Principles of Marketing | Dissertation
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Definition of Marketing
Marketing is part of all of our lives and touches us in some way every day. Most people think that marketing is only about the advertising and/or personal selling of goods and services. Advertising and selling, however, are just two of the many marketing activities.
In general, marketing activities are all those associated with identifying the particular wants and needs of a target market of customers, and then going about satisfying those customers better than the competitors. This involves doing market research on customers, analyzing their needs, and then making strategic decisions about product design, pricing, promotion and distribution.
Philip Kotler says, Marketing is managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering satisfaction.
Broadly defined, marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging value with others. Narrowly defined marketing involves building profitable, value-laden exchange relationships with customers.
In short, it has been defined as the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.
The new definition given by American Marketing Association reads, "Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large."
The marketing process
Create value for customers and build customer relationships Capture value from customers in return
In the first four steps, companies work to understand consumers, create customer value and build strong customer relationships. In the final step, companies reap the rewards of creating superior customer value. By creating value for customers, they in turn capture value from customers in the form of sales, profits and long term customer equity.
Core concepts of marketing
Target Markets and Segmentation
A marketer can rarely satisfy everyone in a market. Everyone in the market has different taste, likeliness, income and spending habit. Not everyone likes the same soft drink, automobile, college, and movie. Therefore, marketers start with market segmentation. They identify and profile distinct groups of buyers who might prefer or require varying products and marketing mixes. Market segments can be identified by examining demographic, psychographic, and behavioral differences among buyers. The firm then decides which segments present the greatest opportunity—whose needs the firm can meet in a superior fashion. The lucrative segment/s are selected or targeted for offering/selling the product. For each chosen target market, the firm develops a market offering. The offering is positioned in the minds of the target buyers as delivering some central benefit(s). For example, Volvo develops its cars for the target market of buyers for whom auto- mobile safety is a major concern. Volvo, therefore, positions its car as the safest car a customer can buy.
Customer Needs, Wants and Demands
Needs are the basic human requirements. People need food, air, water, clothing, and shelter to survive. People also have strong needs for creation, education, and entertainment.
The above needs become wants when they are directed to specific objects that might satisfy the need. An American needs food but may want a hamburger, French fries, and a soft drink. A person in Mauritius needs food but may want a mango, rice, lentils, and beans. Wants are shaped by one's society.
Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes; only a few are able to buy one. Companies must measure not only how many people want their product but also how many would actually be willing and able to buy it.
Product or Offering
Customers' needs and wants are fulfilled through a marketing offer or product. A product is any offering that can satisfy a need or want, such as one of the 10 basic offerings of goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.
A brand is an offering from a known source. A brand name such as McDonald's carries many associations in the minds of people: hamburgers, fun, children, fast food, and golden arches. These associations make up the brand image. All companies strive to build a strong, favorable brand image.
Value and Satisfaction
In terms of marketing, the product or offering will be successful if it delivers value and satisfaction to the target buyer. The buyer chooses between different offerings on the basis of which is perceived to deliver the most value. We define value as a ratio between what the customer gets and what he gives. The customer gets benefits and assumes costs, as shown in this equation:
Based on this equation, the marketer can increase the value of the customer offering by (1) raising benefits, (2) reducing costs, (3) raising benefits and reducing costs, (4) raising benefits by more than the raise in costs, or (5) lowering benefits by less than the reduction in costs.
Exchange and Transactions
Exchange, the core of marketing, involves obtaining a desired product from someone by offering something in return. For exchange potential to exist, five conditions must be satisfied:
- There are at least two parties.
- Each party has something that might be of value to the other party.
- Each party is capable of communication and delivery.
- Each party is free to accept or reject the exchange offer.
- Each party believes it is appropriate or desirable to deal with the other party.
Whether exchange actually takes place depends upon whether the two parties can agree on terms that will leave them both better off (or at least not worse off) than before. Exchange is a value-creating process because it normally leaves both parties better off.
Marketers use numerous tools to elicit the desired responses from their target markets. These tools constitute a marketing mix. Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. McCarthy classified these tools into four broad groups that he called the four Ps of marketing: Product, Price, Place, and Promotion.
Robert Lauterborn suggested that the sellers' four Ps correspond to the customers' four Cs.
Winning companies are those that meet customer needs economically and conveniently and with effective communication.
Marketing Philosophies and Concepts
There are five competing concepts under which organizations conduct marketing activities: produc- tion concept, product concept, selling concept, marketing concept, and societal mar- keting concept.
The Production Concept
The production concept, one of the oldest in business, holds that consumers prefer products that are widely available and inexpensive. Managers of production-oriented businesses concentrate on achieving high production efficiency, low costs, and mass distribution. This orientation makes sense in developing countries, where consumers are more interested in obtaining the product than in its features. It is also used when a company wants to expand the market. Texas Instruments is a leading exponent of this concept. It concentrates on building production volume and upgrading technology in order to bring costs down, leading to lower prices and expansion of the market. This orientation has also been a key strategy of many Japanese companies.
The Product Concept
Other businesses are guided by the product concept, which holds that consumers favor those products that offer the most quality, performance, or innovative features. Managers in these organizations focus on making superior products and improving them over time, assuming that buyers can appraise quality and performance.
Product-oriented companies often design their products with little or no customer input, trusting that their engineers can design exceptional products. A General Motors executive said years ago: "How can the public know what kind of car they want until they see what is availablefi" GM today asks customers what they value in a car and includes marketing people in the very beginning stages of design.
The Selling Concept
The selling concept, another common business orientation, holds that consumers and businesses, if left alone, will ordinarily not buy enough of the organization's products. The organization must, therefore, undertake an aggressive selling and promotion effort. This concept assumes that consumers must be coaxed into buying, so the company has a battery of selling and promotion tools to stimulate buying.
The selling concept is practiced most aggressively with unsought goods—goods that buyers normally do not think of buying, such as insurance and funeral plots. The selling concept is also practiced in the nonprofit area by fund-raisers, college admissions offices, and political parties.
Most firms practice the selling concept when they have overcapacity. Their aim is to sell what they make rather than make what the market wants.
The Marketing Concept
The marketing concept, in the mid-1950s, challenges the three business orientations we just discussed. The marketing concept holds that the key to achieving organizational goals consists of the company being more effective than its competitors in creating, delivering, and communicating customer value to its chosen target markets.
The marketing concept focuses on the needs of the buyer. Marketing is preoccupied with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it."
The marketing concept rests on four pillars: target market, customer needs, integrated marketing, and profitability. The marketing concept takes an outside-in perspective. It starts with a well-defined market, focuses on customer needs, coordinates activities that affect customers, and produces profits by satisfying customers.
The Societal Marketing Concept
Some have questioned whether the marketing concept is an appropriate philosophy in an age of environmental deterioration, resource shortages, explosive population growth, world hunger and poverty, and neglected social services. Are companies that successfully satisfy consumer wants necessarily acting in the best, long-run interests of consumers and societyfi The marketing concept sidesteps the potential conflicts among consumer wants, consumer interests, and long-run societal welfare.
Yet some firms and industries are criticized for satisfying consumer wants at society's expense. Such situations call for a new term that enlarges the marketing concept. We propose calling it the societal marketing concept, which holds that the organization's task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer's and the society's well-being.
The societal marketing concept calls upon marketers to build social and ethical considerations into their marketing practices. They must balance and juggle the often confiicting criteria of company profits, consumer want satisfaction, and public interest. Yet a number of companies have achieved notable sales and profit gains by adopting and practicing the societal marketing concept.
Marketing vs. Selling
Oftentimes, marketing and sales are perceived interchangeably. But in actuality, these are two different things. Selling is a small portion of the entire marketing scheme. Selling is the transaction where a product is transferred from the business owner to a buyer for a price. In contrast, marketing is a process that involves several steps ranging from the generation of a product idea to the delivery of that product to the customer.
Even after delivery of the product to the customer, the marketing process continues with direct communication with the customer to obtain feedback about the product.
Profits from satisfied customers
Theodore Levitt of Harvard drew a perceptive contrast between the selling and marketing concepts: "Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the seller's need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it."
The marketing concept rests on four pillars: target market, customer needs, integrated marketing, and profitability. The selling concept takes an inside-out perspective. It starts with the factory, focuses on existing products, and calls for heavy selling and promoting to produce profitable sales. The marketing concept takes an outside-in perspective. It starts with a well-defined market, focuses on customer needs, coordinates activities that affect customers, and produces profits by satisfying customers.
CHAPTER - 2
In order to correctly identify opportunities and monitor threats, the company must begin with a thorough understanding of the marketing environment in which the firm operates. The marketing environment consists of all the actors and forces outside marketing that affect the marketing management's ability to develop and maintain successful relationships with target customers.
"A company's marketing environment consists of the actors and forces outside marketing that affect marketing management's ability to develop and maintain successful relationships with its target customers"
- The marketing environment offers both opportunities and threats
- Changes in the marketing environment often occur at a rapid pace.
- Marketers tend to be trend trackers and opportunity seekers.
- The company must use its marketing research and marketing intelligence systems to monitor the changing environment.
- A systematic scan of the environment helps marketers to revise and adapt marketing strategies to meet new challenges and opportunities in the market place.
- The marketing environment is made up of a micro environmental and macro environment.
The Company's Microenvironment
The micro environment consists of six forces (actors) close to the company that affect its ability to serve its customers:
- The company itself (including various internal departments)
- Marketing channel firms (intermediaries)
- Customer markets.
The first actor is the company itself and the role it plays in the microenvironment.
- Top management is responsible for setting the company's mission, objectives, broad strategies, and policies.
- Marketing managers must make decisions within the parameters established by top management.
- Marketing managers must also work closely with other company departments. Areas such as finance, R & D, purchasing, manufacturing, and accounting all produce better results when aligned by common objectives and goals.
- All departments must "think consumer" if the firm is to be successful.
Suppliers are firms and individuals that provide the resources needed by the company and its competitors to produce goods and services. They are an important link in the company's overall customer "value delivery system."
- One consideration is to watch supply availability (such as supply shortages).
- Another point of concern is the monitoring of price trends of key inputs.
Marketing intermediaries are firms that help the company to promote, sell, and distribute its goods to final buyers.
- Resellers are distribution channel firms that help the company find customers or make sales to them.
- These include wholesalers and retailers who buy and resell merchandise.
- Resellers often perform important functions more cheaply than the company can perform itself. Seeking and working with resellers, however, is not easy because of the power that some demand and use.
Physical distribution firms help the company to stock and move goods from their points of origin to their destinations. Examples would be warehouses (that store and protect goods before they move to the next destination).
Marketing services agencies (such as marketing research firms, advertising agencies, media firms, etc.) help the company target and promote its products to the right markets.
Financial intermediaries (such as banks, credit companies, insurance companies, etc.) help finance transactions and insure against risks associated with buying and selling goods.
The company must study its customer markets closely because each market has its own special characteristics. These markets normally include:
- Consumer markets (individuals and households that buy goods and services for personal consumption).
- Business markets (buy goods and services for further processing or for use in their production process).
- Reseller markets (buy goods and services in order to resell them at a profit).
- Government markets (agencies that buy goods and services in order to produce public services or transfer them to those that need them).
- International markets (buyers of all types, including governments, in foreign countries).
Every company faces a wide range of competitors. A company must secure a strategic advantage over competitors to be successful in the marketplace. No single competitive strategy is best for all companies .
A public is any group that has an actual or potential interest in or impact on an organization's ability to achieve its objectives. A company should prepare a marketing plan for all of its major publics as well as its customer markets.
Generally, publics can be identified as being:
- Financial publics.
- Media publics.
- Government publics.
- Citizen-action publics.
- Local publics.
- General public.
- Internal publics.
The Company's Macroenvironment
The macroenvironment consists of the larger societal forces that affect the microenvironment:
The company and all of the other actors operate in a larger macroenvironment of forces that shape opportunities and pose threats to the company. Major forces in the company's macroenvironment include:
Demography is the study of human populations in terms of size, density, location, age, sex, race, occupation, and other statistics. It is of major interest to marketers because it involves people, and people make up markets.
Demographic trends are constantly changing. Some of the more interesting trends are:
- The world's population (though not all countries) rate is growing at an explosive rate that will soon exceed food supply and ability to adequately service the population. The greatest danger is in the poorest countries where poverty contributes to the difficulties.
- The most important trend is the changing age structure of the population. Generational marketing is possible, however, caution must be used to avoid generational alienation.
- Changing family structure
- Geographic shifts in population will also alter demographics.
- Changing educational level : In general, the population is becoming better educated. The work force is becoming more white-collar. Products such as books and education services appeal to groups following this trend. Technical skills (such as in computers) will be a must in the future.
- The final demographic trend is the increasing ethnic and racial diversity .
The economic environment includes those factors that affect consumer buying power and spending patterns. Major economic trends include:
- Changes in income—personal consumption (along with personal debt) has gone up (1980s) and the 1990s brought recession that has caused adjustments both personally and corporately in this country. In the 2000s, consumers are more careful shoppers.
- Value marketing (trying to offer the consumer greater value for their dollar) is a very serious strategy in the 2000s. Real income is on the rise again but is being carefully guarded by a value-conscious consumer.
- Income distribution is still very skewed in the United States and all classes have not shared in prosperity. In addition, spending patterns show that food, housing, and transportation still account for the majority of consumer dollars. It is also of note that distribution of income has created a "two-tiered market" where there are those that are affluent and less affluent.
Classes of consumers include:
- Upper class—spending patterns are not affected by current economic events and who are a major market for luxury goods.
- Middle class—somewhat careful about its spending but can still afford the good life some of the time.
- Working class—must stick close to the basics of food, clothing, and shelter and must try hard to save.
- Under class—(persons on welfare and many retirees) must count their pennies when making even the most basic purchases.
- Changing consumer spending patterns:
- Consider Engle's Laws where differences were noted over a century ago by Ernst Engle regarding how people shift their spending across food, housing, transportation, health care, and other goods and service categories as family income rises. Spending patterns have generally supported his ideas.
- Marketers must carefully monitor economic changes so they will be able to prosper with the trend, not suffer from it.
The natural environment involves natural resources that are needed as inputs by marketers or that are affected by marketing activities. During the past two decades environmental concerns have steadily grown. Some trend analysts labeled the 1990s as the "Earth Decade," where protection of the natural environment became a major worldwide issue facing business and the public.
Specific areas of concern were:
- Shortages of raw materials. Staples such as air, water, and wood products have been seriously damaged and non-renewable such as oil, coal, and various minerals have been seriously depleted during industrial expansion.
- Increased pollution is a worldwide problem. Industrial damage to the environment is very serious. Far-sighted companies are becoming "environmentally friendly" and are producing environmentally safe and recyclable or biodegradable goods. The public response to these companies is encouraging.
- Government intervention in natural resource management has caused environmental concerns to be more practical and necessary in business and industry. Leadership, not punishment, seems to be the best policy for long term results. Instead of opposing regulation, marketers should help develop solutions to the material and energy problems facing the world.
- Concern for the natural environment has spawned the so-called green movement.
- Environmentally sustainable strategies and practices are being created.
- Companies are recognizing a link between a healthy economy and a healthy ecology.
The technological environment includes forces that create new technologies, creating new product and market opportunities.
- Technology is perhaps the most dramatic force shaping our destiny.
- New technologies create new markets and opportunities. Every new technology, however, replaces an older technology.
- The challenge is not only technical but also commercial—to make practical, affordable versions of products.
The political environment includes laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society. Business is regulated by various forms of legislation.
- Governments develop public policy to guide commerce—sets of laws and regulations limiting business for the good of society as a whole.
- Almost every marketing activity is subject to a wide range of laws and regulations.
Some trends in the political environment include:
- Increasing legislation to:
- Protect companies from each other.
- Protecting consumers from unfair business practices.
- Protecting interests of society against unrestrained business behavior.
- Changing government agency enforcement. New laws and their enforcement will continue or increase.
- Increased emphasis on ethics and socially responsible actions. Socially responsible firms actively seek out ways to protect the long-run interests of their consumers and the environment.
- The recent rash of business scandals and increased concerns about the environment have created fresh interest in the issues of ethics and social responsibility.
- The boom in e-commerce and Internet marketing has created a new set of social and ethical issues.
- Privacy issues are the primary concern.
- Another cyberspace concern is that of access by vulnerable or unauthorized groups.
The cultural environment is made up of institutions and other forces that affect society's basic values, perceptions, and behaviors. Certain cultural characteristics can affect marketing decision-making. Among the most dynamic cultural char- acterisitics are:
- Persistence of cultural values. People's core beliefs and values have a high degree of persistence.
- Core beliefs and values are passed on from parents to children and are reinforced by schools, churches, business, and government.
- Secondary beliefs and values are more open to change.
- Shifts in secondary cultural values. Because secondary cultural values and beliefs are open to change, marketers want to spot them and be able to capitalize on the change potential.
- The Yankelovich Monitor has identified eight major consumer themes:
- Trust not.
- Go it alone.
- Smarts really count.
- No sacrifices.
- Stress hard to beat.
- Reciprocity is the way to go.
- Me 2.
- Society's major cultural views are expressed in:
- People's views of themselves. People vary in their emphasis on serving themselves versus serving others..
- People's views of others. Observers have noted a shift from a "me-society" to a "we-society." Consumers are spending more on products and services that will improve their lives rather than their image.
- People's views of organizations. People are willing to work for large organizations but expect them to become increasingly socially responsible. Many companies are linking themselves to worthwhile causes.
- People's views of society. This orientation influences consumption patterns. "Buy American" versus buying abroad is an issue that will continue into the next decade.
- People's view of nature. There is a growing trend toward people's feeling of mastery over nature through technology and the belief that nature is bountiful. Nature, however, is finite. Love of nature and sports associated with nature are expected to be significant trends in the next several years.
- People's views of the universe. Studies of the origin of man, religion, and thought-provoking ad campaigns are on the rise. Spiritual individualism may be a new theme.
Chapter - 3
It is the process of dividing a market into distinct group of buyers who have distinct needs, characteristics or behavior and who might require separate product or marketing mixes.
A group of consumers who respond in a similar way to a given set of marketing efforts.
For Example: In the car market, consumers who want the biggest, most comfortable car regardless of the price make up one market segment. Consumers who care mainly about price and operating economy make up another segment.
Requirements of Market Segments
In addition to having different needs, for segments to be practical they should be evaluated against the following criteria:
- Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified.
- Accessible: the segments must be reachable through communication and distribution channels.
- Substantial: the segments should be sufficiently large to justify the resources required to target them.
- Unique needs: to justify separate offerings, the segments must respond differently to the different marketing mixes.
- Durable: the segments should be relatively stable to minimize the cost of frequent changes.
A good market segmentation will result in segment members that are internally homogenous and externally heterogeneous; that is, as similar as possible within the segment, and as different as possible between segments.
Bases for Segmentation in Consumer Markets
Consumer markets can be segmented on the following customer characteristics.
The following are some examples of geographic variables often used in segmentation.
- Region: by continent, country, state, or even neighborhood
- Size of metropolitan area: segmented according to size of population
- Population density: often classified as urban, suburban, or rural
- Climate: according to weather patterns common to certain geographic regions
Some demographic segmentation variables include:
- Family size
- Family lifecycle
- Generation: baby-boomers, Generation X, etc.
- Social class
Many of these variables have standard categories for their values. For example, family lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of the children.
Psychographic segmentation groups customers according to their lifestyle, Personality and Social class. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:
Behavioral segmentation is based on actual customer behavior toward products. Some behavioral variables include:
- Benefits sought
- Usage rate
- Brand loyalty : none, medium, high
- User status: potential, first-time, regular, etc.
- Readiness to buy
- Occasions: holidays and events that stimulate purchases
Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation.
Market segmentation - why segment marketsfi
There are several important reasons why businesses should attempt to segment their markets carefully. These are summarized below:
Better matching of customer needs
Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution
Enhanced profits for business
Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits
Better opportunities for growth
Market segmentation can build sales. For example, customers can be encouraged to "trade-up" after being introduced to a particular product with an introductory, lower-priced product
Retain more customers
Customer circumstances change, for example they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life ("life-cycle"), a business can retain customers who might otherwise switch to competing products and brands
Target marketing communications
Businesses need to deliver their marketing message to a relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high / unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost
Gain share of the market segment
Unless a business has a strong or leading share of a market, it is unlikely to be maximising its profitability. Minor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves. Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers the opportunity for smaller firms to compete with bigger ones.
Target marketing is the process of evaluating each market segment's attractiveness and selecting one or more segments to enter.
Target market is the market segment to which a particular product is marketed. It is often defined by age, gender, geography, and/or socio-economic grouping.
Targeting strategy is the selection of the customers you wish to service. The decisions involved in targeting strategy include:
- which segments to target
- how many products to offer
- which products to offer in which segments
- Evaluating and selecting the market Segments (factors: Segment size and growth, segment structural attractiveness, company objectives and resources)
- Single-segment concentration—firm concentrates on one market only for its one product
- Selective specialization—firm selects a number of attractive and appropriate segments and develops products that appeal to each segment
- Product specialization—firm focus is on a product it can sell to several segments
- Market specialization—firm satisfies multi-faceted needs of one particular group
- Full market coverage—firm serves all customer groups with products they might need
- Undifferentiated marketing—entire market receives the same program
- Differentiated marketing—different programs for different segments
Levels of market segmentation/ Target marketing strategies
- Undifferentiated Marketing( mass marketing) - One product mix available to all buyers
- Segment marketing—a large identifiable group within a market. Midpoint between mass and individual marketing
- Niche Marketing—a narrowly defined smaller group whose needs not currently met effectively
- Local Marketing—programs targeted to the needs and wants of local customer groups
- Individual Customer Marketing—"one to one" marketing
- Mass-customization and choiceboard.
- Customerization—empowering customers with the means to design their own products.
- Self—a form of individual marketing in which the consumer takes more responsibility for determining which brands and products to buy. (i.e., shopping over the Internet)
Positioning is the act of designing the company's offering and image to occupy a distinctive place in the mind of the target market.
As per Ries and Trout - "Positioning is not what you do to a product. Positioning is what you do to the mind of the prospect"
Often a product is positioned in the following ways by a company-
"Best quality, best performance, best service, best styling, lowest price, safest, fastest, more reliable etc"
Positioning begins with actually differentiating the company's marketing offer so that it will give consumers a superior value.
Differentiation is done on the following parameters
- Features—characteristics that supplement the product's basic function
- Performance quality—the level at which the product's primary characteristics operate
- Conformance quality—the degree to which all the produced units are identical and meet the promised target specifications
- Durability—measure of the product's expected operating life under natural or stressful conditions
- Reliability—a measure of the probability that a product will not malfunction or fail within a specified period
- Repairability—a measure of the ease of fixing a product that malfunctions or fails
- Style—the product's looks and feel to the buyer
- Design: the integrating force—the totality of features that affect how a product looks and functions in terms of customer requirements
- Ordering ease
- Delivery—speed, accuracy, and care
- Installation—making a product operational
- Customer training—instruction on proper and efficient use
- Customer consulting—data, information systems, and advising services
- Maintenance and repair—keeping products in good working order
- Miscellaneous services—finding other ways to add value
- Identity versus image—company intentions versus consumer perceptions
- Symbols—logos, objects, people, colors
- Written and audiovisual media—to convey company or brand personality
- Atmosphere—physical space in which the organization produces or delivers its products
Choosing a Positioning strategy : The positioning task consists of the following steps:
- Identifying possible competitive advantages.
- Choosing the right competitive advantages
- Selecting an overall positioning strategy.
- Selecting a positioning statement
- Communicating and delivering the position.
Identifying possible competitive advantages.
Competitive advantage is achieved through Product differentiation, Services differentiation, Channel differentiation, Personnel differentiation, and Image differentiation.
A company must undertake the above differentiations and find out the areas in which it has advantage over its competitors.
Choosing the right competitive advantages
A company in order to choose the right competitive advantages must decide on: How many differences to promotefi
Which differences to promotefi Not all differences are meaningful or worthwhile. A difference is worth establishing if it satisfies the following criteria:
Selecting an overall positioning strategy.
Different positioning strategies are based on brand propositions . Typical brand propositions can include:
- More for more.
- More for the same.
- The same for less.
- Less for much less.
- More for less.
Selecting a positioning statement
To (target segment and need) our (brand) is a (concept) that (point-of-difference).
Communicating and delivering the position.
The final step is communicating and delivering the chosen position. Once a position is chosen, the company must take strong steps to deliver and communicate the desired position to target consumers.
- All the company's marketing mix efforts must support the positioning strategy.
- Positioning calls for concrete action, not just talk.
- Companies often find it easier to come up with a good positioning strategy than to implement it.
- The positioning strategy must be monitored and adapted over time to match changes in consumer needs and competitor's strategies.
- Abrupt changes that might confuse consumers need to be avoided.
- A product's position should evolve gradually as it adapts to the ever- changing environment.
Chapter - 4
Definition of Product
A product can be defined as any item which can be in the form of goods or services that a person receives in exchange for money or some other unit of value. Broadly defined, products include physical objects, services, persons, places, organizations, ideas, or mixes of these entities.
Consumers do not just buy the physical product. They buy the benefits the product offers and its packaging, quality, brand name, styling, warranty, after-sale service, and more. The most important task for the marketer is to understand what benefit consumers seek from this product.
Products can be divided into two:
Tangible product: products that can be seen or felt.
Examples of products in the form of goods (tangible) are CK perfume, Guess shirt, Dynamo detergent.
Intangible product: products that cannot be seen or touched
Example: Most of the products are in the form of services. Examples of products in the form of service (intangible) are legal advice by Karpal Singh and Co., medical treatment in Ampang Puteri Hospital, hair-cut service by Thomas & Guy.
LEVELS OF PRODUCT
There are five levels of a product
- Core benefits
- Basic Products
- Expected products
- Augmented products
- Potential products
The core benefit is the essential use-benefit, problem-solving service that the buyer primarily buys when purchasing a product.
For example, a manufacturer of a new established watch company must find out the main benefits the watch will provide to customers that is as a time indicator.
The generic product is the basic version of the product.
Here the products are designed along with the five important characteristics; quality level, features, design, a brand name and packaging are combined together.
For example, the manufacturer of the watch company decided that the watch will be a water resistant, with alarm chronograph, colorful and fancy shaped, branded as Swatch and comes in a hard box together with a guarantee card.
The expected product is the set of attributes and conditions that the buyer normally expects in buying the product.
The augmented product is additional services and benefits that the seller adds to distinguish the offer from competitors
Augmented products are the additional consumer services provided by the manufacturer which come along with the product.
For example, the Swatch watch comes with a one-year guarantee and a booklet on how to operate the features like date, alarm and calculator.
The potential product is the set of possible new features and services that might eventually be added to the offer.
CLASSIFICATION OF PRODUCT
- Consumer product
- Industrial product
Consumer products can be defined as those bought by final consumers for personal, family or household use. Consumer products can be classified under four different categories, which are convenience product, shopping product, specialty product and unsought product.
Types of Consumer Products
Products that are most frequently and immediately bought by customers. They do not put so much effort to compare and buy these products.
A convenience product is an inexpensive item that requires little shopping effort. These products are purchased regularly, usually with little planning, and require wide distribution. Consumers will usually accept substitutes for a convenience product. Sugar, soap, cooking oil and papers are some examples of convenience products.
Convenience products can be divided into three sub-categories:
Products that are bought on the most regular basis for regular use. Examples: soap, detergent, and toothpaste.
Products that are bought with a minimum planning or search effort. Examples: newspapers, magazines and candy.
- Emergency product
Products that are bought during emergency or critical condition.
- Examples: Plasters, umbrellas and raincoats (during heavy rain).
Shopping products are consumer products that are less frequently bought by customers. Customers used to plan and compare the suitability, quality, price and style before making purchase decision. This is because shopping products are usually more expensive than convenience products. Furniture, electrical appliances and used cars are good examples of shopping products.
A shopping product requires comparison shopping, because it is usually more expensive than convenience products and is found in fewer stores. Consumers usually compare items across brands or stores.
There are two types of shopping products
- Homogenous shopping products are products that consumers see as being basically the same, and consumers shop for the lowest price.
- Heterogeneous shopping products are seen by consumers to differ in quality, style, suitability, and lifestyle compatibility. Comparisons between heterogeneous shopping products are often quite difficult because they may have unique features and different levels of quality and price.
Specialty products are consumer products that are unique and have special qualities that make them well-known among significant consumers. Buyers usually do not compare the brands of specialty products. They spend the appropriate time to go straight away to the dealers. Examples: Ferrari and Porsche cars, Rolex watches and custom-made men suites.
A specialty product is searched for extensively, and substitutes are not acceptable. These products may be quite expensive, and often distribution is very limited. Brand loyalty tends to be very strong for specialty products.
Unsought products are consumer products that are not known by the customer or are not normally think of buying. Examples: Insurance and Encyclopedia.
An unsought product is a product that is unknown about or inactively sought by consumers. Unsought products require aggressive personal selling and highly persuasive advertising.
Industrial products are the ones purchased for further operation or for business use. The difference between consumer products and industrial products is based on the purpose. If the consumer purchases the product for personal or home use, then it is categorized as a consumer product. If the consumer buys the product for his business use or to earn profit out of it, then it is categorized as industrial product. (Kotler & Armstrong, seventh edition) Examples: A Lawn mower that is purchased to be used in landscaping business is an industrial product.
A business product is purchased for:
- Use in the manufacture of other goods or services
- Use in an organization's operations
- Resale to other customers
The classification scheme includes seven categories: major equipment, accessory equipment, component parts, processed materials, raw materials, services and supplies.
Materials and Parts
Materials and parts are products that are purchased and then reacts as a small part of the buyer's product when the buyer manufactures his products.
Example: In order to manufacture a Proton Satria, EON has to buy parts like wheels and cushions from HICOM industry. In this situation, the parts such as the wheels and the cushions are industrial products which are categorized under materials and parts.
Industrial products that help the buyer to manufacture his own products. Capital items are different compared to materials and parts in the sense that capital items are not going to be part of the product. Office building, computer system and escalator are the examples of capital items.
Supplies and Services
Supplies are industrial products that do not enter the finished product at all, they are items that help the operation. Examples: Supplies include lubricant oil, computer and stationary.
Services are industrial products in the form of business services that plays important roles in helping the operation of the buyer.
Services are usually supplied under contract. Examples: Legal advice provided by Karpal Singh, Sanitarium service provided by Alam Flora and Training and Development Service provided by MIMT is another example of service.
PRODUCT LINE AND PRODUCT MIX
Product line can be define a set of product items which are similar to one another in terms of their functions, consumers, distributors and price ranges. The number of different items in product lines determines the depth of the product line.
The company can systematically increase the length of its' product lines in two ways:
By stretching it's lines
To come out with new products which have differences in quality and price compared to the present products.
- Down market stretch: A company positioned in the middle market segment may want to introduce a lower-priced line.
- Up Market stretch: Companies may wish to enter the high end of the market for more growth & higher margins.
By filling it's lines
A product line can be lengthened by adding more items within the present range of the line. However, the company should ensure that new items are noticeably different from existing ones.
Some of the product lines at Procter & Gamble are bar soaps, deter- gents, toothpaste, skin lotions and deodorants.
Product lines can be organized by product function, customer group targeted, retail outlets used, and price range.
Why Must Marketer Form Product Linesfi
- Advertising economies occur when several products can be advertised under the umbrella of the line.
- Package uniformity increases customer familiarity, and the different items actually help to advertise one another.
- Product lines provide an opportunity for standardizing components, thus reducing manufacturing and inventory costs.
- Product lines facilitate sales and distribution, leading to economies of scale for managing the sales force, warehousing, and transportation.
- Product lines based on brand name help consumers evaluate quality. Consumers usually believe that all products in a line will be of similar quality.
Product mix refers to several product lines which consist of groups of products that share common characteristics, channels, customers or uses. An organization's product mix includes all the products it sells.
For example, Honda might come out with several kinds of transportation that consist of automobiles like cars, motorcycles and trucks. These automobiles are the product mix of Honda.
A company's product mix has four important dimensions, namely width, length, depth and consistency.
- Width refers to the number of different product lines the company carries.
- Length refers to the total number of items that the company carries.
- Depth refers to the number of versions offered of each product in the line.
- Consistency refers to how closely related the products lines are in end use.
A brand is a name, term, symbol, and design or combination thereof that identifies a seller's products and differentiates them from competitors' products. Disneyland and Nissan, Toyota are examples of brand names.
Brand Name Selection
Desirable qualities for a brand name include:
- It should suggest product's benefits and qualities.
- It should be easy to pronounce, recognize, and remember.
- It should be distinctive.
- It should be extendable.
- It should translate easily into foreign languages.
- It should be capable of registration and legal protection.
- Individual names (General Mills Bisquick)
- Blanket family names (Heinz and GE)
- Separate family names for all products (Sears Kenmore and Craftsman)
- Corporate name combined with individual product names (Kellogg Rice Krispies)
Brand Equity is a set of assets (and liabilities) linked to a brand's name and symbol that adds to (or substracts from) the value provided by a product or service to a firm and/or that firm's customers.
Brand equity is the value built-up in a brand. It is measured based on how much a customer is aware of the brand. The value of a company's brand equity can be calculated by comparing the expected future revenue from the branded product with the expected future revenue from an equivalent non-branded product. This calculation is at best an approximation. This value can comprise both tangible, functional attributes (e.g. TWICE the cleaning power or HALF the fat) and intangible, emotional attributes (e.g. The brand for people with style and good taste).
Categories of Assets
- Brand name awareness
- Brand loyalty
- Perceived Quality
- Brand Associations
- Other Proprietary Brand Assets (e.g., channel relationships, patents,...)
- Brand Equity Increases Value
Chapter - 5
Price is one of the elements of the marketing mix that that produces revenue, the other elements produce costs. It is the value of the product at which the seller offers the product to the buyers.
Setting the price (Pricing Strategy)
A firm must set a price for the first time when it develops a new product or when it introduces its regular product into a new distribution channel or geographical area.
The firm must decide where to position its product on quality and price. There can be a competition between price - quality segments. Following figure shows the four price-quality strategies.
The firm has to consider many factors in setting its pricing policy. It can be explained as six step procedure.
Selecting the pricing objective
The firm's pricing objectives must be identified in order to determine the optimal pricing. Common objectives include the following:
Current profit maximization - seeks to maximize current profit, taking into account revenue and costs. Current profit maximization may not be the best objective if it results in lower long-term profits.
Maximize Market Share - seeks to maximize the number of units sold or the number of customers served in order to decrease long-term costs as predicted by the experience curve.
Product quality leadership - use price to signal high quality in an attempt to position the product as the quality leader.
Survival - in situations such as market decline and overcapacity, the goal may be to select a price that will cover costs and permit the firm to remain in the market. In this case, survival may take a priority over profits, so this objective is considered temporary.
Price Skimming - Skim pricing attempts to "skim the cream" off the top of the market by setting a high price and selling to those customers who are less price sensitive and ready to purchase new technological product. Once a specific group of customers is captured, the price is reduced to cater the higher price sensitive customer. Skimming is most appropriate when a sufficient number of customers have a high current demand. Demand is expected to be relatively inelastic that is, the customers are not highly price sensitive.
Market Penetration - Penetration pricing pursues the objective of quantity maximization by means of a low price. The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. It is most appropriate when demand is expected to be highly elastic that is, customers are price sensitive and the quantity demanded will increase significantly as price declines.
Each price leads to a different level of demand and therefore has a different impact on a company's marketing objective. The relation between alternative price and resulting demand can be understood by
- Elastic Demand -When a certain percentage change in price results in a larger percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by greater than 10%.
- Inelastic Demand -When a certain percentage change in price results in a smaller percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by less than 10%.
- Unitary Demand - This demand occurs when a percentage change in price results in an equal percentage change in demand. For example, if the price of a product increases (decreases) by 10%, the demand for the product is likely to decline (rise) by 10%.
For marketers the important issue with elasticity of demand is to understand how it impacts company revenue. In general the following scenarios apply to making price changes for a given type of market demand:
- For elastic markets - increasing price lowers total revenue while decreasing price increases total revenue.
- For inelastic markets - increasing price raises total revenue while decreasing price lowers total revenue.
- For unitary markets - there is no change in revenue when price is changed.
When analyzing cost, the marketer will consider all costs needed to get the product to market including those associated with production, marketing, distribution and company administration (e.g., office expense). These costs can be divided into two main categories:
- Fixed Costs- Also referred to as overhead costs, these represent costs the marketing organization incurs that are not affected by level of production or sales. For example, for a manufacturer of writing instruments that has just built a new production facility, whether they produce one pen or one million they will still need to pay the monthly mortgage for the building. From the marketing side, fixed costs may also exist in the form of expenditure for fielding a sales force, carrying out an advertising campaign and paying a service to host the company's website. These costs are fixed because there is a level of commitment to spending that is largely not affected by production or sales levels.
- Variable Costs - These costs are directly associated with the production and sales of products and, consequently, change has the level of production or sales changes. Typically variable costs are evaluated on a per-unit basis since the cost is directly associated with individual items. Most variable costs involve costs of items that are either components of the product (e.g., parts, packaging) or are directly associated with creating the product (e.g., electricity to run an assembly line).
Analysing competitors' costs, prices and offers
Within the range of possible prices determined by market demand and company's costs, the firm must take the competitors' costs and prices. The fir can decide whether it can charge more, the same or less than the competitors. The firm must be aware, that competitors can change their prices in relation to the prices set by the form.
Selecting a pricing method
- Cost-plus pricing - It is to set the price at production cost, including both Variable cost and fixed costs at current volume, plus a certain profit margin. For example, variable cost is $20 per unit in raw materials and production costs, and at current sales volume (or anticipated initial sales volume), your fixed costs come to $30 per unit. Your total cost is $50 per unit. You decide that you want to operate at a 20% markup (profit margin), so you add $10 (20% x $50) to the cost and come up with a price of $60 per unit.
- Target return pricing - Setting the price to achieve a target return-on-investment (ROI). For example, let's use the same situation as above, and assume that you have $10,000 invested in the company. Your expected sales volume is 1,000 units in the first year. To recoup all investment in the first year, it is needed to make $10,000 profit on 1,000 units, or $10 profit per unit, resulting again a price of $60 per unit.
- Value-based pricing - Setting the price of the product based on the value it creates for the customer. This is usually the most profitable form of pricing, if one can achieve it. The most extreme variation on this is "pay for performance" pricing for services, in which price is charged on a variable scale according to the results to be achieved. Let's say that your widget above saves the typical customer $1,000 a year in, say, energy costs. In that case, $60 seems like a bargain - maybe even too cheap. If your product reliably produced that kind of cost savings, you could easily charge $200, $300 or more for it, and customers would gladly pay it, since they would get their money back in a matter of months. However, there is one more major factor that must be considered.
- Going-rate pricing - Setting the price of the product based on the competitors' prices. The fir
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