BBA 201: Principles of Marketing Summarized Notes

THE MARKETING MIX

The marketing mix is one of the key concept in modern marketing. It is the set of controllable tools that the firm blend to influence the sale of their products. It is a conceptual framework that helps to structure the approach to each marketing challenge.

The marketing mix consist of everything the company does to influence the demands for its products.

There many different approaches to the marketing mix, for example, the 4p’s, the 5p’s, and the 7p’s. Mc Carthy, a Canadian author was the first to call the 4Ps, the marketing mix. The (four) 4Ps consist of product, price, place of distribution and promotion or (communication) can be mix in an infinite number of ways.

Some argue that the most important P – people – is missing and that takes to the 5Ps of marketing. This can be interpreted as customers or as staff. The additional Ps included in the 7Ps are physical evidence (e.g. buildings) and processes – processes refer to the methods of producing, delivering and consuming the service.

I want to summarise our discussion so far by saying that the product marketing mix consists of 4Ps as follows:

  • product
  • price
  • promotion
  • place of distribution

while the service marketing mix consists of 7Ps as follows :

  • product (service)
  • price
  • promotion
  • place of distribution
  • people
  • physical evidence
  • processes

For now, we shall suspend everything about service marketing and concentrate in marketing of actual physical product. In due time, we shall discuss service marketing in details. Let us look at what each element of the marketing mix consists of starting with product.

 

PRODUCT:

Product means the goods and services the company offers to the target market. Parts of the product include;

  • Variety
  • Quality
  • Design
  • Features
  • Brand names
  • Packaging
  • Services
  • Warranty

PRICE:

Price is the amount of money customers have to pay, to obtain to product. Part of the price includes:

  • List price (suggested retail price, dealer).
  • Discounts
  • Trade – in – allowances
  • credit terms
  • payment period

PLACE OF DISTRIBUTION:

Place includes all company’s activities that makes the product available to target consumer’s. Part of the place of distribution includes:

  • Channels (e.g. dealers)
  • Coverage (Areas of operation)
  • Assortment
  • Inventory
  • Transportation
  • Logistics

PROMOTION:

Promotion refers to all activities that communicate the merits of the product and persuade target customers to buy it. Part of the promotion includes;

  • Advertising
  • Personal selling
  • Sales promotion
  • Public relation
  • Direct marketing tools

When you have determined certain levels of each element of the controllable variables that the company is using to influence the sales of its products, the Co. has developed its marketing program.

THE PROMOTION MIX OR THE MARKETING COMMUNICATIONS MIX

The third P, promotion, has its own mix of communication tools which are sometimes called the promotion mix or the marketing communications mix.

A company’s total promotion mix consist of specific blend of five (5) major promotion tools as follows:

Advertising

Sales promotion

Personal selling

Public relations and

Direct – marketing tools

The company uses these tools to persuasively communicate customer value and build customer relations.

Let us look at the definition of these 5 major promotion tools as follows;

ADVERTISING:

Advertising in a nutshell is any paid form of non – personal presentation of ideas, goods and services by an identified sponsor. Its functions are to attract attention, inform, motivate or persuade, inspire convictions and provoke action and satisfaction.

SALES PROMOTION

Sales promotion is defined as the short term incentives to encourage the purchase or sales of a product or service. For example, buy one at a regular price and get the next one free of charge, special offer deals.

PERSONAL SELLING:

Personal selling is defined as personal presentation by the firm’s sales force for the purpose of selling and making customer relations. It is one of the means through which marketing programmes are implemented. The purpose of personal selling is to bring the right product into contact with the right customer and make sure that ownership transfer takes place.

It is a means which sellers use in their attempts to create awareness, motivate or persuade the prospective buyer to buy. Both advertising and personal selling makes use of the salesmanship skills.

PUBLIS RELATIONS:

public relation here is defined as building and maintaining good relationships with different company public’s through obtaining favourable publicity, building up a good “corporate image (corporate PR), product/brand publicity (product PR) and handling unfavourable rumours, stories and events.

DIRECT MARKETING:

Direct marketing is defined as having direct connections with carefully targeted individual consumers to obtain an immediate response as well as cultivate lasting customer relationships. Tools of direct marketing includes; telemarketing, direct mail, online marketing. Direct marketing share some characteristics in common;

it is non – public,the message is directed to a specific person it is immediate and customised

it is interactive, it allows dialogue between the team and the customer. Publicity means positive editorial coverage in the media. It does not include “bad press” .

PRODUCT ATTRIBUTES

Developing a product or service involves defining the benefits that it will give. These benefits are communicated and delivered by product attributes such as quality, features and style and design. In other words, product attributes are was of adding customer value to a product.

Product quality: quality is one of the marketer’s positioning tool. Quality may be defined as “freedom from defects”. However, most customer centred companies go beyond these narrow definition. Instead, they define quality in terms of creating customer value and satisfaction.

The American society of quality defines quality as the characteristics of a product or service that bear on it ability to satisfy stated or implied customer need.

Product features

features are competitive tool for differentiating the company’s product from the competitors’ products. Being the first producer to introduce a valued new feature is one of the most effective ways to compete.

Product style and design:

another way to add customer value is through distinctive product style and design. Design is a layer concept than style. Style simply describes the appearance of a product. Style can be eye catching. A sensational style may grasp attention and produce pleasing aesthetics, but does not necessarily make the product perform better.

Design unlike style goes deep to the very heart of the product. Good design contributes to a product’s usefulness as well as to its looks. Good design begins with deep understanding of customers need.

TYPES AND CLASSIFICATION OF MOTIVES

Generally, motives are forces initiating behaviour, without which no act of human behaviour can take place. Product buying motives or buying motives or product motives are all synonymous and may be defined as all impulses, desire and considerations of the customer, which includes the purchase of good and services. Buying motives explain why customers buy, whereas buying habit which we shall examine subsequently refers to how, when and where customer buy. There are several ways to classify product motives but we shall discuss only three of them as follows:

  1. Emotional and rational product motives
  2. Operational and socio-psychological product motives.
  3. Conscious and unconscious product motives (Dormant motives)

Emotional product motives;

emotional product motives are those forces which induce the customers to purchase without giving much thought to the reasons for and against there action. Such motives are aroused by non-rational process of the thought. Thus buying out of fear of being look upon as being very poor, desire to emulate others, desire for fashion, affection, are all examples of emotional product motives. For example, a beautiful girl is pictured in the advertisement on the TV as a user of Joy soap. The purpose the advertisement being to suggest to the customers that they can be equally beautiful as the girl pictured in the advertisement if they use Joy soap.

If the customers after watching the advert, are moved and charmed by it, they may develop a favourable emotional impression about the product and go ahead to buy it without actually going through any rational thought. These suggest that the advertisement is successful. But if some customers after watching the commercial, stop to think about the message contained in the advertisement, they may discover that there is only very little in the implied relationship.

 

After all, a customer who was born ugly with a flat nose can not turn out to beautiful over night simply because she uses “Joy soap”. Ant consumer going through the rational process of thought is unlikely to buy the soap and therefore,unlikely to respond to the emotional appeal of beauty.

 

Again consider another advertisement in Times Magazine in which an emotional appeal to imagination is made, calling on smokers to smoke a certain brand of cigarette made in USA and have a taste of America. The Aim of the advertisement is to suggest that if you smoke that brand of cigarette, you will have a taste of America. If the ad is successful, the smoker will respond to the emotional appeal and buy the cigarette to get the imaginary taste of USA.

A times, a consumer may be so much sold by the appeal that he may consciously or unconsciously start behaving and taking in slang’s as though he or she is an American at the times of smoking the cigarettes, but if the advert is unsuccessful, it means that smoker fail to respond to the emotional appeal because there is only very little in the implied relationship of smoking a cigarette and having the taste of USA.

Rational product motive

Rational product motives are those forces which induce customers to purchase after carefully going through a rational process of thought i.e. (after considering the reasons for and against the action). Rational product motives are aroused through appeals to reasons. It involves a conscious reasoning about a course of action

When appeal is made on rational product motives, the consumers are made to feel like they are reaching the buying decision purely by themselves, and primarily through a rational process of thought. To arouse such feelings,it is absolutely necessary to present a valid reasons indicating the rational for taking the action as suggested in the appeal. For example, an advertisement for a Panasonic tape recorder may stress flexibility (in the sense that it can be operated with both batteries and electricity, economy to the use of power, durability and perhaps, guaranteed for life.

The aim of the advertisement is to get the reader to reason along the same line and probably respond to a combination of rational appeal and come up with a decision that it is the right product to buy. Other rational product motives include convenience, availability of spare parts and repair services.

Operational and socio-psychological product motives

a second classification of motives are on the belief that the consumer’s satisfaction from a product comes partly from the physical performance of the product and partly from his “social and psychological interpretation of the product and its performance. For example, a young man who bought a high quality stereo set as the most efficient way to entertain himself and his visitors is influenced by the operational product motive.

In contrast, the young lady who receives psychological satisfaction from the bottle of expensive French perfume because she associates it with an advertisement picturing a heavy romance or because of her believe in social prestige of the perfume is motivated by a socio-psychological product motives.

Conscious and unconscious motives (Dormant motives)

another classification of product buying motives is based upon the fact that while some motives are within the level of awareness of the consumer, other are not.

Conscious motives are those that are within the level of awareness of the consumer. The consumer is so conscious of the motive or motives that he dose not need to be aroused through any marketing strategy variable before a decision to purchase is made. Knowledge of buying motives enables the right motives to the target market to get them to take buying decision.

CLASSIFICATION OF PRODUCTS

Broadly speaking, products or goods may be classified into two major categories: consumer products and industrial product (goods). Consumer products are products and services bought by final consumer’s for personal consumption whereas industrial products or goods are destined for use in further production of (goods) products and services. An adding machine or calculator purchased by a wholesaler for use in the office, a car purchased by a taxi driver for use in transportation of passengers and raw materials, or spare parts purchased by a manufacturer are all industrial goods or product.

However, a calculator purchased by a student to help him in doing a course in statistic, a car purchased by a lecturer for household use and spare parts purchased by him for maintenance of his vehicle are all customer good and products. This suggest that often, it is not possible to place a product permanently in one class or the other until the purpose for which the product is purchased is known. Later we shall examine how each of those major product categories are further classified.

BUYING HABITS AND CLASSIFICATION OF CONSUMER PRODUCTS

it is not enough for the manufacturers and middlemen to know the buying motives of consumers, they should also be familiar with their buying habits. Buying habits generally refers to how, when and where consumers buy. They apply both to buyers of industrial and consumers goods as well.

However, the purchasing habits of an industrial buyer or user when analysed in terms of how, when and where are quiet different from that of the buyer or users of the consumer goods. Buying habits are being discussed in this section with reference to consumer’s goods only.

In other words, to find out how the consumers buy, we may ask the following questions:

  • how dose the consumer buy impulsively?
  • does he buy once a week?

To find out where the consumer shops, you may ask:

  • where does he buy his men’s clothing ( from department stores, speciality stores “e.g. boutiques”, discount stores or where?

To find out when he buys, they following questions may be raised:

  • when does he shop (end of the week, or end of the month)?

If the consumers are fund of buying impulsively or at the most accessible or convenient store, the manufacturer of the consumer goods will seek for maximum exposure for their goods. But if consumers are in the habit of going out of their way, simply because they want quality women’s outfit, and they can afford a considerable searching time for it, then the manufacturers of such outfit may restrict their distributive outlets to one or two stores in the city.

Based on this line of thought, Prof. Copeland of USA stated that the first step a manufacturer of consumer goods should take in selecting a trade channel is to classify his products on the basis of consumers buying habits. As an aid to such a step, he developed a three step classification of consumers goods based on buying habits, as follows:

  • Convenient goods,
  • Shopping goods and
  • Speciality goods.

However, unsought goods have been added more recently, bringing the classification to be four.

Convenient goods; are those goods which consumers often desire to buy without much bother to themselves, at the most convenient and accessible stores. Usually, the product are of low unit values and are purchased as soon as the desire for it arises. Examples include soap, candy, chewing gum, ice cream, newspaper, cigarettes and fast food.

Marketing of convenient goods

since the consumers wish to buy good with minimum of effort, the manufacturers of convenient goods should attempt to secure maximum exposure for their products. With regards to distribution intensity, it is more feasible that the manufacturers to engage in intensive distribution. This implies that the product should be distributed in as many stores as possible. The stores should be located to the consumers as close as possible, since the unit value of the convenient goods are low, an indirect or long channel of distribution is recommended.

Shopping goods:

shopping goods are less frequently purchased customer products and services that consumers would desire to buy only after comparing quality, style, price and suitability of these product in different stores. Usually, these products are of high unit value. They are purchased once in a while unlike convenience goods which are purchased as soon as the idea enters the mind of the consumers. Examples includes furniture, clothing, rugs, men’s clothing, stereo sets and electrical appliances.

Marketing of shopping goods:

since consumers of shopping goods like to compare prices and quality in different stores, stores engaged in selling shopping goods often congregate in shopping centres in big cities. Usually, these store perform better when they are located in few hundred meters away from each other. The manufacturer of such goods are not interested in a wide spread of distribution as in convenient goods. Rather they are more interested in the quality of the stores that handle these goods. Therefore, the distribution intensity should be selective in which case, few stores are chosen to distribute the products. There are no good examples of such stores in Botswana. Department deal mainly on shopping goods. A larger percentage of shopping goods are sold directly from the manufacturers to the larger scale retailer (department stores) without the aid of middlemen. Stores handling shopping goods are usually very large-scale retailers. They have the buying capacity, a factor which encourages direct sale and permits shipments from the manufacturers on economic basis.

Specialty goods:

These are consumer products with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. In other words, the buyers of such goods are willing to go a long way to searching for it. Examples are expensive women’s fine watches, designer clothes, services of medical or legal specialists, high quality men’s and women’s clothing, high quality musical instruments, shoes etc. The unit values of these products are very high.

Marketing of specialty goods:

Since the consumers of such products have formed the habit of going a long way searching for it, the manufacturers of such goods neither need wide-spread (intensive) distribution as required in convenient goods nor do they need the major outlets, in shopping areas that are required for marketing of shopping goods. Consequently, they use exclusive agency whereby only one dealer is made to be sole representative for certain areas (exclusive distribution).

Unsought products:

These are consumer’s products that the consumer either does not know about or knows about but does not normally thinks of buying. Classic examples of unknown but unsought products and services, blood donation of Red Cross. By their very nature, unsought products require a lot of advertising, personal selling and other marketing efforts.

Industrial goods:

Industrial goods are those purchased for further processing or for use in conducting of business. The three groups of industrial product and services includes materials and parts, capital items and supplies and services. Materials and parts include raw materials and manufactured materials includes cement, wires, component parts, tires. Capital item are industrial products that aids the buyer in production. It includes installation and accessory equipment. Installations consist of major purchases such as buildings (factories, offices) and fixed equipment such as elevators, generators, large computer system. Accessory equipment includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (computers, fax machines, desk). They have a shorter life than installations supplies: includes operating supplies (lubricants, coal, paper, pencil) and repair and maintenance items (paint, nails, brooms). They are convenient product of the industrial field because they are usually purchase with minimum of effort or comparison.

Product development:

New product development consists of the company seeking increased sales by developing new or improved product for its currents market.

There are three possibilities

The company can develop new product features or content, through attempting to adapt, modify, magnify, minify, substitute, re-arrange, reverse or combine existing features.

The company can create different quality version of the product. The company can develop additional models and sizes.

Pricing objectives;

In the case of a profit oriented enterprise, the pricing objectives may be the following:

  • pricing to the maximum,
  • pricing to maintain market share
  • pricing to achieve a target return on investment or net sales
  • pricing to stabilize price
  • pricing to meet or prevent competition.

PRICING STRATEGIES

New product pricing strategies

Pricing strategies usually change as the product passes through it life cycle. The introducing stage is especially challenging. Companies bringing out a new product face the challenge of setting prices for the first time. They can choose between two broad strategies:

  1. Market – skimming pricing and
  2. Market – penetration pricing

It means setting a high price for a new product to skim maximum revenues from the segment willing to pay the high price and after a couple of years, the price may be rapidly reduced over the next several year to attract new set of buyers. The product quality must be high to support the high price.

Market penetration pricing;

rather than setting a high price to skim off small but profitable market segments, some companies set a low price for a new product in order to attract a high number of buyers and build a large market share. High sales volume result in fallen costs, thus allowing the company to cut its price even further. The low price helps to keep out the competition.

Discount and Allowances

Most companies adjust basic prices to reward customers for certain responses, such as early payment of bills, volume purchases and off season buying. These price adjustments called discount and allowances can take many forms.

Forms of discounts includes;

  1. A cash discount, which is a price reduction to buyers who pay their bills promptly. A typical example is “2/10, net 30” which means that although payment is due within 30 days, the customer can deduct 2% if the bill is paid within 10days.
  2. A quality discount is a price reduction to buyers who buy large volumes. It provides incentive to the customer to buy more from one given seller.
  3. A functional discount also called Trade discount, is offered by the seller to the trade – channel members who perform certain functions, such as selling, storing and record keeping.
  4. Seasonal discount is a price reduction to the buyer who buy the products or service out of season.

Allowances ;

Allowances are another type of reduction from the list price. For example,

  1. trade – in allowances are price reduction given for turning in an old item when buying a new one.
  2. Promotional allowances are payments or price reductions to reward dealers for participating in advertising and sales support programmes.

Segmented pricing

in segmented pricing, the company sells a product or services at two or more prices, even though the prices is not based on the difference in prices is not based on differences in costs. It takes several forms. Under customer segmented pricing, different customers pay different prices for the same product or services. For example, Museums may charge a lower admission for students and senior citizens.

Using location pricing, a company charges different prices for different location, even though the cost of offering each location is the same. For instance, theatres vary there seat prices because of audience preference for certain location, and state Universities charge higher tuition for out-of-state students. Further more, Botswana Govt. charges higher hospital bill to non-citizens.

Psychological pricing

price says something about the product. For example, many customers use price to judge the quality. A p200 bottle of perfume may contain only p20 worth of scent, but some people are willing to pat p200 because the price indicate something special. In using psychological pricing, sellers consider the psychology of prices and not simply the economics. For example, consumers usually perceive higher-price products as having higher quality. When they can judge the quality of the product by examining it or by re-calling on past experience with it, they use price less to judge quality. But when they can not judge the quality because they lack the information or skills, price becomes an important quality signal. They depend more on price.

Promotional pricing

promotional pricing means temporarily pricing product below the list price, and sometimes, even below the cost price to increase short-run sales, to create buying excitement and urgency. Promotional pricing, takes different forms. Supermarket and departmental stores will price a few products at as loss leaders just to attract customers in the store in the hope that they will buy other items at normal make ups. Seller also use special event pricing in certain seasons to draw more customers.

Geographic pricing

This means setting prices for customers located in different part of the country or world. Pricing policies may require the buyer to pay all the freight. In contrast, the seller may bear the whole cost, or at best, to share the expenses. Poor decision will not only limit the firm’s market geographically, but can also weaken it competitive position in some distant markets. Examples of geographic pricing policies widely used are:

  • O.B factory
  • O.B origin pricing
  • Uniform Delivered pricing or F.O.B Destination and
  • Freight Absorption pricing

F.O.B Factory when the price is quoted f.o.b factory or mill, the seller does not pay transportation charge at all. The buyer is responsible for transportation charges including the cost of loading the shipment aboard the carrier.

F.O.B Origin pricing this is the geographic pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination.

Uniform Delivered Pricing or (F.O.B. Destination)

A seller using this pricing policy quotes the same delivery price regardless of the buyers location. This type of pricing policy is also called f.o.b. At buyers destination or postage stamp pricing because it is similar to the pricing of mail services, in fact what this policy means is that the seller is absorbing some freight cost on shipment to distant markets while overcharging customers from nearby markets to make up the difference. The argument is that f.o.b. Factory favours buyer from nearby markets while it penalises buyer from distant markets.

Freight Absorption Pricing

This policy is usually adopted to offset some of the competitive disadvantages of f.o.b. Pricing policy. A firm using f.o.b. Pricing is faced with a terrible price disadvantage when it attempts to sell in distant markets that are closely located to the competitors factories. In order to compete effectively in those distant markets, the manufacturer or the seller may decide to absorb a part of the freight costs. Thus, this policy usually implies that company “X” that selling in the distant markets will quote to its customer’s a delivery price plus whatever freight costs that are charged by another competing company “Y” whose factory is located nearest to the customers of the company “X” that sells in the distant markets.

DISTRIBUTION (Place)

the task of distribution is to make the goods available to the buyers. In doing so, exchange of ownership takes place in which case, title to a product has to change hands several times and physical movement of the goods is triggered off but not necessarily to accompany the route of the ownership flow. All the institution channels of distribution are set of interdependent organisation or institutions involved in the process of making a product or service available for use or consumption. All institutions in the channel are connected with several types of flows. These are;

  • physical flow of product
  • the flow of ownership
  • the payment flow
  • the information flow and
  • promotion flow

The channel of distribution consists of; the producer, the ultimate consumer or user and intermediaries linked in a special style which reflects ownership flow for a given product. Note that a channel for a product extends to the ultimate consumers or users without any significant change in the product form. If a significant change occur along the line i.e. if the form is altered, and another product emerges, a new channel altogether takes off. For example, in marketing of wheat, we find that the following channels are common:

  • (Wheat) Farmers – local buyers – commission man – miller it becomes flour if we want to include the trade channel for flour, it will be as follows :
  • (Flour) Miller – Baker
  • (Bread) Baker – Retailer – Consumers

Notice that the distribution channel for the wheat begins with the farmer and ends with the miller. That for flour begins with the miller and ends with the baker. That for the bread begins with the baker and ends with the consumer. So, we now have three different channel of distribution involving 3 different products. It is proper to look at channels of distribution as such.

Note: there are two types of middlemen and merchant middlemen. Merchant middlemen take title to a product while agent middlemen do not take title.

MAJOR DISTRIBUTION CHANNEL FOR MARKETING CONSUMER GOODS

  1. Manufacturer – consumer

This is called direct marketing channel because it has no intermediary marketing levels. Examples are door to door sales, mail order, telemarketing, internet selling and manufacturer owned stores. Some agricultural producers use this channel.

  1. Manufacturer – Retailer – consumer

This is an example of indirect channel. An indirect marketing channel is a channel containing one or more levels of middlemen also called intermediaries.

Many large retailers such as supermarket and department stores find it necessary to buy directly from agricultural producers and manufacturers. Such organisation have the financial means and buying volume which encourage direct supply from the producers.

  1. Manufacturer – Wholesaler – Retailer – Consumer

this channel is often referred to as the “orthodox” “traditional” or “customary” channel for consumer products. It is the most widely used of all. Small manufacturers find this channel the most economically viable choice. The use of this channel is greatly encourage particularly when the unit value of the products is very low. For example, this channel is likely to be used by manufacturers of convenience goods such as chewing gums etc.

MAJOR DISTRIBUTION CHANNEL FOR MARKETING INDUSTRIAL GOODS

  1. Manufacturer – Business consumers (users)

This direct channel account for a greater Pula volume of industrial products than any other distribution structure. Manufacturers of large installations such as giant computers, generators, locomotives and air planes, usually sell directly to business customers (or installation users).

  1. Manufacturer – Business distributors – Business customer

Manufacturers of some industrial or business goods such as operating supplies and accessory equipment vary often use business or industrial distributor, to reach target markets. Other examples of manufacturers who make use of industrial distributors include manufacturers of building materials, constriction and air – condition equipment. The fact that distributors are used to reach the users suggests that the users buy in small quantity.

  1. Manufacturers – (manufacturers representatives) or Agents – Business distributor – business customers.

Firms without their own marketing department normally use the channel. In addition, a company seeking to introduce a new product or enter a new market may prefer to use agents rather than its own sales force. The fact that the agents are used to reach the business customers in this case suggest that this type of user buy in large quantities.

MARKETING OF SERVICES

What is a product?

We define a product as anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. Products include more than just tangible goods.

Broadly defined, products include physical objects, services, events, persons, places, organisation, ideas or mixes of these entities.

Services: is defined as any activity or benefits that one party can offer to another that is essentially intangible and does not result in the ownership of anything.

The Characteristics of Services

There four major characteristics which services have that can affect the design of various market programs for them are:

  • Service intangibility
  • Service inseparability
  • Service variability and
  • Service perish-ability.

Service intangibility:

This means that they cannot be seen, tested, felt, heard, or smelled before they are bought. For example, people undergoing cosmetic surgery cannot see the result before the purchase. Air line passengers have nothing but a ticket and a promise that they and their luggage will arrive safely at the intended destination. To reduce uncertainty, buyers look for “signals” of service quality. They draw conclusion about quality from the place, people, equipment and communications that they can see.

Service inseparability

It means that service cannot be separated from their providers, whether the providers are people or machines. If a service employee provides the service, then the employee becomes part of the service because the customer is also present as the service is produced.

Service variability / Heterogeneity

It means that the quality of service depends on who provides them as well as when, where, and how they are provided. It is not possible for service industry to have standardised output.

Service perishability

It means that services cannot be stored for later sales or use. Some doctors charge patients for missed appointments because the service value existed at that point and disappeared when the patient did not show up. Furthermore, it is not possible to store unused telephone time and idle hours. Again, because services cannot be stored and fluctuated, restaurants end up hiring part-time employees to cope up with peak periods, while transportation companies end up owning more equipment than they would if demand were even throughout the da

 

The Service Marketing Mix

  • product
  • price
  • promotion
  • place of distribution
  • people; interpreted as customers or as staffs
  • physical evidence (e.g. buildings)
  • processes; (Methods of producing, delivering and consuming the service)

Determinants of Service Quality (Servqual Method)

These presented in order of their importance as rated by customers as follows:

(1) Reliability:

The ability to perform the promised service dependently and accurately. Whenever users need to utilise it, it must be available and functioning properly in order to give the desired results. If the services offered are done or failing to operate as expected, the repair time must be short and done easily so that delays are minimised. The service should output accurately for example, an insulin injection machine must always deliver the glucose into the patient when the glucose level goes down.

(2) Responsiveness:

The willingness to help customers so as to enjoy the service quality offered to them. The firm dispatching the service should have a first- hand call answering for users using their service. Since the service offered is inseparable with its service provider, the firm should always be ready to assist the client whenever the need arises for example, Orange cell phone Co. has a help line desk to assist clients with any service they want in addition to regular services.

(3) Assurance:

The knowledge and courtesy of employees and their ability to convey trust and confidence. The firm should be able to clearly assure its clients about its service delivery by having policies and law governing their service offering. For example, a firm can have complain system for its clients to issues suggestions or complaints of services given to themselves

(4) Empathy:

The provision of caring; an individualised attention to customers. Customers tend to get satisfied and privileged to be given first class attention. The firm should treat its customers with ultimate respect to ensure good relationship e.g. a firm offering roadside assistance.

(5) Tangibles:

These are the physical appearance of facilities such as equipment, personnel, procedures in order to have service quality. This can be touched, heard, smelt, seen.

STRATEGIES FOR ENTERING FOREIGN MARKETS

There are three major entry strategies that can be used. These are: Exporting, Joint-Venturing and direct investment.

  1. Exporting:

The simplest way to enter the foreign market is through exporting. The company may passively export its surpluses from time to time, or it may make an active commitment to expand export to a particular market.

  1. Joint-Venturing:

a second method for entering a foreign market is joint venturing. This means joining the foreign companies to produce or market products or services. Joint-Venturing differs from exporting in that the company joins with a host country partner to sell or market abroad.

There are four types of joint ventures:

  • Licensing,
  • Contract manufacturing, Management contracting and
  • Joint ownership.

Licensing:

Licensing is a simple way for a manufacturer to enter international marketing. The company enters into an agreement with a licensee in the foreign market. For a fee or royalty, the licensee buys the right to use the company’s manufacturing process, trade mark, patent, trade secret, or other items of value. The company thus gain entry into the market at little risk; the licensee gains productions expertise or a well-known product or name without having to start from scratch. For example, Coca-cola markets internationally by licensing bottlers around the world and supplying them with the syrup needed to produce the product.

Contract Manufacturing:

The host company contracts with manufacturers (licensees) in the foreign market to produce the (domestic) host company’s products.

Management contracting:

Under management contracting, the domestic firm supplies management know how to a foreign company that supplies the capital. The domestic firm exports management services rather than product.

Joint ownership:

Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share joint ownership and control. A company may buy an interest in a local firm or the two partners may form a new business venture. Joint venture may be needed for economic or political reasons.

Direct Investment:

Consists of entering a foreign market by developing foreign based assembly or manufacturing facilities. The firm may have lower costs in the form of cheaper labour or raw materials, foreign government investment incentives and freight savings. The main disadvantage is that the firm faces many risks, such as restricted or devalued currencies, falling markets or government changes.

MARKET SEGMENTATION, TARGETING AND POSITIONING

There are three major steps in target marketing process as follows: Market segmentation, Target marketing and Market positioning

Market Segmentation:

Is the process of dividing a market into distinct groups with distinct needs, characteristics, or behaviour who might require separate products or marketing mixes.

Markets consist of buyers, and buyers differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes, and buying practices.

Rationale for Segmentation:

Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more effectively and efficiently with products and services that match their unique needs. In car market for example, customers who choose the biggest most comfortable car regardless of price make up one market segment. Customers who care mainly about price and operating economy make up another segment.

Segmenting consumer markets:

There is no single way to segment a market. A marketer should try different segmentation variables. Major segmentation variables for segmenting consumer markets include the following: geographic, demographic, psycho graphic and behavioural variables.

Geographic segmentation calls for dividing the markets into different geographical units such as nations, regions, states etc.

Demographic segmentation divides the market into groups based on variables such as age, gender, family size, income, occupation, education, religion, race and nationality.

Psycho-graphic segmentation divides the buyers into different groups based on social class, lifestyle or personality characteristics.

Behavioural segmentation divides buyers into groups based on their knowledge, attitudes, uses or response to a product.

Criteria for Effective Segmentation

There are many ways to segment a market but not all segmentations are effective. To be useful, market segment must be;

  • Measurable :

The size, purchasing power and other characteristics of the segment can be measured.

  • Substantial :

The segments are large and profitable enough to serve, for example, it may not be profitable for an auto-mobile manufacturer to develop cars for people who are under- four feet tall.

  • Accessible :

The segment can be effectively reached and served.

  • Differentiable :

The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs.

  • Actionable :

Effective programs can be formulated for attracting and serving the segments.

TARGET MARKETING

Target marketing is the process of evaluating each segment’s attractiveness and selecting one or more segment to enter.

Criteria for evaluating market segments:

Typically, the criteria for selecting appropriate target markets are:

  • Segment size,
  • Segment growth rate,
  • Segment competitiveness
  • Segment compatibility with the firm’s mission and objectives.

Segment size:

All thing being equal, a large segment offers more opportunities than a smaller segment.

Growth rate:

A fast growing segment offers more opportunities than a slow growing segment, everything being equal.

Segment competitiveness:

Large and fast growing segments typically attracts more powerful competitors than small and slow growing segments.

Segment compatibility with the firms’ mission:

Target market selection should take account of the strategic directions that the firm intends to take, not just its current position.

Selecting target market segments:

After evaluating different segments, the company must now decide which and how many segment it will target. A target market segment consists of buyers sharing common needs or characteristics that the company decides to serve. The chosen ones must be targeted.

Targeting Strategies

Companies can target very broadly (Undifferentiated marketing) or very narrowly (Micro marketing) or somewhere in between (Differentiated marketing) and concentrated marketing or (Niche marketing).

Undifferentiated and differentiated marketing are full market coverage strategies and can be undertaken by only very large companies such as IBM (Computer market); General Motors’ (Vehicle market); Coca-cola (Soft drink market).

Undifferentiated marketing or (Mass marketing):

In undifferentiated marketing, the firm ignores segment differences and target the whole market with one offer (product). It designs a product and marketing programs that will appeal to the largest number of buyers. It relies on mass distribution and mass advertising, and it aims to give the product a superior image in people’s mind. Mass marketing focuses on what is common in the needs of customers rather than what is different.

Difficulties arise in developing a product or brand that will satisfy all customers. Users of this strategy may not be able to compete with more focused firms that do a better job of satisfying the needs of specific segment and niches

Differentiated marketing or (Segmented marketing strategy):

Differentiated marketing, means complete market coverage with different products for each segment. General motors’ does it when it says that it produces a car for every purse, purpose and personality.

By offering product and marketing variations to segments, companies hope for higher sales and stronger position in each segment. But differentiated marketing also increases the cost of doing business. A firm usually finds it more expensive to develop and produce say 10 units of 10 different products than 100 units of one product. Developing separate segments require extra research, forecasting etc.

Concentrated marketing:

Concentrated marketing strategy (or niche marketing), a third market coverage strategy, is especially appealing when company resources are limited. Instead of going after a small share of a large market, the firm goes after a large share of one or a few segments or niches. For examples, Oshkosh trucks’ is the world’s largest producer of airport rescue trucks and front loading mixers. Again Volkswagen concentrates on small car market and Porche on the sport car market.

Micro-marketing :

Is the practice of tailoring products and marketing programs to suit the taste of specific individuals and locations, e.g. the tailor custom-made suit, the cobbler designed shoes for individuals, the cabinet made furniture to order.

Choosing a Targeting Strategy:

The following factors should be considered when choosing a target-marketing strategy:

  • Company resources
  • product variability
  • the products life-cycle stage
  • market variability
  • competitors’ marketing strategies.

Company resources :

When the firm’s resources are limited, concentrated marketing makes sense.

Product Variability :

Undifferentiated marketing is more suited for uniform products such as grape fruits or steels. Products that can vary in design, such as cameras and auto-mobiles are more suited to differentiation or concentration.

The Product Life-cycle Stage :

When a firm introduces a new product, it may be practical to launch only one version and undifferentiated marketing or concentrated marketing may make the most sense. In the mature stage of the (PLC), however, differentiated marketing begins to make most sense.

Market Variability:

If most buyers have the same tastes, buy the same amounts, and react the same way to the marketing efforts, undifferentiated marketing is appropriate.

Competitors’ Marketing Strategies:

When competitors use differentiated or concentrated marketing, undifferentiated marketing can be suicidal. Conversely, when competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing.

Positions for Competitive Advantage:

Beyond deciding which segments of the market it will target, the company must decide what position it wants to occupy in those segments. Position involves implanting the brand’s unique benefits and differentiations in the customer’s mind.

A product’s position is the way the product is defined by consumers on important attributes i.e. the place the product occupies in consumers mind relative to competing products’ .For example, Tide is positioned as a powerful, all-purpose family detergent, Ivory snows is positioned as the gentle detergent for the washable and baby closes. Consumers position products with or without the help of marketers.

But marketers do not want to leave their products’ positions to chance. They must therefore plan positions that will give their product the greatest advantage in the selected market/ target markets, and they must design the marketing mixes to create these planned position.

Choosing a positioning strategy:

Choosing a positioning strategy consists of three steps:

  • Identifying a set of possible competitive advantages on which to build a position.
  • Choosing the right competitive advantage, and
  • Selecting and overall positioning strategy

The company must then effectively communicate and deliver the chosen position to the market.

Identifying Possible Competitive Advantages;

The key to winning target customers and building profitable relationships with them is to understand their needs better than competitors do and to deliver more values.

But solid positions cannot be built on empty promises. If a company positions its product as offering the best quality and service, it must then deliver the promised quality and services; thus positioning begins with actually differentiating, the company’s marketing offers so that it will give customers more value than competitors’ offer do. A company or market offer can be differentiated along the lines of the product, services, channels, people or image.

There are some products that allow little variations : chicken, steels, aspirin. Yet even here some meaningful differentiation is possible. For example, Perdue claims that its branded chicken are better-fresher and more tender – get 10% price premium based on this differentiation. At the other extreme are products that can be highly differentiated, such as auto-mobile, clothing, cameras etc. for examples Volvo provide new and better safety features. Similarly, companies can differentiate their product attribute such as consistency, durability, reliability or repair-ability.

Some companies can gain service differentiation through speedy, convenient or careful delivery. For example, Bank one has opened a full service branch in supermarket to provide location convenience along with Saturday, Sunday and week-day evening hours.

Firms that practice channel differentiation gain competitive advantage through the way they design their channels, coverage, expertise and performance, for example, Caterpillar’s success in the construction-equipment industry is based on superior channels. Its dealers world- wide are renowned for their fast rate service. Again, Avon distinguishes themselves by their high quality direct channels. Companies can gain a strong competitive advantage through people differentiation-hiring and training better people than their competitors do. For example, Singapore Airline enjoys an excellent reputation largely because of the grace of its flight attendants.

Choosing the Right Competitive Advantages

Suppose a company is fortunate enough to discover several potential advantages, it now must choose the ones on which it will build its positioning strategy. It must decide how many differences to promote and which ones.

How many differences to promote?

Many marketers think that companies should aggressively promote only one benefit to the target market. Ad man Rosser, for example, said a company should develop a unique selling proposition (USP) for each brand and stick to it. Each brand should pick an attribute, and tout itself as “number one” on that attribute. Buyers tend to remember number one is better particularly in an overcommunicated society. Other marketers think that company should position themselves on more than one differentiator. However, as the company increases the number of claims for their brands, they risk disbelief and loss of clear positioning.

In general, a company needs to avoid three (3) positioning errors. The first is under-positioning – failing ever to really position the company at all.

The second error is over-positioning- giving buyers to narrow a picture of the company. Thus, a customer might think that Steuben glass company makes only fine glass costing $1,000 and up when in fact it makes affordable fine glass starting at around $50.

Finally, companies must avoid confused positioning – leaving buyers with a confused image of a company. This can happen when most customers have difficulty positioning a company favourably on any specific differentiating attributes.

Which differences to promote?

Each difference have potential to create company costs as well as customers benefits. A difference is worth establishing to the extent that it satisfies the following criteria:

  • Important :

The difference delivers a highly valued benefits to the target buyers.

  • Distinctive :

Competitors do not offer the differences, or the company can offer it in a more distinctive way.

  • Superior :

The difference is superior to other ways that customers might obtain the same benefit.

  • Communicable :

The difference is communicable and visible to the buyers.

  • Pre-emptive :

Buyer can afford to pay for differences.

  • Profitable :

The company can introduce the difference profitably.

Selecting an Overall Positioning Strategy or Value Proposition

The full positioning of a brand is called the brand’s value proposition- the full mix of the benefits on which the brand is positioned. It is the answer to the question “ why should I buy your brand?” Volvo proposition hinges on safety but also includes reliability, roominess and styling, all for a price that is higher than average but seems fair for this mix of benefits.

The Five Winning Value Propositions:

More for More:

‘More for more” positioning involves providing the most upscale product or service and charging a higher price to cover the high cost. More for the Same:

Companies can attack a competitor’s more-for-more positioning by introducing a brand offering comparable quality but at a lower price. For example, Toyota introduced its Lexus line with a “More-for-the-same” value proposition. Its headline reads: “Perhaps the first time in history that trading a $72,000 car for a $36, 00 car could be considered trading up”.

The same for less:

For example, Dell computer offers equivalent-quality computers at a lower “price for performance”

More for less:

Of course, the winning value proposition would be to offer “More for less”. For example, Dell computer claims to have better products at lower prices for a given level of performance.

Developing a Position Statement:

Company and brand positioning should be summed up in a position statement for example; To busy professionals who need to stay organized, Palm pilots is an electronic organizer that allows you to backup files on your PC more easily and reliably than competitive products.

Communicating and Delivering the Chosen Position.

Once it has chosen the position, the company must take strong steps to deliver and communicate the desired position to the targeted consumers. All the company’s marketing mix efforts must support the positioning strategy

  • Positioning the company calls for concrete action, not just talk. If the company decides to a position on better quality and service, it must first deliver that position. Designing the marketing mix – product, price, place and promotion involves working out tactical details for the positioning strategy. Thus, a firm that seizes on a more- for- more position knows that it must produce high quality products, charge a high price, distribute through high quality media. It must hire a train more service people, find retailers with good reputation for services, and develop sales advertising messages that broadcast its superior services.

Companies often find it easier to come up with a good positioning strategy than implement.

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