CHAPTER 1 - Unauthorized Access · Web viewTarget marketing is a process by which marketers segment their markets, decide on which segments to aim for (‘market targeting’), and

CIPSLevel 5

QUICK START GUIDE

Marketingfor

Purchasers

First edition for new syllabus July 2006

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CHAPTER 1

Introduction to Marketing1 The scope of the exam syllabusYour examination syllabus is divided into five main areas.

• Marketing and the environment – introduces the subject, relates marketing concepts to business activities and deals with influences on marketing activities.

• Understanding the market – dealing with the formal marketing research process and its use in business activities, the behaviour of customers and the target marketing process.

• Marketing mix strategy – dealing with product strategy, pricing decisions, distribution systems, and promotional activities

• International marketing – dealing with the additional considerations and complexities of marketing in the international arena.

• Marketing planning and control – dealing with the relevance of marketing to overall corporate strategy.

2 Definitions of marketingAccording to the UK Chartered Institute of Marketing (CIM) ‘Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably’. This emphasises making a profit while satisfying customers: if you give customers what they want, you can hope to make a profit in the process.

The definition also implies that organisations should be proactive in their search for products and services which will satisfy customers. This proactive approach will lead to anticipation of customer requirements.

Another definition of marketing by Philip Kotler is that it is ‘a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others’.

Kotler’s definition of marketing talks about the exchange process. He does not mention profit but instead talks about ‘value’ which means the benefits to all parties involved in the exchange process.

The key points that you need to remember from this discussion are as follows.

• Marketing focuses attention on the needs and wants of customers.

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Marketing for Purchasers

• Marketing is about satisfying needs and wants.• Marketing involves all decisions being made with careful consideration

of customers.• Marketing can be viewed as a process in which organisations deliver

solutions to customers’ problems.

3 Transactional marketing and relationship marketing

An organisation with a transactional marketing approach will tend to have a short-term approach to planning, focusing on product features rather than service, and seeing quality as a concern of production rather than marketing. Relationship marketing, by contrast, places emphasis on creating long-term, profitable relationships with customers. The organisation focuses on building relationships rather than attempting to maximise the profit on each individual sale, which is the objective of transactional marketing. There are important benefits of customer loyalty and retention.

4 Organisational orientationsMarketing is a relatively new concept and even today many organisations tend to ignore its principles. Among commercial businesses we can distinguish four types of orientation: production orientation, product orientation, sales orientation and marketing orientation. Only the marketing orientation is considered acceptable nowadays.

Product orientation is a short-sighted view and assumes that as long as the products are excellent, customers will want them. Customers then have to be informed of the products and convinced of their superiority.

In a production-orientated business, products are produced in a way that ensures maximum ‘efficiency’ in the organisation, without regard to whether customers want to buy them.

A sales-orientated business assumes that demand can be created through the use of effective sales techniques. This is a step forward from production orientation because at least managers realise that products will not sell themselves. They look for means to differentiate their products so that customers do not select competitors’ offerings.

Marketing orientation is a long-term view. The emphasis is on finding out what customers want. The marketing orientated business will then produce goods and services that satisfy customer requirements.

Marketing involves the whole organisation. The organisation must have a ‘company-wide’ philosophy based on customer requirements. Because of this, senior management within organisations must be committed to the concept.

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Marketing should be the organisation’s whole approach and business philosophy but it should also be a management or functional area as well. It should play a coordinating role with other functions in the organisation.

To summarise, marketing involves the whole organisation in thinking about and aiming towards customer satisfaction. The result of this philosophy will be an organisation that survives into the long term through repeat purchasing from customers.

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CHAPTER 2

Applying the Marketing Concept1 Applying the marketing conceptThe recognised tools available to a company in order to apply the marketing concept are the elements of the marketing mix. These elements are within the direct control of the organisation or the marketing manager. They can be used to achieve departmental as well as organisational objectives. The elements of the marketing mix are the four Ps:

• Product• Price• Place (meaning distribution of products and services)• Promotion.

The 4 Ps are used in combination. They should be coordinated with each other in order to form a full impression on the customer. All four elements contribute to the image the customer will have of the company and its products.

In marketing terms, the product is anything which you sell to your customers. The term can apply to a tangible object or an intangible service.

The price element of the marketing mix is critical. All other elements of the mix are costs, but this element brings money into the organisation. It is difficult to price a product correctly and a lot of options are available to the marketer.

Place refers to distribution. Distribution is the means by which companies make their goods available to customers. Some companies market direct to their final customers. Others use intermediaries (agents, distributors, wholesalers and retailers etc)

Promotion is the most conspicuous element in the marketing mix. Methods of promotion include advertising, sales promotions such as special offers and coupons, personal selling, and public relations.

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Figure 2.1 The marketing mix

2 Relationships between marketing and other functions

You might recognise a conflict between marketing and purchasing from what you have already read in this chapter. Objectives of the strategic purchaser will include cost reduction (among other things), yet almost all marketing activities incur costs. Buyers may emphasise standardisation; marketers emphasise choice for customers. This potential for conflict must be managed appropriately.

Similar issues affect the relationship of marketing to production. Production objectives are often concerned with economic batch sizes, standardisation and a tolerance of quality defects. Each of these objectives is contrary to the focus of the marketing orientated business. Again, these conflicts can be overcome through communication.

The relationship between marketing and engineering and design raises similar issues. The objectives in engineering and design will again include standardisation and long lead times, which run counter to marketing objectives.

It is probably this area which causes most conflict for the marketer. We have already observed that marketing activities invariably incur costs. The marketing department sees costs as a by-product of long-term customer satisfaction. It recognises that in the long term the business will remain profitable if flexibility exists to respond to market opportunities.

The finance department, on the other hand, requires tight budgets and strict control on customer terms and conditions of trading. Marketing wants flexibility to offer discounts, promotions and credit terms.

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In many organisations these potential conflicts are being tackled through restructuring and the design of new communications systems.

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CHAPTER 3

The Marketing Environment1 The organisation and its environmentAny decision an organisation takes, whether in the area of marketing or in any other functional area, will be affected by external factors and will influence many other parties. This is why marketers must take account of their external environment. It is common to identify a macro environment, a stakeholder environment (or proximate environment), and a micro environment.

Figure 3.1 The organisation and its environment

2 The macro environmentYou need to understand the macro environment in terms of political/legal, economic, social, and technological influences (so-called PEST factors).

In the political/legal sphere, governments may alter the level of taxation, which will affect spending power. They may pass laws in the area of consumer protection, environmental protection etc. All of these affect organisations.

Often, the marketer has little control over what happens in the political arena. However, pressure groups, interest groups and lobbying companies have developed in order to influence decisions the government might take.

Economic influences can have a severe effect on an organisation’s operations. For example, during a recession there is high unemployment and low levels of disposable income.

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Social influences affecting the marketer include population demographics, income distribution, social mobility, lifestyle changes etc. He must also take account of changes in ethical standards of business.

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3 The stakeholder environmentThe stakeholder environment (sometimes referred to as the proximate environment) again is uncontrollable. However, it is closer to the company than the macro environment and will have a direct influence on everything an organisation does. This is because it comprises groups with a direct relationship to the organisation.

Figure 3.2 The stakeholder environment

Intermediaries and publics may need a word of explanation.

An organisation may use a number of intermediaries to distribute its products to the end consumer. For example, a manufacturer might sell to a wholesaler, who sells to a retailer, who sells to the final consumer. The manufacturer must ensure that he manages the activities of his intermediaries effectively.

Kotler defines an organisation’s publics as ‘any group that has an actual or potential interest or impact on a company’s ability to achieve its objectives’. Figure 3.6 displays some of the publics an organisation may have to consider.

Figure 3.3 The publics of an organisation

An organisation will always wish to be viewed in a good light by its publics and to do this it will endeavour to build relationships with these publics.

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4 The micro environmentThe micro environment, as its name suggests, is the smaller environment and is concerned with an organisation’s immediate ‘surroundings’.

There are variations on the definitions of the micro environment but it is usually associated with the controllable elements of the organisation, ie the areas over which management have control and can make decisions, such as staff, premises and day-to-day allocation of resources.

As we are concerned primarily with marketing, we understand the micro environment to be anything within the marketer’s control. This will include all decisions about marketing planning and the marketing mix. However, as the rest of this chapter has indicated, these decisions are never taken in isolation without first considering the impact of the uncontrollable macro and proximate environment.

5 Influencing the marketing environmentThe usual assumption about environmental factors is that they are beyond the control of the organisation. On this assumption, organisations merely accept their environment passively. The aim is to analyse environmental trends and to devise strategies that will fit in with them.

However, some firms ‘take aggressive actions to affect the publics and forces in their marketing environment’, eg by hiring lobbyists to influence legislation, staging media events to gain favourable press coverage etc. Above all, they exploit technological developments to ensure that they are not overtaken by adverse trends in micro-environmental factors.

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CHAPTER 4

Marketing Research1 The marketing research processMarketing research is ‘… the means used by those who provide goods and services to keep themselves in touch with the needs and wants of those who buy and use those goods and services’. Essentially, marketing research means looking for information.

Marketing research is often confused with market research, but market research is a narrower term, relating solely to information about the market for a particular product. Marketing research includes research into product, sales, customers, pricing, promotions and the macro environment as well as market research.

Figure 4.1 displays the stages in the marketing research process.

Figure 4.1 Stages in the marketing research process

2 Secondary sources of informationSecondary information is information that has already been collected for some other purpose. Because the research is using information that has already been gathered, it is often less costly than gathering primary information. It is also relatively quick to gather secondary information. Therefore, it makes sense always to investigate sources of secondary information before plunging into expensive primary research.

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Chapter 4: Marketing Research

Secondary information can provide both qualitative and quantitative data and can be divided into two categories: data from internal sources and data from external sources.

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Internal sources of secondary information include sales records, accounts, customer complaints records, invoices and inventory records etc.

There are also huge amounts of external secondary information available to the researcher. This information is generated by various organisations including the government, publishers of directories, newspapers, periodicals and research reports.

Secondary information is extremely valuable to the researcher. It does, however, have problems and must be used with some caution. It has not been generated for the specific purpose of the marketer. Its source may be unreliable. It may be out of date and/or unstructured.

3 Primary sources of informationPrimary data is that which is collected, either by the marketer or by a research agency on his behalf, to solve a specific research problem.

There are four basic techniques used to obtain primary data. These are observation, experimentation, depth interviews and surveys.

4 SurveysSurvey research is based on collecting data originating from answers to questionnaires. Questionnaires can be issued in four ways: by post, by telephone, by personal face-to-face interviews, or on the internet.

There are pros and cons for each of these methods. The marketer is interested both in the hit rate (ie what proportion of the target audience complete the questionnaire) and in the quality of the information obtained.

5 Questionnaire designDesigning questionnaires is a difficult task that is often underestimated. The subject areas to be addressed in the questionnaire should follow directly from the research problems that have been identified in Stage 1 of the marketing research process.

There are basically two types of questionnaire: unstructured and structured. An unstructured questionnaire will utilise open-ended questions and will therefore elicit qualitative information, while a structured questionnaire will use mostly closed questions with predefined categories for recording replies. Of course, many questionnaires use both types of question.

6 Approaches to samplingIt is not often feasible when carrying out marketing research to obtain information from every person applicable to the research project being

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Chapter 4: Marketing Research

performed. Instead, the researcher selects a sample of respondents, taking care to ensure that his sample is representative of the population as a whole. For this purpose, the ‘population’ consists only of those people of interest to the survey, not necessarily the population as a whole.

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7 The marketing information systemThe information gained from primary and secondary marketing research should be securely and coherently stored in an information system that allows it to be analysed, accessed and used when needed.

A marketing information system (MkIS) is ‘people, equipment and procedures to gather, sort, analyse, evaluate and distribute needed, timely and accurate information to marketing decision makers’.

The MIS comprises more than just the marketing research information outlined in this chapter. It also extends to:

• the organisation’s accounting system• marketing intelligence on the macroenvironment• an analytical system that takes data from all the other components of

the MkIS and statistically analyses and models it in ways that help marketers make key decisions.

To ensure customer satisfaction, organisations wish to know as much as possible about the individual tastes and preferences of the people who buy from them. Increasingly, this is achieved by the development of customer databases. This is defined as ‘an organised collection of comprehensive data about individual customers or prospects, including geographic, demographic, psychographic and buying behaviour data’.

Kotler states that the database can be used to locate good potential customers, tailor products and services to the special needs of targeted consumers, and maintain long-term customer relationships.

Increasingly, organisations attempt to investigate their markets by means of online techniques. Often this involves the use of surveys conducted via the internet. Although the practice is still in its infancy, the increasing impact of information technology on marketing activities is likely to lead to rapid growth.

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CHAPTER 5

Buyer Behaviour1 Determinants of demandMarketing is about satisfying customer needs; the marketer needs to understand what determines these needs and how customers respond to them. This knowledge will also aid the marketer in the formulation of future marketing strategies.

Demand is ‘the willingness and ability to pay a sum of money for some amount of a particular good’. The two major determinants of demand are income levels and the price of the product. A market consists of all people who are willing to buy a product and have the ability to pay for that product.

2 Consumer buyer behaviourConsumers are affected by environmental influences and individual influences. Environmental influences include culture, social class, groups/family, situational factors and marketing efforts. Individual influences arise from personal psychology, lifestyle, demographics and economic situation.

The marketer must understand not only the factors affecting consumer buying behaviour, but also how buying decisions are taken. In particular he must be aware of the decision making unit or DMU.

In a consumer DMU there may be five roles that can be filled. The acronym SADPU may help you to remember these roles.

• Suggester• Advisor• Decider• Purchaser• User

Consider a consumer purchase such as a family car. The oldest child might suggest that the family should buy a new car, as the old one is too small; a sales person might advise the family on the best car for their needs; the youngest child might decide on the car’s colour; the wife might pay for the car and so will be the purchaser; and the husband might be the most frequent user of the car.

The consumer decision making process is depicted in Figure 5.1.

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Figure 5.1 The consumer decision making process

3 Organisational buyer behaviourOrganisational or business-to-business buying behaviour also displays many complexities. This is different from consumer buying because purchases are not made for personal consumption.

Environmental influences on the organisational buyer include economic, political, legal, cultural, physical and technological factors.

Organisational influences include the organisational culture, and the role of purchasing in the organisation.

Group influences include the nature of the decision making unit (who is involved in purchasing decisions?) and the nature of the purchase (straight rebuy, modified rebuy, new buy).

Individual influences include the buyer’s evaluation criteria, the information available to him, and his need to reduce risk.

The DMU or buying centre includes any individual who participates in the buying decision and these individuals will fulfil one or more of the following buying roles.

• Users: who will use the product or service• Influencers: who provide technical expertise and influence the

buying decision• Deciders: who decide on product requirements and suppliers• Buyers: who actually place the order and take part in negotiations• Gatekeepers: who promote or inhibit the flow of information to DMU

members.

The organisational buying process is depicted in Figure 5.2. It is more formal than the consumer process, involves more people, and takes longer to complete.

Figure 5.2 Organisational buying process

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CHAPTER 6

Target Marketing1 Principles of target marketingSegmentation is ‘the process of dividing a potential market into distinct subsets of consumers with common needs or characteristics’. In simpler terms, segmentation involves dividing a total market into distinct groups of customers who share common characteristics. Target marketing is a process by which marketers segment their markets, decide on which segments to aim for (‘market targeting’), and then design products and marketing campaigns tailored to each segment of interest (‘product positioning’).

Once the marketer has defined a segment, he can create a specific marketing mix to meet its particular needs. He will also benefit from the ability to identify his competition and will therefore be better able to analyse competitor strategy and behaviour.

2 Bases for market segmentation in consumer markets

The first stage of the segmentation process is to identify variables that can be used to segment the population. These variables are known as segmentation bases. Each variable can be used in isolation, but the more variables that are used to define a segment, the more precise that segment will be.

Possible segmentation bases include geographical factors, demographic factors, psychographic factors and behavioural factors.

Geographic segmentation is easy to understand. Demographic segmentation refers to factors such as age, income, socio-economic groups, stages in the family lifecycle etc. Psychographic segmentation refers to factors such as lifestyle and personality variables. Behavioural segmentation refers to factors such as the occasions on which purchases are made, the benefits sought, the usage rate of a product etc.

3 Bases for market segmentation in business markets

The principles for segmentation of business markets are the same as for consumer markets. However, the segmentation bases do vary because of the different characteristics in the business market (fewer customers, greater spending power, larger DMUs etc). Possible bases include the

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characteristics of the buyer, the application of the product/service, and the purchasing situation.

The characteristics of the buyer might include the size of the organisation he works for, his usage rate of the product and his geographical location.

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Segmenting by application of the product means identifying the possible uses to which different industry sectors may put the marketer’s product.

Segmenting by means of the purchasing situation implies a recognition that buyers will require different stimuli in cases of straight rebuy, modified rebuy and new buy.

Once again, geographic variables can be used in business-to-business market segmentation. Often, the salesforce is organised according to territories or geographical area. Geographic segmentation is useful in industries where customers are concentrated in specific geographical locations. It might also be used where markets are limited to just a few locations. This type of segmentation may be particularly relevant to international markets.

Market targeting is the second stage of the target marketing process. Having identified appropriate segments, the marketer must decide which segments to target. The main strategies are undifferentiated, differentiated and concentrated marketing: Figure 6.1.

Figure 6.1 Market targeting strategies

4 Product positioning and differentiationProduct positioning involves the design of an organisation’s product and marketing mix so that it is specific to the market segment(s) the organisation is targeting.

Differentiation means making our marketing mix different from that of our competitors. We can differentiate by reference to product features (‘extras’), performance, durability, reliability, branding etc.

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CHAPTER 7

Product Strategies1 Core product, actual product and augmented

productA product is anything that satisfies a customer need or want. In marketing, the term includes intangible services as well as tangible items.

Marketers often distinguish three ‘levels’ of a product: the core product (the benefit the customer receives); the actual product (the product features); and the augmented product (‘extras’, such as interest-free credit to pay for the product).

Figure 7.1 The three levels of a product

Another useful distinction is between consumer products and industrial products: different marketing strategies may be appropriate in the two different cases. For detail, see Table 7.1 on the next page, but in brief:

• A consumer product is one that is designed to appeal to, and be purchased by, a consumer, ie the person who will actually ‘consume’ the product.

• An industrial product is one that will be purchased by an organisation rather than an individual.

2 Strategic branding decisionsBranding can help the marketer to identify and differentiate his products from those of his competitors. The purpose of branding is to create recognition and loyalty from a customer point of view. Generally, a

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successful brand will allow the seller to charge premium prices and will provide the customer with some reassurance as to the quality of the product.

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Table 7.1 Classifying consumer and industrial goodsConsumer goods Industrial goods

Convenience goods: those that a consumer purchases without much thought, including fast-moving consumer goods (FMCG)

Capital goods: large-scale purchases for the purpose of increasing an organisation’s productiveness, often ‘one-off’ in nature, with a lengthy decision-making process

Speciality goods: these have distinctive features which often encourage brand loyalty (eg cars, designer clothes)

Materials and components: raw materials, parts, components, subassemblies etc for use in manufacturing

Shopping goods: these are usually quite substantial in terms of bulk, price etc (eg furniture, electronic equipment, white goods). The consumer will usually think long and hard before selecting among competing brands

Supplies: other items, not for incorporation into finished output, but enabling the organisation to function (eg indirect production materials, administrative supplies etc)

Services: the special features of services are discussed later in this chapter

Accessories: capital items which do not in themselves generate revenue but which are nevertheless necessary (eg computer systems)Services: the special features of services are discussed later in this chapter

There are advantages and disadvantages to consider when deciding on branding strategy: see Table 7.2.

Table 7.2 Branding Brand strategy

Advantages Disadvantages

No brand Lower production costsLower market costsLower legal costsMore flexible quality control

Severe price competitionLack of identity

Branding Better identification and awarenessChance of differentiationPossible brand loyaltyPossible premium pricingBetter profit marginsReady acceptance by channel intermediariesGaining more retail shelf spaceCustomer memory recall is aided and can be enforced with advertisingSegmentation is made easier

Higher production costsHigher marketing costsHigher legal costsRequires investment in promoting brand awarenessRisk of damage to existing brands if an unsuccessful brand is introduced

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Brand names should be protected by legal means, eg by registering them as trade marks.

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Chapter 7: Product Strategies

3 The importance of packaging in product management

The packaging of any product has five main purposes or functions.

• Protecting the contents of the package against damage• Selling/communicating/promoting the product and the brand• User convenience (eg aerosols) and intermediary convenience (eg

easy stacking in supermarkets)• Providing information and conforming to legal requirements, such as

the legal requirement of printing the ingredients of food• Conveying any brand image

Packaging is an added cost and so the marketer should ensure that cost is considered against the benefits it provides. If distribution costs are high then packaging design takes on a more important role. The size of the packaging should assist in the maximum utilisation of space in any transportation vehicles.

4 Marketing of servicesIn recent years there has been huge growth in the service sectors of developed economies. There are a number of reasons for this trend.

• An increase in the general level of individual prosperity within developed economies.

• An increase in leisure time.• Increased complexity of people’s lives.• Advances in technology.

Services have the following characteristics and features.

• Intangibility: a service cannot be tasted, touched, seen or smelled.• Inseparability: services are produced and consumed at the same time.• Heterogeneity: the quality of a service will be variable.• Perishability: a service cannot be stored so supply of a service is

difficult to control.

The result of these distinguishing characteristics is that services marketing can be quite complex. Because of this the marketing mix is extended beyond the traditional four elements (product, price, place and promotion) to seven elements. The additional three are people, process and physical evidence, as detailed below.

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People refers to the actual employees delivering the service. Process refers to the methods used to provide the service. Procedures for dealing with customers and for supplying the service must be carefully planned and managed to minimise heterogeneity. Physical evidence can be used to overcome the problems of intangibility. The marketer must provide evidence of the level of quality his company offers to entice the customer.

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CHAPTER 8

Product Portfolio Management1 Tools of product portfolio managmentThe product lifecycle (PLC) is a concept based on the premise that products pass through various stages in their sales life: Figure 8.1. The PLC is a product portfolio management tool which many companies use in making decisions around the other elements of the marketing mix.

Figure 8.1 The product lifecycle

Conventionally, marketers distinguish five stages in the lifecycle: development, introduction, growth, maturity and decline. Various characteristics can be associated with each stage.

A partial explanation for the shape of the product lifecycle is to be found in the work of Everett Rogers. Rogers was interested in the readiness of individuals to adopt new products. He distinguished between five categories of individuals based on this criterion.

• Innovators are adventurous. They are quick to try new products.• Early adopters are also quick to try new products, but are not so

adventurous as the first group.• The early majority are deliberate in their decisions.• The late majority are sceptical. They wait for others to try new

products.• Laggards are cautious. They are slow to adopt new products.Another tool to assist management of the product porfolio is a matrix devised by the Boston Consulting Group (BCG). The basic logic of the BCG matrix is that relative market share is linked directly to cash generation and profitability.

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Chapter 8: Product Portfolio Management

The vertical axis in the matrix refers to the growth rate of the market at which each product is targeted. The horizontal axis refers to the relative market share enjoyed by each product. The possible combinations are shown in Figure 8.2 (see next page).

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Figure 8.2 The BCG product/market portfolio matrix

Table 8.1 The marketing mix over the product lifecycleIntroduction Growth Maturity/

saturationDecline

Product Basic product Product extensions at the augmented level

Diversify brand and features

Phase out costly components; launch new products

Price Usually cost-plus

Price to increase sales

Price to match or beat competitors

Lower price

Place Building distribution network

Intensify distribution and find new outlets

Build more intensive distribution

Phase out unprofitable outlets

Promotion

Promote to encourage trial/build product awareness

Build awareness in the mass market

Stress USP/brand differences

Reduce to minimal levels

2 Product planningAn organisation rarely sells only one product or service. The product portfolio will require some kind of monitoring so that the performance of each product can be compared and decisions can be made about the future. A recognised tool for product portfolio planning is the Ansoff matrix (see next page).

In this matrix penetration involves increasing sales of existing products in existing markets. A strategy of market development concentrates on finding new markets for existing products. A strategy of product development involves introducing new products to existing markets. A strategy of diversification refers to the development of new products for

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Chapter 8: Product Portfolio Management

new markets and so is generally considered to be a high-risk strategy as the marketer has little knowledge of his customers or his products.

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Figure 8.3 The Ansoff matrix

3 The NPD processProduct planning and the development of new products (new product development = NPD) is essential if an organisation is to survive in the long term or if it is pursuing a product development or diversification strategy.

Figure 8.4 The NPD process

4 Test marketingTest marketing is considered to be the only optional element of the NPD process. It is a marketing research method and, even though it is optional, it can be a valuable tool to the marketer.

Test marketing means that the entire marketing programme can be tested, in miniature, in a limited geographic area. Because the smaller test market will emulate what will happen when the product is launched nationwide, the marketer hopes to be able to forecast with some accuracy the profit potential of the product.

The marketer can test a range of marketing decisions, such as changes in the marketing mix elements, so that he can launch the optimum mix on a national basis. He will attempt to eliminate any weaknesses in the product and the marketing mix at this stage.

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CHAPTER 9

Pricing Objectives, Strategies and Tactics1 Pricing decisionsPrice, the second element of the marketing mix, differs from the other elements because it affects profits through revenues rather than costs. The objective of a pricing strategy is usually to maximise profit.

There are many influences on the pricing decision.

Organisational objectives (especially the need to cover costs)• The proximate and macro environment (eg the general state of the

economy)• Competitors’ prices• Other elements of the marketing mix, with which price must be

integrated• Elasticity of demand for the product (if demand is inelastic we may be

able to go for a premium price)

The economist wants to base price on demand. The accountant on the other hand approaches price by reference to costs (setting price at a level that covers costs and includes a margin for profit). The marketer will consider both of these factors, among others.

2 Pricing objectivesPricing objectives are used to achieve overall corporate objectives. There are many pricing strategies that an organisation can adopt in pursuit of its objectives. These include price skimming, penetration pricing, premium pricing, economy pricing and psychological pricing

Price skimming is based on setting high prices in order to ‘skim’ the market. To charge a high price the marketer must ensure that his target market will pay this price. An organisation using this strategy must ensure that buyers are relatively insensitive to price increases.

Penetration pricing is almost the exact opposite of price skimming: establishing low prices that will attract many customers. It is a method that can be used to increase market share and to stimulate the growth of the market. Penetration pricing relies on high volume sales to generate profit.

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Economy pricing is also based on a strategy of low pricing. The most obvious example of this is the ‘no frills’ policies adopted by some retailers. The customer accepts the lack of promotion because of the low prices demanded. In other words, the customers’ perception of the product is supported by the price charged.

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Premium pricing is the opposite of economy pricing in that prices are high but the product and levels of service that the organisation offers are also high.

Psychological pricing is designed to appeal to customers on an emotional basis. The most common form of psychological pricing is the use of prices such as £9.99 or £19.99. The customer feels that he is not paying £10 or £20 even though the price is only one penny lower.

Once the major pricing objectives have been established there are various short-term and tactical measures that the company should consider before establishing its end selling price.

• Geographical pricing: different prices for different locations• Price discounts, eg for bulk buying or for buying out of season• Promotional pricing (eg with interest-free credit)• Discriminatory pricing (eg higher train fares during commuter rush

hours)

The above tactical measures must be considered with pricing objectives before the final price of any product or service is established. These factors must also be considered in conjunction with other elements of the marketing mix in order to build a complete image.

3 Industrial market pricingOur discussion so far is applicable to both consumer and industrial marketing organisations. However, industrial market pricing requires a little more discussion because there are a few specific characteristics that are associated with it.

To the organisational customer costs include factors other than the basic selling price. For instance, the cost to the customer of a new piece of machinery will include installation, repair and maintenance, and energy usage. Therefore, the selling price is only one cost factor to the customer.

In order to calculate the total cost to the customer, the industrial marketer might use lifecycle costing which involves calculating the cost of the product over its entire lifecycle. The cost will include maintenance, repair and operating costs and equipment failure/opportunity costs which may increase at each stage of the lifecycle.

Other features peculiar to industrial markets are the importance of personal selling via a salesforce, and the frequent use of a tendering process to establish prices.

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CHAPTER 10

Distribution Strategies1 Channels of distributionDistribution refers to all those activities that are involved in getting goods from the point of production to the point of consumption, from the producer to the customer.

The term ‘channel of distribution’ refers to the full set of intermediaries or middlemen involved in the distribution system. When we talk about indirect distribution channels, we are usually referring to channels for consumer goods, rather than industrial goods. Of course, some organisations do without intermediaries and market direct to their customers (eg mail order companies, or companies such as Dell Computers).

Direct marketing has been increasingly common in recent years for various reasons.

• Use of the internet has become more widespread.• Another technological development is the increased use of television

shopping.• Sellers want to have direct access to their customers so that they can

better assess customer needs and preferences.

Channel intermediaries perform the following functions: providing information; promotion and display of products; negotiation with downstream channel members; ordering from upstream channel members; risk taking; holding inventory

Types of channel intermediaries include agents, distributors, wholesalers, retail stores, and non-store retailers (such as mail order companies). Customers must be satisfied and therefore careful selection and management of channel intermediaries is essential.

2 Criteria used to select distribution channelsObviously an organisation will consider those functions that it is willing to perform itself and those functions that it wishes intermediaries to perform. Other criteria which should be considered include: distribution objectives; customer needs; organisational resources; control; cost; competitors; product characteristics.

There are three main types of distribution objectives: exclusive distribution at one extreme (Rolls Royce motor cars), selective

23


distribution (a middle course), and intensive distribution (mass market products).

As with any marketing decision, customer needs should be a major consideration. Through segmentation, the marketer should have some understanding of who his customers are and their characteristics. The type of channel that the marketer then selects will be directly related to his target market or segment. Factors such as market size, market structure and customer behaviour will be relevant.

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Many organisations select distribution channels based on the activities that they can, or cannot, perform themselves. So channel choice should be consistent with organisational resources and ability, as well as satisfying customer needs.

Intermediaries are independent companies which have their own objectives and company orientation. They take ownership of the manufacturer’s products, and may make decisions (eg on pricing) that are not under the control of the producer.

The producer should estimate the cost of selling different volumes of the products through both direct and indirect channels. A salesforce may be less costly to maintain but may require a high level of initial investment, ie recruitment, selection and training. An intermediary will be less costly initially, but more costly in the long term.

Competitor distribution strategy should be considered in distribution channel selection. Often organisations will use the same channels as their competitors. The marketer should ensure that his products are being sold at least as effectively as, if not better than, competitors’ products.

The product characteristics (such as frequency of purchase, perishability, service requirements etc) will also influence the channel selection.

3 Agents and distributorsThe key difference between an agent and a distributor is that the distributor takes title to the product he handles while an agent does not. This means that the agent makes profit through commission from the producer. Distributors are customers who have the contractual right to purchase and re-sell the producer’s products.

This means that distributors will hold inventories and make profits through the difference between their buying and selling price. Distributors therefore take over a lot of the risks involved in distribution, including credit risks and stock risks. However, distributors can be much more difficult to control than agents.

Selection of agents and distributors is critically important as it can affect the long-term survival of the producing organisation. Once a list of potential agents has been developed, the producer must begin screening in order to eliminate less suitable agents.

The producer should always draw up a legally binding contract with the agent or distributor. The legal fees involved in drawing up a contract, and the time and research effort in ensuring that it is comprehensive, can be high. However, this cost must be measured against the risks involved in not having a contract.

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Control of agents may also be exercised through motivation. Although the agent does not legally have to fulfil obligations, motivation may help the producer to achieve a level of control because the agent is motivated to perform.

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CHAPTER 11

Promotion Strategies1 The promotional mixThe promotional mix consists of the following elements.

• Advertising• Sales promotion (short-term incentives such as price discounts)• Public relations• Personal selling• Direct marketing (discussed in the next chapter)

2 The promotional planning processAs with the other elements of the marketing mix, promotion is a strategic issue and the marketer should follow a process so that effective decisions are made. The steps in the process are as follows.

• Identify the target audience• Determine the objectives (which obviously include increasing sales,

but may be broader in scope – eg creating a favourable image of the organisation)

• Design the message (content, structure and presentation)• Select the communication channels (personal, or non-personal such as

mass advertising)• Develop the budget• Determine the promotional mix• Measure the results

In determining the mix, the marketer may favour a pull strategy (promotion aimed at the consumer, to pull him into a purchase) or a push strategy (promotion aimed at, say, retailers, persuading them to stock the product).

3 AdvertisingAdvertising is often, mistakenly, assumed to be the only form of promotion available to the marketer. It is in fact only one element of the promotional mix which is subject to many influences and contributes to the overall communications objectives. However, advertising is a powerful tool which the marketer can utilise.

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Advertising is a non-personal communication tool because the organisation (sponsor) does not have personal contact with customers. Instead, various media are used. Figure 11.1 displays this concept.

Figure 11.1 The advertising process

Advertising through media can achieve the following goals.

• Convey information about a company, a product or a brand• Alter perceptions and attitudes (eg advertisements advocating safe

sex)• Create desires• Establish connections, such as tortilla chips with dips• Provide reassurance that the purchase decision is a good one• Remind customers that products exist or that they should purchase• Provide reasons to the customer for purchasing (related to motivation

in buying behaviour)• Demonstrate the product and its use• Generate enquiries, particularly in industrial markets

The choice of advertising media will depend on the type of customers to be targeted and the complexity of the advertising message.

4 Sales promotionSales promotion is used to encourage sales in the short term, encouraging customers to purchase now rather than at some time in the future. It involves making some kind of offer to customers within a specific time frame.

Sales promotion techniques can be used to achieve the following goals: generate extra sales volume; encourage brand switching; create impact; repeat purchasing; trial.

Sales promotion techniques are also aimed at channel intermediaries to encourage them to stock the product, build intermediary loyalty and aid with merchandising.

Consumer sales promotion techniques include: price reductions; coupons and vouchers; free goods; trade-in; competitions; direct mail; merchandising; credit facilities; packaging; sponsorship; exhibitions; premium offers (‘3 for the price of 2’); free samples.

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Once a technique has been selected, the marketer must also consider the following: the size of the incentive (eg the value of a coupon or voucher); qualifiying conditions for the promotion; duration of the promotion; coordination of organisational activities (eg increasing production levels in anticipation of demand); budgets; timing.

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5 Public relationsPublic relations is ‘the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organisation and its publics’.

Like advertising, publicity uses mass media. However, unlike with advertising, the communication is not under the control of the marketer. Additionally, the media coverage is not paid for; it is usually in the form of editorial comment and may therefore be taken more seriously by readers than advertisements.

To manage the publicity it might generate, many organisations have a public relations (PR) department or employ an agency who specialise in public relations activities.

Advantages of publicity: credibility; greater readership/viewing, as compared with advertising; more information; lower cost; speed of response.

However, there are also disadvantages of publicity, such as the possibility of distortion of the message, and the one-off nature of publicity (whereas an advert can be repeated).

The PR department then has various techniques to help it control the publicity generated. One of these techniques is developing good press relations through building relationships with journalists and editors. This may help the organisation to gain news coverage of favourable issues and, if a bad news story is about to break, to gain a sympathetic view of it.

The PR department is also responsible for the material which will be printed or broadcast. The most commonly used methods are press releases and press conferences.

6 Personal sellingPersonal selling is used in both industrial and consumer markets although it does not often have such high significance in consumer markets. Personal selling in consumer markets is often left to the shop floor staff where it is used as a back-up measure to support advertising and sales promotion.

Personal selling is of key importance in industrial markets. Often it is the key promotional tool, supported by other elements of the promotional mix. This is possible because one of the characteristics of industrial markets is that there are often fewer customers. Personal selling is therefore a cost-effective way of communicating with these customers.

Personal selling takes on added significance because it is the only element of the promotional mix where direct communication occurs between the organisation and its customers. The sales representative is vital to this

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Chapter 11: Promotion Strategies

communication and, as he may be the only point of contact, crucial to the success of the relationship. This communication might take place on a face-to-face basis or over the telephone.

Additionally, the sales representative is an important source of information for the marketer. Because of personal contact with customers, the sales representative will have much valuable information which the marketer must ensure is fed back.

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CHAPTER 12

Customising the Marketing Mix1 Personalisation in marketingMany forms of marketing suffer from the disadvantage of being indiscriminate in their targeting. For example, a television advertisement promoting a new brand of breakfast cereal will reach an audience of millions, which is very valuable to the marketer. However, the fact that he is speaking to such a wide audience means that the marketer must convey only a very general message. He hopes that a sufficiently large proportion of the audience will find the message appealing.

But while enjoying the advantages of this approach marketers are also keen to convey a more personal message to individual customers and potential customers. By analysing customer profiles on an individual basis marketers increasingly seek to tailor their offering and so enjoy a higher uptake.

Personalisation is the term used to describe this tailoring of message content and product offerings to the individual. The marketer hopes that this very personalised message will appeal to a high proportion of the people who read it, and so stimulate sales more effectively than a mass message.

The personalised approach is now used in a variety of applications. For example, many firms use personalised emails addressed to individual customers or carefully segmented groups of customers. Personalised messages are also delivered automatically by text message to mobile phones. Supermarkets use loyalty cards to track the purchases of individual customers and so build up a personalised profile.

There are benefits in this approach to both the supplier and the customer.

As far as the supplier is concerned, we have already seen that personalisation may lead to a better ‘hit rate’, ie a higher proportion of the people receiving the message will act upon it. Moreover, there is less waste. Another benefit for the supplier is that the ‘offer’ can continually be updated as he learns more about his customer.

For the customer, there is an immediate improvement in the quality of information available. There is an opportunity to learn about other products that may be enticing or exciting, which the customer might never have come across without a personalised message

The role of information technology in this process is crucial, with regard to rapid and high-volume data processing.

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Chapter 12: Customising the Marketing Mix

2 Trends and developments in direct marketingDirect mail is a rapidly growing area of marketing. The idea is to reach potential customers via the postal system and encourage them to place orders through the same system. This cuts out the need for expensive retail premises.

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The process of a salesman telephoning a potential buyer to stimulate a sale has long been familiar in industrial markets. Increasingly, though, this technique has spread to consumer marketing. But many consumers resent the practice as an invasion of their privacy.

Mail order is the favoured distribution route of such retailers as Freemans (but also of some less well known names, such as Profex). A Freemans customer typically searches the large and comprehensive catalogue and places an order, which in due course arrives through the post.

Television shopping also offers great convenience to the customer.

Online marketing is the distribution channel which has seen the most spectacular growth in recent years, and is likely to continue doing so in future.

As with other forms of direct marketing, online retailers offer several advantages to their customers: less stress and hassle, time saving, easy comparison of products and prices online.

Equally, the online retailers themselves enjoy significant benefits, especially in terms of low cost and global reach.

4 Integration of the marketing mixFor each of the 4Ps – product, price, promotion, place – there is a range of options available to the marketer. For example, in relation to product, he can vary quality, style, packaging, after-sales service. In relation to price, he can vary the basic selling price, discounts, payment tems. In relation to promotion, he can vary his emphasis on advertising, personal selling, direct mail. In relation to distribution, he can vary his use of intermediaries, his delivery lead times, his stocking policies.

It is an important responsibility of the marketer to consider carefully how these numerous options may best be combined to attract particular customers. No single mix is likely to be appropriate for all of the company’s target customers – there is a need to vary the mix to suit particular targets.

Variations in the mix may arise in any of the following situations.

• At different stages in the product lifecycle• In industrial markets as compared with consumer markets• In small and medium-sized enterprises (SMEs)• In the marketing of services

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CHAPTER 13

The International External Marketing Environment1 The international trade systemCompanies benefit greatly from selling goods overseas. Overseas markets enlarge the number of potential customers and are a source of increased turnover and profits. Companies can extend their product lifecycles by exporting and gain international and global recognition for their brands.

Businesses must also recognise that their customers are now international. We are international consumers. We demand international products. Companies are losing valuable customers if they do not satisfy this demand.

Selling goods overseas also offers companies the chance to get rid of excess capacity. By selling to more than one market companies are spreading their risk. If one market declines then sales may continue in other overseas markets. Many companies also look for new markets in the international arena because of intense domestic competition.

The basic principle in international trade is known as comparative advantage. This simply means that countries will sell goods they are good at producing and buy in goods they have difficulty in producing.

Governments in most countries are keen for international trade to take place. Generally, a country will wish to export more goods than it imports. This will achieve a positive balance of payments.

Here are the key factors that have contributed to the growth in international trade.

• Market needs• Technological advances.• Reduced costs• Improved quality• Improved communications and transportation

Many governments want to increase exports, but they will generally wish to minimise imports thus encouraging a positive balance of payments. One method of achieving lower imports is by using protectionist measures, ie protecting the home market against foreign products. These kinds of measures are a barrier to world trade.

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Chapter 13: The International External Marketing Environment

To counter protectionist measures, many countries have formed agreements so that trade barriers can be overcome. Countries band together into trading blocs and agree that any trade that takes place within the bloc will not be subject to protectionist measures. Britain is a member of the European Union (EU) which is one type of trading bloc.

2 Macro-environmental factors affecting world tradeThe move from selling products and services in the domestic market to selling products and services in the international market requires a strategic process and this process is displayed in Figure 13.1.

Figure 13.1 The international market decision process

Stage 1 of the process displayed in Figure 13.1 is appraising the international marketing environment. This environment is complex because of additional considerations that the domestic marketer has not yet had to consider. Even in domestic markets it is difficult to plan because of the unknown macro forces. It is even more difficult in international marketing, particularly if a company is involved in more than one overseas market.

Later stages in the process are discussed in the following chapters.

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CHAPTER 14

International Market Entry Strategies1 Criteria for selecting overseas marketsSelling goods overseas is a risky process and requires extensive research. The company must find a method to identify the international markets that would be most beneficial and fit in with corporate objectives. We are now moving on to discuss Stage 2 of the international marketing process displayed in Figure 13.1.

A company must consider ways to reduce the number of markets in which it will carry out full primary market research and eventually launch its products. This process is known as market screening.

Screening should be a logical process using secondary information and could follow these stages.

• Stage 1. Using secondary information a company can assess the state of the economy and the political risk in countries it is interested in.

• Stage 2. A company should assess a country’s accessibility and its viability in terms of market size.

• Stage 3. Any countries that have survived this screening process should be further investigated, again using secondary information, in much more detail.

The research process for international marketing is exactly the same as it is for domestic markets, except that is much more time consuming and expensive. However, governments are naturally keen to encourage exporters, and in the UK the DTI offers many information services.

The DTI also offers export advice and will generally aid any company wishing to start exporting for the first time. It will fund some research projects and awareness campaigns as well as supporting trade organisations.

2 Indirect exporting strategyThere are three main strategies available to effect entry into an overseas market.

• Indirect export

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Chapter 14: International Market Entry Strategies

• Direct export• Direct investment

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Figure 14.1 Alternative market entry strategies

Adopted from Terpstra and Sarathy, International Marketing

Indirect exporting means that a company will sell goods to an intermediary in its home market and that intermediary will in turn re-sell those goods abroad. This is a simple method of entering export markets, with no financial investment and low risk. However, the marketer gains no first-hand knowledge of the overseas market and has no control over how his products are being sold.

3 Direct exporting strategyThe marketer may instead opt to sell goods directly to the overseas customer or to sell to overseas intermediaries who in turn will resell the goods. Both methods are forms of direct export. It is now evident that the marketer is actually participating in international trade.

If selling direct to the end customer the marketer will need to use direct marketing in the form of telesales, direct mail, catalogues or the internet. However, an exporter may prefer to use a local agent or distributor to manage sales in the overseas market.

On this scenario, the marketer is gaining some international knowledge as he is involved with overseas intermediaries. There is an element of control in that he can decide who the intermediaries will be and can build relationships with them as well as deciding the countries and areas in which goods are sold. The marketer’s financial investment is low.

4 Direct investment strategyThe third type of entry strategy is direct investment, which means that the marketer financially invests and has a physical presence in an overseas country. There are several methods to do this, including setting up wholly owned subsidiaries, acquiring an existing company, and joint ventures. This type of entry method is for the long term and the decision to invest in a country may be taken only after less financially demanding methods have been tried.

Setting up a wholly owned subsidiary means that the marketer must find capital for sites, staff, equipment, indeed all resources. However, it

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Chapter 14: International Market Entry Strategies

does mean that the marketer has complete control over all decisions and activities.

The alternative to this is the acquisition of an existing company, which requires high investment but may be less costly than establishing a subsidiary from scratch.

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Joint venture is another term used in international marketing which quite simply means partnership. Rather than setting up a subsidiary or acquiring a local company, the marketer may partner a company in the host country.

An advantage of direct investment is that the marketer has control over all elements of the marketing mix and management (shared control in the case of joint ventures). The marketer is acquiring international knowledge which may help it to gain competitive advantage. Additionally, international markets offer a great source for new product ideas.

However, this method of entry requires a high level of investment and is therefore the most risky entry method. Investment is not only financial but includes commitment of management time and other resources.

Direct investment is suitable only for companies with a long-term international view as investment may be substantial and the investment payback period can be lengthy.

Table 14.1 Criteria to consider when selecting overseas distribution channelsCriteria Comments

Cost Direct investment is very costly owing to the amount of capital and management resources that are required

Risk Indirect export is least risky because of lower financial investment

Product Perishable products require more direct entry methodsMarket Some markets are only accessible through joint venturesKnowledge A company may wish to gain ‘instant’ market knowledge

through the use of agents or distributorsStrategy A long-term view by the organisation will indicate direct

export or direct investmentInvestment payback

Companies who require a short investment payback period may not wish to consider direct investment

Services offered A distributor will hold inventory and will take credit riskRelationship A good business relationship may be key to success;

therefore intermediaries may be selected based on the working relationship

Commitment to products

Intermediaries who also sell competitors’ products may not have full commitment to the marketer’s products

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CHAPTER 15

The International Marketing Mix1 The productThe international marketer has similar strategic decisions to make in the international arena as in the domestic arena. However, in international marketing, the marketing mix decisions have added complexities.

The main considerations with the international marketing mix centre around the decisions of whether to standardise or adapt the mix. Standardisation means that the same marketing mix is offered in all countries: the same product, at the same price, is distributed and promoted in the same way. Adaptation means modifying one or more of the marketing mix elements in order to meet differing customer needs overseas.

Standardisation has many advantages. Because of the consistency of the marketing mix across international markets, it becomes easier to co-ordinate, manage and control. Cost benefits also exist in production and research and development because of concentration on standardised products. Added to these benefits is the fact that a company can build international recognition and brands, always in demand by the international consumer.

Adaptation is customer focused and should result in a high volume of sales, but any adaptation to the marketing mix is costly. Think about the added costs of shorter production runs, different promotional methods and more investment in research and development.

However, the international macro environment may influence the marketer to adapt his product offering for various reasons. For example, many countries have legal restrictions on products which force the marketer to adapt the product.

Branding may also require some consideration in international markets. In international marketing the marketer can standardise his brand world wide or adapt a different brand or brand name in each of the countries he operates in.

2 The communications mixThe main issues relating to the communications mix will centre around weighting of elements of the communication mix, standardisation/adaptation of the advertising message, media availability, and the use of advertising agencies.

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Many theorists agree that personal selling becomes the major element of the mix. For example, even though an FMCG (fast-moving consumer goods) company may utilise advertising, this company must still get its products stocked abroad. It is up to the sales representative to sell these goods to all channel intermediaries.

In terms of sales promotions, trade fairs and exhibitions take on a more important role in international marketing.

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All other methods of sales promotions are of course open to the international marketing company but the macro environment requires careful consideration. Often, countries have legal restrictions which lead to adaptation of sales promotions.

The role of public relations is also significant internationally, particularly as the company must overcome nationalist opposition. Even so, the company that uses a direct investment strategy should have fewer problems because they are local and visible.

In conclusion, Warren Keegan identified five strategies that are available to the international marketer in order to aid the decision of standardisation or adaptation of the product or the communications mix. Table 15.1 displays these strategies.

Table 15.1 Product/communication strategy alternatives

Strategy

Customer

need

Conditionsof use

Abilityto buy Product/communication strategy

1 Same Same Yes Product standardisation and communications standardisation

2 Different Same Yes Product standardisation and communications adaptation

3 Same Different Yes Product adaptation and communications standardisation

4 Different Different Yes Product adaptation and communications adaptation

5 Same No Invention

3 Pricing and payment considerationsA company which sells its goods internationally will have the same pricing issues to consider and can use the same pricing objectives as in the domestic market: skimming, penetration pricing etc. However, international markets have added complications for the pricing element of the marketing mix. The main issues which the international marketing company will have to consider revolve around the choice of currency for the invoice, the costs it should include in the invoice price and the required method of payment.

If the international marketer invoices in the overseas currency he is then taking the risk of fluctuating exchange rates. This risk can be either advantageous or disadvantageous, depending on how the two currencies move against each other.

There are various methods of eliminating exchange rate fluctuations, one of the main methods being forward exchange. This involves an agreement with your bank on the rate at which they will exchange foreign

37


currency at a future date. The agreement is costly but it eliminates risk and makes for easier cashflow management.

Added to currency issues is the complexity of what to include in the price quoted to a customer. International marketing has extra costs such as shipping, insurance and storage. These costs arise because of the added distribution required to get goods overseas. Negotiations with customers will centre around who will bear these costs.

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Chapter 15: The International Marketing Mix

Incoterms are an internationally recognised means of indicating who bears what cost and you have probably used them in your working life or studied them on other subjects in the CIPS syllabus.

The marketer must also ensure that he does actually receive payment for the goods. This is more complex than it sounds because various risks are involved. The seller must ensure that he receives payment and the buyer will be concerned that the goods are actually delivered and that they are not damaged.

There are various methods of payment in international marketing.

• Payment in advance• Letters of credit• Bills of exchange• Open account trading

Payment in advance is the simplest and most desirable method from the seller’s point of view. The marketer does not risk non-payment nor does he have to give credit. However, most customers are not happy to pay for goods in advance.

Letters of credit offer the seller a payment method which gives a guarantee of payment provided that various (somewhat technical) terms and conditions are satisfied.

The third method of payment is through a bill of exchange. This is similar to a post-dated cheque and is one of the most commonly used methods of payment in international marketing.

Finally, open account trading is another method of payment. In effect, goods are simply supplied on credit terms, such as are common in domestic trade, and the buyer pays up after the agreed credit period.

4 Distribution managementThe marketer must be concerned both with distribution channels between countries and with channels within overseas countries.

Internal channels of distribution vary considerably from country to country. For example, there are differences between the number and types of intermediary in each country as well as the services they perform.

So the marketer’s role is not finished when he decides on the foreign market entry strategy. He must consider distribution within each country too. He may be forced to adapt his marketing mix, even though he has no communication with overseas wholesalers and retailers.

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CHAPTER 16

Marketing Planning and Control1 Marketing and corporate planningStrategic planning is concerned with driving the organisation forward by coordinating resources and directing them towards the achievement of pre-determined goals. It is made up of three components: long-term, medium-term and short-term plans.

Strategic planning is important for many reasons, particularly to provide long-term direction for the organisation. This becomes even more important at a time when technological change is accelerating, the complexity of the manager’s job is increasing, and the external environment is increasingly subject to change.

Despite all this, many organisations still do not plan. It is true that some organisations can survive without a formal planning system. However, they may well be under-utilising their profit potential or have higher than necessary costs which could be reduced through effective planning.

2 The marketing planning and control processMarketing planning is a systematic process that involves assessing marketing opportunities and resources, determining marketing objectives, and developing a detailed plan for implementation and control. This process is reviewed in Figure 16.1.

The purpose of functional objectives is to achieve overall corporate objectives and so they should be carefully coordinated. This applies across all functional areas as each area contributes to overall corporate success. Therefore, in order to coordinate marketing with corporate strategy, it must be coordinated with other functions.

3 Formulation of marketing strategyLike all objectives, marketing objectives should be SMART: specific, measurable, attainable, realistic and time-bounded. Because the marketer has carried out a marketing audit and SWOT analysis, he has much information to aid objective setting. However, there are other tools which will aid the marketer and one of these is the Ansoff matrix (discussed previously in Chapter 8).

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Chapter 16: Marketing Planning and Control

Table 16.1 suggests that the marketing mix elements can be managed in order that marketing objectives can be achieved. In turn, the achievement of marketing objectives contributes to the achievement of corporate objectives.

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Figure 16.1 The marketing planning process

Table 16.1 Strategies that may be used to achieve marketing objectives

Objective Strategies

Penetration ProductPricePlacePromotion

Increase amount used on each occasionLower prices so that more products are purchasedUse more intensive distributionIncrease customer loyalty

Product development

ProductPricePlacePromotion

Additions to current product line. Investment in NPDDiscount prices to initiate trial of new productsDistribute in outlets where current customers shopPromotional objectives which focus on customer awareness

Market development

ProductPricePlace

New packagingPenetration to attract new customersDistribute where new customers will purchase

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Chapter 16: Marketing Planning and Control

Promotion Promotional objectives which focus on customer awareness

Diversification ProductPricePlacePromotion

Investment in product research and designPricing researchDistribution researchPromotional research

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Control is concerned with identifying areas of activity that are not performing according to plan and rectifying the inconsistency.

Annual plan control involves sales analysis, market share analysis, sales-to-expense ratios and financial analysis.

Profitability control includes measurement and evaluation of product profitability, customer profitability and channel profitability. Again, areas for improvement must be identified.

Efficiency control covers efficiency of the sales force, of advertising, of sales promotion and distribution, all of which can be measured.

Strategic control relates to the marketing audit as it is this element of marketing planning which will provide all information necessary to implement other forms of control.

4 Marketing plans as a basis for business operationsThe information in the marketing plan is generated through the marketing planning process. The plan should contain the following elements: a mission statement; a financial summary; a market overview; a SWOT analysis; any assumptions made; marketing objectives and strategies; programmes (with forecasts and budgets).

The formulation of marketing objectives and strategies and the marketing plan may lead to consideration of the organisational structure and the place of the marketing department within that structure.

5 Customer relationship managementCustomer relationship management (CRM) is a concept increasingly studied by marketers. It has been defined as ‘the process of creating, maintaining and enhancing strong, value-laden relationships with customers and other stakeholders’. We have already seen (in Chapter 2) a distinction between relationship marketing and transactional marketing. CRM is the formalisation of this idea.

The essence of CRM is an effort to retain loyalty among existing customers. This is partly because gaining new customers is a much more expensive exercise than gaining new business from existing customers. Partly, too, it is because the customer relationship becomes less expensive to maintain the longer it remains in place. This is summed up in the old truism: ‘Your best new customer is your existing customer’.

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Documents

CHAPTER 1 - Unauthorized Access · Web viewTarget marketing is a process by which marketers segment their markets, decide on which segments to aim for (‘market targeting’), and