketing and simple accounting have to be
prepared. In this connection, the firm needs to:
 Calculate cost of operation separately from family expense

 Refer to the profit objective of the firm
 Ascertain if the bank account is separated from family account
 Study if the product is unique or is available in the locality
 See if the plan is to satisfy a certain niche of market or is not yet defined
 Consider the locality of target market
7.8 Answer key to check your Progress Exercise

1. It is because price is one intrinsic of the marketing mixes
2. Greater margin may be required, competition may be changing and costs may increase
3. The key factors are: Demand, competition, product life cycle, and buyers purchasing power
4. Buyers may get scared, products may remain unsold, and organizations get miss led by temporary high
revenues
5. Three alternative pricing strategies can be: Market entry strategy, Discriminatory strategy and
competitive price approach.
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CHAPTER EIGHT: THE MARKETING COMMUNICATION
Contents
8.1. Learning Objective

8.2. An Overview of the Marketing Communication
8.3. Elements in communication process
8.4. The marketing communication tools
8.5. Steps in developing an effective communications
8.5.1. Identify the target audience
8.5.2. Determine the communication objectives
8.5.3. Design the message
8.5.4. Select the communication channel
8.5.5. Allocate the communication budget
8.5.6. Decide on the marketing communications mix
8.5.7. Measure the communication results
8.6. Summary
8.7. Answer Key to check your progress questions
In today modern business world, the marketing communication/promotion task plays a vital role in the
world. The marketing mix activities of product planning, pricing and distribution are performed mainly
within a business or between a business and the members of its distribution channels, through it’s
marketing communication a company can directly reach to different potential customers.
After the completion of this chapter, you should be able to,

 Understand the role of marketing communication
 Know the process of marketing communications mix
 Discuss the steps in the marketing communications planning process
8.2 An Overview of Marketing Communication
Marketing communication:- means communicating information between seller and potential buyer or
other in the channel of influence attitude and behavior
Marketing communication sometimes referred to as promotion, involve marketing initiated techniques

directed to target market in an attempt to influence attitudes and behaviors.
Marketing may use one or more of the different marketing communications methods. The major
communications tools are advertising, personal selling, sales promotion, public relations and direct
marketing communications. Together it constitutes the marketing mix, often referred as the promotional
mix.
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1) The Role of Marketing Communication

The ultimate goal of marketing communication is to reach some audience to affect their behavior.
There may be intermediate steps on the path to that goal, such as developing favorable consumer
attitudes.
Objectives of the Marketing Communication

Informing
To inform customers or potential customers necessary information like,
- Telling the market about a new product/s arrival, use
- Suggesting new uses of a product
- Describing available services of the company
- Correcting false impressions
- Building a company’s image
Persuading
Marketing communication gives more emphasis to persuade customers, by
- Building brand preferences
- Encouraging to switch on the same brand
- Convincing buyers to act now, not later
Reminding
When consumers are aware of a company’s product or brand and have a positive attitude towards it,
marketing communication also plays an important role to,
- Maintain the product in customers mind
- Remind customers where to buy
1.Define marketing communication
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2.State the major objectives of marketing communication

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8.3 Elements in Communication Process
Communication is the process of establishing shared meaning, exchanging ideas, or passing information
between a source and a receiver. (Seller and buyer)
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Today there is a new view of communications an interactive dialogue between the company and it’s
customers that take place during the pre-selling, selling, consummating and the post-consummating
stages. Companies must ask not only, “how can we reach our customers?”, but also, “how can our
customers reach us?”
There are common communication platforms/mix (such as advertising, sales promotion, personal selling
publicity, direct marketing/, people can now communicate modern media (computers, wireless
appliances, cellular phones, pagers, etc) as well as through traditional media (news papers, radio,
television, etc). By decreasing communication costs, the new technologies have encouraged more
companies to move from mass communication to more targeted communication and a one to one
dialogue.
The intended target for any basic communication is the receiver; this could be a purchasing agent
listening to a sales presentation, a consumer reading a magazine advertisement or another of the various
publics served by the marketer, such as stockholders or government officials.
Marketers also need to understand the fundamental elements of effective communications.
a) Sources of Marketing Communications
The marketer is the source, or message sender of marketing communications. Two types of sources
normally play a role in marketing communications, the message sponsor and the message presenter. The
message sponsor is typically the organization attempting to market its goods, services, or ideas. The
message presenter, perhaps a salesperson, actor, or television personality, actually delivers the message.
b) Communications Messages
The source sends a message through a channel to a receiver. The marketing communications message
represents what the company is trying to covey about its products. A message channel is the means by
which the message is conveyed. In advertising, message channels are often referred to as media, a
reference to advertising vehicles such as newspapers, television, magazines, outdoor, and radio. Mail,
telephones, audio-and videocassettes, salespeople, and computer networks and disks are also examples
of message channels.
c) Encoding and Decoding
The source does the encoding by choosing the words, pictures, and other symbols used to transmit the
intended message. Decoding is the process by which the receiver deciphers the meaning of the words,
pictures, and other symbols used in the message. When the message is not decoded as the source
intended, a lack of communication results. For example, a consumer may find the copy in a magazine ad
too technical and thus not understand the message.
d) Feedback
Feedback is the part of the receiver’s response that is communicated to the sender. Depending on the
nature of the communication, the sender can assess feedback to judge the effectiveness of the
communication. Personal selling and many forms of sales promotion offer relatively quick feedback.
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Feedback is not so immediate for mass advertising and public relations, and only subsequent sales
figures or marketing research will indicate the effectiveness of the message.
e) Noise
Noise is any distraction or distortion during the communication process that prevents the message from
being effectively communicated. Competing messages and interruptions, such as a telephone call during
a salesperson’s sales presentation, constitute noise. Noise can even come from within the message itself,
sometimes at quite an expense.

3.Describe the elements of the communication process
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8.4 The Marketing Communication Tools
In order to communicate with consumers, a company can use one or more of the five promotional
alternatives; the common communication plat forms are, advertising, personal selling, sales promotion,
public relations, direct marketing.
i) Advertising
Advertising is any paid up form of non personal presentation of ideas, physical goods or services by an
identified sponsor. Marketers use media such as television, radio, outdoor signage, magazines,
newspapers. In order to advertise what they have (product/service) to the market.
It’s ability often makes advertising an efficient method for communicating a large group of target
market.
Types of Advertising
- Print & Broadcast ads’
- Packaging outer
- Packaging inner
- Motion pictures
- Broachers and booklets
- Posters and leaflets
- Directories
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- Billboards
- Display signs
- Point of purchase displays
- Audiovisual materials
- Symbols and logos
- Video tapes
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Major Advertising Decisions
1) Objective setting
It is the first step, which should be based on the past decision about the target market, positioning,
marketing mix. An advertising objective is a specific communication task to be accomplished with a
specific target audience during a specific period.
An objective can be classified by its purpose such as informing persuading and reminding.
2) Setting the advertising budget

Once the advertising objective is determined, the next step will be to set the advertising budget for each
product. While setting the advertising budget the following factors should be considered.
1) The product’s life cycle
2) The market share
3) The advertising frequency
4) Product differentiation
5) Competition
3) Designing the advertising message
It’s not the large budget which can assure a successful advertising campaign, but only if the commercials
has gain attention and communicate well.
4) Media selection/selecting advertising media
While selecting the advertising media marketers should concentrate on:
*Reach Number of people/target market who are exposed to the advertising during a given period of
time.
*Frequency: Number of times within a specified period of time that a person is exposed to the
advertising.
*Impact: The quantitative value of a message exposure through a given medium.
5) Advertising Evaluation
The advertising program should be evaluated on it’s sales effect and communication effect.
a) Sales effect
Making a comparison between pre and post advertising sales volume
b) Communication effect
Conducting research on customers awareness, memory, recognition.
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If in both effects there is a symptom of increasing figure the advertising program was appropriately
designed and met customers, but if there is a decreasing figure or of the same number as before the
marketing executive should revise and adjust their advertising campaign.
ii) Personal Selling

Personal selling is face to face interaction with one or more prospective purchasers for the purpose of
making presentation, answering questions and procuring orders.
Personal selling a direct (two ways communication between a buyer and seller) and flexible means of
communication which makes sales actual. It carries the bulk of the promotional load when the product
has a high unit value, quite technical in nature or requires demonstration besides this it would be more
appropriate when a product is in the introduction stage of it’s life cycle. The sale of medical equipment
to hospitals and physicians would be practically impossible without well-informed sales people who can
provide the necessary details to prospective buyers.
The emerging /newly introduced personal selling methods include

(a) Prospecting.....................Searching for a potential buyer
(b) Pre approach...................Organizing necessary information about the prospect (the probable buyer,
the future to be customer)
(c) Presentation....................Show the real product how it looks and works
(d) Meeting objection &
close the sale..................by convincing the consumer reaching into the final step
iii) Sales promotion

Sales promotion is the direct inducement to sales force, distributors (wholesalers, retailers, etc) or
consumers to create an immediate sale.
In general, sales promotion is a short-term incentives to encourage purchase or sales of a product.
There are three types of sales promotion namely, the consumer, the retailer and the trade/business.
a) Consumer sales promotion

A type of sales promotion (which is a short term incentive) offered by the producer to the final user.
It’s also known as a pull strategy, which means a sales promotion targeted at the final user.
Premium: Goods offered either free or at low cost as incentive to buy a product
Samples: Free gift which is a small representative part
Coupons: a voucher that entitles somebody to a discount, refund, or gift, typically issued as a sales
promotion
Price packs: Reduced price marked by the producer directly on the label/package.
Contests: Promotional events that give consumers the chance to win something like cash, trips, goods
by luck or extra offer.
Advertising Specialties: Useful articles imprinted with an advertisers name given as a gift
b) Retailer sales promotion
Sales promotion offered by retailers to final users / consumers
The main retailers sales promotion tools.
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Price cuts : A price discount from a given price

Retailer coupons: a voucher that entitles somebody to a discount, refund, or gift, typically issued by
the retailer.
Free gift: A gift presented by retailers to consumers
c) Trade/Business sales promotion

A type of sales promotion aimed at wholesalers, retailers/ intermediaries inorder to increase the average
trade account order size and persuade existing outlets to stock additional models. It’s called a push
strategy. This means a strategy of producers aimed at intermediaries (distributors)
Trade / business sales promotion tools,

 Price discount /cash allowance:- A straight reduction in price on purchases during a stated
period of time.
 Advertising allowances:- Promotional money paid by manufacturers to retailers in return for an
agreement to feature manufacturer’s product’s
 Display allowance:- Price discount for shelving space of the distributor
 Spiffs:- Incentives gives to salespeople.
iv) Public relations

Not only must the company relate constructively to customers, suppliers and dealers, but it must also
relate to a large number of interested publics. A public is any group that has an actual or potential
interest in or impact on a company’s ability actual or potential interest in or impact on a company’s
ability to achieve it’s objectives.
Public relations has often been treated as a minor element in the promotion mix, but wise company takes
concrete steps to manage successful relations with it’s key publics.
Public relation build a good relationship with the company’s various publics by creating a good
corporate image and handling unfavorable rumors, stories and events.
The marketing public relations goes beyond simple publicity and plays an important role in the
following tasks.
a) Assisting in the launch of new products
b) Assisting in repositioning a mature product
c) Influencing specific target group
d) Defending products that have encountered public problems
e) Building interest in a product category
The public relation tools

 Speeches
 Seminars
 Annual reports
 Annual reports
 Publications
 Lobbying
 Events
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 Charitable donations
v) Direct Marketing Communications

Direct marketing communications is a process of communicating directly with target customers to
encourage response by telephone, mail, electronic means, or personal visit. Popular methods of
direct marketing communications include direct mail, telemarketing, direct-response broadcast
advertising, on-line computer shopping services, cable television shopping networks, infomercials,
and in some instances, outdoor advertising.
Direct marketing communications are used by all types of marketers, including retailers,
wholesalers, manufacturers, and service providers. A fast-growing segment of the marketing
communications field, direct marketing often uses precise means of identifying members of a target
audience and compiling customer/prospect databases with postal addresses, telephone numbers,
account numbers, e-mail addresses or fax numbers to allow access to the buyers.

4. Explain the marketing communication tools.
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8.5 Steps in Developing an Effective Marketing Communication
Marketers before creating a means of communication with their customers should follow a certain steps
in order to have a meaningful and successful relationship with the desired target groups.
Steps to develop effective marketing communications

1st step Identify the target audience
2nd step Determine the communication objectives
3rd step Design the message
4th step Select the communication channel
5th step Allocate the communication budget
6th step Decide on the marketing communication mix
7th step Measure the communication results.
8.5.1 Identify the target audience
The process must start with a clear target audience in mind, potential buyers of the company’s products, current
users, deciders or influencers; individuals, groups, particular publics or the public. The target audience analysis
is a critical influence on the communicator’s decisions on what to say, how to say it, when to say it, to whom to
say it and where to say it.
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Image analysis
A part of audience analysis is assessing the current image of the company, its product/s and competitors
Image is the set of beliefs, ideas and impressions a person holds regarding an object. People’s attitudes and
actions towards an object are highly conditioned by that object’s image.
The first step to measure the target audience’s knowledge of the object would be by using the familiarity scale.
 Never heard
 Heard only
 Know a little bit
 Know a fair amount
 Know very well
If most of the respondents circle only the first two categories, the challenge is to build awareness.
Those respondents who are familiar with the product can be asked how they feel towards it by using a
favorability scale.
 Very unfavorable
 Some what un favorable
 Indifferent
 Somewhat favorable
 Very favorable
If most respondents check the first two categories, then the organization must over come a negative image
problem. The two scales can be combined to develop insight into the nature of the communication challenge.
8.5.2 Designing the Message
Once the target group desire is noticed, the next move would be to design appropriate and effective message.
Ideally, the message should follow the AIDA formula, (Gain Attention, Hold interest, Arouse Desire and Lead
to Action). While formulating the message it should necessarily have a message content (what to say), a
message structure (how to say logically), a message format (how to say it symbolically) and a message source
(who should say it)
a) Message Content: The communicator has to figure out what to say to the target audience in
order to produce the desired response. In determining the best message content, management
searches for an appeal or theme.
Rational,
Types of appeals Emotional
Moral
 Rational appeals relates to the audience self-interest- they show that the
product will produce the desired benefit. Examples are messages demonstrating a product's
quality, economy value or performance. It is widely believed that industrial buyers are most
responsive to rational appeals.
 Emotional appeals -attempts to strip up negative or positive emotions that
will motivate purchase. The product may be similar to the competitors offering but has unique
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association for consumers so communication should appeal to these associations. In addition,

communicators have worked with negative appeals such as fear, guilt, and shame to get peoples
to do things they should (eg. Brush their teeth) or stop doing things they should not (e.g. Stop
smoking). Communicators also use positive emotional appeals such as humor, love, pride and
joy. Advocates for humorous messages claim that they attract more attention and create more
liking and belief to the sponsor.
 Moral appeals - are directed to the audience's sense of what is right and
wrong. They are often used to urge people to support social cause, such as a cleaner environment
and fighting HIV.
b) Message structure: A message's effectiveness depends on its structure as well as its content.
Research has shed much light on message content and its relation to conclusion drawing, one-
versus two -side argument, and order of presentation.
Some early experiments supported stating conclusion for the audience rather than allowing the
audience to reach its own conclusion. More recent research, however, indicates that the best
advertising asks question and allow readers and viewers to form their own conclusion. One would
think that one-sided presentation that praises a product would be more effective than two sided
arguments that also mention the product's shortcoming. Yet two -sided messages may be more
appropriate in certain situations, especially when some negative association must be overcome.
Finally, the order in which arguments are presented is important. In case of one-sided message,
presenting the strongest argument first has the advantage of establishing attention and interest. In
case of two-sided message, the issue is whether to present the positive argument first or last
c) Message Format -The communicator must develop a strong format for the message. In a print
advertising, the communicator has to decide on the headline, copy, illustration, and color. If the
message is to be carried over radio, the communicator has to carefully choose words, voice
qualities (speech, rhythm or pitch). If the message is to be carried on television or in person then
all these elements with body language (non-verbal clues) have to be planned. Presenters should
have to pay attention to fiscal expressions, gestures, dressing codes, posture and hairstyle.
d) Message source- message delivered by attractive or popular sources achieve higher attention and
credibility. Message delivered by highly credible sources are more persuasive. Pharmaceutical
companies want doctors to testify about their products' benefit because doctors have high
credibility
8.5.3 Selecting the Communication Channels
In order to have an effective communication with the target group selecting the appropriate vehicle (channel) is
very important. There are two broad types of communication channels; personal and non-personal.
a) Personal communication channels: This involves between two or more persons communicating
directly with each other. They might communicate face-to-face, over the telephone or through
mail. Personal communication channels derive their effectiveness through the opportunities for
individualizing the presentation and feedback.
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This form of communication carries great weight in two situations. One is with products that are
expensive, risky or purchased frequently. Here buyers are likely to be strong information seekers
and go beyond mass-media information. The other situation is where the product suggests
something about the user's status or taste. Here buyers consult others to avoid embarrassment
b) Non-personal communication channels: These communication channels are not a direct and
flexible means of communication, which includes media, atmospheres and events.
Media
Print media
i) Newspapers
ii) Magazines
iii) Direct mail
Broad cast media

i) Radio
ii) Television
Network Media
i) Cable
ii) Satellite
iii) Wireless
Electronic media
i) Audio tape
ii) Video tape
iii) CD-ROM
iv) Web Page
Display media
i) Bill boards
ii) Signs
iii) Posters
Atmosphere
Atmospheres are packaged environments that create the buyer’s learning towards product purchases.
For example: Five star hotels will use elegant chandeliers, marble columns and other tangible signs of luxury.
Events
Events are occurrences designed to communicate a particular messages to target audiences. The public relations
departments arrange news conference, grand openings, seminars, press tours, charitable donations to achieve
specific communication effects with a target group.
8.5.5 Allocate the Communication Budget
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The communication budget allocation is one of the challenging tasks, inorder to be successful and accomplish
the promotion campaign these common alternative techniques are essential.
a) Affordable method
In this method funds will be allocated for every element of the marketing mix except for
promotion. This shows as the method completely ignores the role of promotion as an investment
and the immediate impact of promotion on sales volume, but whatever fund left over is placed to
the promotion budget. In fact there will always be a risk if enough or no promotion budget are
left over.
b) Percentage of sales method

While applying this method companies set their promotion expenditure at a specified percentage
of sales, which is either current, anticipated, or of the sales price. This shows the company ties
it’s promotion budget based on it’s sales revenue, therefore the limitations show that as the
promotion is a sales follower not as leader and it also provides large budget during high sales
period and low budget whenever there is a limited sales.
c) Objective and task method

This method calls on marketers to develop their marketing communication budgets by clearly
defining their specific objectives, by determining the tasks that must be performed inorder to
achieve these objectives, and estimate the cost to perform these tasks. The sum of these costs is
the proposed promotion budget.
d) Competitive Parity Method
There are some companies, which set their promotion budget to achieve share of voice parity
with their competitors. In this case, company’s promotion budget will be raised or reduced
according to the moves of their competitors, which is a market-oriented approach.
8.5.6 Deciding on the Marketing Communication Mix
Companies must consider several factors while developing their promotion mix. The type of market,
consumer readiness to make purchase, the product life cycle, the level of competition are few points which
requires a special consideration as the marketing communication tools such as (Advertising, personal
selling, sales promotion, public relations and publicity, direct marketing) have their own unique
characteristics and costs.
a) Type of the market

Promotional allocations vary between consumer and business market. Consumer markets spend
on sales promotion, advertising, personal selling and public relations in that order, where as
business markets spend on personal selling, sales promotion, advertising, and public relations in
that order. In general, personal selling can be used more with complex, expensive, and risky
goods for selected few markets on the other hand advertising as a mass communication.
b) Buyers Readiness Stage

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Promotional tools vary in cost effectiveness at different stages of buyer readiness. Advertising
and public relations play the most important roles in the awareness building stage. Customer
comprehension is primary affected by advertising and personal selling. Customers’ conviction is
influenced mostly by personal selling. Closing the sale is influenced by personal selling and sales
promotion. Reordering is also affected mostly by personal selling and sales promotion and
somewhat by reminder advertising.
c) Product Life – cycle stage

The marketing communication tools vary in cost effectiveness at different stages of the product’s
life cycle. When a product is in the introduction stage, advertising, and public relations have the
highest cost-effectiveness, followed by personal selling to gain distribution coverage and sales
promotion to induce trial purchase.
When a product is at it’s growth stage, demand has it’s own momentum through word of mouth.
In the maturity stage sales promotion, advertising and personal selling all grow more important
in such order.
When a product’s life cycle stage noticed in it’s decline stage the need of promotional activities
will be reduced in which the salespeople give the product only minimal attention.
d) Level of Competition
In every industry there is a competition even if the degree of competition varies. There is a
market leader firm/s with high acceptability in the market and capable of introducing new
products changing price and using high technology. Next to this there is also a market
challenging firms which ares striving t compete with the leaders, on the other side market
follower firms are categorized under the third step as the name points out only following what
the first two (market leader and market challengers did). The last step is market nicher which
services the left out markets from market leaders, market challengers and market followers with
no intention to expand the market; therefore the level of competition has it’s own impact while
deciding the communication tool. In a market where there’s high competition a unique and more
persuasive advertisement with a very intrusive message should be designed, besides this
marketers should use different types of marketing communication tools simultaneously inorder to
get more market share and persuade the target group, on the contrary in a market where the
competition is less the nature and type of marketing communication used will be less.
8.5.7 Measure the communication result
It’s necessary to evaluate the outcome from the marketing communication campaign on two directions.
Those are the communication effect in which the firm will come to know by conducting the communication
research by measuring customers awareness, memory, recognition and recall power to the product /brand or
the manufacturer. Another means to evaluate the result would be the sales effect by making a comparison
between the pre and post promotion sales volume.
Check your Progress
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5. Identify the steps involved in the development of an advertising campaign.

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6. What factors should be considered while deciding the communication tool?

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8.6 Summary
Advertising like other promotional elements play an important role in the total marketing communication
program. Advertising is impersonal/non personal, paid up/paid for an identified sponsor and disseminated
through mass channels of communication to promote the adoption of goods, services, ideas or persons. It
serves a number of functions, including creating consumers awareness, disseminating information about a
product’s attributes or social value, shaping product images or emotional responses, persuading buyers to
purchase, or reminding consumers about products brands and firms are the major task. Developing an
advertising program is a five step process. Setting the advertising objectives, establish a budget, choose
the advertising message, decide the media and finally evaluating the advertising program.
Personal selling which is a valuable part of the promotion mix and the over all marketing effort of many
companies. Sales people fulfill the extremely important role of generating revenue. In this competitive
business environment, paying close attention to customers needs and expectation with a cordial
relationship is necessary. Personal selling is the most flexible two way communication between buyers
and sellers which makes sales actual.
Sales promotion consists of a diverse collection of incentive tools which is a short term and designed to
stimulate quicker or greater purchase of particular products or services by consumers or the trade. Sales
promotion use different tools for it’s different types of promotional activities. In using sales promotion a
firm must establish it’s objectives, select the tools, develop the program, pretest the program, implement
and control it and evaluate the results
Public relations/publicity involves a variety of programs designed to promote or protect a company’s

image or product. The main tools are publications, events, news, speeches, public service activities.
Direct marketing is an interactive marketing system that uses personal visit, telephone, or mail. It’s main
objective is to maintain and enhance customer relationships.
Marketers are recognizing the importance of integrating their marketing communications in systems
known as integrated direct marketing and maxim marketing. The aim is to establish the overall
communications budget and the right allocations of funds to each communication tools.
Marketers follow certain criteria to adopt appropriate communication with their target group. In order to
accomplish this task they try their level best to follow this steps.
a) identifying the target audience
b) Determine the objective
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c) Design the message

d) Select the appropriate channel
e) Decide on the promotional budget
f) Decide the communication tool
g) Evaluate the result
Once these procedures are followed appropriately it will be easy to communicate with the target market
and pass the necessary message accordingly, for the existence of a business one means of reaching
customers depend on promotional ctivities and that’s why today in the world billion dollars are spent by
companies to their promotional campaigns.
8.7 Answer key to Check your Progress Questions

1) Marketing communication is a means of communicating information between seller and potential buyer or
others in the channel of influencing attitude and behavior the primary objective of marketing
communication is to reach an audience to affect it’s behavior. In general the three major objectives of
marketing communications are to inform, to persuade and to remind. The emphasis placed on one of the five
primary communications methods to achieve these objectives depend on the company’s marketing and
communications strategy.
2) The marketing communication has three major objectives

a) Informing
* One of the major objectives lies on telling the market about new products arrival, use, difference.
* Correcting the potential/current customers false impressions
* Building the manufacturer’s/firm’s image
* Describe available services offered by the firm
b) Persuading
* It’s the most important objective which persuades target groups by giving more emphasis on building
the brand preference and make customers to act now rather than later.
c) Reminding
The main task under this objective would be to remind customers where to they can get the product and
keep on top of customers mind the product.
3) Communication is the process of establishing shared meaning, exchanging ideas between two parties (seller
and buyer) or a source/sender and receiver.
The major participants in the communication process are sender /source and receiver, where as the major
communication tools are message and channels, on the other side the major communication functions and
process include encoding, decoding, response/feedback
a) Source/Sender
A person /organization/ marketer who has information to share with others/receivers.
There are two sources in the communication.
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The message sponsor The organization trying to sell its products, service or ideas.
The message presented: A salesperson, another presenter that delivers the message.
b) Message
It’s what the company tries to convey about the product.
c) Channel
It’s the media by which the communication travels from the source to the receiver.
Channels can be personal which is direct or face to face contact. And non personal which is indirect
either a mass media or sent to different people at a time.
d) Encoding
The source encode the message by choosing words, pictures and other symbols to transmit the intended
message
e) Decoding
It’s the process by which the receiver interprets the senders message back into thoughts.
f) Feed back
The set of actions the receiver has after looking, hearing or reading the message
g) Noise
It’s unwanted distortion or interference during the communication process.
4) Marketing communications permit marketers to reach current and potential customers. Advertising, personal
selling, sales promotion, publicity/public relations and direct marketing are the primary categories of
marketing communications. Each of these tools has it’s unqiue advantages, providing a variety of techniques
for reaching consumers. It’s important that marketing communications be consistent with a firms overall
corporate and marketing strategy. Marketing communications must be coordinated with product, price and
channel factors to reach the desired target audience effectively.
a) Advertising
* A paid up, non personal communication about product, service, idea, organization by an identified
sponsor.
Paid-up: airtime (Radio, TV) and space (magazines, newspapers)
Non personal: Mass communication/one way communication
b) Personal selling
* A direct and the most flexible form of communication inorder to persuade a prospective buyers
about a product/services.
A direct: Two ways communication
c) Sales promotion
* A direct inducement to sales force, distributors and consumers to make an immediate sales.
i) Consumer sales promotion: Sales promotion offered by producers to consumers
ii) Retail sales promotion: Sales promotion offered by retailers to consumers.
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iii) Business/Trade sales promotion: A type of sales promotion directed at distributors

(wholesalers, retailers)
d) Public relations/Publicity
A promotional tool which build/establish the image of the company/seller to a large number of
interested publics. A public is any group that has an actual or potential interest on the company’s
ability to achieve it’s objectives.
e) Direct Marketing Communication

It’s a process of communicating directly with target customers to encourage response by telephone,
mail, electronic means or personal visit. It’s used by all types of marketers such as wholesalers,
retailers, producers, etc.
A direct marketing communications is more tail order and directed to potential buyers.
5) There are seven steps which have a great contribution to marketers for establishing an effective marketing
communication campaign; if these steps are followed appropriately marketers will be successful. Here
are the steps.
i) Identifying the Target Audience

Getting to know who the target audience will be the first essential factor, as it’s the main picture to
pave the way on selecting the right form of campaign.
ii) Determining the communication objectives

At this stage the marketer can seek a cognitive, affective or behavioral response, as the marketer
might want to put something into the consumer’s mind, change the attitude or get the consumer to act.
iii) Design the message

While designing the message it should be clear, to the point and communicable; in order to make the
message more attractive following the AIDA Model will be more advisable as (A… Attention), (I…
Interest) (D…Desire), (A… Action)
iv) Selecting the communication channel

The communicator must select efficient channel of communication to carry the message. While
selecting the communication channel there will be two choices one to be a personal communication
channel and the other one’s anon personal communication.
a) Personal communication channels

This involves between two or more persons communicating directly with each other. It could be
face to face, through mail, over the telephone or other means of electronic communication tools.
b) Non personal communication channels

In such cases the communication will take place in directly or inflexible manner. Either in
broadcast media, print media or network media. Besides these it includes atmosphere (packaged
environments which creates the buyer’s learning towards purchase) and events (which is an
occurrence designed to communicate a particular message to target audiences)
v) Allocating the budget
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It’s one of the challenging task, but following these common alternative techniques are very
important.
a) Competitive parity method

It’s a market oriented approach, which will be raised or reduced according to the competitors
move.
It’s a method which is based on the sales revenue.
b) Percentage of sales method

It’s a method which is based on the sales revenue.
c) Affordable method
In this method funds will be allocated for every element of the marketing mix except for
promotion, which shows as the left over budget would be replaced for promotion purpose.
vi) Deciding on the marketing communication mix

Buyers’ readiness stage, type of the market, the product’s life cycle stage should be considered to
select the communication mix, because each of this factors will decide either to use advertising,
personal selling or other tools.
a) Type of the market

Promotional allocations vary between consumer and business market. Consumer markets spend
on sales promotion, advertising, personal selling and public relations in that order, where as
business markets spend on personal selling, sales promotion, advertising, and public relations in
that order. In general personal selling can be used more with complex, expensive, and risky
goods for selected few markets on the other hand advertising as a mass communication.
b) Buyers Readiness Stage

Promotional tools vary in cost effectiveness at different stages of buyer readiness. Advertising
and public relations play the most important roles in the awareness building stage. Customer
comprehension is primary affected by advertising and personal selling. Customers conviction is
influenced mostly by personal selling. Closing the sale is influenced by personal selling and sales
promotion. Reordering is also affected mostly by personal selling and sales promotion and
somewhat by reminder advertising.
c) Product Life – cycle stage

The marketing communication tools vary in cost effectiveness at different stages of the product’s
life cycle. When a product is in the introduction stage, advertising, and public relations have the
highest cost-effectiveness, followed by personal selling to gain distribution coverage and sales
promotion to induce trial purchase.
When a product is at it’s growth stage, demand has it’s own momentum through word of mouth.
In the maturity stage sales promotion, advertising and personal selling all grow more important
in such order.
When a product’s life cycle stage notice in it’s decline stage the need of promotional activities
will be reduced in which the salespeople give the product only minimal attention.
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vi) Evaluate the result

At this stage marketers should evaluate the pre and post result of the sales volume as well as the
communication effect, which really shows the outcome of the promotion campaign.
6)
 Type of the Market
 The product’s life cycle
 Level of competition
 Nature of the product are few among the major factors that shows be considered while
selecting marketing tools
CHAPTER NINE: MARKETING CHANNELS & LOGISTICS
Contents

9.2. The concept of marketing channels
9.2.1. Alternative channel of distributions
9.3. The role of retailing
9.3.1. Types of retailers
9.4. Wholesaling
9.4.1. Types of marketing channels
9.5. Logistics management
9.5.1. Key activities in logistics
9.6. Summary
9.7. Answers key to check your progress
Channels of distribution decisions involve numerous interrelated variables that must be integrated into
the total marketing mix, because of the time and money required to setup an efficient channel, and since
channels are often hard to change once they are setup, these decisions are critical to the success of the
firm.
This unit concerned with development and management of the marketing channels and logistics.
After completing of this chapter, you should be able to,

 Explain the functions and key activities of the marketing channels
 Discuss the role of intermediaries in marketing channels
 Distinguish between direct and indirect channels
 Understand how marketing channel decisions are related to other key marketing decision
variables
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9.2. The Concept of Marketing Channels
It’s very important to choose the right marketing channels or channels of distribution defined as, a set of
interdependent organizations that make a product or service available for purchase by consumers or
businesses. The distribution channel serves to connect a manufacturer, with consumers or users. In simple
terms, a distribution channel is a pipeline or pathway to the market.
Distribution channels are needed because producers are separated from prospective customers.
A distribution channel enables a company to deal efficiently and effectively with separations in time, place,
form, and possession will be successful. To accomplish that end, the channel must be organized and managed
properly. Physical distribution activities, such as inventory management and product delivery, are essential for
connecting with customers.
A distribution channel consists of at least a producer and a customer. Most channels, however, use one or more
intermediaries help to move products to the customer. Intermediaries independently owned organizations that
act as links to move products between producers and the end-user. The primary categories are brokers,
wholesalers, and retailers. Brokers (A firm that does not take title to the goods it handles but actively negotiates
the sale of goods for its clients). Brokers do not purchase the goods they handle but instead actively negotiate
their sale for the client. A familiar example is real estate brokers, who negotiate the sale of property for their
customers. Companies have more control over the activities of brokers, including the final price to the
customer, because brokers do not own the goods they sell. Wholesalers (A firm that takes title to products for
resale to business, consumers, or other wholesalers or distributors) take title to products and resell them to retail,
industrial, commercial, institutional, professionals, or agricultural firms, as well as to other wholesalers.
Retailers (a firm that takes title to products for resale to ultimate consumers).
Customers do not care how a product was moved or stored - or what some channel member had to do to provide
it. Rather, customers think how rapidly and dependably a firm can deliver what they want. Marketing managers
need to understand the customer’s point of view.
Physical distribution is and should be a part of marketing that is “invisible” to most consumers. It only gets
their attention when something goes wrong. At that point, it may be too late to do anything that will keep them
happy.
In countries where physical distribution systems are inefficient, consumers face shortages and inconvenient
waits for the products they need. By contrast, most consumers in the United States and Canada don’t think
much about physical distribution. This probably means that these markets – directed macro-marketing systems
work pretty well that many individual marketing managers have made good decisions in this area. However, it
does not mean that the decisions are always clear-cut or simple. In fact, many trade offs may be required.
The physical distribution (PD) concept says that all transporting and store concept activities of a business and a
channel system should be coordinated as one system which should seek to minimize the cost of distribution for
a given customer service level. It may be hard to see this as a startling development. However, until just a few
years ago, even the most progressive companies treated physical distribution functions as separate and unrelated
activities.
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Firms spread the responsibility or different distribution activities among various departments-production,
shipping, sales, warehousing, and others. No one person was responsible for coordinating storing and shipping
decisions or seeing how he or she related to customer service levels. Some firms even failed to calculate the
costs for these activities so they never knew the total cost of physical distribution.
Unfortunately, in too many firms old-fashioned ways persist-with a focus on individual functional activities
rather than the whole physical distribution system. Focusing on individual functional a activities may actually
increase total distribution costs for the firm and even for the whole channel. It may also lead to the wrong
customer service level. Well-run firms now avoid these problems by paying attention to the concept. Firms
decide what aspects of service are most important to their customers and what specific service level to provide,
then they focus on finding the least expensive way to achieve the target level of service.
Here are the factors that affect physical distribution service level.
 Advance information on product availability

 Time to enter and process orders
 Backorder procedures
 Accuracy in filling orders
 Damage in shipping, storing, and handling
 Order status information
 Advance information on delays
 Time needed to deliver an order
 Reliability in meeting delivery date
 Complying with customer's instructions
 Defect-free deliveries
 How needed adjustments are handled
 Procedures for handling returns
Well-run firms these days avoid such problems by paying full attention to the physical distribution concept.

1. Explain the functions and key activities of marketing channels.
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2. List the factors that affect the physical distribution activities.

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9.2.1. Alternative Distribution Channels
Factors to be considered while selecting channels of distribution
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 Product characteristics such as the unit value of a product, it’s perishability, bulkiness and degrees of
standardization
 Environmental characteristics such as economic condition, legal regulation and restrictions, political issues
and technological issues.
 Customer characteristics including the size of/number of customers. The geographic dispersion, purchasing
patterns of consumers and use of new channels
 Competitors’ characteristics including their relative market share, distribution channels and strategy, size of
product mix and product lines and their general acceptance by the market.
 The company’s characteristics including the relative size and market share, financial conditions, market
objectives and previous channel experience
The choice of channels can be further refined in terms of distribution coverage required, degree of control
desired, total distribution cost and channel flexibility which are specific considerations in the channel selection.
9.3. The Role of Retailing
The role of retailing is to supply products and services directly to the final users/consumers. Retailers are
differentiated from wholesales according to the primary source of sales. Retail sales are sales to final
consumers. In order to be classified as a retailer, a firm’s retail sales must equal or exceed fifty percent of it’s
total revenues.
a) Economic Importance
Retailing is a major force in the economy. In Ethiopia, a large number of people are involved in
retailing business. Generating certain income for living.
Retailing also includes a diverse range of service retailers. Service retailers include dry
cleaners/laundry, photo developers, shoe repair shops, banks, fitness clubs/gymnasiums, cinema halls
and the other halls. Rental businesses (automobiles, video and cassettes, furniture), hotels and
restaurants, automobile repair shops (garages), tourist attractions, health care services like clinics.
Retailers’ Uniqueness in the Channel

Retailers differ from other marketing channel members in that they handle smaller but more frequent customer
transactions; they also provide assortments of products. A pleasant shopping environment is also more
important in most forms of retailing than at other levels in the channel. Creation of a pleasant shopping
atmosphere entails additional expense, which contributes to higher prices.
i) Sell Smaller Quantities More Frequently: Retailers offer products in the sizes suitable and
convenient for household consumption. Besides buying smaller sizes, most consumers buy products
frequently because they lack sufficient storage space and funds to maintain large inventories of
products. The average convenience store transaction is for only a few Birr, for example, but the
average convenience store handles thousands of transactions per week.
ii) Provide Assortments: Retailers assemble assortments of products and services to sell. If retailers did
not do so, shoppers would have to go to the bakery for bread, the butcher shop for meat, the diary for
milk, and the electric shop for light bulbs; and a simple shopping trip could take hours to complete.
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By providing assortments, retailers offer the convenience of one-stop shopping for a variety of
products and services.
An assortment of items seen by the customer as reasonable substitutes for each other is defined as a
category. Discount retailers that offer a complete assortment and thus dominate a category from the
customer’s perspective.
iii) Emphasize Atmospherics: Atmospherics refers to a retailer’s combination of architecture, layout,

color scheme, special events, prices, displays, and other factors that attract and stimulate consumers.
Retailers spend millions of Birr to create the retail atmospheres that enhance they offer for sale.
9.3.1 Types of Retailers
There are several ways in which to classify retailers. Form of ownership distinguishes between small
independents and chain stores /shops, which is a group of centrally owned and managed retail outlets that
handle the same product lines. Level of service can be used, whether full, limited, or self. Price level can be
sued as well. However, the most informative classification is based on the merchandise assortment, whether
retailers exist based on their service level and pricing strategy.
i) Limited-Line Retailers: Limited – line retailers focus on one product category. It’s further classified in
to four parts.
a) Specialty Stores: Offer merchandise in one primary product category in considerable

depth. Goods are of moderate to high quality. Prices tend to be high and comparable to
department stores.
Many specialty stores are franchisees, who sign a contractual agreement with a franchiser organization to
represent and sell its products in particular retail locations.
b) Automated Vending Operators: retailers use machinery operated by coin or credit card to
dispense goods. The placement of machines is critical, and airports, hospitals, schools, and
office buildings are among the most popular locations. Traditionally, vending has focused
on beverages, candy, cigarettes, and food, but the industry is expanding into new areas,
such as life insurance policies in airports, movie rentals in supermarkets, and lottery
tickets.
In advanced countries, vending machines are more important in retail trade. Home and
apartments are small, with little storage space, and consumers often travel on foot or by
mass transit. The convenience of location and small quantities is small quantities is
appealing, and a wider variety of products can be bought.
Limited Line General Merchandise

Specialty stores Department stores
Franchises Convenience stores
Superstores Supermarkets
Automatic vending operators Discount stores
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a) General Merchandise Retailers: General merchandise retailers carry a number of different

product categories. There are seven types: department stores, convenience stores,
supermarkets, warehouse clubs, discount stores, variety stores, and hypermarkets.
ii. Department Stores: carry a broad array and moderate depth of merchandise, and the level of
customer service is relatively high. Merchandises is grouped into well-defined departments. Both soft
goods, such as apparel and linens, and hard goods, such as appliances and sporting goods are normally
sold. The intention is to provide one-stop shopping for most personal and household items. While
often situated in downtown areas at a stand-alone location, department stores also are prevalent in
shopping malls, where they are considered anchor tenants who draw customers.
iii. Convenience stores: are small and have moderately low breadth and depth of merchandise. Soft
drinks, snack foods, newspapers and magazines, milk, and beer and wine are among the most popular
products carried. They are open long hours, prices are high, and their location is their primary
advantage. Some are part of large corporate chains. Some large oil companies have established their
own operations. Many convenience stores are family owned and operated business.
iv Supermarkets Super markets: are large, departmentalized, food-oriented retail establishments that
sell beverages, canned goods, dairy products, frozen foods, meat, produce, and such nonfood items as
health and beauty aids, kitchen utensils, magazines, pharmaceuticals, and toys. Many have in store
bakeries and delicatessens. Merchandise breadth and depth are moderately high. Since gross margins
are generally low, supermarkets attempt to maximize sales volume.
v. Discount Stores: Offer a broad variety of merchandise, limited service, and low prices.
Merchandise depth is low to moderate. Service levels are minimal. Operating costs, including payroll,
are normally twenty percent or less of total sales. Discounters concentrate on low-to middle-income
consumers. The goal is asset turnover and sales volume per store.
vi. Variety Stores: offer an array of low-priced merchandise of low to moderate quality. There is not
much depth. These retailers are not as numerous as they used to be because of intense competition,
mainly from larger discounters.
1) Non- store Retailing

Traditional retailing is generally thought of as the selling of products and services in stores or some other
physical structure. In contrast, non-store retailing refers to sales outside a physical structure. Although stores
account for almost 90 percent of all retail sales, the growth rate of non-store retailing has far surpassed that
of store- based retailing in the past few years.
Non-store retailing offers consumers the convenience of selecting and purchasing merchandise according to
their own schedules. Merchandise is delivered directly to consumers or shipped to convenient vending
locations, methods that particularly appeal to consumers with few store choices, busy people who care little
for shopping; those who are bored or dissatisfied with store shopping, and consumers with limitations on
movement, such as some non drivers or disabled people. There are disadvantages of non-store retailing.
Customers cannot try on merchandise, test it out, or have it altered before delivery. In addition, some non-
store retailers offer limited assortments.
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The three most common forms of non-store retailing are direct retailing, direct selling, and vending machine
sales.
2) Direct Retailing
Direct retailing is the portion of direct marketing in which ultimate consumers, not business customers, do
the buying. Direct marketing can be defined as “the distribution of goods, services, information, or
promotional benefits to targeted consumers through interactive communication while tracking response,
sales, interests, or desires through a computer database.’’ The consumer is exposed to the merchandise
through a non-personal medium (catalogs, TV shopping programs, interactive electronic networks), and
then purchases the merchandise by mail or telephone.
In advanced countries, the most attention-getting sector of direct retailing in recent years is that conducted
over the Internet. While retail sales over the Internet, often referred to as e-retailing.
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3.List the classification of retailers.
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4.Explain the reasons behind the growth of non-store retailing.
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9.4. Wholesaling
Wholesaling is an important aspect of the marketing channel strategy for many firms. It refers to the marketing
activities associated with selling products, use them to make another product or use them to conduct business
activities.
Wholesaling does not include transactions with household and individual consumers, nor does it include the
small purchases business occasionally makes from retail stores. Essentially, wholesalers sell to manufacturers
and industrial customers, retailers, government agencies, other wholesalers, and institutional customers such as
schools and hospitals.
9.4.1 Types of Wholesalers
The basic categories of wholesalers are merchant wholesalers; agents, brokers, and commission merchants;
and manufacturers' sales branches and offices. Independent wholesalers that take title to the products they sell
are called merchant wholesalers. Wholesalers in the second category, agents, brokers, and commission
merchants, do not take title to the products bought or sold. They are sometimes referred to as functional
intermediaries. Those in the third category, manufacturers' sales branches and offices, are owned by producers
or manufacturing firms.
1) MERCHANT WHOLESALERS: Merchant wholesalers, often called distributors, are categorized as

either full-service wholesalers or limited-function wholesalers.
i) Full-Service Wholesalers: Full-service wholesalers by definition, perform a wide range of services
for their customers and to the parties from which they purchase. These wholesalers might perform all key
activities in an entire marketing channel whereas limited-function wholesalers are likely to specialize in
only a few activities. Full-service wholesalers include general merchandise, limited-line, and specialty-
line wholesalers.
a) General merchandise wholesalers carry a wide variety of products

b) Limited-line wholesalers do not stock as many products as general merchandise wholesalers, but
they offer more depth in their product offering. Among merchant wholesalers
c) Specialty-line wholesalers carry the most narrow product assortment - usually a single product line
or part of one. To justify their existence, specialty-line wholesalers must be experts on the products
they sell.
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d) Rack jobbers, a category of specialty-line wholesalers, sell to retail stores. They set up, maintain
attractive store displays, and stock them with goods sold on consignment (the retailer pays for the
goods only when sold). Rack jobbers are also called service merchandisers, a term that better
captures the service-oriented as of their roles. Retailers depend on rack jobbers particularly in the
provision of health and beauty aids, hosiery, and books and magazines.
ii) Limited-Function Wholesalers

a) Truck Jobbers: Producers of fast moving or perishable goods that require frequent replenishment
often use truck jobbers. These limited-service wholesalers deliver within a particular geographic
area to ensure freshness of certain goods like dairy. Marketers often choose truck jobbers, with their
quick delivery and frequent store visits, to wholesale miscellaneous high-margin items such as
candy, chewing gum, and cigarettes, sold in retail stores. Retailers hate to be out of these items, for
consumers will usually buy them at the next-most-convenient store Instead.
b) Drop shippers: arrange for shipments directly from the factory to the customer. Although they do
not physically handle the product, drop shippers do take title and all associated risks while the
product is in transit. They also provide the necessary sales support. Drop shippers operate in a wide
variety of industries, including industrial packaging, lumber, chemicals, and petroleum and heating
products.
c) Cash-and-carry wholesalers do not deliver the products they sell, nor do they extend credit. Small
retailers and other businesses whose limited sales make them unprofitable customers for larger
wholesalers are the primary customers for cash-and-carry wholesalers.

5.Enumerate the types of wholesalers.
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9.5 Logistics Management
Logistics Management refers to the movement of goods, services and related information from point of origin to
point of consumption.
The importance of logistics management has increased in to day’s competitive business world, marked by the
use of speed as a competitive edge (to deliver customers’ orders) like development of exciting new computer
technologies and increased realization that overall operating costs are extremely sensitive to various costs of
handling and holding inventory.
In Progressive companies, logistics management has moved far beyond shipping and receiving to become a
differentiating factor in marketing strategy. Logistics is instrumental in meeting such challenges as increasing
responsiveness to customers, maintaining market position, stemming price erosion and maintaining
competitiveness in domestic and international markets. Consumers as well as business buyers are increasingly
saying, “I want it now”. More and more marketers are providing quality products at competitive prices, but that
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is not only enough to handle customers, unless the right product is available to the needy customers with no
efforts to get the products they need. As the electronic commerce becomes more prevalent, marketers face the
challenge of developing new logistics system to deal directly with customers rather than always relying on
wholesalers and traditional retail stores for distribution.
Customers’ expectations of suppliers’ logistics systems

 Reliable, timely delivery of information
 On time delivery
 Ease of inquiry and order entry
 Accurate, undamaged, complete order fulfillment
 Responsive post sale support
 Claims handled with ease
9.5.1 Key Activities in Logistics
The drive the enhance customer satisfaction while simultaneously improving productivity and profitability has
put logistics in the spotlight in the marketing efforts of many successful firms.
The key functions of logistics include,
I) Warehousing
II)Material handling
III) Inventory control
IV) Order processing
V) Transporting
I) Warehousing
Companies can choose private or public warehoused or distribution centers, which really meets their
interest and creates convenience.
II) Materials Handling

Materials handling activities include receiving, identifying, sorting and storing products, and retrieving the
goods for shipment. The use of technology is extremely important in this area of logistics. For instance, bar
coding is among the most noteworthy of the technological advances in materials handling, particularly in
distribution centers.
Bar coding, which allows a product to be identified by its computer coded bar pattern, is used in a variety
of logistics functions.
III) Inventory Control

Another key area of logistics is inventory control, which attempts to ensure adequate inventory to meet
customer needs without incurring additional costs for carrying excess stocks. There are two types of
inventory control systems, which are applicable in most cases.
a) Just in Time (JIT) Inventory control system

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Apply primarily to the materials handling side of logistics. These systems deliver raw materials,
subassemblies and component parts to manufacturers shortly before the scheduled manufacturing run
that will consume the incoming shipment, thus the jit (just in time) label. Automobile manufacturers
are among the most enthusiastic users of this system and suppliers often locate manufacturing or
distribution facilities near automobile plants to provide prompt service at a reasonable cost.
b) Quick Response (QR) inventory control systems

Companies that provide retailers with finished goods use it. Quick response systems are based on
frequent but small orders, since inventory is restocked according to what has just been sold yesterday
or even today in some systems.
Participants in quick response systems must joint together in a linguistics partnership. A true
partnership is necessary because buyers and sellers share sensitive information and must maintain
constant communication. In fact, QR systems require so much information exchange that they take
massive investments to implement.
IV) Order Processing

Order processing activities are critical to ensure that customers get what they order, when they want it,
properly billed and with appropriate service to support its use or installation. Accuracy and timeliness are
key goals of order entry processes. QR (quick Response) and JIT (Just in time) systems automatically
handle order-processing activities. In other situations order processing, includes order entry, order
handling, and scheduling for delivery. The term “order” here refers, either to a customer’s purchase order
or to an order transmitted by a sales person. Order handling entails procedures such as communicating the
order to the shipping department or warehouse, clearing the order for shipping or scheduling it for
production. Eventually, the order is selected from stock. Packaged, and scheduled for delivery. The order
documentation becomes part of the customer’s file of transactions with the seller.
V) Transportation
It starts with selecting modes of transportation for delivery of products or materials. Shippers have five
basic ways to move products and materials from one point to another. These are rail, truck, air, water
transport and pipeline each of these basic ways has it’s advantages and disadvantages.
Logistics managers must assess each mode for costs, reliability, capacity, ability to deliver to customer
receiving facilities, transit time and special handling requirements such as refrigeration and temperature
control, safety control, and the capacity to delivery undamaged goods.

6.Define logistics management and explain it’s key role.
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9.6 Summary
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A marketing channel, which is also referred to as a channel of distribution, is a combination of organizations

that perform the activities required to link producers to users in order to accomplish particular marketing
objectives. The primary goal of a marketing channel is to allow companies to reach their customers with the
right product at the right time, to meet customer expectations and to stimulate profitable sales volume. The
major functions of marketing channels are inventory management, physical distribution, and market feedback.
The role of retailing in the marketing channel is to provide products and services to final users. Wholesaling
refers to the activities associated with selling products to purchasers that resell the products, use them to make
another product or use them to conduct business activities the basic categories of wholesalers include merchant
wholesalers, agents, brokers and commission merchants.
Logistics management describes the planning, implementing and controlling of the movement of goods,
services and related information from point of origin to point of consumption. In general, such activities
contribution made users to get what they want to have.
9.7 Answer key to your progress questions
1) A channel of distribution perform the activities required to link both producers and users in order to
accomplish particular marketing objectives.
The main aim of marketing channel is to distribute the right product, at the right time to the right / need
customers appropriately.
The key functions of marketing channels are inventory management, physical distribution in addition to that
creating appropriate market feed back.
2) * Order status situations

* Defect free deliveries
* Time to enter and process orders
* Damage in shipping, storing and handling
* Advance information on delays
* Accuracy in filling orders
* Time needed to deliver order
3) The retailers’ classification has two main categories
Limited line
Specialty Stores: Offering merchandise in one primary product category in considerable depth
Superstores: Focuses on a single product category, but offers a huge selection and low prices
Automatic vending machine: The use of machinery operated by coins or credit cards to dispense goods
General Merchandise
Department stores: Merchandise of a broad variety and moderate depth with high level of customer service
Discount stores: A broad variety of merchandise, limited service and low prices
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Supermarkets: A large departmentalized food oriented retail establishment that sells dairy products behaves
rages, frozen foods, canned foods, meat, and kitchen utensil.
4) Busy people like to shop at their preferred times in the convenience of their own homes. Successful catalog
retailing has encouraged consumers to try other forms of non store retailing. The growth of non store
retailing is probably also the result of consumer boredom and dissatisfaction with some traditional retail
stores.
5) Wholesaling is an important aspect of the marketing channel strategy for many firms. It refers to the
marketing activities associated with selling products, use them to make another product or use them to
conduct business activities.
Wholesaling does not include transactions with household and individual consumers, nor does it include the
small purchases business occasionally makes from retail stores. Essentially, wholesalers sell to
manufacturers and industrial customers, retailers, government agencies, other wholesalers, and institutional
customers such as schools and hospitals.
There are three basic categories of wholesalers:

a) Merchant wholesalers;
b) Agents, brokers, and commission merchants; and
c) Manufacturers' sales branches and offices.
6) Logistics management describes the organizing the cost effective flow of raw materials, in-process inventory,
finished goods and related information from point of origin to point of consumption to satisfy customer
requirements.
The Major roles include
- Warehousing
- Transportation
- Order processing
- Material handling and inventory control
a) Warehousing: - It’s a building in which goods are stored till needed.

b) Transportation: - It’s a means of moving products form the center production to the center of
consumption.
c) Order processing :- To ensure that customers get the product they order
d) Material handling:- It’s the process of receiving, identifying, sorting and storing products and retrieving
the products for shipment.
e) Inventory control:- Attempts to ensure adequate inventory in order to meet customers needs without
incurring additional costs for carrying excess stocks.
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CHAPTER TEN: SERVICES MARKETING
Contents
10.1Learning Objectives
10.2 Introduction
10.2.1 Definition of Services
10.2.2. General Idea on Service Marketing
10.2.3 Service as compared to Product
10.3 Characteristics of Service Marketing
10.3.1 Intangibility
10.3.2 Inseparability
10.3.3 Perishability
10.3.4 Heterogeneity
10.3.5 Customer Based Relationship
10.3.6 Customer Contact
10.4 Looking into Some Service Industries
10.4.1 Retailing
10.4.2 Brokers
10.4.3. Commercial agents
10.4.4 service Wholesaling
10.5 Quality Services
10.6 Non- Profit Marketing
10.7 Summary
After completing this chapter, you should to able to:

1. Understand the nature and importance of services
2. Identify the characteristics of services that differentiate them from goods
3. Describe how the characteristics of services influence the development of marketing mixes for services
4. Understand the importance of service quality and be able to explain how to deliver exceptional service
quality
5. Learn the various service industries
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10.2 Introduction to Service Marketing
10.2.1 Defining Services
A service is an intangible product involving a deed, a performance or an effort that cannot be physically
possesed. Before proceeding, some attention must be given to what we refer to when using the term services.
Probably the most frustrating aspect of the available literature on services is that the definition of what
constitutes a service remains unclear. The fact is that no common definition and boundaries have been
developed to delimit the field of services. The American Marketing Association has defined services as follows:
1. Service products, such as a bank loan or home security, that are intangible, or at least substantially so. If
totally intangible, they are exchanged directly from producer to user, cannot be transported or stored,
and are almost instantly perishable. Service products are often difficult to identify, since they come into
existence at the same time they are bought and consumed. They are comprised of intangible elements
that are inseparable; they usually involve customer participation in some important way, cannot be sold
in the sense of ownership transfer, and have no title.
2. Services, as a term, are also used to describe activities performed by sellers and others that accompany
the sale of a product, and aid in its exchange or its utilization. In this case, maintenance of the product,
transporting the goods, financing the service or product can be mentioned as an example. Such services
are either pre sale or post sale and supplement the product but do not comprise it. If performed during
sale, they are considered to be intangible parts of the product. Some service industries build their
strategies not around products but around deep knowledge of highly developed core service strategies,
such as:
(1) stressing senior management involvement with customers

(2) going all out to resolve customer complains and
(3) placing an emphasis on retaining current customers
10.2.2 General idea on Service Marketing

Unlike manufacturing enterprises, service operations usually have to be close to their customers. Purchases by
small service firms are often handled by whoever is in charge. This may be the owner or manager. Suppliers
who usually deal with purchasing specialists in large organizations may have trouble adjusting to this market.
Personal selling is still an important part of Promotion, but reaching these customers in the first place often
requires more advertising. And small service firms may need much more help in buying than a large
corporation.
Most retail and wholesale buyers see themselves as purchasing agents for their target customers. Typically,
retailers do not see themselves as sales agents for particular manufacturers. They buy what they think they can
sell. And wholesalers buy what they think their retailers can sell. Because retailers and wholesalers usually
carry many thousands of products, once they make the initial decision to stock specific items. And much of the
reordering is tied in to computerized inventory control.
Sellers to these markets must understand the size of the buyer's job and have something useful to say and do
when they call. For example, they might try to save the middleman time by taking inventory, setting up
displays, or arranging shelves--while trying to get a chance to talk about specific products and maintain the
relationship.
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In wholesale and retail firms, there is usually a very close relationship between buying and selling. Buyers are
often in close contact with their firm's salespeople and with customers, and may even directly supervise the
salespeople. Salespeople are quick to tell the buyer if a customer wants a product that is not available-
especially if the salespeople work on commission. A buyer may even buy some items to satisfy the preferences
of salespeople. So salespeople should not be neglected in the promotion effort.
Marketers in service businesses have been paying a lot of attention to improving service quality. But almost
every firm must implement service quality as part of its plan-whether its product is primarily a service,
primarily a physical good, or a blend of both. Even manufacturers of hard goods need to provide some services
to their customers. They need information about deliveries, they need orders filled properly, and they may have
questions to ask the firm's accountant, receptionist, or engineers. So almost every firm must manage the service
it provides customers, and there are important techniques to deliver good service quality.
Quality gurus like to say that the firm has only one job: to give customers exactly what they want, when they
want it, and where they want it. Marketing managers have been saying that for some time too. But
implementing is hard with customer service because often the server is the service. A person doing a specific
service job may perform one specific task correctly, but still annoy the customer in a host of other ways.
Customers will not be satisfied if employees are rude or inattentive-even if they provide the goods that
customers sought.
10.2.3 Service as Compared to Product
A good is a tangible item. When you buy it, you own it. And it's usually pretty easy to see exactly what you'll
get because a good is a physical thing, it can be seen and touched.
On the other hand, a service is a deed performed by one party for another. When you provide a customer with a
service, the customer can't "keep" it. Rather, a service is experienced, used, or consumed. You go see a movie,
but afterwards all you have is a memory. You ride on a ski lift, but you don't own the equipment. Services can
not be physically available. They are intangible. Buyers can't touch a service.
Goods are usually produced in a factory and then sold. In contrast, services are often sold first, and then
produced. You can't perform a deed and then "put it on the shelf." Thus, goods producers may be far away
from the customer, but service providers must be geographically distributed. So services often require a
duplication of equipment and people at places where the service is actually provided.
Some services have characteristics similar to those of goods. For example, on – line databases are services, but
the information provided is tangible, it can be stored until a customer needs it, the provider of the service is
separated from the user, and there is little service variability. It is often difficult to have economies of scale
when the product emphasis is on service. Services can't be produced in large, economical quantities and then
transported to customers. In addition, services, such as a physical examination by a nurse practitioner, often can
only be produced in the presence of the customer.
Consumer services are provided for individuals who use up the service for their own enjoyment or benefit. No
further economic benefit results from the consumption of the service. By contrast, producer services are bought
by a business in order that it can produce something else of economic benefit. An industrial cleaning company
may sell cleaning services to an airport operator in order that the latter can sell the services of clean terminal
buildings to airline operators and their customers.
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Many services are provided simultaneously to both consumer and producer markets. Here, the challenge is to
adapt the marketing program to meet the differing needs of each group of users (for example, airlines provide a
basically similar service to both consumer and producer markets, but the marketing program may emphasize
how price for the former and greater flexibility for the latter)
1.Define services in detail.

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10.3 Characteristics of Services:
Services are intangible products involving deeds, performances, or efforts that cannot be physically possessed.
Services are growing in many part of domestic and as well internationally atmosphere.
Service industry has six fundamental characteristics namely:

 Intangibility
 Inseparability of Production and Consumption
 Perishability
 Heterogeneity
 Client-Based Relationships
 Customer Contact
Because of the characteristics of services, service marketers face several challenges in developing and
managing marketing mixes. Core services are the basic service experiences customers expect and
supplementary services are those that relate to and support core services.
10.3.1 Intangibility
To address the problem of intangibility, marketers use tangible cues that symbolize the service to help assure
customers of service quality. Service providers are likely to promote price, guarantees, performance
documentation, availability, and training and certification of contact personnel. Intangibility makes it difficult to
experience a service before purchasing it. Some services require customers to come to the service provider's
facility and others are delivered with no face-to-face value.
One of the most interesting differences between goods and services relates to tangibility. Because goods are
tangible, marketing strategies typically emphasize the intangible benefits derived from consuming the product.
For example, many ads for Coke convey an intangible excitement associated with drinking the product. On the
other hand, because services are intangible, marketers often try to industry.
The obvious basic difference between goods and services is the intangibility of services, and many of the
problems encountered in the marketing of services are due to intangibility. To illustrate, how does an airline
make tangible a trip from one place to the other is important. The problems could be unique to service
marketing.
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The reader can imagine from his or her own experience that some prophases are very tangible (a coffee maker)
while others are very much intangible. Others have elements of both. In other words, in reality there is a goods
service continuum, with many purchases including both tangible gods and intangible services. On the goods
side of the continuum, the buyer owns an object after the purchase. On the services side of the continuum, when
the transaction is over, the buyer leaves with an experience and a feeling. The examples of services are mostly
or entirely intangible. They do not exist in the physical realm. They cannot appeal to the five senses.
Depending on the type of service, the intangibility factor may dictate use of direct channels because of the need
for personal contact between the buyer and seller. Since a service firm is actually selling an idea or experience,
not a product, it must tell the buyer what the service will do because it is often difficult to illustrate,
demonstrate, or display the service in use. For example, the hotel must somehow describe to the consumer how
a stay at the hotel will leave the customer felling well rested and ready to being a new day.
The above discussion alludes to two strategy elements firms should employ when trying to overcome the
problems associated with service intangibility. First, tangible aspects associated with the service should be
stressed. For example, advertisements for airlines should emphasize the newness of the aircraft, the roominess
of the cabin, and the friendliness of the flight attendants.
Second, end benefits resulting from completion of the service encounter should be accentuated. In the case of
air travel, an individual’s ability to make important meetings or arrive home in time for a special occasion could
be the derived benefit.
10.3.2 Inseparability
The difficulty of standardizing services, especially when people deliver them, has important implications for
marketers. Even well trained and professional service providers have bad day. Therefore, there will always be
processes, standards and procedures to minimize variability to the extent they can. Most manufactured goods
can now be produced with high standards of consistency. However, when asked about the consistency of
services such as railway journeys, restaurant meals or legal advice, most people would probably have come
across cases of great variability in the standard of service that was delivered.
The inability to own a service is related to the characteristics of intangibility and perishability. In purchasing
goods, buyers generally acquire title to the goods in question and can subsequently do as they with them. On the
other hand, when a service is performed, no ownership is transferred form the seller to the buyer. The buyer is
merely buying the right to a service process such as the use of a car park or an accountant’s time. A distinction
should be drawn between the inability to own the service act, and the rights, which a buyer may acquire to have
a service carried out at some time in the future.
The inability to own a service has implication for the design of distribution channels, so a wholesaler or retailer
cannot take title, as is the case with goods. Instead, direct distribution methods are more common and where
intermediaries are used, they generally act as a co-producer with the service provider.
It was noted earlier that the services sector has come to dominate the economics of most western countries. But
this dominance has come about through a diverse range of services, so diverse that many have questioned
whether the term services is too general to be of any use to marketers.
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In many cases, a service cannot be separated from the person of the seller. In other words, the service must
often be produced and marketed simultaneously. Because of the simultaneous production and marketing of most
services, the main concern of the marketer is usually the creation of time and place utility. For example, bank
teller and hospital employees give the service of receiving or depositing money and giving assistance to patient
respectively. Many services, therefore, are tailored and not mass-produced. Often, because a company’s
employees are “the company” at the point of contact, they must be given wide latitude and assistance in
determining how best to tailor a specific service to meet customer needs.
The implication of inseparability on issues dealing with the selection of channels of distribution and service
quality is quite important. Inseparable services cannot be inventoried, and thus direct sale is the only feasible
channel of distribution. Service quality is sometime unable to be completely standardized because of the
inability to completely mechanize the service encounter. However, some industries, though innovative uses of
technology, have been able to overcome or at least, alleviate challenges associated with the inseparability
characteristic.
 Extent of Inseparability
Some services can only be provided in the presence of customers, whereas others require them to do little more
than initiate the service process. In the first category, the production of personal care services, almost by
definition, cannot be separated from their consumption. The involvement of consumers in the production
process is often of an interactive nature, as where clients of a hairdresser answer a continuous series of
questions about the emerging length and style of their hair. In such circumstances, the quality of service
production processes can be just as important as their outcomes.
Other services re more able to separate production form consumption, for example a listener to a radio station
does not need to interact with staff of the radio station. Customer involvement in production processes is
generally lower where the service is carried out on their possessions, rather than on their mind or body directly.
The transport of goods, maintenance of a car or the running of a bank account can generally be separated form
the customer, whose main task is to initiate the service and to monitor performance of it.
Many marketing textbooks still devote little attention to program development for the marketing of services,
especially those in the rapidly changing areas of health care, banking, and travel. This omission is usually based
on the assumption that the marketing of products and service is basically the same, and therefore, the techniques
discussed under products apply as well to the marketing of services. Basically, this assumption is true.
Whether selling goods or services, the marketer must be concerned with developing a marketing strategy
centered on the four controllable decision variables that comprise the marketing mix: the product (or service),
the price, the distribution system, and promotion. In addition, the use of marketing research is as valuable to
service marketers as it is to product marketers.
However, because services possess certain distinguishing characteristics, the task of determining the marketing
mix ingredients for a service marketing strategy may raise different and more difficult problems than those
encountered in marketing products. For example, many consumers believe that all services associated with their
credit cared are provided by just one company; the bank that they send their payment to. In reality, there are
numerous unseen companies.
The purpose of this chapter is fourfold. First the reader will become acquainted with the special characteristics
of services and their strategy implication. Second key concepts associated with providing quality services will
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be discussed. Third, obstacles will be described that, in the past, impeded and still continue to impede
development of services marketing. Finally, current trends and strategies of innovation in services marketing
will be explored. Using this approach, the material in the other chapters of the book can be integrated to give a
better understanding of the marketing of services.
For services, variability impacts upon customers not just in terms of outcomes but also in terms of process
production. It is the latter point that causes variability to pose a much greater problem for services, compared to
goods. Because the customer is usually involved in the production process for a service at the same time as they
consume it, it can be difficult to carry out monitoring and control to ensure consistent standards. The
opportunity for pre-delivery inspection and rejection which is open to the goods manufacturer is not normally
possible with services. The service must normally be produced in the presence of the customer without the
possibility of intervening quality control checks.
Variability in production standards is of greatest concern to services organizations where customers are highly
involved in the production process, especially where production methods make it impractical to monitor service
production. This is true of many labor-intensive personal services provided in a one to one situation, such as
personal healthcare. Some services allow greater scope for quality control checks to be undertaken during the
production process, allowing an organization to provide a consistently high level of service.
This is especially true of machine-based services, for example telecommunication services can typically operate
with very low failure rates. The tendency today is for equipment- based services to be regarded as less variable
then those, which involve a high degree of personal intervention in the production process. Many services
organizations have sought to reduce variability – and hence to build strong brands by adopting equipment-
based production methods. Replacing human telephone operators with computerized voice systems and the
automation of many banking services are typical of this trend.
Goods like tennis racquets, shoe, or tomatoes can be produced, stored, and then sold to customers. Services, on
the other hand, are typically produced and consumed simultaneously. For example, a dentist produced dental
service at the same time the patient consumes it. The customer, then, tends to see the person and the business
providing the service as one and the same.
The close relationships between the production and consumption of services and between the person and the
business providing the service have significant implications. Whether a business provides goods or services, it
must be concerned with the management of service employees. Every employee who has contact with
customers is part of the firm’s service offering. Therefore, effective management and training of employees
who see customers is critical for providing quality services. Training of executive level managers is not enough;
service employees at all levels need the appropriate attention if they are to “be” the company
10.3.3 Perishability
Perishability creates difficulties in balancing supply and demand because unused capacity cannot be stored.
Demand-based pricing results in higher prices being charged for services during peak demand. When services
are offered in a bundle, marketers must decide whether to offer them at a single price, to price them separately,
or to use a combination of the two methods.
Perishablity also has an important effect on the marketing of services. Services cannot normally be stored, so
marketers of services use different strategies to manage demand. For example, higher prices are charged when
demand is expected to be high, but prices are lowered when demand is expected to be low.
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Airlines offer a god example of this type of strategy. Passengers flying to the same destination often pay very
different fares, depending on flight schedule and time of booking. During holiday periods, fewer discounted
tickets are available. Various types of discounted tickets are offered at other times to fill planes that would
otherwise fly with empty seats not purchased at regular fares. The earlier customers make reservations and pay
for tickets, the lower the fare. Low fares also go to those on standby, that is, customers willing to wait for an
available seat after all reserved passengers are boarded. Airlines use standby to generate revenue for seats that
have not been purchased in advance and would otherwise go to waste.
Services differ from goods in that they cannot be stored. Producers of most manufactured goods who are unable
to sell all of their output in the current period can carry forward stocks to sell in a subsequent period. The only
significant costs are storage costs, financing costs and the possibility of loss through wastage or obsolescence.
By contrast, the producer of a service which cannot sell all of its output produced in the current period gets no
change to carry it forward for sale in a subsequent period.
Let us consider the service of transportation companies. A bus company which offers seats on a bus leaving
Addis Ababa cannot sell any empty seats once the bus has completed its journey. Same with an airplane
leaving Addis Ababa and heading Nairobi cannot sell its seats ones it reaches its destination. The thing is that
service offer disappears and spare seats cannot be stored to meet a surge in demand, which may occur at a later
time.
Many have pointed out that services and goods are very closely inter-wined. Some argued that services contain
many important elements common to goods, thereby making services marketing as a separate discipline.
Services are perishable and markets for most services fluctuate either by season (tourism), days (airlines), or
time of day (movie theaters), Unused telephone capacity and electrical power; vacant seats on planes, trains,
buses, and in stadiums; and time spent by catalog service representatives waiting for customers to reach them all
represent business that is lost forever.
10.3.4 Heterogeneity
Services delivered by people are susceptible to heterogeneity or variation in quality. Quality of manufactured
goods is easier to control with standardized procedure and mistakes are easier to isolate and correct. Because of
the nature of human behavior, however it is very difficult for service providers to maintain a consistent quality
of service delivery. This variation in quality can occur from one organization to another, from one service
person to another within the same organization.
The service a single employee provides can vary from customer to customer, day-to-day, ore even hour to hour.
Although many service problems are one-time events that cannot be predicted or controlled ahead of time,
training and establishing of standard procedures can help increase inconsistency and reliability. Heterogeneity
usually increases at the degree of labor intensiveness increases. People based services are often prone to
fluctuations in quality from one time period to the next. Equipment based services, in contrast suffer from this
problem to a lesser degree than people-based services.
Heterogeneity and intangibility make word-of-mouth communication an important means of promotion. The
prices of services are based on task performance, time required, or demand.
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10.3.5 Customer Based Relationship
The success of many services depends on creating and maintaining client-based relationships, interactions with
customers that result in satisfied customers who use a service repeatedly over time. Because services are
intangible, customers may rely on price as a sign of quality. Service quality is the customers' perceptions of how
well a service meets or exceeds expectations. As suggested earlier, it is important to think about products from a
customer’s viewpoint. Customers are making purchases to satisfy needs or solve problems.
It is still important, however, to understand the typical differences between goods and services and how these
characteristics lead to different strategies for the goods and service components of a product offering. In
addition, the service content of many goods is a key component of the value received by customers. Take
computers as an example. The hardware is clearly a good, but much of the value provided to customers is
through the services accompanying the good, such as customizing s system to meet the specific needs of a
customer. These services might include installation, software modifications, training, and ongoing support.
Service possesses several unique characteristics that often have a significant impact on marketing program
development. These special features of services may cause unique problems and often result in marketing mix
decisions that are substantially different from those found in connection with the marketing of goods. The fact
that many services cannot appeal to a buyer’s sense of touch, taste, smell, sight, or hearing before purchase
places a burden on the marketing organization. For example, hotels that promise a good night’s sleep to their
customers cannot actually show this service in a tangible way. Obviously, this burden is most heavily felt in a
firm’s promotional program, but as will be discussed later, it may affect other areas.
In addition to technology, tangible representations of the service can serve to overcome the inseparability
problem. For example, in the insurance industry, a contract serves as the tangible representation of the service.
The service itself remains inseparable from the seller (insurance provider), but the buyer as a tangible
representation of the service in the form of a policy. This enables the use of intermediaries (agents) in the
marketing of insurance. Another example would be in the use of a credit card the cared itself is a tangible
representation of the service that is being produced and consumer each time the cared is being used.
10.3.6 Customer Contact

Not all services require a high degree of customer contact, but many do. Customer contact refers to the level of
interaction between the service provider and the customer that is necessary to deliver the service. In the
marketing of a great many services, a client relation-ship exists between the buyer and the seller. In other
words, the buyer views the seller as some one who has knowledge that is of value to them. Example of this is
the physician-patient, college professor-student etc. The buyer many times abide by the advice offered or
suggestions provided by the seller and these relationships may be of an ongoing nature.
Since many service enterprises are client-serving organizations. They may be approach the marketing function
in a more professional manner, as seen in some health and educational services. There appear to be at least two
marketing challenges that professionals face. First in many cases fear or hostility is brought to the transaction
because the customer is uncertain about how genuine the professional's concern for his or her satisfaction.
Second even high quality service delivery by the professional can lead to dissatisfied customers. It is virtually
important that the professional service provider strive to build long-term relationships with the clients. There
could be an encounter between the service provider and the consumer. The disparity can be classified as:
 The gap between consumer expectation and management perceptions of consumer expectations.
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 The gap between management perceptions of consumer expectations and the firm's service quality
specifications.
 The gap between service quality specifications and actual service quality
 The gap between actual service delivery and external communications about the service.
2. Identify and discuss the major characteristics of services

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10.4 Looking Into Some Common Service Industries
10.4.1 RETAILING
The role of retailing is to supply products and service directly to the final consumer. Retailers are differentiated
from wholesalers according to the primary source of sales. Retail sales are sales to final consumers; wholesale
sales are those to other businesses that in turn resell the product or service, or use it in running their won
businesses. To be classified as a retailer, a firm’s retail sales must equal or exceed 50 percent of its total
revenues.
 Retailers’ Uniqueness in the Channel
Retailers differ from other marketing channel members in that they handle smaller but more frequent customer
transactions; they also provide assortments of products. A pleasant shopping environment is also more
important in most forms of retailing than at other levels in the channel. Creation of a pleasant shipping
atmosphere entails additional expense, which contributes to higher prices.
Retailers offer products in the sizes suitable and convenient for household consumption. Besides buying smaller
sizes, most consumers buy products frequently because they lack sufficient storage space and funds to maintain
large inventories of products. The average convenience store transaction is for only a few dollars, for example,
but the average convenience store handles thousands of transactions per week.
Retailers assemble assortments of products and services to sell. If retailers did not do so, shoppers would have
to go to the bakery for bread, the butcher shop for meat, the dairy for milk, and the store for light bulbs. By
providing assortments, retailers offer the convenience of one-stop shopping for a variety of products and
services.
 Types of retailers
Retailers can be classified according to the type of merchandise and services sold, location, various strategic
differences, and method of ownership. Here we examine different ownership categories to provide an overview
of several types of retailers.
154
Some significant retail enterprises, such as military exchange stores and public utility appliance stores, operate
outside the realm of private enterprise. Within the private sector, there are several major retail ownership
categories, including independent retailers, chains, franchising, leased departments, and cooperatives.
 Independent retailers
Independent retailers own and operate only one retail outlet. Independent retailers account for more than three-
fourths of all retail establishments, a testament to Americans’ desires to own and operate their own businesses
and a relative lack of barriers to entry. There are no formal education requirements, no specific training
requirements, and few legal requirements to owning a retail business. This ease of entry likely accounts for the
unprepared ness and the high failure rate experienced by new retailers.
10.4.2 Brokers
Brokers are intermediaries that bring buyers and sellers together. They are paid a commission by either the
buyer or the seller, depending on which party they represent in a given transaction. Unlike manufacturers’
agents, brokers do not enter into contracts for extended periods with the parties they represent. Instead, they
work on a transaction- by transaction basis.
10.4.3 Commission Agents
Commission merchants provide a wider range of services than agents or brokers, often engaging in inventory
management, physical distribution, and promotional activities and offering credit and market feedback to the
companies they represent.
10.4.4 Service Wholesalers
Service wholesalers provide all the wholesaling functions. Within this basic group are tow main types namely:
 General merchandise
 Specialty Wholesalers
General merchandise wholesalers are service wholesalers who carry a wide variety of nonperishable items such
as hardware, electrical supplies, plumbing supplies, furniture, drugs, cosmetics, and automobile equipment.
These wholesalers originally developed to serve the early retailers-the general stores. Now, with their broad
line of convenience and shopping products, they serve hardware stores, drugstores, electric appliance shops, and
small department stores. Mill supply houses operate in a similar way, but they carry a broad variety of
accessories and supplies to serve the needs of manufacturers.
Specialty wholesalers often know a great deal about the final target markets in their channel. And specialty
wholesalers of business products may limit themselves to fields requiring special technical knowledge or
service. They try to reduce their usage of supplies and delaying major purchases more so than in the past. Travel
agents have also felt the pressure, with airlines cutting their commissions. Further, traditional wholesalers are
facing more competition from transportation and distribution companies that are expanding the scope of their
operations by offering services traditionally performed by wholesalers.
Wholesalers have taken several steps to combat tough market conditions. Some have grown through acquisition
of other wholesalers; others, such as grocery wholesaler Supervalu, have expanded into retailing. Many others
155
are expanding into international markets and focusing on building customers value through stronger
relationships with customers and suppliers.
3. Identify and discuss some service enterprises.

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10.5 Service Quality

In toddy's increasing competitive environment, quality service is critical to organization success. It is mostly
true that delivering high quality service is closely linked to profits, cost saving, and market share. Thus,
retaining current customers and building their loyalty is of great importance. Unlike products where quality is
often measured against standards, service quality is measured against performance. Since services are
frequently produced in the presence of a customer, are labor intensive and are not able to be stored or
objectively examined, the definition of what constitutes good service quality can be difficult and in fact,
continually changing in the face of choices.
Customers determine the value of service quality in relation to available alternatives and their particular needs.
In general, problems in the determination of good service quality are attributable to differences in the
expectations, perceptions and experiences regarding the encounter between the service provider and consumer.
Customers evaluate service quality. Service quality, although one of the most important aspects of service
marketing is very difficult for customers to valuate. The reason for this difficulty is that some of the benefits
provided by a service are impossible to assess before actual purchase and consumption. These benefits include:
 Experience qualities
 Credence qualities, which customers may not be able to evaluate even after consumption.
However, customers can evaluate search qualities before consumption. When competing services are very
similar, service quality may be the only way for customers to distinguish between them. Service marketers can
increase the quality of their services by understanding customer needs, setting service specifications, ensuring
good employee performance, and managing customers' service expectations.
The variability of service can pose problems for brand building in services compared to tangible goods. For the
latter it is usually relatively easy to incorporate monitoring and quality control processes into production
processes in order to ensure that a brand stands for a consistency of output. The service sectors attempts to
reduce variability concentrate on methods used to select, train, motivate and control personnel. In some cases,
service offers have been simplified, jobs have been de-skilled and personnel replaced with machines in order to
reduce human variability.
4. How do clients evaluate services as compared to products?

156
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10.6 Non Profit Marketing
The basic aim of non-profit organizations could be to obtain a desired response from a target market. The
response could be a change in values, a financial contribution, the donation of services or some other type of
exchange. Non-profit marketing objectives are shaped by the nature of the exchange and the goals of the
organization. These objectives should state the rationale for an organization's existence.
Non-profit marketing is practiced by businesses using most of the same concepts and approaches employed in
business situations. The marketing objective of nonprofit businesses is to obtain a desired response from a target
public. Understanding a nonprofit organization's client publics and general publics is also important in
developing a marketing mix. With nonprofit marketing, the product is often a service or an idea.
Nonprofit products are usually distributed through short distribution channels. Advertising, personal selling, and
publicity are used to promote nonprofit products. While a buyer may not pay a direct monetary price for a non-
business product, the buyer will experience an opportunity cost. Nonprofit organizations can develop their
service marketing strategies by defining and analyzing a target market and creating and maintaining a total
marketing mix that appeals to the at market.
5. How are Non profit-marketing objectives shaped?
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10.7 Summary
A service is an intangible product involving a deed, a performance or an effort that cannot be physically
possessed. Unlike manufacturing enterprises, service operations usually have to be close to their customers.
Purchases by small service firms are often handled by whoever is in charge. This may be the owner or
manager. Suppliers who usually deal with purchasing specialists in large organizations may have trouble
adjusting to this market. Personal selling is still an important part of Promotion, but reaching these customers in
the first place often requires more advertising. And small service firms may need much more help in buying
than a large corporation. Service industry has six fundamental characteristics namely:
 Intangibility
 Perishability
 Heterogeneity
157
Customers determine the value of service quality in relation to available alternatives and their particular needs.
In general, problems in the determination of good service quality are attributable to differences in the
expectations, perceptions and experiences regarding the encounter between the service provider and consumer.
Customers evaluate service quality. Service quality, although one of the most important aspects of service
marketing is very difficult for customers to valuate. The reason for this difficulty is that some of the benefits
provided by a service are impossible to assess before actual purchase and consumption. These benefits include:
10 .8 Answer Key to Check Your Progress Exercise
1. A service is an intangible product involving a deed, a performance or an effort that cannot be physically
possessed.
2. Service industry has six fundamental characteristics namely:
 Intangibility
 Perishability
 Heterogeneity
3. Retailing, agent ship, health institutions, wholesaling, and educational institutes.
4. Clients measure quality against performance, because services are frequently produced in the presence
of a customer. Where as they evaluate products against standards.
5. Non-profit marketing objectives are shaped by the nature of the exchange and the goals of the
organization.
158
Reference Books
 Barker, James, “Marketing” an introductory text 4th ed. London, MacMillan Education Limited 1990
 J.Stanton, William, Kenneth E.Miller and Roger A.Laton, “Fundamentals of Marketing Sydney, McGraw
– Hall Book Campny 1985
 Kotler, Philip, “Marketing Management” 11th ed. 2003, Pearson Education Inc.
 Jobber, David, “Principles and practices of Marketing” England, McGrow – Hill Book Company Everipe,
1995
 William J.Stanton, “Fundamentals of Marketing.” 12th ed. Baston : McGraw-Hill/Irwin., 2001
 Mc Carthy, E.Jerome and William D. Perreault, Jr. “Basic Marketing” 9th ed. Hom Wood Richard D.
Erwin, Inc 1987.
 Bearden, Ingram, Lafurge, “Marketing Principles and Perspectives” 3rd ed. Baslon: McGraw-Hill / I’rwin,
2001.
 Managing Prices, Asseghedech Woldelul, Ethiopia, 2003.
159

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Principles of Marketing

CHAPTER ONE: MARKETING AND ITS ENVIRONMENT

1.1 Learnintg Objectives

1.1 Learning Objectives

After completing this chapter you should be able to:

1.2 Introduction to Marketing

1.2.1 Definition of Marketing

 There are at least two parties;

1.2.2 Levels of Marketing

1.3 Basic concepts of Marketing

1.3.1 Marketing and Customer Needs

 customer service, warranty;

1.3.2 Marketing Management

Marketing management is the process of:

1.3.3 How Marketing Relates to Production

1.3.4 The Importance of Marketing

 Marketing Verses Economic Growth

1.4 Performance of Marketing Functions

Check Your Progress Exercise

1.5 The Philosophies of Marketing

 The Production Concept;

b. The Product Concept

c. The Marketing Concept

d. The Selling Concept

1.6 Marketing Environment

1. Objectives and resources of the firm.

Check Your Progress Exercise

1.8 Answer Key to Check Your Progress Exercise

CHAPTER TWO: STRATEGIC PLANNING AND THE MARKETING

2.1. Learning Objectives

2.1 Learning Objectives

2.2 What is Strategic Planning?

Target Market: Similar/homogenous/ group of customers whom a producer wishes to appeal.

2.2.1 Strategic Planning and Marketing Management

2.2.2 The Strategic Planning Process

 They can be converted into specific action.

Check your progress exercise

2.3 The Marketing Management Process

2.3.1 Situation Analysis

 Acquiring competing firms

2.3.2 Marketing Planning

i) What do customers want or need?

2.3.3 Implementation and Control of the Marketing Plan

Check your progress

2.5 Answer key to your progress questions

2) The situation analysis can be classified into six major areas.

 Other departments in the firm

CHAPTER THREE : MARKETING RESEARCH AND INFROMATION

3.1 Learning Objectives

1. Define marketing research

3. Learn how to design a research Project

3.2 Introduction to Marketing Research

3.2.1 Characteristics of Market Research

3.2.2 The Importance of Marketing Research

3.2.3 The Contribution of Research to Foreign Market

Check your Progress Exercise

1. What is the importance of conducting Marketing Research?

3.3 Process of Marketing Research

The marketing research process is a five-step application that includes:

1. Defining the research topic;

Fig. 3 Marketing Research process by stage

Primary Secondary Final stage

Defining Gathering Conclusion