Lyndon Simkin, William Pride, Ferrell, Sally Dibb - Marketing Concepts & Strategies-Cengage Learning EMEA (2019)

Marketing
CONCEPTS AND
STRATEGIES
8th Edition
Sally Dibb
Centre for Business in Society, Coventry University
Lyndon Simkin
Centre for Business in Society, Coventry University
William M. Pride
Mays Business School, Texas A&M University
O.C. Ferrell
Raymond J Harbert College of Business, Auburn University
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
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Marketing: Concepts and Strategies, © 2019, Cengage Learning EMEA
8th Edition
Sally Dibb, Lyndon Simkin, William WCN: 02-300
M. Pride and O.C. Ferrell
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Print Number: 01 Print Year: 2019
For Rosa, Sam, Mae, Abby, James and Becky
Brief contents
Part One: Marketing defined and 14 Marketing channels 403
marketing in context 1 15 Channel players and physical
1 The marketing concept 4 distribution 430
2 Marketing strategy and understanding 16 An Overview of marketing
competitors 38 communications 466
3 The marketing environment 73 17 Advertising, public relations and
sponsorship 494
4 Marketing in international markets and
globalization 108 18 Sales management, sales promotion, direct
mail, direct marketing and the web 529
19 Digital marketing 567
Part Two: Understanding and
20 Pricing 585
targeting customers 139
21 Modifying the marketing mix for business
5 Consumer buying behaviour 142
markets, services and in international
6 Business markets and business buying marketing 619
behaviour 173
7 Segmenting markets 204
Part Four: Marketing
8 Targeting and positioning 233 Management 655
9 Marketing research 259
22 Marketing planning and forecasting sales
potential 657
Part Three: Marketing 23 Implementing strategies, internal
programmes – products and marketing relationships and measuring
services, brands, place and performance 686
channels, promotion and 24 Responsible marketing 724
marketing communications, digital
and pricing 295
10 Product decisions 299 Notes 755
Glossary 776
11 Branding and packaging 318
Index 801
12 Developing products and managing product
portfolios 348
13 The marketing of services 376
iv
Contents
NOTE Each chapter contains a summary, key links to other parts of the book, a list of important terms,
discussion and review questions, recommended readings, a web task, group tasks and an
applied mini-case.
Preface x Marketing tools and techniques Practitioners’

Acknowledgements xi use of SWOT Analysis 52
About the authors xii Target market strategy and brand
Credits xiv positioning 54
Competitive advantage 55
Competitive positions and differential
Part One advantage 56
Marketing tools and techniques Practitioners’
Marketing defined and marketing use of competitor intelligence: the Dibb/
in context 1 Simkin competitive positions proforma 62
Marketing objectives 65
Marketing mix decisions 65
1 The marketing concept 4 Implementation and performance
Your meals on wheels 5 monitoring 66
Marketing explained and defined 6 Case study St Andrew’s Healthcare: a charity’s
The definitions of marketing explored 11 marketing strategy 71
The marketing process 14
The importance of marketing 15 3 The marketing environment 73
Topical insight Ireland: marketing
a country 17 Regulatory influence: the EU single
The marketing concept and its evolution 18 market 74
Topical insight An alternative view of the Examining and responding to the marketing
scope for marketing: social marketing 22 environment 75
The essentials of marketing 23 Marketing tools and techniques Practitioners’
The organization of this book 31 assessment of the macro marketing
Case study Sweden’s IKEA marches on 36 environment 76
Political forces 79
Legal forces 80
2 Marketing strategy and Regulatory forces 81
understanding competitors 38 Societal forces 83
Technological forces 85
Driverless vehicles are coming this way 39
Topical insight Brands and consumers
Marketing strategy defined 40
embrace Fairtrade 86
Organizational mission, goals and corporate
Economic and competitive forces 90
strategy 45
The micro marketing environment 96
Organizational opportunities and
The marketing environment and strategic
resources 47
opportunities 99
Strategic objectives and strategic focus 50
Case study The world of rice: external
challenges for Tilda’s marketers 106
vi Contents
4 Marketing in international 6 Business markets and business

markets and globalization 108 buying behaviour 173
Global growth by acting locally 109 Shaping tomorrow with you 174
Involvement in international marketing 110 Types of business market 175
International marketing intelligence 113 Dimensions of business buying 177
Environmental forces in international markets 114 Business buying decisions 184
Building customer relationships A cross- Marketing tools and techniques Practitioners’
cultural comparison of colour and use of the buying behaviour theory: the
international branding 115 Dibb/Simkin buying proforma 186
Regional trade alliances and markets 120 Selection and analysis of business
Alternative market entry strategies 123 markets 192
Topical insight Much more than Topical insight Insurance brokers reflect
understanding customers’ behaviours and influences on clients’ decision-making 193
culture 126 Marketing’s variations in business
Customization versus the globalization of markets 197
international marketing strategies 127 Case study Nynas: in the black and
Case study Carrefour’s ‘G4’ and international leading 202
growth strategy 132
Part one postscript 134 7 Segmenting markets 204
Strategic case Understanding and managing
fast-changing markets: creating a marketing Rice . . . not all grains seem the same 205
strategy 135 What are markets? 206
What is market segmentation? 207
Segmenting, targeting and positioning 210
Part Two Segmentation variables 211
Topical insight Targeting fashion 214
Understanding and targeting Building customer relationships Profiling and
targeting customers with ACORN 220
customers 139 Segmentation effectiveness 225
Customer relationship management (crm) and
5 Consumer buying behaviour 142 retention 226
Raleigh cycles to stay in touch with Case Study Marriott: getting down to business
consumers 143 with business travellers 231
Types of consumer buying behaviour 143
Topical insight Point-of-sale moves into the 8 Targeting and positioning 233
changing room 145
Targeting strategies for business
The consumer buying decision process 145
schools 234
Personal factors influencing the buying decision
Segmentation targeting strategies 235
process 150
Target market attractiveness and opportunity
Psychological factors influencing the buying
selection 240
decision process 152
Building customer relationships Innocent
Social factors influencing the buying decision
goes mumsy 241
process 159
Evaluating markets and forecasting sales 246
The impact of new thinking and new
Marketing programmes 247
technologies 163
Positioning 247
Building customer relationships Teenage
Marketing tools and techniques Practitioners’
trends, Twilight and the power of reference
use of brand positioning theory 250
groups 165
Case study Iams understands people who
Understanding consumer behaviour 166
love pets 257
Case study Crayola: colouring in the 21st
century 171
Contents
vii
9 Marketing research 259 11 Branding and packaging 318
Mobile devices generate rich consumer Polos: are you a sucker? Or are you a
insights 260 cruncher? 319
The importance of marketing research 261 Branding 320
Marketing tools and techniques Citizen Brand personality, values and attributes 325
summits give people a voice 263 Marketing tools and techniques Practitioners’
The marketing research process 264 use of the brand development theory: the
Step 1: locating and defining problems or brand personality grid 326
research issues 265 Marketing tools and techniques Who thought
Step 2: designing the research 265 of that name?! 331
Step 3: collecting data 267 Packaging and labelling 336
Marketing tools and techniques The Case study Rebranding Macmillan 346
intrigues of ‘mystery shopper’ research
programmes 278 12 Developing products and
Step 4: analyzing and interpreting research
findings 280
managing product portfolios 348
Step 5: reporting research findings 281 Virgin Money: a haven on the high street 349
Using technology to improve marketing Organizing to manage products 350
information gathering and analysis 281 New product development 351
The importance of ethical marketing Product adoption process 356
research 284 Product life cycle management 358
Case study Focus group interviewing: in-depth Topical insight Telebanking, tv banking,
views from group discussions 289 ebanking, texting and now banking apps:
Part two postscript 291 what next? 360
Strategic case Youngsters spend more time Tools for managing product portfolios 363
online than viewing television 293 Marketing tools and techniques Practitioners’
use of the directional policy matrix (dpm) 367
Case study Sellotape or adhesive tape?
Part Three Increasing market penetration – a classic
tale 374
Marketing programmes –
products and services, brands, 13 The marketing of services 376
place and channels, promotion Marketing a solution to today’s stresses 377

The nature and importance of services 378
and marketing communications, Classification of services 382
digital and pricing 295 Developing marketing strategies for services 383
Service quality 386
Building customer relationships Providing pet
10 Product decisions 299
services for nations of dog lovers 387
Innocent product development 300 Building customer relationships People’s
What is a product? 301 performance is inconsistent . . . Good
Product life cycles 307 lecture? 389
Topical insight Great things can happen when Non-profit marketing 391
you sacrifice a cigarette 309 Case study Marketing for charities 401
Why some products fail and others
succeed 310 14 Marketing channels 403
Building customer relationships Upgrading
service for competitive advantage 312 BA’s focus on e-channels and digital 404
Case study Heineken’s portfolio of The nature of marketing channels and supply
brands 316 chain management 405
viii Contents
Functions of marketing channels 407 17 Advertising, public relations

Building customer relationships Tesco’s
and sponsorship 494
multi-channel approach to market
leadership 410 Cancer—advertising helps fight the early
Types of channel 411 signs of cancer 495
Channel integration 414 The nature of advertising 496
Different levels of market coverage 416 Innovation and change First ambient and now
Choosing distribution channels 418 ‘live’ advertising 496
Building customer relationships The uses of advertising 498
A mutli-channel strategy for retailer John Developing an advertising campaign 503
Lewis 419 Who develops the advertising campaign? 514
Behaviour of channel members 421 Publicity and public relations 515
Legal issues in channel management 424 Innovation and change Blogs and tweets
Case study first direct’s innovative banking in PR 519
channels 428 Sponsorship 522
Case study Textbook pr and a classic tale:
public relations and the Perrier crisis 527
15 Channel players and physical
distribution 430
18 Sales management, sales
Multi-channel changes the rules 431
promotion, direct mail, direct
The nature and importance of wholesaling 432
The activities of wholesalers 432 marketing and the web 529
Classifying wholesalers 434 Sampling nappies: parents’ early exposure to
Building customer relationships Coca- Pampers 530
Cola seeks more control over distribution The nature of personal selling and sales
channels 441 management 531
Facilitating agencies 441 Building customer relationships face-to-face
Retailing 444 Not everything is possible digitally 533
Innovation and change Retail technology Elements of the personal selling process 534
innovations changing customer Innovation and change eCommerce sales
experiences 448 promotion 536
Physical distribution 450 Types of sales people 537
Case study Today’s cash and carry mega- Management of the salesforce 537
depots depend on effective stockholding Key account management 544
and physical distribution 465 Sales promotion 544
Sales promotion methods 546
16 An overview of marketing Direct mail 552
The internet and digital marketing 555
communications 466
Digital marketing, mobile and social media 557
Making children safer 467 Direct marketing 558
The role of promotion 468 Case study A marketing classic – promoting
The communication process 470 free flights and how Hoover came
Promotion and the product adoption unstuck 565
process 473
Aims of promotion 475
19 Digital marketing 567
The promotional mix 477
Topical insight A web presence: now routine Following the shopper across channels 568
behaviour 478 Digital marketing 569
Topical insight Facebook can be a marketer’s Topical insight Changing behaviours in a
best friend and her worst enemy 483 connected world 570
Case study Häagen-Dazs: everyday made Changing consumer behaviour 570
extraordinary 493 Applying digital marketing 571
Contents
ix
Social media strategy 574 Market and sales potential and sales
Mobile marketing 576 forecasting 669
Innovation and change Big data insights 577 Topical insight Harley rides into India 673
Big data and analytics 578 The marketing audit 676
Managing multiple channels 580 Case study Dell has to plan for a new
Case study Digital and university choices 584 future 684
20 Pricing 585
What price for a great day out? 586 23 Implementing strategies,
The characteristics and role of price 587 internal marketing relationships
Price and non-price competition 588
and measuring performance 686
Factors affecting pricing decisions 590
Pricing for business markets 596 ‘I’m lovin’ it’: McDonald’s keeps tight
Marketing tools and techniques Business-to- control 687
business pricing using evc analysis 599 Organizing marketing activities 688
Stages for establishing prices 600 Marketing implementation 695
Topical insight The rise of the price Marketing tools and techniques Practitioners’
comparison website 609 implementation management of marketing
Case study Order just about anything from planning: the Dibb/Simkin checklists 700
Amazon at a reasonable price 617 Concepts related to marketing
implementation 702
Controlling marketing activities 707
21 Modifying the marketing mix for
Marketing tools and techniques The Dibb/
business markets, services and
Simkin implementation audit as applied to a
in international marketing 619 b2b company 710
Global brands 620
Methods of evaluating performance 712
Characteristics of business marketing
Case study Timex stands the test of time 722
mixes 620
Amending the marketing mix for services 629
Marketing tools and techniques Delivering 24 Responsible marketing 724
executive training and change management Responsible marketing approaches
consultancy 631 challenge the rise in fast fashion 725
Topical insight Targeting self-centred Social responsibility 726
teenagers 635 Topical insight Tax shaming damages
Strategic adaptation of marketing mixes for reputation 727
international markets 638 Marketing ethics 733
Case study Tata’s Nano evolving to an electric Topical insight Charity gap uses behaviour
vehicle (ev)? 648 change to promote sustainable living 735
Part three postscript 650 Incorporating social responsibility and ethics
Strategic case How to launch a vision? 653 into marketing decisions 742
Social marketing 744
Current hot topics in the marketing
Part Four discipline 746
Case study Recession piles on the
Marketing Management 655 pressure 750
Part four postscript 752
22 Marketing planning and Strategic case Ethical concerns, cultural
forecasting sales potential 657 clashes and regulatory pressures: what next
for Coca-Cola? 753
Planning for growth 658
Marketing planning 659
Notes 755
Marketing tools and techniques Jcb’s
Glossary 776
adoption of marketing planning 668
Index 801
Preface
T
he traditional view of marketing is of a team of managers inside an organization responsible
for surveying customers, communicating the brand, managing advertising and developing
campaigns. Perhaps this rather constrained remit was true many decades ago and cer-
tainly there are still organizations yet to recognize its full potential, but the reality is that marketing
is responsible for so much more:
●● Understanding markets, developing market insights and being the ‘eyes and ears’ for an
organization, in terms of identifying threats and new business opportunities, tracking competi-
tion and staying on top of changing customer expectations.
●● Shaping an organization’s strategy in terms of the selection of which opportunities to pursue,
product portfolios to sustain, target market decisions and competitive positioning.
●● Managing brands and creating compelling value propositions intended to excite customers,
attract new ones, retain those already buying from the organization and to make life awkward
for competitors.
●● Managing customers’ experience in order to maximise revenue, retain lucrative customers and
combat competitors’ actions.
Campaigns, advertising, brand strategy and marketing research are indeed part of the remit for
Marketing, but there is so much more required for marketers to understand as they add value to
their organizations.
The associated set of necessary capabilities is extensive, including market insight and analyt-
ics, strategic thinking and planning, creativity and programme development, project execution and
performance evaluation. All occurring in hugely dynamic environments, in which market conditions
are always evolving, strategies must be re-thought so as to remain pertinent, and marketing pro-
grammes kept fresh and relevant to these challenges. Here lies the excitement for most market-
ers, who relish this challenging and ever-changing life.
Marketing: Concepts and Strategies explores the scope and activities of marketing, providing
the frameworks and toolkit required for marketers to deliver benefits for their organizations.
Whether for products or services; in consumer, business-to-business or public sector mar-
kets; for profit or non-profit making, the marketing function is a major part of an organization’s
overall resourcing and is responsible for a huge array of outputs. There is much more involved
than merely surveying, developing a brand strapline and creating a new advertising campaign, as
depicted in TV’s 1960s-set Mad Men.
Marketing affects everyone. We are all consumers. Most businesses depend on marketing to
provide an understanding of the marketplace, to identify opportunities, and to ensure that their prod-
ucts and services satisfy the needs of customers and that they are competing effectively. There is
little doubt that marketing is an important part of today’s society and commerce. Marketing matters!
Therefore, it is important that marketers are well trained and are equipped with the skills required.
The first edition of Marketing: Concepts and Strategies appeared in 1991, just after Sally and
Lyndon joined the fast-growing Warwick Business School and were introduced to American co-
authors Bill Pride and ‘OC’ Ferrell. Since then, this text has become the leader in its market.
Whether for undergraduates seeking a comprehensive introduction to marketing, MBAs requiring
a grounding in marketing analysis or marketing management, or students in colleges wishing to
pass degrees and CIM diplomas, Marketing: Concepts and Strategies is used by lecturers and
teaching staff to provide an accessible, topical and enlightening insight into the world of marketing.
Marketing: Concepts and Strategies is also recommended by the Chartered Institute of Marketing.
Preface xi
This edition has been totally revised to reflect the current core themes of marketing in terms of
academic content, but also – given the authors’ wide-ranging consultancy and research experi-
ence outside of the lecture theatre – from a practitioner’s perspective. In particular, the world for
marketers has gone digital, consumers communicate readily with each other via social media;
there are new regulations impacting how marketers operate, especially regarding data compliance
and privacy; marketing has become more aligned to ethical, responsible and sustainability issues;
and Marketing as an academic discipline has become more critical and reflective – all of which are
developments underpinning this new edition. These developments have steered this re-write of
Marketing: Concepts and Strategies.
As ever, Marketing: Concepts and Strategies is supported by comprehensive indexing, a
full glossary of important terms appearing in the margins of the relevant chapters and cross-
referenced in the subject index, questions for discussion, web exercises and classroom tasks and
full listing of the key terms and jargon detailed chapter-by-chapter.
The Running Order of Marketing: Concepts and

Strategies, 8th Edition
PART ONE Marketing defined and marketing in context – An introduction to the nature and
scope of marketing and the marketing process, marketing strategy and competi-
tive forces, the composition of the marketing environment and the importance of
global marketing.
PART TWO Understanding and targeting customers – Consumer and business-to-business
buying behaviour, target market strategy and brand positioning, customer value
propositions, customer relationship management and marketing research.
PART THREE Marketing programmes – Products and services, brands, place and channels, pro-
motion and marketing communications, digital marketing and pricing in consumer,
business and non-profit markets.
PART FOUR Marketing management – Marketing planning and sales forecasting; implement-
ing strategies, internal marketing relationships and measuring performance; ethics,
and social responsibility in modern marketing, and social marketing applications.
Acknowledgements
T
his text would not have happened without the support and encouragement of American
co-authors Bill Pride and O.C. Ferrell; the team at Cengage Learning; the comments
and enthusiasm from fellow marketing lecturers at Warwick Business School, the Open
University, Oxford Brookes, Henley Business School and Coventry University (notably the Centre
for Business in Society and the School of Marketing and Management); colleagues in the A
cademy
of Marketing; and, above all, the feedback from our students past and present.
Sally Dibb and Lyndon Simkin

Kenilworth, 2019
About the authors
Sally Dibb and Lyndon Simkin each spent around 20 years at the leading UK university
management centre, Warwick Business School, teaching undergraduates, MBAs and executives
the basics of marketing, advanced strategic marketing, marketing management, buyer behaviour,
marketing communications and marketing research. Sally then moved to head up Marketing and
Research at the innovative Open University Business School as Professor of Marketing, where she
also established and co-directed the Institute for Social Marketing. Recently Sally joined the impact-
focused Centre for Business in Society at Coventry University as Professor of Marketing and Soci-
ety, leading the examination of the fast-changing role of data in society. Lyndon left Warwick to join
Oxford Brookes Business School as Professor of Strategic Marketing and Research Lead, before
joining Henley Business School. He is now at Coventry University as Executive Director of the Centre
for Business in Society and Professor of Strategic Marketing in the Faculty of Business and Law.
Sally and Lyndon’s research focuses on market segmentation, marketing planning, strategic busi-
ness planning, social marketing applications, marketing strategy operationalization and teaching meth-
ods, in which areas they have published extensively in the academic journals in the UK and USA. They
co-chair the Academy of Marketing’s SIG in Market Segmentation and have been Associate Editors
of the Journal of Marketing Management. Sally is a trustee of the research charity Alcohol Research
UK and is a member of the REF2021 panel evaluating the research quality of UK universities.
In addition to being joint authors of Marketing: Concepts and Strategies, they produced the
innovative The Marketing Casebook: Cases and Concepts (Thomson), mixing real-world cases
with overviews of theory, and The Market Segmentation Workbook and The Marketing Planning
Workbook (both published by Thomson), aimed at assisting marketing practitioners to reassess
their target markets and understand the complexities of marketing planning. These workbooks
were based on their consultancy experiences with organizations as diverse as ABB, Accenture,
AstraZeneca, GalaCoral, Calor, EDF Energy, Eon, Ernst & Young, Fujitsu, Geocell, GfK, IKEA, JCB,
Lockheed Martin, McDonald’s, Nynas, QinetiQ, Raytheon, Royal SunAlliance, Tilda and Willis. Both
Workbooks have been translated and published in China and Russia. Sally and Lyndon published
the revision aid, Marketing Briefs (Elsevier Butterworth – Heinemann). While primarily targeted at
students preparing for examinations in marketing, Marketing Briefs was also ideal for providing time-
pressured managers with concise and topical insights into the core concepts and tools of strategic
marketing. The acclaimed Market Segmentation Success: Making It Happen! was published by
Routledge in America. Cengage published the very popular Marketing Planning title, aimed at prac-
ticing marketers. Marketing Essentials was the little sister to Marketing: Concepts and Strategies,
targeting college courses introducing the subject of marketing. Sally and Lyndon have both also
contributed chapters to many books of collected readings. Lyndon recently co-edited The Dark
Side of CRM for Routledge and Sally has co-authored The Private Security State? for CBS Press.
Bill Pride and O.C. Ferrell first teamed up to produce Marketing for Houghton Mifflin in
1977. Since then, the American sister of Marketing: Concepts and Strategies, now in its nine-
teenth edition, has been used by over two million students and has become one of the principal
marketing texts in the USA. OC is the James T Pursell, Sr. Eminent Scholar in Ethics and Direc-
tor of the Center for Ethical Organizational Cultures at Auburn University. He is the President
of the Academy of Marketing Science and a former President of the Academic Council for the
prestigious American Marketing Association (AMA). OC is the author of many texts, including
Marketing Strategy (Cengage), Business Ethics: Ethical Decision Making and Cases (Cengage)
and Business: A Changing World (Irwin/McGraw-Hill). Bill Pride is Professor of Marketing at Texas
A&M University, where he specializes in marketing communications, strategic marketing planning
and business marketing education. Like OC, he has published a large number of journal papers
and is widely recognized in the marketing field. Bill is also co-author of Business (Cengage).
xii
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alex-mit/Thinkstock/iStock; 702 – ©
Samsung; 723 –
Thinkstock/iStock; 306 – ©Tilda; 317 – ©hans engbers/ ©Anthony Pleva/Alamy Stock Photo
Alamy Stock Photo
Chapter 24: 725 – ©Chad Baker/Jason Reed/Ryan McVay/
Chapter 11: 319 – ©Photofusion/REX; 328 – ©Allan Ivy/ Thinkstock/Photodisc; 731 – © Jupiterimages/Thinkstock/
Alamy Stock Photo; 332 – ©Whitbread PLC; 333 – ©The Creatas; 731 -©ec.europa.eu/environment/ecolabel; 742 –
Kraft Heinz Company; 338 – ©Andrey Burstein/Shutterstock; ©Justin Kase z12z/Alamy Stock Photo; 745 – ©Change4Life
340 – ©Tetra Pak (UK); 347 – ©Keith Larby/Alamy Stock (C4L); 751 – ©Hoaru/Thinkstock/iStock; 754 – ©Ryan
Photo McVay/Thinkstock/Photodisc
xiv
Part One
Marketing defined and
marketing in context
Legal
forces
Customer
value
proposition
Political Product/ Target Regulatory
forces brand Product/ market forces
positioning people/service/ strategy
engagement
Buyer/
Place/
Price/ consumer
distribution/
value satisfaction
channel
Differential Promotion/
Techno- marketing communications Marketing Societal/
advantage/ opportunity
logical green
competitive definition
forces forces
edge
Desired
customer
experience
Economic and
competitive forces
M
arketing focuses on looking after customers. through the creation, distribution, promotion and
This involves a set of processes for creat- pricing of goods, services and ideas.
ing, communicating and delivering value The simple premise of marketing is that to be
to customers; for managing customer relationships; successful, any organization must understand its
and for providing strategic direction to an organiza- customers’ requirements and satisfy them in a
tion based on market insights and understanding of manner that gives the organization an edge over
customers. Marketing consists of individual and orga- its competitors, and by staying abreast of changing
nizational activities that facilitate and expedite satisfy- market dynamics it will continue to offer compelling
ing exchange relationships in a dynamic environment propositions to these targeted customers relevant
1
2 Part One Marketing defined and marketing in context
to their evolving needs and markets to prioritize, marketing should create target
marketing mix
The tactical ‘toolkit’expectations. This involves customer engagement strategies, establish the ‘wow’
of the marketing pro- offering the ‘right’ marketing factor and ensure that there is a robust basis for com-
gramme; product, place/mix of product, people, ser- peting. Marketing programmes should be developed
distribution, promotion,
vice, pricing, promotion and which are appropriate for the successful execution
price and people vari-
distribution channel. Mar- of this strategy. Therefore marketing as a process
ables that an organiza-
keting depends, therefore,
tion can control in order involves marketing analysis, marketing strategy and
to appeal to the targeton the constant updating marketing management, as explored in Marketing:
market and facilitate of ideas and market knowl- Concepts and Strategies.
satisfying exchange. edge. Customers are often The term ‘customer’ should be treated loosely.
surprisingly fickle and modify While in commercial settings, it means consumers
their needs and wants; rivals in consumer markets or business customers in busi-
alter their strategies; and forces in the marketplace ness marketing, it is just as important to understand
regularly change, creating new threats and opportu- and satisfy those audiences served or represented
nities. As will be explained, while marketing focuses in the public and voluntary sectors. Such organiza-
on understanding customers and delivering ongoing tions benefit from adopting the marketing concept
satisfaction, there is much more to marketing than and process . . . they also must strive to stay ahead
serving customers through marketing programmes. of changing environmental conditions, maximize use
Marketing’s core focus is indeed the understanding of their resources to deliver their aims, compete for
and ongoing satisfaction of targeted customers, but attention, and seek to understand and satisfy their
marketers must provide much more for their organi- audiences and stakeholders. Marketing is relevant
zations. Effective marketing should analyze markets and prevalent outside commercial brands. For exam-
in order to be able to maintain customer interest and ple, Social Marketing is one of the biggest growth
satisfaction, combat competitors, identify new oppor- areas for the discipline, creating behavioural change
tunities and recognize threats. Marketers should be in the pursuit of social goals and objectives, often for
the ‘eyes and ears’ for their organizations regarding improved well-being and the greater good of society,
market dynamics. Having determined which opportu- with, for example, interventions to reduce smoking,
nities to pursue and having agreed the mix of target increase fitness or prevent bullying.
Part One of Marketing: Concepts and Strategies introduces the nature and scope of
marketing and the marketing process, marketing strategy and competitive forces. The aim of
Part One is to define marketing and enable readers to appreciate its context.
Chapter 1, ‘The marketing concept’, defines marketing; establishes its importance to organi-
zations and to consumers; and outlines the major components of marketing strategy – notably
marketing opportunity analysis, target market selection, competitive advantage and the develop-
ment of marketing programmes designed to implement the marketing strategy. The discussion
also examines the concept of marketing orientation within an organization. The chapter establishes
the ethos of Marketing: Concepts and Strategies, describes the structure of the text and presents
an overview of the marketing process. Important concepts presented in Chapters 1 and 2 are
deliberately repeated throughout this text. It is important for the reader to understand and accept
them before progressing to the following chapters.
Chapter 2, ‘Marketing strategy and understanding competitors’, presents an overview of

marketing strategy and the strategizing process. This chapter aims to highlight which strategic
marketing considerations help to ensure that a product or service is marketed for the benefit
of the organization as well as its targeted customers. The product or service should be mar-
keted differently enough from competitors’ marketing programmes to provide the organization’s
Part One Marketing defined and marketing in context 3
product or service with a perceived advantage over these competitors. The chapter first explores
what is marketing strategy and the importance of organizational mission, goals and corporate
strategy. The discussion next turns to assessing organizational opportunities, capabilities and
SWOT (strengths, weaknesses, opportunities and threats) issues, as well as identifying strategic
objectives. The chapter addresses the all-important role of identifying market segments, targeting
and brand positioning in marketing strategy: the development of clear target market priorities. It
then focuses on competitive strategies for marketing: the role of competition, its ramifications for
strategy, competitive positions and warfare strategies. The link between marketing objectives and
marketing mix programmes is examined, along with implementation and performance monitoring.
Chapter 3, ‘The marketing environment’, explores the importance to marketers – and

organizations – of staying informed by developments and changes around them. These forces of
what is known as the ‘macro marketing environment’ include economic, political, legal, regula-
tory, societal and technological developments, which inevitably impact on markets, organizations
operating in a particular sector, consumers and individual brands. They present opportunities (if
observed and addressed) and threats (if unnoticed or ignored) to marketers. An organization’s
overall strategy must be informed by these forces of the marketing environment. The chapter also
explores the concept of environmental scanning and the notion of strategic windows of oppor-
tunity. The ‘micro marketing environment’ consists of competitive forces and rivalry, which tend
to have more specific impact on a particular organization or brand. These external competitive
forces are also explored in this chapter. Without an appreciation of these forces and how they will
impact, it is not possible for the Marketing team to be the eyes and ears for its company, identifying
threats and emerging opportunities.
Chapter 4, ‘Marketing in international markets’, reflects the fact that many organizations and
brands trade across national boundaries, requiring additional market insights and some flexibility
in terms of marketing strategies and marketing programmes. The marketing environment forces,
customer issues, competitor activities and an organization’s capabilities differ from country to
country and region to region. How marketers should address non-domestic markets is examined
in this chapter, including available market entry strategies.
By the conclusion of Part One of Marketing: Concepts and Strategies, readers should understand
what is meant by the terms marketing, marketing orientation, marketing strategy and the marketing
process, the forces of the macro and micro marketing environment, environmental scanning and
strategic windows of opportunity, as well as international marketing. The essential themes in Part
One are developed further as the text continues.
Chapter 1
The marketing concept
Satisfying and retaining customers better than rivals
INTRODUCTION
Objectives Marketing’s primary aim is the identification of target markets
and the satisfaction of these customers, now and in the future.
To define marketing.
In most organizations, marketing fulfils an analytical function,
To appreciate the context of mar- provides strategic direction and executes a set of tactical activ-
keting and marketing orientation. ities designed to attract and retain the targeted customers to the
organization’s products or services. Marketers should strive to
To explain the marketing process.
be the ‘radar’ or ‘eyes and ears’ for their organizations in terms
To understand the importance of of assessing opportunities, identifying threats and preparing
marketing. their colleagues for the evolving challenges in the marketplace.
There is much more to marketing than creating an advertise-
To gain insight into the basic ele-
ment, producing an eye-catching price promotion, jazzing up a
ments of the marketing concept
website or developing a brand.
and its implementation.
Organizations with a marketing orientation have more than
To understand how the marketing just a few staff engaged in marketing activities and analyt-
concept has evolved and some of ics. Such organizations have a sound awareness of custom-
the current ‘hot’ themes. ers’ needs and buying behaviour, competitors’ offerings and
strategies, and of market trends. They take steps to ensure
To appreciate the major compo-
they know how these market conditions will evolve. In addi-
nents of a marketing strategy and
tion, they orientate their operational practices and coordinate
the marketing mix.
the inter-functional thinking of their organization around these
To gain a sense of general strategic market conditions. Leadership teams have a desire for market
marketing issues, such as market insights and to align their thinking around developments in their
opportunity analysis, target mar- markets.
ket selection and marketing mix Effective marketing involves an analytical process com-
development. bining marketing analysis, strategizing and the creation of
marketing programmes designed to implement a designated
To grasp the ethos and structure of
marketing strategy. Marketing opportunity analysis is a pivotal
this book.
part of marketing, involving the determination of emerging
and existing market opportunities and the choice of which to
address. At the heart of a marketing strategy is the formation
of a target market strategy and a basis for competing in order
to focus on the opportunities prioritized by the organization.
Most members of the general public think of ‘advertising’,
‘social media use’, ‘marketing research’ or ‘sales persuasion’
when the term ‘marketing’ is mentioned. These brief introduc-
tory comments explain that there is, in fact, much more to mar-
keting. This first chapter of Marketing: Concepts and Strategies
is designed to define marketing and explain its role.
Chapter 1 The marketing concept 5
Your meals
M arkets often face
disruption . . . a
new company, idea or way
on wheels
driver/rider smartphone
software.
How often have you
of providing customers with desired a restaurant’s
what they want. Such disruption dishes or varied menu from
generally creates casualties, as tra- which to select, but have not had
ditional providers struggle to compete or update their own the freedom, flexibility or time to go
thinking. Uber is one very popular example of such disruption, out of your home to enjoy the restaurant experience? Some
creating a new business model and providing a more flexi- restaurants and take-aways previously offered home delivery,
ble and cost-effective travel alternative for millions of users. but the majority did not. If you were not able to go to them
The technology companies such as Waymo and Tesla now to dine or to collect your own take-out meal, there was no
rivalling traditional automotive producers with driverless and other solution. Deliveroo offers a cost-effective solution to this
electric vehicles will prove to be similarly disruptive. However, dilemma, which appeals both to restaurants seeking to cater
disruptive or innovative business ideas are only successful if for such consumer demand, as well as consumers needing
they contain at their heart a business proposition which is someone to bring their meals home to them.
compellingly appealing to its targeted consumers. Uber has The company makes money by charging restaurants a
managed to achieve this desirability. So, too, has another new commission fee, as well as by charging customers a fee per
service . . . Deliveroo. order. Deliveroo, founded in London, now operates in two hun-
Deliveroo is a technology company focused on marketing, dred towns and cities in the UK, as well as in the Netherlands,
selling and delivering restaurant meals to the household or France, Germany, Belgium, Ireland, Spain, Italy, Australia, Hong
office. Deliveroo’s technology platform optimizes food order- Kong, Singapore and the United Arab Emirates. Orders are
ing and delivery by integrating web and mobile consumers placed through its app or website and then self-employed
with restaurant tablet-based point-of-sale order management bicycle or motorcycle couriers transport orders from restau-
terminals and its logistics optimization algorithm via delivery rants to customers. Over 15 000 food couriers now work part-
time or full-time for Deliveroo, many working around studying
or other commitments. There are well-known rivals also pro-
viding such services to hungry consumers and to restaurant
owners keen to serve non-dining-in customers. The most
well-known include Hungryhouse, Just Eat, UberEATS and
Grubhub.
Some fast food take-aways have dropped their own
delivery staff and instead now outsource to Deliveroo. For
many restaurants previously unable or unwilling to provide
delivery services for their meals, Deliveroo and similar rivals
have opened up a whole new market opportunity; one incur-
ring no direct set-up costs in terms of staff recruitment or
acquiring delivery vehicles. Even the fast food chains such as
McDonald’s, Burger King and KFC can now cost-effectively
offer delivery of their low-margin meals and still be profit-
able. The restaurant proprietors, their hungry customers and
the thousands of delivery riders now employed in providing
a service which a decade ago did not exist, are benefiting. At
the heart of the Deliveroo or Hungryhouse digital concept is
a proposition which resonates with a large number of hungry
consumers.
6 Part One MARKETING DEFINED AND MARKETING IN CONTEXT
T
his chapter first overviews the concept of marketing orientation before developing a definition
of marketing. The focus then moves on to consider why people should study marketing and
why marketing is important. The chapter proceeds to explore the marketing concept and
examines several issues associated with successful implementation. It then explains the impor-
tance of an analytical process to effective marketing, from analysis to strategy formulation to the
creation of marketing programmes. Deliveroo has a marketing strategy targeting consumers and
restaurant operators which is based on an analysis of the restaurant, take-away and in-home dining
sectors. How the marketing concept has evolved and topical themes are highlighted. The chapter
concludes by discussing the organization and running order of this text book.
The concepts and strategies discussed throughout this text are applicable to consumer goods
and services, business-to-business products and services, public sector organizations, as well as
to not-for-profit and many social sector organizations. As explained in the Part Opener, the term
‘customer’ in the definitions of marketing should be treated somewhat loosely. While, in commercial
settings, it means consumers in consumer markets or business customers in business marketing,
the themes explored in Marketing: Concepts and Strategies extend beyond such parameters. The
understanding and satisfying of audiences served or represented is just as important in the public
and voluntary sectors. Such organizations benefit from adopting the marketing concept and process,
as they – as with commercial brands – also must strive to stay ahead of changing environmental
conditions, maximize use of their resources to deliver their aims, compete for attention, and seek to
understand and satisfy their audiences and stakeholders.
Like all the chapters in Marketing: Concepts and Strategies, this one contains detailed topical
illustrative examples in highlighted boxes, presents cases for discussion, suggests internet exercises
at its conclusion, lists at the end all the key terms presented in the chapter, provides discussion and
review questions to emphasize the key themes and offers suggested further reading choices. In
addition, as the principal definitions are introduced in the text, they are repeated in the margins for
ease of understanding, glossary-style. If you have not yet done so, before tackling the chapters you
should read the ‘Preface’ to this book in order to understand the perspective, structure and chapter
components of Marketing: Concepts and Strategies.
Marketing explained and defined

The traditional view of marketing is of a team of managers inside an organization responsible for
surveying customers, communicating the brand, managing advertising and developing campaigns.
Perhaps this rather constrained remit was true many decades ago and certainly there are still
organizations yet to recognize its full potential, but the reality is that marketing is responsible for
so much more:
●● Understanding markets, developing market insights and being the ‘eyes and ears’ for an orga-
nization, in terms of identifying threats and new business opportunities, tracking competition
and staying on top of changing customer expectations.
●● Shaping an organization’s strategy in terms of the selection of which opportunities to pursue,
product portfolios to sustain, target market decisions and competitive positioning.
●● Managing brands and creating compelling product propositions intended to excite customers,
attract new ones, retain those already buying from the organization and make life awkward for
competitors.
●● Managing customers’ experience in order to maximize revenue, retain lucrative customers and
combat competitors’ actions.
Campaigns, advertising, brand strategy and marketing research – as depicted in TV’s 1960s-set
Mad Men – are indeed part of the remit for marketing, but there is so much more required for
marketers to understand as they add value to their organizations.
The associated set of necessary capabilities is extensive, including market insight and analytics,
strategic thinking and planning, creativity and programme development, project execution and
performance evaluation. All occurring in hugely dynamic environments, in which market condi-
tions are always evolving, strategies must be re-thought so as to remain pertinent and marketing
programmes kept relevant to these challenges. Here lies the excitement for most marketers, who
relish this challenging and ever-changing life.
Marketing orientation
marketing orientation
An organization exhibiting a marketing orientation is said to have a sound under-
A marketing-oriented standing of customer needs, buying behaviour and the issues influencing the purchasing
organization devotes choices of customers. A marketing-oriented organization also has a shrewd apprecia-
resources to understand- tion of competitors and external marketing environment forces and trends.1 In addition
ing the needs and buying to comprehending these customer, competitor and marketing environment issues, a
behaviour of customers,
competitors’ activities
marketing-oriented organization ensures its operations, personnel and capabilities are
and strategies, and of aligned to reflect these external drivers. A truly marketing-oriented organization under-
market trends and exter- stands these current issues, but is also focused on identifying how they will evolve, so
nal forces – now and as ensuring that the organization’s strategy and capabilities are modified to reflect not just
they may shape up in the current market requirements but also future market conditions.
future; inter-functional
coordination across the
A marketing-oriented organization devotes resources to understanding the needs and
company ensures that buying behaviour of customers, competitors’ activities and strategies, and market trends
the organization’s activ- and external forces (now and as they may shape up in the future). Inter-functional coor-
ities and capabilities are dination across the company ensures that the organization’s activities and capabilities
aligned to this marketing are aligned to this marketing intelligence and that strategic choices reflect the changing
intelligence.
dynamics of the company’s markets.
Not all organizations can claim to have a marketing orientation. For example, some
are purely sales-led, concentrating on short-term sales targets, whereas other organi-
zations are production-oriented, choosing to emphasize product development and production
efficiency in their business strategy. Few experts would argue against maximizing sales or seeking
leading-edge lean production practices, or indeed the adoption of best-practice financial and
human resource approaches. Similarly, the adoption of a marketing orientation is highly desirable.
A marketing orientation is of significant benefit to an organization, as it facilitates a better under-
standing of customers and helps a business to prepare for external market developments, threats
and opportunities. It is difficult to contemplate a scenario where a marketing orientation would not
be beneficial to an organization.
An organization practicing the concepts explained in Marketing: Concepts and Strategies is
well on the way to having a marketing orientation. However, it is important that inter-functional
coordination aligns the activities within the organization and also the leadership team to the market-
place, specifically to customer buying behaviour, competitive pressures and marketing environment
forces, and to the evolving nature of these market conditions. The use of some of marketing’s
concepts and an understanding of the role of marketing in attracting and satisfying customers,
are not enough on their own to establish a marketing orientation. However, failure to comprehend
the core concepts of marketing will make a marketing orientation impossible to achieve. The focus
of this text, therefore, is on explaining the core concepts of marketing which are the entry point
requirements for going on to establish a marketing orientation.
It is possible for an organization lacking a full marketing orientation to nevertheless deploy and
benefit from aspects of the marketing toolkit as described in the following chapters. For instance,
many businesses have an adequate understanding of their customers, but not all have fully grasped
their competitors’ strategies or the challenges present in the external marketing environment. Obvi-
ously, it is better not to operate in ignorance of these external pressures, which may create threats
or opportunities. The definition of marketing per se is not, therefore, the same as the definition of
marketing orientation.
Marketing defined
Asking members of the public to define marketing is an illuminating experience. They will respond
with a variety of descriptions, including ‘advertising’, ‘social media messaging’, ‘selling’, ‘hype’,
‘conning people’, ‘spying’, ‘stealing my data’, ‘pestering me’, ‘targeting’ and ‘packaging’. In reality,
marketing encompasses many more activities than most people realize and depends on a wealth of
formal concepts, processes and models beyond the soundbites just listed. Since it is practiced and
studied for many different reasons, marketing has been defined in many different ways, whether
for academic, research or applied business purposes. This chapter examines what is
marketing
meant by the term marketing.
Activities that facilitate
and expedite satisfying Marketing consists of individual and organizational activities that facilitate and
exchange relationships in expedite satisfying exchange relationships in a dynamic environment through
a dynamic environment, the creation, distribution, promotion and pricing of goods, services and ideas.
through the creation, dis-
tribution, promotion and Dibb, Simkin, Pride and Ferrell in Marketing: Concepts and Strategies
pricing of goods, services
and ideas. Marketing is
a function and a set of
The basic rationale of marketing is that a successful organization requires satisfied
processes for creating, and happy customers who return to the organization to provide additional custom. In
communicating and exchange for something of value, typically payment or a donation, the customers receive
delivering value to cus- a product or service that satisfies their needs. Such a product has an acceptable level
tomers and for managing of quality, reliability, customer service and support, is available at places convenient for
customer relationships
in ways that benefit
the customer at the ‘right’ price, and is promoted effectively by means of a clear mes-
the organization and its sage that is readily comprehended by the customers in question. For example, in return
stakeholders. for quenching thirst at affordable prices with a reliable product that is widely available
in easy-to-use containers, Coca-Cola receives a great deal of money from c ustomers.
Unfortunately for companies and their marketers, customers’ requirements change
as their needs alter, marketing messages infiltrate their thinking, friends and colleagues discuss
purchases, and competing products are pushed by rival organizations. In the dynamic world of
marketing, an effective solution to satisfying customer needs rarely has longevity. Newspapers
are no longer adequate for most information-hungry people, who today turn to their smartphones
and tablets for up-to-the-minute news and entertainment. Marketers must constantly assess their
customers’ requirements and competitors’ propositions, being prepared to modify their marketing
activity accordingly. An assessment of marketing opportunities is an ever-evolving process requiring
regular revision and updating.
Marketing is the management process responsible for identifying, anticipating and satis-
fying customer requirements profitably.
Chartered Institute of Marketing
Understanding customers and anticipating their requirements is a core theme of effective

marketing.2 So, too, is understanding general market trends and developments that may affect
both customers’ views and the activities of organizations operating in a particular mar-
marketing
ket. These factors may include social trends, technological enhancements, economic
environment patterns and changes in the legal and regulatory arena, as well as political influences.
External changing These are often termed the forces of the marketing environment. Compared with five
forces within the trading years ago, for example, look at how many companies now produce products in ‘envi-
environment: laws, regu- ronmentally friendly’ packaging in line with the social trend of the ‘green consumer’. Or,
lations, political activities,
societal pressures,
owing to recession, consider how many companies now have value ranges.
economic conditions and An organization does not have a marketplace to itself. There are direct competitors,
technological advances. new entrant rivals and substitute products offering alternative solutions to a customer’s
specific need. Construction-equipment giant JCB markets trench-digging equipment
to construction firms, utilities and local authorities. The growth of subterranean tunnelling robotic
‘moles’ for pipe laying, requiring no trench digging, is a substitute for the traditional JCB backhoe
loader and is a major competitive threat, which JCB’s marketers and product ranges must combat.
The competitive context is of fundamental importance to marketers of any good or service. The
internal resource base of the business which drives its strengths and weaknesses will determine
which market opportunities are viable for the organization to pursue, so marketers must be aware
of their capabilities. Marketers also must be aware of how the organization is succeeding and failing
financially, and thereby which existing and new products and markets are worthwhile. Marketing,
therefore, depends on the successful analysis of customers, the marketing environment, compe-
tition, internal capabilities and performance.
The aim of marketing is to make selling superfluous. The aim is to know and to understand
the customer so well that the product or service fits him/her and sells itself!
US management guru Peter Drucker
With an understanding of these aspects of the marketplace, an organization must then develop
a marketing strategy. Even the mighty global organizations such as GM, Apple, IBM, KPMG,
Vodafone or Unilever choose not to offer a product for every type of consumer or customer need.
Instead, they attempt to identify groups of customers where each separate group – or ‘market
segment’ – has ‘similar’ needs. Each group of customers may then be offered a specifically-
tailored product or service proposition and a ‘marketing mix’ programme. The Ford Kuga off-roader
appeals to a separate group of customers than does the Ford Ka city car, and it is marketed totally
differently. In developing unique marketing programmes for individual market segments – groups of
customers – an organization must prioritize which particular groups of customers it has the ability
to serve and which will provide satisfactory returns. Organizations have limited resources, which
restricts the number of segments in a market which can be targeted. In deciding which segments
to target, an organization must be clear about the image – or brand positioning – it intends to offer
to each group of customers. The organization should endeavour to serve those customers it targets
in a manner that gives it an edge over its competitors. Knowing how to group customers sensibly
into homogeneous market segments, determining which to target, selecting a suitable positioning
and seeking superiority over rivals, are some of the core elements of marketing strategy.
The marketing concept holds that the key to achieving organizational goals lies in deter-
mining the needs and wants of target markets and delivering the desired satisfaction more
efficiently and effectively than the competition.
US marketer Philip Kotler
Once a company has devised a marketing strategy, its attention must switch to marketing mix
programmes.3 As consumers of food brands, audio products or banking services, all readers
of this text will have experienced the marketing mix programmes of major companies such as
Cadbury’s, Apple or Barclays. These are the tactical actions of marketing departments, which
are designed to implement the desired marketing strategy by attracting, engaging and continuing
to serve targeted customers. Companies strive to provide a good customer experience and to
build an ongoing relationship with their most lucrative customers, with well-developed customer
value propositions and carefully honed marketing programmes. The product or service must be
aligned to target customer needs; service levels and guarantees must be determined, pricing
and payment issues decided, channels of distribution established to make the product or service
available, and promotional strategies devised and executed to communicate with the targeted
customers. These tactical aspects of marketing programmes – often referred to as the marketing
mix – must be well managed, monitored and controlled to ensure their successful execution and
performance.
Marketers should understand their markets – customers, competitors, market trends – as well
as their own capabilities and performance before developing marketing programmes. A marketing
strategy must be determined that reflects the analyses, before the marketing programmes that will
be used to action the recommended strategy are specified. Analysis first, then Strategy decisions
with finally the formulation of marketing Programmes: the ASP of the marketing process. The
focus must be on providing customer satisfaction, but in a manner that leads to the organization’s
successful performance. For example, by addressing customers’ needs and adopting a marketing
culture incorporating clear controls, construction equipment manufacturer JCB has enjoyed the
most successful financial returns in the company’s history and has become a truly global leader
in its field.
The intention of this text is to comprehensively explore these facets of marketing and thus
provide a sound conceptual basis for understanding the nature and activities of marketing. There
are many definitions of marketing, since it is not a pure science. However, certain core ingredients
of the various definitions collectively indicate the basic priorities of marketing:
●● satisfying customers
●● identifying/maximizing marketing opportunities
●● targeting the ‘right’ customers
●● facilitating exchange relationships
●● attracting and retaining worthwhile customers
●● staying ahead in dynamic environments
●● endeavouring to beat and pre-empt competitors
●● utilizing resources/assets effectively
●● increasing market share
●● enhancing profitability or income
●● satisfying the organization’s stakeholders.
These aims form the objectives for many marketing directors and marketing departments. They are
featured throughout this text, which formally adopts two definitions of marketing by the American
Marketing Association. As already stated, marketing consists of individual and organizational activi-
ties that facilitate and expedite satisfying exchange relationships in a dynamic environment through
the creation, distribution, promotion and pricing of goods, services and ideas. Along with the
Association’s more practical explanation:
Marketing. Noun. An organizational function and a set of processes for creating, com-
municating and delivering value to customers and for managing customer relationships
in ways that benefit the organization and its stakeholders.
Marketing indeed must be viewed as a process . . . of analysis to gain market insights, strategy
decisions to make choices, and the roll-out and management of marketing programmes in order
to implement the desired marketing strategy. Unless marketing is recognized to be this analyti-
cal process, most of the benefits of a strong, market-led culture will not materialize. A definition
of marketing must acknowledge that it relates to more than just tangible goods, that marketing
activities occur in a dynamic environment and that such activities are performed by individuals as
well as organizations.4 The ultimate goal is to satisfy targeted customers and stakeholders, seek-
ing their loyalty and ongoing consumption, in a way that adds value for the organization and its
stakeholders. This should be achieved in a manner that is differentiated in the view of customers
and stakeholders vis-à-vis competitors’ marketing, that provides an organization with a competitive
edge over rivals and that is updated regularly to reflect market forces and developments. To be in
a position to satisfy targeted customers or stakeholders, much work is required by those tasked
within the organization and their external partners to conduct the required marketing analyses,
develop sensible marketing strategies and create appropriate marketing programmes to take to
market . . . repeatedly and regularly.
The definitions of marketing explored

Marketing consists of individual and organizational activities that facilitate and expedite satisfying
exchange relationships in a dynamic environment through the creation, distribution, promotion and
pricing of goods, services and ideas.
Marketing consists of activities

The marketing of products or services effectively requires many activities. Some are performed by
producers; some are accomplished by intermediaries, who purchase products from producers or
from other intermediaries and resell them; and some are even performed by purchasers. Marketing
does not include all human and organizational activities, only those aimed at facilitating and expe-
diting exchanges. Table 1.1 lists several major categories and examples of marketing activities, as
ultimately encountered by the consumer or business customer, who remains at the ‘sharp end’
of such decisions and marketing programmes. Note that this list is not all-inclusive. Each activity
could be sub-divided into more specific activities.
TABLE 1.1 Possible decisions and activities associated with marketing mix variables
Marketing mix variables Possible decisions and activities
Product Develop and test market new products; modify existing products; eliminate products that do not satisfy c ustomers’
desires; formulate brand names and branding policies; create product guarantees and establish procedures for
fulfilling guarantees; provide customer service; plan packaging, including materials, sizes, shapes, colours and
designs
Place/distribution Analyze various types of distribution channels; design appropriate distribution channels; select appropriate channel
members and partners; design an effective programme for dealer relations; establish distribution centres; formu-
late and implement procedures for efficient product handling; set up inventory controls; analyze transportation
methods; minimize total distribution costs; analyze possible locations for facilities and wholesale or retail outlets;
manage multiple channels to market; understand the role of digital channels
Promotion (marketing Set promotional objectives; determine major types of promotion to be used; select and schedule advertising media;
communications) develop advertising messages; measure the effectiveness of advertisements; recruit and train salespeople; formulate
payment programmes for sales personnel; establish sales territories; plan and implement sales promotion efforts such
as free samples, coupons, displays, competitions, sales contests and cooperative advertising programmes; prepare and
disseminate publicity releases; evaluate sponsorships; provide direct mail; manage search engines; maintain active
websites and a digital presence; address social media and create online communities; seek to manage reputation
Price Analyze competitors’ prices; formulate pricing policies; determine method(s) used to set prices; set prices;
determine discounts for various types of buyer; understand comparison pricing; establish conditions and terms
of sales; determine credit and payment terms; understand the consumers’ notion of value
People Manipulate the marketing mix and establish service levels, guarantees, warranties, expertise, sales support, after
sales back-up, customer handling requirements, personnel skills, training and motivation; make products and
services available; manage intermediaries; deliver customer experience; handle customer distress or annoyance;
and execute customer retention plans
Marketing is performed by individuals and organizations

All organizations perform marketing activities to facilitate exchanges. Businesses as well as not-
for-profit and public-sector organizations – such as colleges and universities, charitable organiza-
tions, community theatres and hospitals – perform marketing activities. For example, colleges and
universities and their students engage in exchanges. To receive instruction, knowledge, entertain-
ment, a degree, the use of facilities and sometimes room and board, students give up time, money
and perhaps services in the form of labour; they may also give up opportunities to do other things!
Many organizations engage in marketing activities. Various police forces have surveyed their com-
munities in order to prioritize services and reassure the general public that people’s concerns will
be addressed. Politicians now conduct analyses before determining strategies; they think of target
markets rather than just the electorate. Even the sole owner of, and worker in, a small corner shop
decides which products will sell, arranges deliveries to the shop, prices and displays products,
advertises and serves customers.
exchange Marketing facilitates satisfying exchange relationships

The provision or transfer
For an exchange to take place, four conditions must exist:
of goods, services and
ideas in return for some- 1. Two or more individuals, groups or organizations must participate.
thing of value.
2. Each party must possess something of value that the other party desires (for example,
cash for a product or a donation for a charitable cause).
3. Each party must be willing to give up its ‘something of value’ to receive the ‘something of value’
held by the other party. The objective of a marketing exchange is to receive something that is
desired more than that which is given up to acquire it – that is, a reward in excess of costs.
4. The parties to the exchange must be able to communicate and engage with each other to
make their ‘something of value’ available.5
Figure 1.1 illustrates the process of exchange. The arrows indicate that the parties communicate
and that each has something of value available to exchange. Note, though, that an exchange will
not necessarily take place just because these four conditions exist. Nevertheless, even if there is no
exchange, marketing activities have still occurred. The ‘somethings of value’ held by the two parties
are most often products and/or financial resources, such as money or credit. When an exchange
occurs, products are traded for other products or for financial resources.
Something of value:
Money, credit, donations, labour, goods
Buyer Seller
(Consumer) (Provider)
FIGURE 1.1
Something of value:
Exchange between
buyer and seller Goods, services, ideas
An exchange should be satisfying to both the buyer and the seller. In fact, in a study of
customer satisfaction
A state that results when marketing managers, 32 per cent indicated that creating customer satisfaction was the
an exchange meets the most important concept in a definition of marketing.6 Without satisfaction, customers are
needs and expectations unlikely to return. Marketing activities should be oriented towards creating and maintaining
of the buyer. satisfying exchange relationships. To maintain an exchange relationship, the buyer must be
satisfied with the goods, service or idea obtained in the exchange; the seller must be sat-
isfied with the financial reward or the ‘something else of value’ received in the exchange.7
Maintaining a positive relationship with buyers is an important goal for a seller, regardless of
whether the seller is marketing cereal, financial services or construction plant. Through buyer–seller
interaction, the buyer develops expectations about the seller’s future behaviour. To fulfil these
expectations, the seller must deliver on promises made. Over time, a healthy buyer–seller rela-
tionship results in interdependencies between the two parties. The buyer depends on the seller
to furnish information, parts and service; to be available; and to provide satisfying products in the
future.
Marketing occurs in a dynamic environment

The marketing environment consists of many external changing forces within the trading environ-
ment: laws, regulations, political activities, societal pressures, changing economic conditions and
technological advances. Each of these dynamic forces has an impact on how effectively marketing
activities can facilitate and expedite exchanges. For example, the development and acceptance
of the web has given organizations another vehicle through which to promote and distribute their
products, engage with customers and develop ongoing relationships. Another example is the
growth of the sustainability agenda and how it impacts on product development, packaging and
marketing.
Marketing involves products, distribution, promotion, pricing and people

Marketing means more than simply advertising or selling a product; it involves developing and
managing a product that will satisfy certain needs. It focuses on making the product available at
the right place, at the right time, at a price that is acceptable to customers and with appropriate
people and service support. It also requires transmitting, through marketing communi-
product cations, the kind of promotional information that will help customers determine whether
A good, service or idea. the product will in fact be able to satisfy their needs.
good Marketing focuses on goods, services and ideas

A physical entity that can
be touched. The word ‘product’ has been used a number of times in this chapter. For purposes
of discussion in this text, a product is viewed as being a good, a service or an idea.
A good is a physical entity that can be touched. A Ford Focus, a Sony MP3 player,
service Kellogg’s Cornflakes, a bar of Lux soap and a kitten in a pet shop are examples of
The application of human
and mechanical efforts to
goods. A service is the application of human and mechanical efforts to people or
people or objects in order objects in order to provide intangible benefits to customers. Services such as air
to provide intangible travel, dry cleaning, hairdressing, banking, medical care and childcare are just as
benefits to customers. real as goods, but an individual cannot actually touch or stockpile them. Marketing
is utilized for services but requires certain enhancements in order to be effective (see
Ideas
Part Three). Ideas include concepts, philosophies, images and issues. For instance,
A concept, philosophy, a marriage counsellor gives couples ideas and advice to help save their relationships.
image or issue. Other marketers of ideas include political parties, charities, religious groups, schools
and marketing lecturers.
An organizational function and a set of processes for creating, communicating

and delivering value to customers and for managing customer relationships in
ways that benefit the organization and its stakeholders
This definition suggested by the American Marketing Association came as a welcome addition, as
for over two decades this book’s authors have presented marketing to our students as a system-
atic process of analysis, strategizing and then programmes for implementation in our marketing
process. This process is relevant to not only those organizations with consumers or business
customers. Given that all organizations have stakeholders which must be influenced and satisfied,
this process is suitable for any organization, including those in the third sector.
The marketing process

Marketers spend much of their time managing existing products, target markets and marketing
programmes. Even with such so-called ‘steady-state’ operations, the dynamic nature of marketing
leads to continual changes in the marketing environment, competitors and their activities, as well as
in customers’ needs, expectations, perceptions and buying behaviour. Without a sound understand-
ing of these issues, marketing strategies and their associated marketing programmes cannot be truly
effective. Marketers must undertake analyses of these market conditions. As changes in the market-
place occur, marketers should revise their marketing strategies accordingly. Any strategy
marketing process modifications will necessitate changes to the organization’s marketing programmes.
Analysis of market This analytical process of marketing analyses, strategy formulation and the creation
conditions, the cre- or modification of marketing programmes is necessary for existing activities and target
ation of an appropriate markets. This marketing process is also required when an organization contemplates
marketing strategy,
the development of
entering new markets, launching new or replacement products, modifying the brand
marketing programmes strategy, changing customer service practices, rethinking advertising and promotional
designed to action the plans, altering pricing or evaluating distribution policies, developing digital marketing and
agreed strategy and, managing multiple channels. Unexpected sales patterns also require such a process
finally, the implementa- of understanding, thinking and action. This is the marketing process: the analysis of
tion and control of the
marketing strategy and
market conditions, the creation of an appropriate marketing strategy and the develop-
its associated marketing ment of marketing programmes designed to execute the agreed strategy, as depicted in
programmes. Figure 1.2. Finally, as part of this process, the implementation of the marketing strategy
and its associated marketing programmes must be managed and controlled.
Corporate goals/objectives
Marketing analysis
market insights
opportunities
Performance
Finding out:
& threats
Customers
Competition
Trends/marketing environment
Internal capabilities
priorities to pursue
Marketing strategy
Trade-off choices:
& compelling
Marketing opportunities
proposition
Target market priorities

Brand positioning
Basis for competing/value proposition
Performance objectives
Marketing programmes
Products/services
engagement:
attraction &
Customer
retention
Pricing
Place/channels
Promotion/MarComms
People, processes, physical environment
Marketing controls
controls, audits
& remedial
Execution:
Budgets and schedules

activities
Personnel and responsibilities

FIGURE 1.2 Benchmarking and monitoring progress
The marketing Remedial actions and strategy modifications
process
With an understanding of customers’ needs, buying behaviour, expectations and product or

brand perceptions, marketers are able to create marketing programmes likely to attract, satisfy
and retain customers. With an appreciation of competitors’ activities and plans, the marketing
programmes are more likely to combat rivals’ marketing programmes and to differentiate an orga-
nization’s product. Without an awareness of changes in the marketing environment, it is unlikely that
the specified marketing programme will be sustainable in the longer term. As trading environment
changes occur, it is important that an organization’s capabilities are modified in order to reflect
market conditions and likely demands. Marketers must be aware of where they make good financial
returns and which products or markets are not performing well. The marketing analysis stage of
the marketing process is, therefore, of fundamental importance.
Equipped with an awareness of the marketplace made possible through marketing analyses,
a marketing strategy may be derived. This involves selecting the opportunities to be pursued and
devising an associated target market strategy. Few organizations have adequate financial, man-
agerial and employee resources to address all of the possible marketing opportunities that exist:
there must be some trade-offs. This generally involves selecting only some of the opportunities to
pursue and focusing on specific target markets. Having made these decisions, marketers must
ensure that they develop a compelling value proposition and clear brand positioning, with a strong
basis for competing versus their rivals, aimed specifically at attracting customers in the prioritized
target markets. These strategic recommendations should then translate into specific marketing
objectives, designed to steer the creation of marketing programmes.
In most organizations the majority of the budget, time and effort within the marketing function
is devoted to creating and managing marketing programmes. These programmes revolve around
specifying product, people, promotion (communication), pricing and place (distribution channel)
attributes and policies, designed to appeal to and serve those customers identified as being in the
priority target market(s). In addition to these ingredients of the marketing mix, marketers of services
include other ingredients, as detailed in Chapter 13. Finally, the marketing programmes must be
rolled out, monitored and controlled.
Part Three of Marketing: Concepts and Strategies addresses the creation of marketing pro-
grammes. Chapters 10 to 21 examine extensively each of the ingredients of the marketing mix,
which are the essentials for a marketing programme. However, the marketing programmes should
not be created before marketers have fully analyzed the market and then devised a marketing
strategy. These aspects of marketing analysis and marketing strategy are, therefore, explored in
the early stages of Marketing: Concepts and Strategies, in Parts One and Two. The chapter run-
ning order is also structured to reflect the syllabus content popular on most mainstream marketing
modules and courses at diploma and degree level.
The importance of marketing

Marketing activities are carried out in many organizations
The commercial importance of marketing and its relevance as a topic worth studying are apparent
from the definitions of marketing just presented. The use of marketing techniques and the devel-
opment of a marketing orientation should enable an organization to understand its customers and
stakeholders better, address competitors’ activities and market developments, and effectively har-
ness its capabilities. The results should be enhanced customer satisfaction and retention, improved
market share in key target markets and stronger financial performance. This section discusses
several less obvious reasons why marketing should be studied.
In Europe and the USA between 25 per cent and 33 per cent of all civilian workers perform
marketing activities. The marketing field offers a variety of interesting and challenging career oppor-
tunities, such as strategic planning, personal selling, advertising, packaging, transport, storage,
marketing research, product development, creative design, digital marketing, wholesaling, retailing,
marketing planning and consultancy. In addition, many individuals who work for not-for-profit orga-
nizations – such as charities or health agencies – engage in marketing activities. Marketing skills are
used to promote political, cultural, religious, civic and charitable activities. The poster in Figure 1.3
encourages supporters to customize branded promotional materials from Macmillan Cancer Sup-
port, a non-profit organization. Whether a person earns a living through marketing activities or per-
forms them without reward in non-business settings, marketing knowledge and skills are valuable
assets. For both commercial and non-profit organizations there are needs to satisfy, exchanges
to expedite, changing circumstances to monitor and decisions to make. Even a country benefits
from marketing, as described in the Topical Insight box below.
FIGURE 1.3
Promotion of a non-profit
organization. Macmillan
Cancer Support enables
supporters to customize
branded promotional materials
to support their individual
fundraising efforts.
Source: Macmillan Cancer Support
Marketing activities are important to organizations and the economy

An organization must sell products in order to survive and grow. Directly or indirectly, marketing
activities help to sell an organization’s products. By doing so, they generate financial resources that
can be used to develop innovative products. New products allow a company to satisfy customers’
changing needs more efficiently, which in turn enables the company to generate more profits.
Charities and other not-for-profit organizations use marketing to generate revenues and funds.
Ireland: marketing the low rates of corporate taxation, excel-

a country lent digital and satellite telecommunica-
Topical insight tions systems and a stable currency with
Not only products benefit from market- low inflation. The attractive countryside and
ing. How do you develop a marketing strat- vibrant cultural scene also featured promi-
egy for a country? This was a question faced nently in the IDA’s branding of Ireland.
by the Irish government during difficult times in the Considerable care was taken to ensure that the
1960s and 1970s; and following the recent global economic propositions developed matched the requirements of the busi-
meltdown is the task facing the country once more. The orig- nesses targeted. This provided many overseas businesses
inal challenge was to build the Irish economy to match the with substantial, tangible reasons for establishing a European
affluence enjoyed by some of its European neighbours. At the base in Ireland, bringing with them the investment the country
time, Ireland was viewed as being backward and unattractive so badly craved. Leading computer manufacturers, pharma-
for investment by international corporations. The Industrial ceutical businesses, financial corporations and telecommuni-
Development Authority (IDA) played an important role in cations businesses are just some of those who have located
developing the country’s economy, moving it away from its facilities in the country: over 1000 well-known organizations
traditional over-reliance on agriculture, by attracting signifi- have chosen Ireland ahead of other locations for their Euro-
cant foreign direct investment. Today, with well over one-third pean operations.
of the country’s GDP coming from industry, and services also After the 2008 meltdown of the Irish economy following
accounting for approaching one-third, agriculture’s contribu- the global financial crisis, there was once more the need to
tion has fallen to just 10 per cent. develop a marketing strategy for Ireland. Most of the work
Marketing and good promotion alone were not responsi- of the past 25 years had to be repeated and reinforced, in
ble for this turnaround. The Irish government realized that to order to ensure continued inward investment. The Irish econ-
attract investment from overseas it had to provide a stable omy was one of the first bail-out economies to recover and to
economy, desirable residential suburbs, modern road and demonstrate an end to recession, providing a sound base for
air infrastructure, state-of-the-art telecommunications and, the IDA’s marketing.
crucially, a well-qualified, dynamic and motivated workforce. The marketing toolkit is once again playing a significant
These improvements took some time to achieve, but today part in the overhaul of Ireland’s target market strategy, posi-
the companies located in Dublin and around Ireland’s airports tioning and new-look measures to attract global businesses
testify readily to the excellent infrastructure, communications, to locate in the country. London, Germany, the USA and South
workforce and tax breaks. The Irish workforce is one of the East Asia have been targeted by the IDA’s marketing team. In
best educated and most highly prized in Europe. order to regain its former glory, the IDA is focusing on high
Having improved the amenities, infrastructure and the value inward investment for research and development, Euro-
workforce, the perceptions of investors overseas had to be pean headquarters, advanced manufacturing and supply chain
addressed. In order to instigate this change, the IDA established activities. The Winning Abroad marketing programme aims to
a clear strategy by pinpointing attractive sectors for growth and attract 10 000 new jobs on the back of foreign investments
actively encouraging growth businesses in those areas. Con- in Ireland over the next few years. The UK Brexit decision to
sumer products, electronics, healthcare and financial services exit the EU has given Ireland a further boost, with English-
were some of the key targets. Once decisions about growth language speaking companies now settling in Eire in order to
priorities had been made, the aim was to develop a marketing access both the UK and EU.
programme based around the particular assets that Ireland was
References: Irish Embassy, London; Industrial Development Authority (IDA);
able to offer. For example, promotional material focused on – ‘Facts about Ireland’, IDA, 1995, 1996, 1999, 2003, 2008, 2011, 2015, 2018;
among other things – the young, highly educated workforce, www.idaireland.com, 2 February 2011, 10 March 2015 and 23 January 2018.
Europe’s highly complex economy depends heavily on marketing activities. These help produce
the profits that are essential not only to the survival of individual organizations but also to the health
and ultimate survival of the economy as a whole. Profits are essential to economic growth because
without them organizations find it difficult, if not impossible, to buy more raw materials, recruit more
employees, attract more capital and create the additional products that in turn lead to more profits.
Marketing knowledge enhances consumer awareness

Besides contributing to a country’s economic well-being, marketing activities permeate everyone’s
lives. In fact, they help to improve quality of life. Studying marketing activities enables the costs,
benefits and downsides of marketing to be evaluated. The need for improvement and ways to
accomplish changes can be determined. For example, an unsatisfactory experience with a guar-
antee may lead consumers to demand that laws be enforced more strictly to make sellers fulfil
their promises. Similarly, there may be the desire for more information about a product – or more
accurate information – before purchase. Understanding marketing leads to the evaluation of the
corrective measures – such as laws, regulations and industry guidelines – that may be required
to stop unfair, misleading or unethical marketing practices. The results of the survey presented
in Table 1.2 indicate that there is a considerable lack of knowledge about marketing activities, as
reflected by the sizeable proportion of respondents who agree with the myths in the table.
TABLE 1.2 Popular marketing myths

Strongly Somewhat Neither agree Somewhat Strongly
Myths agree agree nor disagree disagree disagree
Marketing is selling 34% 14% 26% 18% 8%
Marketers persuade 21% 25% 20% 11% 23%
Dealers’ profits significantly increase 21% 32% 12% 8% 27%
prices consumers pay
Marketing depends on advertising 44% 17% 12% 9% 18%
Strategic planning has nothing to do 19% 19% 21% 17% 24%
with marketing
Marketing costs consume a sizeable proportion of buyers’ incomes

The study of the marketing discipline emphasizes that many marketing activities are necessary
to provide people with satisfying goods and services. Obviously, these marketing activities cost
money. A family with a monthly income of £2000, of which £600 goes towards taxes and s avings,
spends about £1400 on goods and services. Of this amount, typically £700 goes towards market-
ing activities. Clearly, if marketing expenses consume that much income, it is necessary to know
how this money is used.
Business performance
Marketing puts an emphasis on satisfying customers. Marketing analyses should lead an organiza-
tion to develop a marketing strategy that takes account of market trends, aims to satisfy customers,
is aware of competitive activity and targets the right customers with a clear positioning message.
In so doing, an organization should benefit from customer loyalty and advantages over its rivals,
while making the most efficient use of resources to effectively address the specific requirements of
those markets it chooses to target. Hence, marketing should provide both a financial benefit and
a greater sense of well-being for the organization.
The marketing concept and its evolution

Some organizations have tried to be successful by buying land, building a factory, equipping it with
people and machines, and then making a product that they believe consumers need. However,
these organizations frequently fail to attract buyers with what they have to offer because they
defined their business as ‘making the product’ rather than as ‘helping potential customers satisfy
their needs and wants’. Such organizations have failed to implement the marketing
marketing concept
The philosophy that an concept. It is not enough to be product-led, no matter how good the product. An orga-
organization should try nization must be in tune with consumers’ or business customers’ requirements.
to provide products that According to the marketing concept, an organization should try to provide products
satisfy customers’ needs that satisfy customers’ needs through a coordinated set of activities that also allows the
through a coordinated
organization to achieve its goals. Customer satisfaction is the major aim of the marketing
set of activities that also
allows the organization to concept. First, an organization must find out what will satisfy customers. With this infor-
achieve its goals. mation, it then attempts to create satisfying products. But the process does not end there.
The organization must continue to alter, adapt and develop products to keep pace with
customers’ changing desires and preferences. The marketing concept stresses the impor-
production era tance of customers and emphasizes that marketing activities begin and end with them.8
The period of mass In attempting to satisfy customers, organizations must consider not only short-term
production following
immediate needs but also broader and long-term desires. Trying to satisfy customers’
industrialization.
current needs by sacrificing their long-term desires will only create future dissatisfaction.
For instance, people want efficient and low-cost energy to power their homes and cars,
yet they react adversely to energy producers that pollute the air and water, kill wildlife or
sales era
The period from the cause disease or birth defects. To meet these short- and long-term needs and desires,
mid-1920s to the early a company must coordinate all its activities. Production, finance, accounting, personnel,
1950s when competitive sales, marketing and digital departments must work together.
forces and the desire for The marketing concept is not another definition of marketing. It is a way of thinking:
high sales volume led a
a management philosophy guiding an organization’s overall activities. This philosophy
company to emphasize
selling and the sales affects all the efforts of the organization, not just marketing activities, and is strongly
person in its business linked to the notion of marketing orientation. However, the marketing concept is by no
strategy. means a philanthropic philosophy aimed at helping customers at the expense of the
organization. A company that adopts the marketing concept must not only satisfy its
customers’ objectives but also achieve its own goals, or it will not stay in business long.
marketing era The overall goals of an organization may be directed towards increasing profits, market
The period in which share, sales or a combination of all three. The marketing concept stresses that an organi-
product and aggressive
selling were no longer
zation can best achieve its goals by providing customer satisfaction. Thus implementing
seen to suffice if custom- the marketing concept should benefit the organization as well as its customers.
ers either did not desire
a product or preferred a
rival brand, and in which The evolution of the marketing concept
customer needs were
The marketing concept may seem an obvious and sensible approach to running a
identified and satisfied.
business. However, business people have not always believed that the best way to make
sales and profits is to satisfy customers. A famous example is the marketing philosophy
relationship
for cars widely attributed to Henry Ford in the early 1900s: ‘The customers can have
marketing era any colour car they want as long as it’s black’. The philosophy of the marketing concept
In which the focus is not emerged in the third major era in the history of business, preceded by the production
only on expediting the era and the sales era. Surprisingly, it took nearly 40 years after the marketing era
single transaction but on began before many organizations started to adopt the marketing concept. The more
developing ongoing rela-
tionships with customers
advanced marketing-led companies have now entered a spin-off from the marketing
to maintain lifetime share era: the relationship marketing era. More recently, there have been several signifi-
of wallet. cant developments for marketers, most notable of which are value-based marketing,
digital marketing and the associated surge in consumer-to-consumer communication,
the growth of social marketing applications and the emergence of so-called critical
digital era marketing. Today, the relationship era has gone digital.
Now the focus is on
managing customer
relationships, developing
The production era During the second half of the nineteenth century, the Industrial
customer insight and Revolution was in full swing in Europe and the United States. Electricity, railways, the divi-
building the brand online. sion of labour, the assembly line and mass production made it possible to manufacture
products more efficiently. With new technology and new ways of using labour, products
poured into the marketplace, where consumer demand for manufactured goods was strong. This
production orientation continued into the early part of the last century, encouraged by the scientific
management movement that championed rigidly structured jobs and pay based on output.
The sales era In the 1920s, the strong consumer demand for products subsided. Companies
realized that products, which by this time could be made quite efficiently, would have to be ‘sold’
to consumers. From the mid-1920s to the early 1950s, companies viewed sales as the major
means of increasing profits. As a result, this period came to have a sales orientation. Business
people believed that the most important marketing activities were personal selling and advertising.
The marketing era By the early 1950s, some business people began to recognize that e fficient
production and extensive promotion of products did not guarantee that customers would buy
them. Companies found that they first had to determine what customers wanted and then pro-
duce it, rather than simply making products first and then trying to change customers’ needs to
correspond to what was being produced. As organizations realized the importance of knowing
customers’ needs, companies entered into the marketing era – the era of customer orientation.9
The relationship marketing era By the 1990s, many organizations had grasped the basics
of the marketing concept and had created marketing functions. However, their view of marketing
was often largely transaction-based. The priority for marketing was to identify customer needs,
determine priority target markets and achieve sales through marketing programmes. The focus
was on the individual transaction or exchange. It should be recognized that long-term success and
market share gains depend on such transactions, but also on maintaining a customer’s loyalty and
on repeatedly gaining sales from existing customers. This requires ongoing, committed, reassuring
and tailored relationship-building marketing programmes.
Relationship marketing refers to ‘long-term, mutually beneficial arrangements in which both the
buyer and seller focus on value enhancement through the creation of more satisfying exchanges’.10
Relationship marketing continually deepens the buyer’s trust in the company and, as the customer’s
confidence grows, this in turn increases the company’s understanding of the customer’s needs. Suc-
cessful marketers respond to customers’ needs and strive to increase value to buyers over time. Even-
tually this interaction becomes a solid relationship that allows for cooperation and mutual dependency.11
As the era of relationship orientation developed, it became clear that it is not only relationships
with customers that are important. Suppliers, agents, distributors, recruiters, referral bodies (such
as independent financial advisers recommending financial services companies’ products), influenc-
ers (such as government departments, national banks or the European Union (EU)), all should be
‘marketed to’ in order to ensure their support, understanding and resources. The internal workforce
must be motivated and provided with a clear understanding of a company’s target market strategy,
marketing mix activities and, indeed, of the corporate strategy and planned direction. Hence, there
is a move away from transaction-based marketing and towards nurturing ongoing relationships.12
In the 1990s, lifetime value (of the customer) became a buzz term for marketers. This concept is
linked to relationship marketing, said by many observers to be a step-change paradigm for marketing.
This evolution of marketing, from focusing on individual transactions with customers to building ongo-
ing relationships and repeat business, has been very important for the success of many organizations.
Until relatively recently, relationship marketing was the main significant change in how the dis-
cipline has been perceived. In the last few years, however, there have been several new trends
for marketing, each of which has stretched the bounds for the discipline, adding complex new
dimensions and further shaping the marketing paradigm.
The digital era has had a significant impact on how businesses interact with their customers,
presenting marketers with a whole raft of new opportunities, techniques and challenges. Digital
media, the surge in internet usage and the uptake of personal mobile communications and infor-
mation provision, have fostered changing consumer behaviours, greater consumer-to-consumer
influence on brands and purchasing decisions, and business-to-business interaction.

digital marketing They have also led to big data, enhanced degrees of customer insight and a new breed
The use of the web, com- of experts in analytics. These developments have created an entirely new domain for
puters and smartphones, marketers, known as digital marketing.13 Now the focus is on managing customer
as well as radio, TV and relationships, developing customer insight and building the brand online.
any other forms of digital
Digital marketing is the use of the web, computers and smartphones, as well as
media, to attract, engage
and build relationships radio, TV and any other forms of digital media, to attract, engage and build relationships
with customers and other with customers and other target audiences. It is the use of technology-led channels
target audiences; the use of communication and selling to manage customer interaction and provide customer
of technology-led chan- experience in a digitally-connected environment. With the growth of mobile devices
nels of communication
this presents marketers with the opportunity to engage with consumers anywhere and
and selling to manage
customer interaction anytime. The immediacy, intimacy and customization of many internet and mobile digital
and provide customer communications and customer interactions have transformed the ability of marketers
experience in a digitally- to target customer groups and individuals with bespoke propositions and nurture an
connected environment. ongoing relationship. Most marketers are excited by the potential of digital. However,
Now the focus is on
the digital era has brought downsides, too.14
managing customer
relationships, developing
customer insight and The growth of consumer-to-consumer (C2C) communications in the digital era
building the brand online. This has significant consequences for brands and marketers, for consumers and for
society in general. Previously, brand managers largely controlled what information was
available to consumers and business customers. These customers based their decisions
consumer-to-
about brands and products on the marketing and sales information communicated to
consumer (C2C)
communication them by brand managers. Today, consumer-to-consumer (C2C) communication is
Consumer-to-consumer routine, enabled by the digital era generally and social media in particular. Consumers
(C2C) communication readily and rapidly share views, experiences and information with one another. A positive
is now routine, enabled or negative customer experience is tweeted instantly, blogged or shared on Facebook
by the digital era and
with many potential fellow consumers. Such messaging, whether positive or negative,
social media in particular.
Consumers readily and has moved beyond the control of marketers. Many consumers trust and value the views
rapidly share views, of their peers far more than the views of brand managers, advertising messages or
experiences and infor- media reviews. The surge of C2C communication has redefined the boundaries and
mation with each other. created huge new challenges for marketers. The role of C2C interaction and commu-
A positive or negative
nication is picked up throughout this edition of Marketing: Concepts and Strategies.
customer experience is
tweeted instantly, blogged
or shared on Facebook Social marketing’s adoption of marketing’s toolkit in non-commercial settings
with potentially very many Social marketing: uses tools and techniques from commercial marketing to encourage
fellow consumers. positive behavioural changes, such as quitting smoking, reducing alcohol consumption,
improving fitness, minimizing anti-social behaviours or reducing carbon footprint. The
health and well-being of individuals, society and the planet are at the core of social
social marketing
Social marketing uses
marketing. The social marketing field now provides interesting career opportunities for
tools and techniques from marketing professionals interested in applying marketing analyses, notably in terms
commercial marketing of monitoring external trends and opportunities (Chapter 3), understanding behaviours
to make interventions of a particular audience or social group (Chapter 5), developing targeting strategies
which encourage positive (Chapter 8), establishing appropriate value propositions (Chapter 8) and in creating pro-
behavioural changes,
such as quitting smok-
grammes to communicate with such audiences (Chapters 16 and 19). Rising interest in
ing, reducing alcohol these applications reflects the increasing importance of the strategic marketing process
consumption, improving to a growing set of audiences and stakeholders beyond those from traditional commer-
fitness, minimizing anti- cial markets. The growth of social marketing is also reflected throughout this edition of
social behaviours or Marketing: Concepts and Strategies.
reducing carbon footprint;
to enhance the health and
Most readers of this text will be students undertaking a business studies degree
well-being of individuals, or marketing qualification. Some readers will be students on more general manage-
society and the planet. ment degrees who do not inhabit the world of commercial marketing managers. For
either audience, this text demonstrates how the marketing philosophy permeates many
aspects of our lives and society, including in the overtly non-commercial realms of social marketing.
As the second Topical Insight reveals, marketing principles extend much further than promoting
Red Bull energy drinks, the iPhone, McDonald’s burgers or JCB diggers.
An alternative view of so ‘social marketing’ can do the reverse. The

same principles – of understanding the con-
the scope for marketing: Topical insight sumer, strategic thinking and building satisfy-
social marketing ing relationships based on emotional as well as
rational benefits – can be brought to bear. Social
The Institute for Social Marketing (ISM) marketing also recognizes that, although commerce
was established 30 years ago with the aim of brings many benefits, it can also cause harm to both
improving the health and well-being of individuals the individual and society. Tobacco, which kills half of its
and society through social marketing research. Now based long-term users, provides an extreme example of this, but other
at the University of Stirling and the Open University, ISM is industries like alcohol, food, gambling and pay-day loans are also
coming under scrutiny. Social marketing’s understanding of both
interested in social marketing’s use of tools and techniques
the commercial and social sectors puts it in a unique position to
from commercial marketing to encourage positive behaviour
provide realistic critiques and identify intelligent solutions. This
changes, such as quitting smoking, responsible management forms an important part of the growing field of critical marketing.
of personal debt, or reducing carbon footprint. These realities informed Lazer and Kelly’s original defini-
Key priority research areas for ISM include alcohol and tion of social marketing: Social marketing is concerned with the
alcohol marketing, tobacco control, sustainability and sustain- application of marketing knowledge, concepts and techniques to
able consumption, faith and community partnerships, problem enhance social as well as economic ends. It is also concerned
gambling, personal debt, health, well-being and quality of life, with the analysis of the social consequences of marketing poli-
ageing, food and nutrition. cies, decisions and activities.
This agenda differs from the common perception of mar- www.open.ac.uk/oubs/ism, January 2018.
keting that is widely held by the general public. This implies
Readers may be surprised to learn that those fighting
there is more scope for applying marketing principles than
obesity, smoking, alcohol abuse, energy wastage, problem
only for the marketing of fast moving consumer goods (FMCG),
gambling or personal debt, are using ideas from commer-
supermarket products, financial services or holiday packages.
cial marketing in their efforts. Just as in commercial settings,
ISM explains the purpose of social marketing and about its
social marketers must understand the attitudes, perceptions
use of commercial marketing ideas:
and behaviour of those they are targeting, before creating
Social marketers are interested in human behaviour. They seek to strategies and interventions to tackle these problems areas.
understand why we live our lives as we do, sometimes healthily Once decisions about who to target have been made, well-
as when we eat a good diet or take regular exercise, and at other articulated and carefully communicated propositions are
times unhealthily as when we smoke or binge drink. Given that needed to engage with these audiences. In these respects,
more than fifty percent of premature deaths are attributable to
the development and execution of a social marketing strategy
such individual lifestyle decisions, there is enormous potential
has many similarities with commercial marketing practice.
for any discipline that can progress thinking in this area. Social
marketing brings a unique perspective to the issue.
Marketing is typically concerned with behaviour in the lim-
ited area of consumption and the marketplace. However, from Sources: www.open.ac.uk/oubs/ism; www.management.stir.ac.uk/about-us/
the discipline’s beginnings, marketers have argued that their institute-of-social-marketing; Philip Kotler and Nancy Lee (eds), Social
Marketing: Influencing Behaviors for Good, Thousand Oaks, CA: Sage Publica-
behaviour change thinking can also be applied to other contexts; tions Inc., 2008; Gerard Hastings, Social Marketing, Abingdon: Routledge, 2013;
as Wiebe famously argued, you can sell brotherhood like soap. Sally Dibb, ‘Up, Up and Away: Social Marketing Breaks Free’, Journal of Market-
So, just as Big Tobacco can use marketing to encourage smoking, ing Management, 30 (11–12), 2014, pp. 1159–1185.
The emergence of critical marketing Although this cannot really be described as a paradigm
shift in the sense of relationship marketing or digital marketing, critical marketing nevertheless
warrants a mention. Those interested in this field agree that critical marketing is difficult to define.
Critical marketing is espoused by individuals who challenge orthodox views that are
critical marketing
Critical marketing central to the core principles of the discipline. Sometimes this involves promoting rad-
involves challenging ical philosophies and theories in relation to the understanding of economies, society,
orthodox views that are markets and consumers, which may have implications for the practice of marketing.
central to the core prin- In some instances, the assumptions at the heart of many of the core principles of the
ciples of the discipline.
discipline are challenged. Critical marketing is connected with the growing area of critical
Sometimes this involves
promoting radical philos- management.
ophies and theories in While a detailed exploration of critical marketing is beyond the scope of this text, it
relation to the under- is right to highlight the alternative views that exist about the domain and the activities
standing of economies, associated with it. Once readers are familiar with the core concepts associated with
society, markets and con-
effective marketing, they might also wish to explore the views of critical marketers.15 This
sumers, which may have
implications for the prac- group is interested in issues such as postmodernism; the biological base for consumer
tice of marketing. Critical behaviour; the connections between marketing activities and society (including social
marketing is connected marketing), such as sustainable marketing; anti-globalization challenges to market-
with the growing area of ing; ecofeminism; and the inter-connection of cultural studies and consumer research.
critical management.
Although many of these themes are not explored at length here, a more detailed exam-
ination of aspects of social marketing is included. In addition, reflections on marketing in
practice are incorporated throughout this text, contributing to the critical marketing debate around
the distinction between theory and practice.
A further aspect of critical marketing that warrants consideration relates to concerns that mar-
keting sometimes has damaging consequences and that marketers are not always aware of these
outcomes.16 For example, some critics argue that marketing is responsible for heightening con-
sumerism and generating ‘must have’ attitudes among consumers. This has resulted in negative
consequences for society in relation to carbon footprint, the use of scarce resources, landfill, state
spending priorities and even on changing societal values. Although there are divergent opinions
on these matters, there can be little doubt that marketing influences consumption and that these
patterns have significant impacts for the environment, for society and for consumers. These and
other impacts of marketing, including a discussion of some of the ethical issues facing marketers,
are considered later in this edition of Marketing: Concepts and Strategies.
The essentials of marketing

Marketing analyses
From these brief introductory comments, it should be evident that marketing can enhance an
organization’s understanding of its customers, competitors, market trends, threats and opportu-
nities. Marketing should direct an organization’s target market strategy, product development and
communication with its distribution channels and customers. In order to carry out these activities,
marketing personnel need access to good quality marketing intelligence about the following issues:
●● customers
●● competitors
●● marketing environment forces
●● the organization’s capabilities and marketing assets
●● performance.
As will be seen later in this text, there are other marketing analyses which can be carried out, but
those just mentioned are the essential building blocks for the development of marketing strategies
and the creation of marketing programmes. The majority of the chapters in Parts One and Two of
Marketing: Concepts and Strategies address these marketing analyses, which are the foundation
of the marketing process.
Marketing strategy
To achieve the broad goal of expediting desirable exchanges, an organization’s
marketing managers are responsible for developing and managing marketing strate-
gies. A marketing strategy involves the selection of new opportunities to pursue and
marketing strategy
The selection of new identification of which current activities to continue to support, identification of associated
opportunities to pursue target markets and competitive positioning, and the creation of appropriate customer
and current activities to value propositions and engagement plans, in order to deliver the specified performance
maintain, identification of goals in the corporate strategy. A marketing strategy articulates a plan for the best use
associated target markets
of the organization’s resources and directs the required tactics to meet its objectives.
and competitive posi-
tioning, and the creation When marketing managers attempt to develop and manage marketing activities, they
of appropriate customer must deal with three broad sets of variables:
value propositions and
engagement plans, in 1. those relating to the marketing mix
order to deliver the speci- 2. those inherent in the accompanying target market strategy
fied performance goals in
the corporate strategy. 3. those that make up the marketing environment.
The marketing mix decision variables – product, place/distribution, promotion, price
and p eople – and the target market strategy variables are factors over which an organiza-
tion has c
ontrol. As Figure 1.4 shows, these variables are constructed around the buyer or c onsumer.
Legal
forces
Customer
value
proposition
engagement
Buyer/ Place/
Price/ consumer distribution/
value satisfaction channel
Promotion/
Differential marketing Marketing
Techno- advantage/ communications opportunity Societal/
logical competitive definition green
forces edge Desired forces
customer
Consumer satisfaction experience
The marketing mix
Economic and
Marketing strategy
competitive forces
The marketing environment
FIGURE 1.4
Marketing environment, marketing strategy, marketing mix and customer satisfaction, consumers and organizations are affected by the forces
of the marketing environment; organizations must determine a marketing strategy, implemented through the ingredients of the marketing mix,
which aims to satisfy targeted customers.
The marketing environment variables are political, legal, regulatory, societal, technological and eco-
nomic and competitive forces. These factors are subject to less control by an organization, but they
affect buyers’ needs as well as marketing managers’ decisions regarding marketing mix variables.
To develop and manage marketing strategies, marketers must focus on several marketing tasks:
marketing opportunity analysis and marketing analyses, the determination of a marketing strategy
and target market selection, marketing mix development and management of the programmes
that facilitate implementation of the marketing strategy.
marketing opportunity Marketing opportunity analysis

A marketing opportunity exists when circum-
One that exists when stances allow an organization to take action towards reaching a particular group of
timing and circum- customers. An opportunity provides a favourable chance or opening for a company to
stances allow an generate sales from identifiable markets for specific products or services. For exam-
organization to take
ple, during a heatwave, marketers of electric fans have a marketing opportunity – an
action towards reaching
a particular group of opportunity to reach customers who need electric fans. Various ‘no frills’ airlines have
consumers or business entered the rapidly growing market for low-priced scheduled air travel, as consumers
customers in order to have demonstrated their liking for this alternative to high-priced full-service airlines or
develop relationships and charters. Bluetooth and wireless connectivity are creating numerous opportunities for
achieve commercial goals.
brands, as mobile apps engage with consumers anytime and anywhere. Tesla and
Google have entered the car market as technology advances and political pressures
open up opportunities for EVs and driverless vehicles. Most new products or services exist because
marketers identified a marketing opportunity.
Marketers should be capable of recognizing and analyzing marketing opportunities. An organi-
zation’s long-term survival depends on developing products that satisfy its customers. Few orga-
nizations can assume that products popular today will interest buyers ten years from now, or even
in a few months’ time. A marketing-led organization can choose among several alternatives for
continued product development through which it can achieve its objectives and satisfy buyers.
It can modify existing products (for example, by reducing salt content and additives in foods to
address increasing health consciousness among customers), introduce new products (such as
smart watches, hybrid cars, cold water washing machines, or longer-life nappies) and delete
some that customers no longer want (such as compact cameras or upright vacuum cleaners).
A company may also try to market its products to a greater number of customers, persuade current
customers to use more of a product, or perhaps expand marketing activities into additional coun-
tries. Diversification into new product offerings through internal efforts or through acquisitions of
other organizations may be viable options for a company. For example, Virgin has entered financial
services and healthcare. An organization’s ability to pursue any of these alternatives successfully
depends on its internal characteristics and the forces within the marketing environment. These
strategic options are discussed further in Chapter 2 of Marketing: Concepts and Strategies.
Internal organizational factors The primary factors inside an organization to be considered when
analyzing marketing opportunities and devising target market strategies are organizational objectives,
financial resources, managerial skills, organizational strengths and weaknesses, and cost structures.
Most organizations have overall organizational objectives. Some marketing opportunities may be
consistent with these objectives; others may not, and to pursue them is hazardous. Frequently, the
pursuit of such opportunities ends in failure, or forces the company to alter its long-term objectives.
The links with corporate strategy and an organization’s mission are discussed in Chapter 2.
An organization’s financial resources constrain the type of marketing opportunities it can pursue.
Typically, an organization avoids projects that might bring economic catastrophe. In some situa-
tions, however, a company must invest in a high-risk opportunity, because the costs of not pursuing
the project are so great. Thus, despite an economic recession and reduced consumer spending,
companies such as BMW have continued to launch new products and enter more markets.
The skills and experience of management also limit the types of opportunity that an organization
can pursue. A company must be particularly cautious when exploring the possibility of entering
unfamiliar markets with new products. If it lacks appropriate managerial skills and experience,
the business can sometimes acquire them by recruiting additional managerial personnel. Most
organizations at some time are limited in their growth plans by a lack of sufficient managers with
suitable skills and market insights.
Like people, most organizations have strengths and weaknesses. Due to the types of operation
in which a company is engaged, it will normally have employees with specialist skills and techno-
logical information. Such characteristics are a strength when launching marketing strategies that
require them. However, lack of them may be a weakness if the company tries to compete in new,
unrelated product areas. A major IT services company altered its strategy to focus on winning
more business for IT infrastructure management from existing clients rather than from attracting
new clients. This required a different set of selling skills, and managers with the ability to nurture
relationships and exploit emerging sales opportunities within a client company. The revised target
market strategy resulted in redundancies among the existing salesforce, and the recruitment of
account managers with the necessary skills and interpersonal abilities.
An organization’s cost structure may be an advantage if the company pursues certain market-
ing opportunities, and a disadvantage if it pursues others. Such factors as geographic location,
employee skills, access to raw materials and type of equipment and facilities can all affect cost
structure. Previous investment levels and priorities will have ramifications for the current cost struc-
ture. As discussed in Chapter 2, the cost structure of an organization may provide a competitive
advantage over rivals, or may place a business at a competitive disadvantage.
Marketing environment forces The marketing environment, which consists of political, legal,
regulatory, societal, technological and economic/competitive forces, surrounds the buyer (consumer)
and the organization’s marketing mix (see Figure 1.4), impacting on both. Each major environmen-
tal force is explored in considerable depth in Chapter 3. Marketers know that they cannot predict
changes in the marketing environment with certainty. Even so, over the years marketers have become
more systematic in taking these forces into account when planning their competitive actions.17 An
organization that fails to monitor the forces of the marketing environment is likely to miss out on
emerging opportunities at the expense of rivals with the foresight to examine these market drivers.
Marketing environment forces affect a marketer’s ability to facilitate and expedite exchanges,
in four general ways:
1. They influence customers by affecting or regulating their lifestyles, standards of living, prefer-
ences and needs for products. As a marketing manager tries to develop and adjust the mar-
keting mix to satisfy consumers or business customers, the effects of environmental forces on
customers also have an indirect impact on the marketing mix components.
2. Marketing environment forces help determine whether and how a marketing manager can
perform certain marketing activities. They may force marketers to cease certain practices or
to adopt new strategies.
3. Environmental forces may affect a marketing manager’s decisions and actions by influencing
buyers’ reactions to the company’s marketing mix.
4. Marketing environment forces may provide an organization with a window of opportunity over
rivals that fail to notice the market development or that take no action themselves. Equally,
market drivers may provide competitors with such an opportunity ahead of a marketer’s own
organization.
Although forces in the marketing environment are sometimes viewed as ‘uncontrollables’, a mar-
keting manager may be able to influence one or more of them. However, marketing environment
forces fluctuate quickly and dramatically, which is one reason why marketing is so interesting and
challenging. As these forces are highly interrelated, a change in one may cause others to change.
For example, from Freons in fridges to additives in foods, most consumers have become increas-
ingly aware of health and environmental issues. Manufacturers have altered product specifications
and production methods to reflect this awareness. Legislators and regulatory bodies have also
responded to expert and consumer opinions with new regulations and informal agreements, forcing
companies to rethink their manufacturing and marketing policies.
Even though changes in the marketing environment produce uncertainty for marketers and
at times impede marketing efforts, they can also create opportunities. After the 1989 oil spills,
for example, more companies began developing and marketing products designed to contain or
dissipate spilled oil. The BSE beef crisis gave producers of other meats significant opportunities.
Environmental concerns have encouraged car manufacturers to develop emission-free engines.
Rising mobile phone usage and improvements to network technologies have enabled various
information providers to tailor their services for sports fans or stock-market investors. Recession
led to a growth in demand for domestic vacations, at the expense of more expensive flight-based
holidays. Marketers must be aware of changes in environmental forces so that they can capitalize
on the opportunities they provide. The marketing environment is discussed more fully in Chapters
2 and 3 of Marketing: Concepts and Strategies.
target market Target market selection A target market is a group of people for whom a company
A group of people or creates and maintains a marketing mix that specifically fits the needs and preferences
organizations for whom of that group.18 When choosing a target market, marketing managers try to evaluate
a company creates and possible markets to see how entering them would affect the company’s sales, costs and
maintains a marketing
profits. Marketers also attempt to determine whether the organization has the resources
mix that specifically fits
the needs and prefer- to produce a marketing mix that meets the needs of a particular target market, and
ences of that group. whether satisfying those needs is consistent with the company’s overall objectives and
mission. The size and number of competitors already marketing products in possible
target markets are also of concern.
Marketing managers may define a target market as a vast number of people or as a relatively
small group. For example, Ford produces cars suitable for much of the population – although
specific models are quite narrowly targeted, such as the family runaround Focus or the executive
Mondeo. Porsche focuses its marketing effort on a small proportion of the population, believing
that it can compete more effectively by concentrating on an affluent target market desiring sports
coupés. Although a business may concentrate its efforts on one target market through a single
marketing mix, organizations often focus on several target markets by developing and deploying
multiple marketing mixes. Reebok, for example, markets different types of shoes to meet the spe-
cific needs of joggers, walkers, aerobics enthusiasts and other groups.
Target market selection is crucial to generating productive marketing efforts. At times, products
and organizations fail because marketers do not identify the appropriate customer groups at which
to aim their efforts. Organizations that try to be all things to all people typically end up not satisfying
the needs of any customer group very well. It is important for an organization’s management to
designate which customer groups the company is trying to serve and to have adequate information
about these customers. The identification and analysis of a target market provide a foundation on
which a marketing mix can be developed. Marketers must strive to develop attractive and com-
pelling value propositions for these targeted consumers or business customers and to provide a
rewarding and satisfying customer experience. As will be explored in the next chapter, it is import-
ant to strive to develop an advantage over competitors in the markets targeted.
In order to make the devised marketing strategy become a reality, marketers must specify the
set of marketing mix ingredients forming the marketing programme for implementing the agreed
marketing strategy. These marketing mix decisions occupy the majority of marketers’ time and
account for the bulk of a marketing department’s budget. However, as previously explained, before
the marketing mix is specified, marketers should undertake sufficient marketing analyses and reflect
the findings of these analyses in their marketing strategy.
marketing mix Marketing mix development Traditionally, the marketing mix was deemed to
The tactical ‘toolkit’ consist of four major components: product, place (distribution), promotion and price.
of the marketing pro- Increasingly, a fifth component is viewed as ‘people’, who provide customer service and
gramme; product, place/ interact with customers and organizations within the supply chain. These components
distribution, promotion,
are called ‘marketing mix decision variables’ because a marketing manager decides
price and people vari-
ables that an organiza- which type of each component to use and in what amounts. A primary goal of a mar-
tion can control in order keting manager is to create and maintain a marketing mix that satisfies consumers’
to appeal to the target needs for a general product type. Note that in Figure 1.4, the marketing mix is built
market and facilitate around the buyer – as is stressed by the marketing concept and definition of marketing.
satisfying exchange.
Bear in mind, too, that the forces of the marketing environment affect the marketing mix
variables in many ways.
Marketing mix variables are often viewed as controllable variables because they can be changed.
However, there are limits to how much these variables can be altered. For example, because of
economic conditions or government regulations, a manager may not be free to adjust prices daily.
Changes in sizes, colours, shapes and designs of most tangible goods are expensive; therefore,
such product features cannot be altered very often. In addition, promotional campaigns and the
methods used to distribute products ordinarily cannot be changed overnight. People, too, require
training and motivating, and cannot be recruited or sacked overnight, so customer service is not
always flexible.
Marketing managers must develop a marketing mix that precisely matches the needs of the
people – or organizations in business-to-business marketing – in the target market. Before they can
do so, they have to collect in-depth, up-to-date information about those needs. The information
might include data about the age, income, ethnic origin, sex and educational level of people in the
target market; their preferences for product features; their attitudes towards competitors’ products;
and the frequency and intensity with which they use the product. Armed with these kinds of data,
marketing managers are better able to develop a product, service package, distribution system,
promotion programme and price that will satisfy the people in the target market.
This section looks more closely at the decisions and activities related to each marketing mix
variable (product, place/distribution, promotion, price and people – the ‘5Ps’ of the marketing mix).
Table 1.1 contains a list of the decisions and activities associated with each marketing mix variable.
product variable The product variable A product can be a good, a service or an idea. The product
The aspect of the variable is the aspect of the marketing mix that deals with researching consumers’
marketing mix that deals product wants and designing a product with the desired characteristics and function-
with researching con-
ality. It also involves the creation or alteration of packaging and brand names, and may
sumers’ product wants
and designing a product include decisions about guarantees, repair services and customer support. The actual
with the desired charac- manufacturing of products is not a marketing activity, but marketing-oriented businesses
teristics and functionality. look to marketers to specify product development requirements that reflect customer
needs and evolving expectations.
Product-variable decisions and related activities are important because they directly
place/distribution involve creating products and services that satisfy consumers’ needs and wants. To
variable maintain a satisfying set of products that will help an organization achieve its goals, a
The aspect of the
marketer must be able to develop new products, modify existing ones and eliminate
marketing mix that deals
with making products those that no longer satisfy buyers or yield acceptable profits. For example, after realizing
available, perhaps through that competitors were capturing large shares of the low-calorie market, Heinz introduced
multiple channels, in the new product items under its Weight Watchers name. To reflect greater use of micro-
quantities desired, to as wave ovens, rice company Tilda introduced its steam-in-a-pouch range of quick cook
many customers as pos-
microwavable sachets.
sible, while keeping the
total inventory, transport
and storage costs as low The place/distribution variable To satisfy consumers, products must be available
as possible. at the right time and in a convenient location. In dealing with the place/distribution
variable, a marketing manager seeks to make products available in the quantities
desired to as many intended customers as possible, and to keep the total inventory, transport and
storage costs as low as possible. A marketing manager may become involved in selecting and
motivating intermediaries (wholesalers, retailers and dealers), establishing and maintaining inventory
control procedures, and developing and managing transport and storage systems. Many organiza-
tions distribute their products through multiple channels, now typically including online, adding to
the complexity of marketing management but providing exciting opportunities. As more than one
channel is often deployed, a challenge for marketers is to manage the customer’s expe-
promotion variable
The aspect of the mar-
rience across these multiple channels, providing a consistent experience of the brand.
keting mix that relates to
marketing communica- The promotion variable The promotion variable relates to communication activities
tions used to inform one that are used to inform one or more groups of people about an organization and its prod-
or more groups of people ucts. Promotion can be aimed at increasing public awareness of an organization and of
about an organization
and its products and
new or existing products. In addition, promotion can serve to educate consumers about
to maintain an ongoing product features or to urge people to take a particular stance on a political or social
relationship. issue. It may also be used to keep interest strong in an established product that has been
available for decades. The advertisement in Figure 1.5 is an example. M arketers increas-
ingly refer to the promotion variable in the marketing mix as ‘marketing communications’.
Figure 1.5
Promotion of an established brand. Champagne
house Moët & Chandon uses its heritage in its
advertising to reinforce its brand appeal
Recently, this has become even more important for marketers, as they struggle to under-
price variable stand the power of growing consumer-to-consumer communications about their brands,
The aspect of the mar- made possible by social media and the web.
keting mix that relates
to activities associated
with establishing pricing
The price variable The price variable relates to activities associated with estab-
policies and determining lishing pricing policies and determining product prices. Price is a critical component of
product prices. the marketing mix because consumers and business customers are concerned about
the value obtained in an exchange. Price is often used as a competitive tool; in fact,
extremely intense price competition sometimes leads to price wars. For example, airlines like Aer
Lingus, British Airways and Virgin Atlantic are engaged in ruthless price cutting in the battle for
transatlantic routes. Price can also help to establish a product’s image. For instance, if Chanel tried
to sell Chanel No. 5 in a two-litre bottle for £3 or €3, consumers would probably not buy it because
the low price would destroy the prestigious image of this deluxe brand. Linked to the notion of
perceived value, the recent recession has placed even greater emphasis on the pricing ingredient
of many organizations’ marketing programmes.
The people variable Product, place/distribution, promotion and price are traditionally the
rincipal elements of the marketing mix: the ‘4Ps’. Marketers of services include people as a core
p
element, along with other ingredients (see Chapter 13). Whether part of the product element or a
separate element of the marketing mix, there is no doubt that people are important, and are integral
to providing customer service. As marketers, they manipulate the rest of the marketing mix. As
intermediaries in the marketing channel, they help make products and services available
people variable to the marketplace. As consumers or organizational purchasers, they create the need
The aspect of the mar- for the field of marketing. In the marketing mix, the people variable reflects the level
keting mix that reflects of customer service, advice, sales support and after-sales back-up required, involving
the level of customer
recruitment policies, training, retention and motivation of key personnel. For many prod-
service, advice, sales
support and after-sales ucts and most services, personnel interface directly with the intended purchaser and are
back-up required, often perceived by such consumers as being part and parcel of the product offering.
involving recruitment pol- Developing and maintaining an effective marketing mix is a major requirement for a
icies, training, retention strong marketing strategy. Thus, as indicated in Figure 1.5, a large proportion of this text
and motivation of key
(Chapters 10 to 21) focuses on the concepts, decisions and activities associated with
personnel.
the components of the marketing mix. It is the marketing mix that readers as consumers
will most frequently have experienced for products and services purchased. It is import-
ant to remember, however, that analysis must precede the development of a marketing strategy,
which in turn must be formulated before the marketing mix is determined for a product or a service.
Marketing management
marketing Marketing management is the process of planning, organizing, implementing and
management controlling marketing activities to facilitate and expedite exchanges effectively and effi-
A process of planning,
ciently. Effectiveness and efficiency are important dimensions of this definition. Effec-
organizing, implementing
and controlling marketing tiveness is the degree to which an exchange helps achieve an organization’s objectives.
activities to facilitate Efficiency is the minimization of resources an organization must spend to achieve a specific
and expedite exchanges level of desired exchanges. Thus the overall goal of marketing management is to facilitate
effectively and efficiently. highly desirable exchanges and to minimize as much as possible the costs of doing so.
Marketing planning is a systematic process of assessing opportunities and
resources, determining marketing objectives, developing a marketing strategy and con-
marketing planning structing plans for implementation and control. Planning determines when and how
A systematic process
of assessing market-
marketing activities will be performed and who is to perform them. It forces marketing
ing opportunities and managers to think ahead, to establish objectives and to consider future marketing activi-
resources, determining ties. Effective marketing planning also reduces or eliminates daily crises. Marketing plan-
marketing objectives and ning and the management of the execution of the resulting marketing plan are intrinsic
developing a thorough aspects of marketing management.19
plan for implementation
and control.
Organizing marketing activities refers to developing the internal structure of the market-
ing unit. The structure is the key to directing marketing activities. The marketing unit can
be organized by function, product, region, type of customer or a combination of all four.
Proper implementation of marketing plans hinges on the coordination of marketing activities,
motivation of marketing personnel and effective communication within the unit. Marketing manag-
ers must motivate marketing personnel, coordinate their activities and integrate their activities, both
with those in other areas of the company and with the marketing efforts of personnel in external
organizations, such as advertising agencies and marketing research businesses. An organization’s
communication system must allow the marketing manager to stay in contact with high-level
management, with managers of other functional areas within the company and with personnel
involved in marketing activities both inside and outside the organization.
The marketing control process consists of establishing performance standards, evaluating actual
performance by comparing it with established standards and reducing the difference between
desired and actual performance. An effective control process has the following four requirements:
1. The control process should ensure a rate of information flow that allows the marketing manager
to quickly detect differences between actual and planned levels of performance.
2. The control process must accurately monitor different kinds of activities and be flexible enough
to accommodate changes.
3. The control process must be economical so that its costs are low, relative to the costs that
would arise if there were no controls.
4. Finally, the control process should be designed so that both managers and subordinates
can understand it. To maintain effective marketing control, an organization needs to develop
a comprehensive control process that evaluates marketing operations at regular intervals.
The authors’ other titles, including Marketing Planning (Cengage), Market Segmentation Suc-
cess: Making It Happen! (The Howarth Press/Routledge) and Marketing Essentials (Cengage)
explore the operationalization of marketing strategies and marketing control processes in
more detail.
The organization of this book

The structure of this book adheres to the principle that it is important to analyze markets and
marketing opportunities, then develop marketing strategies and construct marketing programmes
that implement the desired marketing strategy, before ensuring suitable controls are in place to
manage the roll-out of the strategy and programmes: the marketing process. Marketing analy-
ses develop a thorough understanding of the marketplace, focusing particularly on customers,
competitors and market trends. This knowledge of the marketplace provides a sound basis from
which to devise marketing strategies. These strategies should determine marketing opportunities
to pursue, identify attractive target markets, and develop a clear brand positioning and basis
for competing. In order to implement the recommended target market strategy, marketing pro-
grammes must be designed with marketing mix combinations and control processes to ensure
effective implementation. This marketing process, as presented in Figure 1.2, is fundamental to
sound marketing practice.
What does each part of this book cover?

The first part of Marketing: Concepts and Strategies provides an explanation of the marketing
concept, presents the marketing process and overviews the principles of marketing strategy. Part
One also examines the concept of the marketing environment and the nuances of marketing in
international markets:
●● Part One: Marketing defined and marketing in context
The second part explores the essential marketing analyses for developing an understanding of
consumers and business customers, while producing a target market strategy:
●● Part Two: Understanding and targeting customers
Having explored the core marketing analyses and requisites for developing a marketing strat-
egy, Part Three provides an examination of the ingredients of the marketing mix, starting with
product, branding and service issues, then exploring place and channels, promotion and mar-
keting communications, digital marketing, pricing decisions, and concluding with modifying
the marketing mix in international markets and for the marketing of services and business-to-
business markets:
●● Part Three: Marketing programmes
The focus switches in Part Four to the execution of marketing strategies and operationalization of
marketing programmes:
●● Part Four: Marketing management
Marketing: Concepts and Strategies also offers:

●● an indexed margin/glossary of key terms
●● full subject and name indexing

●● extended cases to enhance readers’ understanding of key topics
●● internet-based exercises
●● questions for discussion
●● recommended further reading on each topic
●● detailed illustrative examples in every chapter
●● up-to-date statistics for the marketing industry
●● support material on its own website
●● various auxiliaries are also available to tutors on the companion website.
Summary
Organizations that practice marketing do not necessarily have a marketing orientation. Organizations with a marketing
orientation have a sound awareness of customers’ needs and buying behaviour, of competitors’ offerings and strategies, and of
market trends. They also take steps to ensure they know how these market conditions will evolve. Crucially, they orientate their
operational practices and coordinate their inter-functional thinking across their company around these market conditions. In
order to have a marketing orientation, it is necessary to adopt a range of marketing concepts and techniques. To practice mar-
keting and to benefit from the activities of marketing, however, it is not necessary for an o rganization to have a fully developed
marketing orientation. A few managers, whether or not they are in an organization’s marketing function, utilizing the concepts
described in this book, will make a significant contribution to the organization’s fortunes and its understanding of its marketplace.
Marketing consists of individual and organizational activities that facilitate and expedite satisfying exchange relationships
in a dynamic environment through the creation, distribution, promotion and pricing of goods, services and ideas. Marketing
is an organizational function and a set of processes for creating, communicating and delivering value to customers and for
managing customer relationships in ways that benefit the organization and its stakeholders.
Marketing opportunity analysis involves reviewing both internal factors (organizational objectives and mission, financial
resources, managerial skills, organizational strengths, organizational weaknesses and cost structures) and external ones
in the marketing environment (the political, legal, regulatory, societal, technological and economic/competitive forces).
An exchange is the provision or transfer of goods, services and ideas in return for something of value. Four conditions must
exist for an exchange to occur: (1) two or more individuals, groups or organizations must participate; (2) each party must
have something of value desired by the other; (3) each party must be willing to give up what it has in order to receive the
value held by the other; and (4) the parties to the exchange must be able to communicate with each other to make their
‘somethings of value’ available. In an exchange, products are traded either for other products or for financial resources,
such as cash or credit. Through the exchange, the recipient (the customer) and the provider (the organization) must be
satisfied (leading to customer satisfaction). Products can be goods, services or ideas.
The marketing process is the analysis of market conditions, the creation of an appropriate marketing strategy, the devel-
opment of marketing programmes designed to action the agreed strategy and, finally, the implementation and control of
the marketing strategy and its associated marketing programme(s). Organizations contemplating entering new markets
or territories, launching new products or brands, modifying their strategies or manipulating their marketing programmes,
should use this sequential analytical process. Even steady-state markets and products encounter changing market
conditions, and marketers should continually analyze and then modify their marketing strategies and marketing pro-
grammes accordingly.
It is important to study marketing because it permeates society. Marketing activities are performed in both business
and non-business organizations. Moreover, marketing activities help business organizations generate profits and income,
the lifeblood of an economy. Even organizations without ‘customers’ have to maximize the deployment of their resources,
address trends, identify stakeholders and develop compelling propositions to satisfy these stakeholders. The study of
marketing enhances consumer awareness. Marketing, practiced well, improves business performance.
The marketing concept is a management philosophy that prompts an organization to try to satisfy customers’ needs
through a coordinated set of activities that also allows the organization to achieve its goals. Customer satisfaction is the
major objective of the marketing concept. The philosophy of the marketing concept emerged during the 1950s, as the
marketing era succeeded the production era and the sales era. As the 1990s progressed into the relationship marketing
era, a focus on transaction-based marketing was replaced by relationship marketing. Recent significant advances in the
field of marketing relate to demands for value-based marketing, growing consumer-to-consumer communication and
digital marketing, the growth of social marketing applications, and the challenges posed to the discipline by critical man-
agement scholars and theorists in the form of critical marketing. Today, we are in the digital era. To make the marketing
concept work, top management must accept it as an overall management philosophy.
The essentials of marketing are that there are marketing analyses, a marketing strategy, marketing programmes centred
around well-specified marketing mixes, plus marketing management controls and implementation practices. Marketing
strategy involves selecting which marketing opportunities to pursue, analyzing a target market (the group of people the
organization wants to reach) and creating and maintaining an appropriate marketing mix (product, place/distribution,
promotion, price and people) to satisfy this target market. Effective marketing requires that managers focus on four tasks
to achieve set objectives: (1) marketing opportunity analysis, (2) target market selection, (3) marketing mix development
and (4) marketing management.
Marketers should be able to recognize and analyze marketing opportunities, which are circumstances that allow an organi-
zation to take action towards reaching a particular group of customers.
A target market is a group of people or organizations for whom a company creates and maintains a marketing mix that
specifically fits the needs and preferences of that group. It is important for an organization’s management to designate
which customer groups the company is trying to serve and to have some information about these customers. The identifi-
cation and analysis of a target market provide a foundation on which a marketing mix can be developed.
The five principal variables that make up the marketing mix are product, place/distribution, promotion, price and
people: the ‘5Ps’. The product variable is the aspect of the marketing mix that deals with researching consumers’ or
business customers’ wants and designing a product with the desired characteristics. A marketing manager tries to
make products available in the quantities desired to as many customers as possible, and to keep the total inventory,
transport and storage costs as low as possible – the place/distribution variable. The promotion variable relates to mar-
keting communications used to inform one or more groups of people about an organization and its products. The price
variable refers to establishing pricing policies and determining product prices. The people variable controls the market-
ing mix; provides customer service and often the interface with customers, facilitates the product’s distribution, sale
and service; and – as consumers or buyers – gives marketing its rationale. Marketing exists to encourage consumer
satisfaction.
Marketing management is a process of planning, organizing, implementing and controlling marketing activities to facilitate
and expedite exchanges effectively and efficiently. Marketing planning is a systematic process of assessing opportunities
and resources, developing a marketing strategy, determining marketing objectives and developing plans for implemen-
tation and control. The operationalization of the marketing plan is a core element of marketing management. Organizing
marketing activities refers to developing the internal structure of the marketing unit. Properly implementing marketing
plans depends on coordinating marketing activities, motivating marketing personnel and communicating effectively within
the unit. The marketing control process consists of establishing performance standards, evaluating actual performance by
comparing it with established standards, and reducing the difference between desired and actual performance.
Sales era
Key links Service
Social marketing
At the end of each chapter summary, a ‘Key links’ box will Target market
steer readers to any chapters that are directly related.
Given that this is an introductory chapter, the other chapters
of Marketing: Concepts and Strategies are all relevant links. Discussion and review questions
Specifically, Chapters 2 and 3 are required reading associ- 1. What is meant by marketing orientation?
ated to this introductory chapter.
2. What is marketing? How did you define marketing before
you read this chapter?
Important terms 3. Why should someone study marketing?
Consumer-to-consumer (C2C) communication 4. What is the marketing process? Why should the process
Critical marketing be so sequenced?
Customer satisfaction 5. Discuss the basic elements of the marketing concept.
Digital era Which organizations use this concept? Have these
Digital marketing organizations adopted the marketing concept? Explain
Exchange your views.
Good 6. Identify several organizations that obviously have not
Idea adopted the marketing concept. What characteristics
Marketing of these organizations indicate non-acceptance of the
Marketing concept marketing concept?
Marketing environment
7. What is digital marketing and why is it now so important to
Marketing era
marketers?
Marketing mix 8. Give an overview of what is meant by social marketing.
Marketing opportunity 9. Briefly outline some issues of importance to critical
Marketing orientation marketers.
Marketing planning 10. Describe the major components of a marketing strategy.
Marketing process How are these major components related?
Marketing strategy
11. Identify the tasks involved in developing a marketing
People variable
strategy.
Place/distribution variable
Price variable 12. What are the primary issues that marketing managers
Product consider when conducting a market opportunity
Product variable analysis?
Production era 13. What are the variables in the marketing environment?
Promotion variable How much control does a marketing manager have over
Relationship marketing era environmental variables?
14. Why is the selection of a target market such an important aid, complete with brief overviews of concepts, illustrative
issue? examples and cases, trial questions and revision guidance.
15. Why are the elements of the marketing mix known as vari- ●● Marketing Planning, Sally Dibb and Lyndon Simkin (London:
ables? What are these variables? Cengage), 2008.
Aimed at marketing practitioners and offering a step-by-step
16. What type of management activities are involved in market-
guide to undertaking planning.
ing management?
●● Market Segmentation Success: Making It Happen!, Sally Dibb
17. Why is it important to adhere to the principle of analyses and Lyndon Simkin (New York: The Haworth Press/Routledge),
first, then marketing strategy development, followed ulti- 2008.
mately by programmes for implementing the recommended Aimed at marketing practitioners undertaking market seg-
marketing strategy? mentation and devising a target market strategy.
Further readings
Recommended readings
In addition to the general marketing introductory texts recom-
mended at the end of this chapter, readers studying for marketing Baker, M. and Hart, S., The Marketing Book (Routledge, 2016).
examinations or wishing to put into practice these concepts of Baker, M. and Saren, M., Marketing Theory: A Student Text (Sage, 2016).
Boone, L. and Kurtz, D., Contemporary Marketing (Cengage, 2015).
marketing may find the following books useful:
Day, G.S., The Market Driven Organization: Attracting and Keeping
●● Marketing Briefs: A Study and Revision Guide, Sally Valuable Customers (Free Press, 1999).
Dibb and Lyndon Simkin (Oxford: Elsevier Butterworth- Jobber, D., Foundations of Marketing (McGraw-Hill, 2016).
Heinemann), 2004. As implied in the title, this is a revision Kotler, P. and Armstrong, G., Principles of Marketing (Pearson, 2017).
Web task Classroom tools Applied mini-case

Seat cars used to be cheap and The market for crisps (potato
cheerful. Under VW’s ownership the chips) is dominated by global
marque has been repositioned as better built, sporty but still giants such as Kellogg’s and PepsiCo. Brands including
good value. The range of cars is well specified, produced to Pringles, Kettle Chips, Walkers and KP are household names.
VW’s high standards, reasonably quick, but keenly priced. Take So what of Salty Dog? Never heard of these hand-cooked
a look at Seat’s website at: www.seat.co.uk or www.seat.com crisps that bite back? Salty Dog has been voted one of the
coolest brands in the UK for four years (www.saltydog-grrr.
1. How user-friendly is the site?
com). They are produced by a very small-scale operation,
2. To what extent does the site provide the information run from a barn deep in the Chiltern hills in the UK. Since
required by someone seeking additional product infor- their launch in 2002, sales have been way ahead of fore-
mation in order to construct a shortlist of possible car casts and exports are heading to France, Germany, Norway,
models to purchase? Belgium and even China. So far so good, but, in order to
3. Consider the decision-making process of a car buyer: to grow, the company has to attract major retailers and pub/
what extent is this website reflecting the issues consid- bar chains, and broaden the brand’s appeal among consum-
ered by car buyers? ers – not easy tasks when faced with the big budgets of
PepsiCo, Kellogg’s (Pringles) or Kettle. Worse, the company
is now attracting the attention of the major players in this
Group tasks market, which are unlikely to stand back and permit Salty
1. Consider the importance of marketing to the major Dog to steal their market shares.
smartphone producers, such as Apple and Samsung.
What does marketing do for these companies? Question
2. As a group, brainstorm what marketers do . . . their As a newly recruited marketing manager for Salty Dog, what
remit, principal tasks and the activities they undertake in would be your priorities? How would you explain these to the
order to fulfil their remit. owners of Salty Dog?
Sweden’s IKEA marches on tastes, dreams, aspirations . . . and wallets.

Case study People who want to improve their home and
Welcome to IKEA. We believe everyone create a better everyday life.
deserves to have a beautiful home filled with For IKEA, helping create a better everyday life
well-designed furniture. And still have money means offering a wide range of home furnishings
left over for other things to enjoy in life. That’s in IKEA stores. Home furnishings that combine good
why we offer our home furniture at prices so low, that as many design, good function and good quality with prices so
people as possible will be able to afford them. Here you can low that as many people as possible can afford them.
find inspiration for your home, and shop our range of home Source: IKEA
furnishings – including beds, sofas, sofa beds, curtains, oak fur-
niture, rugs, bedding and blinds. IKEA’s huge volumes – 9500 items in a typical store – cheap
out-of-town sites and dedication to keeping costs low through
When Swedish home furnishings retailer IKEA opened its first
self-assembly packs mean that, unlike many competitors, the
store in the UK, a retail shed near the M6 at Warrington, curi-
company can cope with any troughs in consumer spending.
ous shoppers found queues jamming nearby roads, parking
Low prices have been the key to IKEA’s success, but price alone
spaces at a premium and retailing analysts by the score. With
cannot create an international long-term marketing success
just one store, IKEA had the UK furniture industry on its toes:
story. Products are updated consistently to match consumers’
large retail groups and manufacturers alike feared large mar-
expectations and lifestyles. In-store service and staff training
ket share losses. With the opening of a national network of 20
are integral to the IKEA shopping experience. Store sites are
IKEA-branded stores, IKEA has conquered yet another territory.
chosen to maximize catchment areas, to make access easy for
Such an impact is not confined to the UK market. The leading
shoppers and to bring the brand name to the attention of the
five countries for IKEA are Germany, the UK, the USA, France
whole community. New order and collect points are appearing
and Sweden, but global expansion is extensive . . . just check
in city centres. Logistics give IKEA an edge, with carefully man-
out details of store openings on www.ikea.com.
aged ordering and delivery reducing both stock holdings and
IKEA has grown from one store in 1958 to 403 stores
stock-outs. Promotion emphasizes the ‘style without expense’
in 53 countries belonging to the IKEA Group or its franchise
philosophy and the IKEA name. The result has been a country-
holders; with sales of 38.3 billion euros, 936 000 000 cus-
by-country revolution as staid furniture markets have been
tomer visitors to stores each year and 2.3 billion web visits.
rejuvenated with the entry of IKEA. Shoppers intending to buy
Annually, 217 000 000 copies of the famous IKEA catalogue
just a sofa return home with a sofa, a chair, some lamps and
are distributed. Close to 60 per cent of sales are from within
a general excitement about a new store where they can buy
Europe, but expansion in North America, South-East Asia
home furnishings at unbelievable prices. The IKEA vision is
and Australasia is now increasing sales in the rest of the
simple: ‘Good design and function at low prices.’
world – despite some initial franchising difficulties in certain
The latest strategic developments for IKEA include entering
territories. IKEA’s distinctive catalogue is produced in-house
eastern European markets, developing new IKEA formats and
and now printed in 32 languages. IKEA is perhaps one of the
expanding its mail-order/electronic ordering. For a long time,
world’s most successful retailers, with a brand name that
IKEA resisted e-shopping, wanting customers instead to visit
is known, recognized and discussed; a retail concept that
stores to appreciate the full IKEA range and brand experience.
stands for value, style and quality; everything for the home
Now there are over 2.3 billion web visits per annum and ris-
under one roof, with easy parking, children’s play areas and
ing. Eastern Europe has been a recent target for expansion,
cafés – in fact, ‘a day out’!
with IKEA stores opening in Poland, the Czech Republic and
As the company succinctly stated in its advertising:
Hungary. Russia, Greece and Turkey have witnessed recent
IKEA: the furnishings store from Sweden expansion. The Middle East, too. The company is also sourcing
More for your money furniture from eastern European manufacturers, which now
IKEA is more than just furnishing ideas. It’s a day out for all
supply 15 per cent of its range. As an experiment, the standard
the family.
‘big box’ IKEA concept was brought to a smaller stage with
Most of the time, beautifully designed home furnishings are
created for a small part of the population – the few who can afford
the New York opening in Manhattan of the first IKEA Marketing
them. From the beginning, IKEA has taken a different path. We Outpost, a 720-square-metre (7500-square-foot) ‘boutique’,
have decided to side with the many. significantly smaller than the normal 19 000-square-metre
That means responding to the home furnishing needs of (200 000-square-foot) IKEA superstore. Even more unusual
people throughout the world. People with many different needs, was the decision – in this test concept – to offer only a selected,
themed, reduced range at any point in time. For example, IKEA

Cook showcased the company’s kitchen-related merchandise.
In 2008, Coventry in the UK saw the opening of IKEA’s first ever
‘vertical store’: built on the city centre site of a former grocery
superstore, the constrained site led IKEA to develop a new-look
format that retails on three levels, with parking on three others.
Its city-centre location enabled more scope for IKEA’s well-
known catering outlets, including an on-street pavement café.
IKEA has its ideals and operating philosophies: standards
matter. IKEA has a forceful, well-directed marketing strategy
actioned through primarily one tightly developed marketing mix
for the core superstore operation. The result is a successful,
expanding company, satisfied target customers, highly moti-
vated personnel and unhappy competitors. Despite global eco- Sources: www.ikea.com, 14 February, 2018; www.ikea.co.uk, 2004 and 2018;
nomic problems, the company is going from strength to strength. Helen Jones, ‘IKEA’s global strategy is a winning formula’, Marketing Week,
15 March 1996, p. 22; Jennifer Pellet, ‘IKEA takes Manhattan!’, Discount
Merchandiser, October 1995, pp. 22–23; ‘IKEA’, Retail Business, March 1995,
Questions for discussion pp. 78–81; Jonathan Pell, ‘IKEA successfully penetrates east European con-
sumer markets’, Central European, June 1994, pp. 13–14; www.ikea.com, 2007;
1. Explain why IKEA is successful. IKEA Coventry store, 2008 and 2011; IKEA Delft (strategy HQ), 2009/10; Eli
2. Why has IKEA developed new formats? Greenblat, ‘IKEA ups sales and profit despite tight market’, The Sydney Morning
Herald, 15 January 2014; Claire Reilly, ‘The sleeping giant: IKEA appliances and
3. In what ways does IKEA deploy the marketing concept? electrical’, Appliance Retailer, 18 February 2013; ikea.com, April 2015.
Chapter 2
Marketing strategy and
understanding competitors
Identifying where are the opportunities and which to pursue is
fundamental to effective marketing strategy
INTRODUCTION
Objectives Marketing strategy involves planning and decision-making, with
the aim of selecting and pursuing marketing opportunities, iden-
To define marketing strategy and
tifying appropriate target markets, establishing a competitive
explore the relationship with a
advantage and deciding how best to engage with the targeted
company’s organizational mission,
markets. This requires an awareness of the external trading
goals and corporate strategy.
environment and market trends, an appreciation of the orga-
To assess organizational nization’s capabilities and resource base, an understanding of
opportunities, capabilities and changing customer behaviours and expectations, knowledge of
the SWOT analysis. competitors’ intentions and propositions, as well as understand-
ing how an organization is performing and where it is success-
To consider strategic objectives.
ful. Marketing programmes must be developed to reflect these
To appreciate the role of target market conditions, organizational characteristics, agreed pursuit
market strategy, customer value priorities and target market strategies. The marketing strategy
propositions and brand positioning needs careful consideration before marketing programmes are
in marketing strategy. created or executed.
Marketing-oriented organizations have a marketing strat-
To examine competitive advantage,
egy that clearly articulates to a broad set of internal audiences
competitive positions and differential
the opportunities the organization has decided to address,
advantage.
and aligns the organization to a specific set of target markets,
To explore marketing objectives and while reflecting external drivers in the marketplace. Decisions
understand the role of marketing will have been made with the knowledge of market drivers
mix programmes in executing a and marketing environment forces, an understanding of cus-
marketing strategy. tomer needs, expectations and buying behaviour, and with full
knowledge of competitors’ activities and their likely impact in
To understand the importance of
target markets. The strategy will reflect the marketing assets
implementation and performance
and capabilities of the organization, its strengths and weak-
monitoring in marketing strategy.
nesses. This mix of external and internal awareness is pivotal
to effective marketing strategy development. An organization’s
marketing plan will then specify marketing programmes com-
posing the marketing mix (product, people, place, pricing and
promotion activities) and a roadmap designed to execute this
marketing strategy.
38
Chapter 2 Marketing strategy and understanding competitors 39
Driverless vehicles
T he sales manager
might desire to use
his or her time on the move
are coming this way
bringing to market driver-
less vehicles for the con-
struction, quarrying and
between sales calls working mining industries. There
in a mobile office pod rather than is also considerable interest
focusing on driving a car; the gamer in driverless vehicles and plat-
might want to spend the two hours from Birmingham to Heath- forms within the defence and secu-
row playing games and connecting to other players remotely rity communities, taking the latest developments from the
rather than steering a car and navigating traffic jams; the sports automotive sector and applying them to hazardous situations
fan might enjoy viewing Sky Sports broadcasts of matches while in war, combatting terrorism and surveillance.
on the move; families might prepare whilst on their journeys However, when will this new thinking for production road
for visits and vacations by researching local attractions and cars and HGVs be deemed socially acceptable, legally safe
virtually exploring their impending destinations . . . prototype and economically viable? And what of the many consumers
autonomous pods exist for all of these applications and usage who will be reluctant to adopt and in fact will be resistant
behaviours. For drivers not desiring such a radical departure to change, preferring instead to drive themselves as they do
as offered by driverless pods, simply sitting in the driver’s seat now? For manufacturers and brand managers, these poten-
but letting the vehicle make decisions and operate all controls tial market opportunities are fraught with worries and many
might well appeal in the growing range of autonomous vehicles dilemmas to ponder. Identifying when to launch products,
now being trialled by Jaguar, Volvo, Google or Uber. Both forms which groups of potential customers to target, who to lobby in
of driverless mobility are being developed: pods and conver- order to smooth the path for adoption of these new technol-
sions of mainstream car, van and HGV models. ogies and behaviours, how best to position and engage with
There are already autonomous tractors harvesting fields, customers, and how to achieve pay-back for the significant
and construction giants such as JCB and Caterpillar are market development and product launch investments involved,
are just some of the challenges facing those responsible for
creating marketing strategies in this fast-evolving sector.
And where will it end? No more driving tests or require-
ments for ‘drivers’ to know how to drive? The elderly on the
roads long after their faculties have declined in terms of their
traditional motoring capabilities? All vehicles following each
other on prescribed routes at identical speeds? Or will there
be a much more complex set of market segments to cater for,
with associated trade-off choices for the existing and new
entrant manufacturers striving to serve this sector? Devel-
oping successful marketing strategies in this market will be
pivotal to the well-being of many businesses, many of which
will undoubtedly struggle to remain viable.
T
his chapter aims to highlight the strategic marketing considerations helping to ensure that
a product or service is marketed for the benefit of the organization as well as its targeted
customers. The product or service should be marketed differently enough from competitors’
marketing programmes and customer value propositions to provide the organization’s product or
service with a perceived advantage over these competitors in shrewdly selected target markets.
No companies serve every customer type or market sector; instead they select only some on
which to focus their attention and devote their resources to pursuing. These core components of
marketing strategy are illustrated in Figure 2.2 and are clearly of great concern to the many auto-
motive and technology businesses now seeking to enjoy the anticipated growth of the autonomous
driverless vehicle market.
The chapter first scopes what is meant by marketing strategy, before exploring linkages with
corporate strategy and strategic market planning, stressing the importance of organizational mission
and goals. The discussion next turns to assessing organizational opportunities and resources, as
well as identifying strategic objectives and strategic focus. The chapter addresses the all-important
role of identifying market segments, targeting and brand positioning in marketing strategy – the
development of clear target market priorities. The importance of customer value propositions is also
established. The chapter then focuses on competitive strategies for marketing: the role of compe-
tition, its ramifications for strategy, competitive positions and warfare strategies. The link between
marketing objectives and marketing mix programmes is examined, along with implementation and
performance monitoring, which are essential for marketing strategy success.
Marketing strategy defined

Marketing strategy is often described as the vision and the required planning for how
marketing strategy
The selection of new to increase sales in priority target markets, achieve a sustainable competitive advan-
opportunities to pursue tage and continue to satisfy customers,1 combining all of the organization’s marketing
and current activities goals in a comprehensive plan.2 Marketing strategy is defined here as the selection
to continue to support, of new opportunities to pursue and current activities to continue to support, identifi-
identification of associ-
cation of associated target markets and competitive positioning, and the creation of
ated target markets and
competitive positioning, appropriate value propositions and customer engagement plans, in order to deliver the
and the creation of specified performance goals in the corporate strategy and satisfy shareholders or key
appropriate value prop- stakeholders.3
ositions and customer This is because marketing strategy involves a set of very important activities:
engagement plans,
in order to deliver the ●● Creating an awareness of performance in terms of where the organization currently
specified performance succeeds and loses regarding net revenues, market shares, customer satisfaction
goals in the corporate
and the ability to compete effectively.
strategy.
●● The identification and assessment of new opportunities to pursue and the selection of
the overall mix of existing and new activities to support, bearing in mind that market
conditions, trends and performance inevitably will lead to pulling away from certain
existing markets, customer groups and products.
●● The creation of an associated target market strategy and decisions regarding which potential
customers in a market to focus on and just as importantly which to ignore.
●● Development of a competitive advantage and basis for competing.
●● The communication of a compelling value proposition and brand positioning.
●● Effective consumer or business customer engagement and retention.
●● The execution of appropriate marketing programmes for initial engagement and ongoing
customer experience management.
●● The management of this implementation with appropriate resources, controls and
benchmarks.
In developing and managing a marketing strategy, marketers should be the ‘eyes and ears’
or the ‘radar’ for their organizations, identifying threats and opportunities, devising smart target
market strategies, understanding competitors’ moves, while satisfying ever-changing customer
buying behaviour with value-enhancing propositions. The other functions in a business, such as
HR (human resources), IT, Production, R&D (research and development), Finance, Sales, Logistics
and Supply Chain do not have any desire to look out into a market, assess its dynamics, report
the implications and seek to align the organization’s strategy to these market conditions. It is the
marketing or business development function in a company which has this strategically and hugely
important responsibility.
Therefore, it is important to acknowledge that there are strong linkages between the
strategy
The direction and scope creation of an effective marketing strategy and the organization’s over-arching corporate
of an organization over strategy. Strategy is defined4 as:
the longer-term, which
achieves advantage Strategy is the direction and scope of an organization over the long-term, which
for the organization
achieves advantage for the organization through its configuration of resources
through its configuration
of resources within a within a challenging environment, to meet the needs of markets and to fulfil
challenging environment, stakeholder expectations.
to meet the needs of
markets and to fulfil To expand on this definition of strategy:
stakeholder or share-
holder expectations. ●● Direction: To where is the business trying to reach in the longer-term?
●● Scope: In which markets should a business compete and what kinds of activities are
involved in such markets?
●● Advantage: How can the business perform better than the competition in those markets?
●● Resources: What resources (skills, assets, finance, relationships, technical competence, facilities)
are required in order to be able to compete?
●● Environment: What external environmental factors affect the business’s ability to compete?
●● Stakeholders: What are the values and expectations of those who have power in and around
the business?
A decade or so ago, marketing strategy merely would have been part of the company’s execu-
tion plan for its strategy, articulating target market segments on which to focus in order to achieve
the stated corporate strategy, identifying an appropriate competitive brand positioning and devel-
oping the required marketing programmes for pursuing these targeted customers. The rigour of
robust marketing planning, greater prowess in the collection of market insight and analytics, and the
desire to seek new business, today result in a marketing function providing so much of the market
intelligence necessary for shaping an organization’s overall strategy. The marketing function might
not have responsibility for managing shareholder value, setting corporate financial goals or the big
investment decisions handled by a company’s leadership, but as Figure 2.1 shows marketing is
very much pivotal in the other aspects of formulating a corporate strategy.
Markets Financials Operations,

and and Structure and
Opportunities Performance Resources
• Ready for threats • Keeping the lights on • Right capabilities

Figure 2.1 • Opportunities to pursue • Funding growth • Appropriate structure
The components of strategy and • Customer relevancy • Satisfying shareholders • Ability to execute
the role of marketing strategy • An attractive partner • Achieving KPIs • As leanly as possible
In creating a corporate strategy, a company’s leadership team generally finds that it must
address these questions:
1. How best to improve performance, grow the business, provide shareholder value or survive?
2. Which opportunities to prioritize and which products or services to fund?
3. What to stop doing or where to limit resourcing as benefits there will be limited?
4. Which target markets to prioritize and with what edge over rivals?
5. How best to engage and excite these markets and customers?
6. How to mobilize internally and ensure alignment to the evolving strategy?
The marketing or business development function has a role in all of these decisions, through
insight and analysis, strategic marketing planning, customer engagement and management, as well
as supporting communications. Therefore, there is much more to effective marketing than the cre-
ation, execution and management of marketing mix programmes. At the heart of this contribution
is the strategic marketing process described in Chapter 1, involving marketing analysis, marketing
strategy, marketing programmes and marketing controls.
A company’s top-level corporate strategy sets the agenda for the business’s over-arching aims,
which is in many cases related to a strategic market plan or business plan. In order to achieve the
objectives in the corporate strategy and to meet the needs of the strategic market plan, they also
have a marketing strategy, which is operationalized through the marketing plan. A later chapter
explores marketing planning in more detail.
Marketing strategy articulates the best uses of an organization’s resources and tactics to achieve
its objectives. It states which opportunities are to be pursued by an organization, indicates the spe-
cific markets towards which activities are to be targeted, identifies the types of competitive advan-
tage that are to be developed and exploited, and provides direction for marketing programmes.5
Implicitly, as described in Figure 2.2, the strategy requires clear objectives and a focus in line with
an organization’s corporate goals; the ‘right’ customers must be targeted more effectively than
they are by competitors, and associated marketing programmes should be developed
to implement the marketing strategy successfully.6
A strategic market plan or business plan is an outline of the methods and resources
strategic market plan
An outline of the required to achieve an organization’s goals within a specific target market. It takes into
methods and resources account not only marketing but also the functional aspects that must be coordinated, such
required to achieve an as production, IT, logistics, finance and personnel. Environmental issues are an import-
organization’s goals ant consideration too. The concept of the strategic business unit is often used to define
within a specific target
areas for consideration in a specific strategic market plan. Each strategic business unit
market.
(SBU) is a division, product line or other profit centre within a parent company. Each sells
a distinct set of products to an identifiable group of customers, and each competes with
strategic business
a well-defined set of competitors. Each SBU’s revenues, costs, investments and strategic
unit (SBU) plans can be separated from those of the parent company and evaluated. SBUs operate
A division, product line or in a variety of markets, which have differing growth rates, opportunities, degrees of com-
other profit centre within petition and profit-making potential. Vodafone, for example, has separate management
a parent company. teams for business units handling corporate and private users, pay-as-you-go and those
customers on monthly contracts. Strategic planners must recognize the different perfor-
mance capabilities of each SBU and allocate resources carefully. They must also ensure
that the SBUs complement each other for the greater good of the overall business.
The strategic planning process should be guided by a marketing-oriented culture
marketing plan and processes in the organization.7 A marketing plan includes the framework and
The written document or entire set of marketing activities to be performed; it is the written document or blueprint
blueprint for specifying, for specifying, implementing and controlling an organization’s marketing activities and
implementing and con-
trolling an organization’s
marketing mixes. Thus a strategic market plan is not the same as a marketing plan; it
marketing activities and is a plan of all aspects of an organization’s strategy in the marketplace.8 A marketing
marketing mixes. plan, in contrast, deals primarily with implementing the marketing strategy as it relates to
specific target markets and marketing programmes.9 The marketing plan states which
are priority target markets and details the marketing programmes, specifying also time-
frames, budgets and responsibilities.
Marketing objectives must be designed so that their achievement will contribute to the overall
corporate strategy and so that they can be accomplished through efficient use of the company’s
Organizational mission, goals and corporate strategy
Organizational opportunities and capabilities

Environmental scanning
Customer and competitor analysis
Capabilities and resources
Strategic objectives
Intense growth
Diversified growth
Integrated growth
Maintenance
Target market strategy and brand positioning

Market segmentation
Priority target markets
Customer value proposition
Brand positioning
Differential advantage
Marketing programme objectives

Acquisition and retention
Customer experience across channels
Marketing programmes for implementation

Marketing mix tactics
Operational controls
Performance assessment and benchmarking

Remedial actions
Figure 2.2 Updated marketing programme activities
The components of marketing strategy
resources. For example, IT services company Fujitsu wants to be the dominant provider of IT solu-
tions and outsourcing to government and the public sector, along with certain commercial sectors
such as financial services. The marketing and business development functions in Fujitsu must
identify opportunities to pursue in these sectors, specifying target market prospects, developing
appropriate services and marketing messages, engaging with potential clients, building relation-
ships and helping to win individual pieces of business within the organization’s priority s ectors. In
some organizations, marketers steer the development of the strategic market plan because they
are the holders of market knowledge. In other organizations, the board of directors develops the
strategic market plan or business plan and marketers focus on devising marketing strategies and
programmes capable of achieving the aims of the top-line strategic market plan.
To achieve its marketing objectives, an organization must develop a marketing strategy or
a set of marketing strategies. To operationalize a marketing strategy, a marketing mix must be
developed. Most marketers refer to their marketing mix activities as their marketing
marketing programme
A marketer’s marketing
programme. M arketing programmes centre on a detailed marketing mix specifica-
mix activities and tion and include internal controls and procedures to ensure that they are implemented
implementation effectively. Through the process of strategic market planning and business planning, an
processes designed organization can develop marketing strategies that – when properly implemented and
to operationalize the controlled – will contribute to the achievement of its marketing objectives and its overall
marketing strategy.
goals. Figure 2.3 provides a glimpse of one aspect of Scottish Gas’s marketing mix. To
formulate a marketing strategy, the marketer identifies and analyzes opportunities and
the associated target market, and develops a marketing mix to satisfy individuals in that market.
Marketing strategy is best formulated when it reflects the overall direction of the organization and
is coordinated with all the company’s functional areas.
Figure 2.3
Scottish Gas strives to market the appeal
of its range and services
The strategic market planning process is based on an analysis of the broader marketing
nvironment. As detailed in Chapter 3, marketing environment forces can place constraints on
e
an organization and possibly influence its overall goals; they also affect the amount and type of
resources that a business can acquire. However, these forces can create favourable opportunities
as well opportunities that can be translated into overall organizational goals and marketing objec-
tives. For example, when oil prices increased a few years ago, there was greater opportunity for
the emergence of hybrids and eco-friendly transport solutions.
Marketers differ in their viewpoints concerning the effect of marketing environment variables on
planning and strategy development. Some take a deterministic perspective, believing that compa-
nies must react to external conditions and tailor their strategies and organizational structures to deal
with these conditions. According to others, however, companies can influence their environments
by choosing in which markets to compete, lobbying regulators and politicians, striving to modify
social views, joining forces with trade bodies for campaigning purposes and so forth. They can also
change the structures of their industries, engaging in activities such as mergers and acquisitions,
demand creation or technological innovation.10
Regardless of which viewpoint is adopted, marketing environment variables play a part in the
creation of a marketing strategy, presenting challenges and opening up opportunities. When mar-
keting environment variables affect an organization’s overall goals, resources, opportunities or tar-
get markets, they also affect its marketing strategies, which are based on these factors. Marketing
environment forces more directly influence the development of a marketing strategy through their
impact on consumers’ needs and desires, as well as their effect on competitors’ plans, and how
they impact on other organizations in their supply chain. In addition, these forces have a bearing
on marketing mix decisions. For instance, competition strongly influences marketing mix deci-
sions. An organization must diagnose the marketing mix activities it performs, taking into account
competitors’ marketing mix decisions, and develop a differential advantage to support a strategy.
Thus as Honda and Toyota entered the luxury car market with the Acura and Lexus models,
European car makers BMW, Mercedes and Jaguar had to change their marketing strategies to
maintain their market shares. They did so by lowering prices, introducing new models and creating
brand-building marketing communications campaigns to compete with the new Japanese models.
Organizational mission, goals

and corporate strategy
Central to the strategic market plan or business plan is a clear view of the organizational m
ission,
goals and corporate strategy. A company’s organizational goals should be derived from its mission –
the broad, long-term tasks that the organization wants to accomplish. Computer producer Dell has
three parts to its mission, co-created by its employees:
●● Customer Satisfaction: We are an established company striving to satisfy customers by
meeting their demands of quality, responsiveness and competitive pricing. Each customer is #1.
●● Team Satisfaction: Management and employees are committed to cooperating as a team
for the purpose of profitability and gratification of a job well done.
●● Community Satisfaction: We will provide jobs in a clean, safe, environmentally sound
atmosphere and be an active participant in community affairs.
A mission statement addresses an organization’s purpose and goals, as well as the
mission statement
A mission statement scope of its operations, including product areas, principal markets, locations of activities,
addresses an organiza- aspiration and governing ethos.
tion’s purpose, goals and When a company decides on its mission, it really answers three questions:
scope of its operations
1. What is the company’s core business and areas of activity?
2. How should these evolve?
3. What behaviours are required and expected?11
Although these questions seem very simple, they are in fact three of the hardest, yet most
important, for any organization to answer.
Creating or revising a mission statement is very difficult because of the many complex variables
that must be examined and the need to ensure that the reality of the organization’s actions and
behaviours match-up to the stated mission. However, having a mission statement can greatly
benefit the organization in at least five ways.12 A mission statement:
1. Gives the organization a clear purpose and direction, keeping it on track and preventing it
from drifting.
2. Describes the unique aim of the organization that helps to differentiate it from similar competing
organizations.
3. Keeps the organization focused on customer needs rather than its own abilities. This ensures
that the organization remains externally rather than internally focused.
4. Provides specific direction and guidelines to top managers for selecting alternative courses of
action. It helps them decide which business opportunities to pursue, as well as which oppor-
tunities not to pursue.
5. Offers guidance to all employees and managers of an organization, even if they work in different
parts of the world. As a result, the mission statement acts like ‘glue’ to hold the organization
together.
A company’s mission and overall organizational goals should guide all its planning efforts. Its
goals should specify the results that are sought. Examples of organizational goals include profit,
return on investment, an increase in market share, an increase/decrease in the number of active
markets, the desire to enter specific market sectors, to develop a particular reputation and track
record, to contribute to society in specific ways, and to touch employees in a manner desired
by them. Organizations can also have short-term and long-term goals. Companies experiencing
financial difficulty may be forced to focus solely on the short-term results necessary to stay in
business, such as increasing cash flow by lowering prices or selling off parts of the business. Other
organizations may have more optimistic long-term goals. In many cases, companies that pursue
long-term goals have to sacrifice short-term results to achieve them. Businesses that are success-
ful over time tend to have a longer-term, market-share-driven strategy, rather than a short-term,
‘profits only’ sales-led emphasis.
An organization in serious financial trouble may be concerned solely with short-run results needed
for remaining viable and fending off creditors. There is usually, for example, an airline or major retailer
being forced by cash shortages to take drastic action to stay in business. Lowndes Queensway,
once the UK’s largest retailer of carpets and furniture, had to renegotiate its financing several times
with city institutions, alter payment and credit lines and terms with its suppliers, and ultimately identify
which of its 500 superstores should be closed to save costs. The company went into receivership
despite all its efforts and ceased trading. Woolworths, Republic and BHS followed a similar path,
while HMV and Waterstones turned to a major store closure programme in order to remain trading.
On the other hand, some companies have more optimistic goals. Often manufacturers, such as
General Motors, have goals that relate to return on investment. A successful company may want
to sacrifice the current year’s profits for the long run and at the same time pursue other goals, such
as increasing market share. An extreme example is EV and battery pioneer Tesla, which is invest-
ing huge amounts in building plants, developing products and opening up new markets, leaving
investors empty-handed for many years to come before sales ramp-up and profits finally emerge.
Corporate strategy determines the organization’s vision and goals, and how best to
corporate strategy
A strategy that deter- utilize resources and capabilities in the areas of production, logistics, finance, research
mines the organization’s and development, human resources, IT, sales, business development and marketing to
vision and goals, and reach the organization’s goals. A corporate strategy determines not only the scope of the
how they are to be business but also its resource deployment, differential advantages and overall coordina-
addressed, in which
tion of its functional areas, people and their activities. The term ‘corporate’ in this context
markets, with what
advantages over com- does not apply only to corporations: corporate strategy is used by all organizations,
petitors, and so aligning from the smallest sole proprietorship to the largest multinational corporation. Corporate
resources in key func- strategy is that created centrally and at the top of the organization’s decision-making, in
tions accordingly across order to satisfy the aims of owners, investors and directors and provide overall direction
the business.
for decisions, investments and resource allocation.
Corporate strategy is concerned with issues such as diversification, internationaliza-
tion, acquisitions and mergers, competition, differentiation, interrelationships among busi-
ness units, environmental issues, CSR and investor relations. Strategic planners attempt to match
the resources of the organization with the various opportunities and risks in the external environment.
Corporate strategy planners are also concerned with defining the scope and role of the strategic
business units of the organization so that they are coordinated to reach the ultimate goals desired.
While not the focus of Marketing: Concepts and Strategies, it is important to recognize that the
marketing strategy, marketing plan and marketing mix programmes actioned by an organization’s
marketers must reflect the aims and ethos of the overall corporate strategy. Unfortunately, in some
instances those empowered to deliver marketing programmes are unaware of or are unconcerned
about the nuances of the organization’s overall corporate plan, and may even be pursuing a course
of action that is at odds with the leadership team’s sense of purpose. In some businesses, this
reflects the paucity of analysis behind corporate planning, and the failure to involve senior marketers
in such strategy development. In most organizations, the forces of the external marketing environ-
ment, competitors’ strategies and evolving customer expectations are poorly assessed. In other
cases, only an organization’s marketers are aware of these issues and have the relevant marketing
intelligence to be able to suggest likely scenarios. It is therefore essential that those responsible for
establishing corporate plans tap into this expertise and knowledge within the marketing function, just
as it is essential for marketers to devise target market strategies and marketing programmes that
properly reflect the direction desired by the corporate strategy and their company’s leadership team.
Organizational opportunities and resources

There are three major considerations in assessing opportunities and resources:
1. evaluating marketing opportunities
2. environmental scanning (discussed in Chapter 3)
3. understanding the organization’s capabilities and assets.
An appreciation of these elements is essential if an organization is to build up a sustainable
differential advantage or competitive edge.
A marketing opportunity arises when the right combination of circumstances occurs
marketing opportunity
Circumstances and at the right time to allow an organization to take action towards reaching a target mar-
timing that allow an ket, achieve sales and perform successfully against competitors. Government concerns
organization to take about energy supplies have provided the turbine makers for wind farms with an oppor-
action towards reaching tunity that a few years ago did not exist. Interest in autonomous (driverless) vehicles is
a target market.
enabling companies previously not involved in manufacturing cars to develop products
for this emerging market. An opportunity provides a favourable chance or opening for
an organization to generate sales from identifiable markets. For example, in reaction to
the overwhelming growth in cereals and other foods containing oat bran, which some researchers
believe helps lower cholesterol levels, the Quaker Oats Company developed an advertising cam-
paign to remind consumers that Quaker porridge oats have always contained oat bran. Increasing
concerns about cancer and heart disease gave Quaker a marketing opportunity to reach con-
sumers who are especially health-conscious by touting the health benefits of its oats.
The term strategic window has been used to describe what are often temporary
strategic window
A temporary period of periods of optimum fit between the key requirements of a market and the particu-
optimum fit between the lar capabilities of a company competing in that market.13 A few years ago, there was
key requirements of a much interest in organically grown/produced foods, with retailers increasing shelf space
market and the particular in response to growing consumer demand. Often more expensive than non-organic
capabilities of a company
versions, economic meltdown and tightening consumer spending reduced consumer
competing in that mar-
ket, often triggered by interest and retailers’ displays accordingly . . . the window of opportunity had closed for
changes in the marketing certain organic lines.
environment. The attractiveness of marketing opportunities is determined by market factors such
as size and growth rate; by political, legal, regulatory, societal, economic and compet-
itive, and technological marketing environment forces; by internal capital, plant, and
human and financial resources; and by expected financial performance.14 Because each industry
and each product is somewhat different, the factors that determine attractiveness tend to vary for
different leadership teams, as illustrated in Table 2.1. The three organizations featured each use
a set of criteria to assess the relative merits of opportunities, target markets and new
products, although potential financial returns tend to dominate.
market requirements
Requirements that relate
Market requirements relate to customers’ needs or desired benefits. Market
to customers’ needs or requirements are satisfied by components of the marketing mix that provide buyers
desired benefits. with these benefits. Of course, buyers’ perceptions of what requirements fulfil their
needs and provide the desired benefits determine the success of any marketing effort.
Table 2.1 Examples of dimensions for attractiveness
Mobile phone operator Leisure industry company Insurance business

●● Disposable income ●● Profitability ●● Profit potential
●● Willingness to spend on mobiles ●● Market growth potential ●● Sales level
●● Interest in value-added services ●● Market share ●● Income potential
●● Average revenue per user (ARPU)/ ●● Differentiator possible ●● Longevity of opportunity
revenue/profitability the financial worth of ●● Competitive intensity ●● Size of market
the opportunity ●● Certainty of customer demand ●● Market growth prospects
●● Customer share likely in three years ●● Barriers to entry as blockers to rivals ●● Differential advantage possible
●● Loyalty level ●● Expanding the company’s footprint within ●● Exclusivity possible
●● Size of the market the market ●● Competitive situation favourable
●● Competitive intensity degree of ●● Insurer support
competition ●● Supplier partnership/resource
●● Potential growth ●● Endorsements
●● Market share now ●● Similar markets adaptable capabilities
●● Ease of entry
●● Quality of customers
●● Resources/expertise required
Marketers must devise strategies to out-perform competitors by finding out what product attributes
buyers use to select products. An attribute must be important and differentiating if it is to be use-
ful in strategy development. When marketers fail to understand buyers’ perceptions and market
requirements, the result may be failure. Toyota had failed to attract prestige-led car purchasers,
even though it produced well-specified executive cars. The brand image was not attractive enough
to these target customers. As a result, Toyota created its highly successful Lexus marque, focusing
on the brand values desired by these customers.
Environmental scanning is the process of collecting information about the marketing
environmental
scanning environment to help marketers identify opportunities, prepare for impending threats and
The process of collecting assist in planning. Some companies have derived substantial benefits from establishing
information about the an environmental scanning (or monitoring) unit within the strategic planning group, as
marketing environment part of their marketing planning activity, or by including line management in teams or
to help marketers
committees to conduct environmental analysis. This approach engages management
identify opportunities
and threats, and assist in the process of environmental forecasting and enhances the likelihood of successfully
in planning. integrating forecasting efforts into strategic market planning.15 Results of forecasting
research show that even simple quantitative forecasting techniques out-perform the
unstructured intuitive assessments of experts.16
Environmental scanning to detect changes in the environment is extremely important if an
organization is to avoid crisis management. A change in the external marketing environment,
as explored in the next chapter, can suddenly alter an organization’s opportunities or resources.
Reformulated strategies may then be needed to guide marketing efforts. For example, after the
global banking crisis led to tighter consumer spending and less disposable income, many brands
had to re-think their propositions and seek ways for demonstrating value-for-money, such as the
Essentials range in Waitrose and new financing packages for private buyers of BMW cars. Envi-
ronmental scanning should identify new developments and determine the nature and
rate of change.
capabilities
A company’s distinctive
competencies to do Capabilities and assets
something well and
efficiently. A company’s capabilities relate to distinctive competencies that it has developed to do
something well and efficiently. A company is likely to enjoy a differential advantage over
its rivals in an area where its competencies outdo those of its potential competitors.17 Often a com-
pany may possess manufacturing or technical skills that are valuable in areas outside its traditional
industry. For example, defence giant Lockheed Martin provided military customers with sensors
and data analytics relevant also to the owners of fleets of commercial vehicles interested in opti-
mizing fuel performance and carbon footprints. Capabilities can be classified in terms of
marketing assets, highlighting capabilities that managers and the marketplace view as
marketing assets
Customer, distribution beneficially strong. These capabilities can then be stressed to the company’s advantage.
and internal capabilities Marketing assets are commonly classified as either customer-based, distribution-based
that managers and the or internal. Customer-based assets include capabilities that are customer-facing, such
marketplace view as as brand image and reputation, product quality and customer service expertise; distribu-
beneficially strong.
tion-based assets relate to marketing channel issues and may involve density of dealers
and geographic coverage, the responsiveness of distributors, after-sales support and
logistical capabilities; internal marketing assets are operational, process and resource
capabilities, including skills, experience, economies of scale, technology, working practices and
people resources.18 It is essential for a business to take time to assess its capabilities and assets,
and to map these alongside identified opportunities. Research findings suggest that the mix of
these capabilities and assets affects the types of strategy that should be pursued. 19 Table 2.2
depicts the capabilities that certain companies believe are the most important in their respective
sectors. The capabilities and marketing assets that are viewed as being essential for success
vary dramatically between industries and sectors, reflecting the nuances of their operations and
characteristics.
Table 2.2 Examples of capabilities
Mobile phone operator Leisure industry company Insurance business

●● Network coverage ●● IT capability ●● Expertise/skills
●● Network quality ●● Expertise and skills of the company’s people ●● Brand awareness/presence
●● Voice/data roaming ●● Marketing skills and effectiveness ●● Reputation
●● Attractive tariffs ●● Market insights/business information ●● Relationship with key supplier
●● Fair billing ●● Management bandwidth/focus ●● Creation of differentiators
●● Products/services/value added services ●● Ability to fund ●● Access to distribution channel
●● Distribution (sales) network ●● Ability to serve/provide customer service ●● Quality of service
●● Brand awareness (strong image) ●● Long-term commitment ●● Link to trade associations
●● Innovativeness ●● Suitable track record ●● Sales process and skills
●● Quality of marketing staff and their ●● Marketing/communication
outputs ●● Service ability (spread of base)
●● Customer orientation ●● Resources: IT
●● Resources: financial
●● Resources: people
●● Customer empathy/partnership
●● Long-term commitment
●● Resources: adaptability
●● Delivery/process cost effective solution
●● Experience/credibility
●● Existing customers
The SWOT analysis (strengths, weaknesses, opportunities and threats) is one of the
SWOT analysis most simplistic used by marketers; fundamentally, it is little more than a set of check-
The examination of an lists. However, it cannot be ignored in a book such as this owing to its popularity and
organization’s strengths widespread use – all management teams create SWOT analyses. The strengths it refers
and weaknesses, oppor-
tunities and threats,
to relate to those internal operational, managerial, resource and marketing factors that
usually depicted on a managers believe provide a strong foundation for their organization’s activities and for
four-cell chart. their ability to compete effectively in the marketplace. Many marketers treat the notion of
marketing assets as a means for classifying strengths. Weaknesses are those aspects
of the organization, its products and activities in the marketplace that place the organization at a
disadvantage vis-à-vis competitors and in the view of targeted customers. Best practice indicates
that an organization should strive to remedy such faults, particularly those that may be exploited by
rivals. An analysis of strengths and weaknesses is a fundamental aspect for developing a marketing
strategy, as an organization must have an awareness of its capabilities and how these map out
against competitors’ strengths and weaknesses.
The other elements of the SWOT analysis are opportunities and threats, which are external
issues in the trading environment. As explained in Chapter 1, at the forefront of the marketing
concept is marketing opportunity analysis. A sound appreciation of marketing environment forces
and evolving market trends is essential for a marketing-oriented organization. It is difficult to con-
template a scenario in which an organization lacking such an external awareness is able to develop
a truly meaningful marketing strategy. As described above, marketing environmental scanning
identifies numerous issues that marketers must consider when developing marketing strategies.
These market developments may offer opportunities for marketers to exploit or they may be the
cause of threats to the fortunes of an organization. As explained in more detail in the next chapter,
an awareness of the marketing environment may lead to strategic windows of opportunity. The
SWOT analysis, in its simplistic way, has the benefit of placing an organization’s strengths and
weaknesses in the context of the identified opportunities and threats, so implying the extent to
which an organization is capable of leveraging an opportunity or fending off an apparent threat.
The SWOT analysis can be an effective scene-setting tool, but only if the guidelines detailed in the
Marketing Tools and Techniques box below are followed.
Ansoff matrix Strategic objectives and strategic focus

Ansoff’s product–market
matrix for determining Having evaluated the overall corporate vision, those responsible for devising the
competitive strategies:
market penetration,
marketing strategy must build on their analysis of opportunities and internal capabilities
market development, by analytically assessing the most promising directions for their organization and mar-
product development or keting activity. Ansoff developed a well-known tool, the product–market matrix, popularly
diversification. known as the Ansoff matrix, to assist in this decision-making, as depicted in Figure 2.4.
Product
Present New
Figure 2.4
Ansoff’s competitive Market Product
strategies Present
penetration development
Market
Source: ‘Ansoff’s competitive

strategies’ from The New
Corporate Strategy by H. I. Ansoff, Market
New Diversification
John Wiley & Sons, 1988, p. 83. development
Granted by permission of the
Ansoff Family Trust
An organization may choose one or more competitive strategies as the basis for its
strategic objectives
Includes intense growth, strategic objectives, including intense growth, diversified growth and integrated
diversified growth or growth. This matrix can help in determining growth that can be implemented through
integrated growth. marketing strategies. Its underlying principles often assist marketers in identifying
sources for growth by addressing whether there are the following types of opportunities:
●● Existing customers – existing products/programmes.
●● Existing customers – new products/programmes.
●● New customers – existing or new products/programmes.
●● Adjacent/new markets – existing or new products/programmes.
These are the categories of growth most often discussed by leadership teams, who t raditionally
shy away from the diversification option included in Ansoff’s work. This is a pity, as there are
examples of very successful corporations targeting unrelated markets with great success, such
as Samsung’s belated move into mobile phones, Apple’s diversification from computers to
audio and then media players, or Fujitsu’s manufacturing (under many other brands)
intense growth
of flatscreen televisions.
Growth that occurs when
current products and Ansoff’s original work identified categories for growth:
current markets have the
potential for increasing
sales. Intense growth
Intense growth can take place when current products and current markets have the
potential for increasing sales. There are three main strategies for intense growth: market
market penetration penetration, market development and product development.
A strategy of increasing
sales of current products
Market penetration is a strategy of increasing sales in current markets with current
in current markets. products. For example, Coca-Cola and PepsiCo try to achieve increased market share
through aggressive advertising and brand building.
Market development is a strategy of increasing sales of current products in new
market development markets. For example, a European aircraft manufacturer was able to enter the US market
A strategy of increasing by offering Eastern Airlines financing that Boeing could not match; and Evian devised
sales of current products a new use for its mineral water by developing its Brumisateur, an atomiser spray for
in new markets. the skin.
Product development is a strategy of increasing sales by improving present prod-
ucts or developing new products for current markets. PepsiCo and Coca-Cola both
product development have new container sizes, low-calorie/low-sugar/low-carb versions and vending machine
A strategy of increasing
sales by improving
services.
present products or
developing new products
for current markets. Diversified growth
Diversified growth occurs when new products are developed to be sold in new
markets. Companies have become increasingly diversified since the 1960s, although
diversified growth many European businesses are reluctant to ‘gamble’ in what are for them uncharted
Growth that occurs when
markets. Diversification offers some advantages over single-business companies,
new products are devel-
oped to be sold in new because it allows businesses to spread their risk across a number of markets. More
and unfamiliar markets. important, it allows them to make better and wider use of their management, technical
and financial resources. For example, marketing expertise can be used across busi-
nesses, which may also share advertising themes, distribution channels, warehouse
horizontal facilities or even salesforces.20 The three forms of diversification are horizontal, concen-
diversification tric and conglomerate.
A process that occurs
when new products not
technologically related Horizontal diversification Horizontal diversification results when new products
to current products are that are not technologically related to current products are introduced to current mar-
introduced into current
kets. Sony, for example, diversified from electronics to movie production through its
markets.
purchase of Columbia Pictures. The purchase gave Sony a library of 2700 films, including
Ghostbusters and When Harry Met Sally, as well as 23 000 television episodes, which
it has used to establish its portfolio of entertainment.21
concentric
diversification
A process that occurs Concentric diversification In concentric diversification, the marketing and tech-
when new products
related to current
nology of new products are related to current products, but the new ones are introduced
products are introduced into new markets. Apple’s now famous and hugely successful move into consumer
into new markets. media players and smartphones leveraged capabilities from its business computing
heritage.
Practitioners’ use Marketing information: strengths (S) on which

of SWOT analysis tools and to build, weaknesses (W) to rectify,
opportunities (O) to consider and
techniques threats (T) to address.
The SWOT analysis is a very simplistic
tool, yet it appears in most marketing The first SWOT depicted (this page)
plans and is popular with boards of is typical. This was produced by a brain-
directors because it conveys so much storming workshop involving 25 sales and marketing personnel.
Strengths Weaknesses
●● Experience and quality of people ●● Multiple image
●● Safety/environmental standards ●● Inconsistent site presentation
●● Brand heritage low price perception ●● Brand equity value
●● Co-op mode of operation ●● Inflexible logistics
●● Teamwork/alignment ●● Lack of maintaining business investment
●● New concept ●● High break-even cost
●● Merchandizing ●● Lack of flexible resources
●● Category management structure ●● Inflexible technology
●● Store locations ●● Inconsistent focus on retailing/lack of selling structure
●● Streamlined organization ●● Staff turnover
●● Fully integrated company ●● Quality of data and analysis
●● Ability to change quickly ●● Inadequate benchmarking
●● Dealer loyalty ●● Consumer research
●● Reactive rather than proactive
●● Communication quality/mode
●● Poor succession planning
●● Cost control
●● Total overheads too high
●● Too many non-performing sites
Opportunities Threats
●● Dealer buying group ●● Industry restructuring
●● Customer loyalty promotion ●● By store categories
●● Optimizing distribution e.g. push/pull ●● By supplier/retailer alliances/JVs
●● Market growth of forecourt convenience ●● Lack of loyalty programme
●● Synergies for services with other brands ●● Government transport policy
●● Green products ●● Lack of shop image and investment
●● European purchasing agreements ●● Majors targeting smaller dealers
●● Joint venture on payment card ●● Cost of environmental legislation
●● Detailed economic analysis for sites ●● Control of costs
●● Concessions/rebranding ●● Continued low margins
●● Alcohol/fast food/bakeries ●● Failure to capture convenience market growth
●● Technology
●● Small profitable dealers (brand standards)
●● Cost effective store and design
●● More and better use of consumer/customer research industry data
●● Active selling by sales attendants
●● Optimization of site opening hours
●● Promoting underperforming sites/micro marketing
●● Margin enhancement through loyalty scheme
●● Alliance with shop retailers
●● Market attrition
●● Linking site to local community
●● Co-op portfolio management
●● Differentiation through customer service excellence
●● Closer supplier relations
●● Telesales
Workshops are often used to generate SWOTs; alternatively, Effective SWOTs should adhere to the following essential
individual managers may spend a few minutes producing them, guidelines:
for example, while killing time at an airport. The problems in the
●● Be as focused as possible – no huge lists.
example above are that:
●● Use teamwork to generate a range of opinions, then verify
●● the lists were not ranked in order of importance, only with external stakeholders (e.g. channel members, sup-
listed in the order they were suggested pliers, customers) and benchmark against any available
●● many of the bulleted points are vague or ambiguous marketing research or customer satisfaction audit data.
●● Concentrate on a customer orientation in allocating pri-
●● there is no validation or evidence to support these points
being included, only the personal judgement of the man- orities: deal first with issues of importance to customers,
agers present at the meeting particularly weaknesses that rivals could exploit.
●● Strengths and weaknesses are more revealing when
●● the implications are not detailed
benchmarked against key rivals.
●● there are far too many non-prioritized points listed to act
●● Use an analysis of the macro marketing environment
upon.
(see Chapter 3) as input to the opportunities and threats.
By contrast, the following SWOT grid for a major insurance ●● Rank the points listed in order of importance: senior man-
company has a more manageable set of issues, although the agers assume lists presented to them to be prioritized.
points are still horrendously ambiguous. Such ambiguity in ●● Have supporting evidence, otherwise exclude the issue
practice would need rectifying. For example, what ‘network’ from the list.
is a strength: IT, branch, broker, distribution geographically;
●● Be honest! Include bad news too, such as major weak-
and in what way?
nesses to rectify and nasty threats to now combat. All too
SWOT Grid for an Insurance Business often, managers only wish to communicate opportunities
and supporting strengths to their superiors, yet it is
STRENGTHS WEAKNESSES unfixed weaknesses which will ruin a strategy and ignored
Internal Brand recognition Share price threats which will damage the organization’s performance.
issues Expertise in Press reports
Having produced the top-line SWOT depicted here, the
underwriting Media targeting
Network Uncertainty redirection/ insurance company team then debated in detail each point in
British, leading UK market segments order to clarify the issues, verify their importance and discuss
market Poor product the implication of each issue to the business. This discussion
Wide product range differentiation led to a prioritization of tasks to action. This phase is crucial if
Cost base
the SWOT is to help direct a business’s thinking. As with many
Wide network
marketing analyses, the added value stems from the resulting
External Profitable markets still Regulation discussions rather than the matrix of bullet points.
issues far from mature Solvency By following these guidelines, this insurance business
Broker loyalty Share price and ownership
Business unit focus Negative press
eventually produced a meaningful, objective SWOT that led
strategy Losing customers to specific action programmes, notably to address the stated
Technology Competitors – many weaknesses and steer the board’s thinking about possible
Joint ventures with mergers taking place opportunities to consider.
3rd parties, such Our markets are desirable
Source: © Dibb/Simkin.
as major retailers to Euro-rivals
entering financial Changing weather Note: a more extensive explanation of this technique is offered in either The Mar-
services patterns ket Segmentation Workbook (Dibb and Simkin) or The Marketing Planning Work-
book (Dibb, Simkin and Bradley), both originally published in 1996 by Thomson,
OPPORTUNITIES THREATS and in Marketing Planning (Dibb and Simkin), published by Cengage in 2008.
Conglomerate diversification Conglomerate diversification occurs when new products are

unrelated to current technology, products or markets, and are introduced into markets new to the
company. For example, Laura Ashley, the UK clothing and furnishings company, moved into the fra-
grance market with Laura Ashley No. 1; Samsung diversified into everything from air conditioning and
construction equipment to shipbuilding, home entertainment centres and mobile phones;

conglomerate
diversification and information giant Google has developed a car to capitalise on electrification of cars,
A process that occurs connectivity and driverless vehicles. Tesla has taken its EV battery know-how to design and
when new products build power generation facilities to create an energy back-up grid for the Australian outback.
unrelated to current
technology, products or
markets are introduced Integrated growth
into new markets.
Integrated growth can occur in the same industry that the company is in and in three
possible directions: forwards, backwards or horizontally.
integrated growth 1. A company growing through forward integration takes ownership or increased control
Growth that occurs in
three possible directions:
of its distribution system. For example, a shoe manufacturer might start selling its
forwards, backwards or products through wholly-owned retail outlets.
horizontally. 2. In backward integration, a company takes ownership or increased control of its sup-
ply systems. A newspaper company that buys a paper mill is integrating backwards.
3. Horizontal integration occurs when a company takes ownership or control of some of
its competitors, such as BMW’s acquisition of Mini, or VW acquiring Seat and Skoda.
An absolutely crucial part of developing both a corporate strategy and a marketing strategy
is the need to seek competitive advantage over rivals and the associated importance of gaining
competitor intelligence. In developing strategies, an organization must consider the competitive
positions in the marketplace and formulate marketing strategies and tactics accordingly. Some
authors have adopted warfare analogies to describe the strategic options for competing in a mar-
ket.22 This chapter later examines the concept of competitive positions.
Target market strategy and brand positioning

Central to achieving a company’s corporate vision is the need to build up a loyal customer base of
satisfied customers. Tesco did not overtake Sainsbury’s by chance; it developed a clear marketing
strategy based on a desire to fully satisfy a carefully targeted set of market segments. More recently,
Tesco lost its way with a poorly defined marketing strategy, enabling discounters Lidl and Aldi to take
on some of Tesco’s value customers and Waitrose to acquire many of its upper-end consumers.
Market segmentation is at the core of robust marketing strategy development. As explained in
Chapter 7, this involves identifying customer needs, expectations, perceptions, decision-making
and buying behaviours, so as to group those customers with similar needs and behaviours and
who will be marketed to in a similar manner together in homogeneous groups or market segments.
One segment will differ from another in terms of customer profile and buying behaviour, and also
with regard to the sales and marketing activity likely to satisfy these customers; but within a par-
ticular segment customers will share similar needs, buying behaviour and expectations. Without
a thorough understanding of customers, it is difficult to produce a marketing strategy. Developing
an understanding of customers is explored in Chapters 5 and 6.
Taking the time to objectively and sensibly group a market’s customers into meaningful
market segments is a discipline many organizations are only now discovering, particularly in
business-to-business markets. Most of the fast movers, market leaders and successful brands in a
marketplace base their marketing strategies on carefully honed market segmentation analyses. It is
important to remember that the process of market segmentation involves more than simply group-
ing customers into segments or groups. Shrewd targeting of certain segments and the
brand positioning development of a clear brand positioning are part of the market segmentation process.
The creation of a Brand positioning is the creation of a desirable, distinctive and plausible image for a
desirable, distinctive
and plausible image for
brand that will have strong appeal for the customers in a target market segment. The
a brand in the minds of basis of Chapters 7 and 8 – identifying segments, deciding which to target, developing
targeted customers. desirable positionings and establishing strong customer value propositions – is one of
the foundations of a marketing strategy.
A target market strategy is the choice of which market segment(s) an organization

target market strategy
The choice for which decides to prioritize and for which to develop marketing programmes. An organization
market segment(s) an must first have agreed an overriding corporate strategy and decided on which opportuni-
organization decides ties to focus, as described above. The selected target markets should be appropriate for
to develop marketing this selection of opportunities, within the stated corporate strategy. Organizations must
programmes.
identify priority target markets that are worthwhile targeting with bespoke marketing
mix programmes: product, price, place (distribution), promotion and people. Even the
customer value mighty Ford or General Motors has to decide which segments in the car and van markets
proposition to pursue, opting not to have models aimed at all buyers in the market. It is important
Based on understanding to balance current core target markets with those offering future viability.
the perceived customer Once determined, in each target market an organization must strive to emphasize to
values and psychological,
those targeted customers the relevance and applicability of its product and marketing
functional and economic
factors traded-off when mix proposition. This is achieved through all ingredients of the marketing mix, but specif-
customers select a par- ically through developing a distinctive, plausible and memorable brand positioning, such
ticular product or brand as BMW’s ‘The Ultimate Driving Machine’. This positioning imagery is communicated to
to purchase, this is the targeted customers primarily through the promotional mix, packaging and design, but
compelling proposition
product attributes, pricing, choice of distribution and customer service provision must also
intended to appeal to
targeted customers. support the positioning strategy. An upmarket restaurant, for example, requires a suitably
lavish ambience, slick service, quality food, appropriate location and a suitable price to
match its branding and promotional campaigns. Associated with brand positioning is the
competitive advantage development of customer value propositions, which reflect customers’ needs and wants
The achievement of and how they trade-off their options. It is important to agree on the target market strategy,
superior performance required brand positioning and the customer value proposition before developing the
vis-à-vis rivals, through
differentiation to create
marketing programmes destined to implement this strategy. These marketing mix activ-
distinctive product appeal ities must reflect the marketing analyses and target market strategy requirements rather
or brand identity; through than being merely a continuation of previous marketing mix activities.
providing customer
value and achieving the
lowest delivered cost; or
by focusing on narrowly
Competitive advantage
scoped product cate-
gories or market niches Competitors are generally viewed by an organization as those businesses marketing prod-
so as to be viewed as a ucts similar to, or substitutable for, its products when targeted at the same customers.
leading specialist. In order to persuade customers to purchase an organization’s products in preference to
those products marketed by its competitors, leading strategists argue that it is necessary
to develop a competitive advantage. Competitive advantage is the achievement of supe-
competitors
Organizations viewed as
rior performance vis-à-vis rivals, through differentiation, to create distinctive product appeal
marketing products simi- or brand identity; through offering customer value and achieving the lowest delivered cost;
lar to, or substitutable for, or by focusing on narrowly scoped product categories or market niches so as to be viewed
a company’s products, as a leading specialist. The creation of a competitive advantage is a core component of the
when targeted at the development of a marketing strategy. It is not easy to achieve, as rivals often have sensible
same customers and
their spending power.
strategies, good products and customer service and smart marketing programmes.23
Marketing strategist Michael Porter identified the so-called generic routes to
competitive advantage, claiming them to result in success for companies competing for
generic routes to position in any particular market. Although created over 40 years ago, this framework is still
competitive advantage appropriate and highly directional for companies seeking to examine thoroughly their likely
Cost leadership, basis for competing. As depicted in Figure 2.5, these three generic strategies are as follows:
differentiation and focus;
which are not mutually 1. Cost leadership. This involves developing a low cost base, often through economies
exclusive. of scale associated with high market share and economies of experience, to give high
contribution. This high financial contribution can then be used to further develop the
low cost base. Very tight cost controls are essential to the success of this strategy.
Generally, within a single market, only one competitor is secure in adopting this strat-
egy for creating a competitive advantage: the organization with the lowest cost base
and best experience curve.
2. Differentiation. Companies adopting a differentiation strategy strive to offer product and

marketing programmes that have a distinct advantage or are different to those offered by
competitors. Differentiation can be achieved on a number of fronts, including creative and
innovative product or brand designs, or novel distribution channel, pricing and customer ser-
vice policies. This theme is taken further when marketers seek a differential advantage, as
discussed later in this chapter.
3. Focus. Companies must maintain close links with the market so that product and marketing
effort are designed with a particular target group in mind. Typically of small size, unable to
achieve cost leadership or maintain significant differentiation, such companies succeed by effec-
tively meeting customer needs that may be being missed by larger players in the market and
by gaining a reputation for being experts or specialists in their narrowly defined area of activity.
Differentiation
‘Stuck in
the
middle’
Cost
Focus
leadership
Figure 2.5
Porter’s generic routes to competitive
advantage
Failure to achieve any of these strategies can result in companies becoming ‘stuck in the
middle’, with no real competitive advantage. It is not usually possible to simultaneously follow all
three generic strategies for competitive advantage, but it is common for businesses to gain cost
leadership while also differentiating their proposition, and also for organizations to seek both a
focused and a differentiated approach. Discounter Aldi adopts a cost leadership and a differen-
tiated approach for developing a competitive advantage, as does no-frills airline easyJet. Sports
coupé manufacturer Porsche adopts a focused and differentiated approach to defining a compet-
itive advantage. It is sometimes more difficult to create a focused and cost leadership approach,
as niche players rarely have the necessary scale economies, but it is not impossible. Companies
or brands failing to master at least one of Porter’s dimensions invariably struggle to compete or
indeed to survive in the medium-term.
Competitive positions and differential

competitive set
All competing orga- advantage
nizations and brands,
irrespective of size In order to compete effectively, marketers should seek to develop a differential advan-
and history, including tage. In order to ensure this will be effective, marketers must understand the nature of
substitutable solutions
to customers’ needs,
the competitive set and also identify those rivals with which to do battle. The compet-
as defined by the target itive set includes all competing organizations and brands, irrespective of size and his-
market customers. tory, including substitutable solutions to customers’ needs, as defined by target market
customers. Leading marketing strategists David Aaker and Michael Porter both argue
that the scoping of the competitive set in many organizations is too limited. Ask most management
teams who their competitors are and they will simply name the leading few organizations and
brands in the market, ignoring smaller fast-moving rivals, probable new entrants to the market or
substitutable solutions to their customers’ needs offered by dissimilar organizations. It is often the
case that when a company’s customers are asked to name the competing companies or brands,
they list a few names not routinely considered by the company’s marketers. The customer’s view of
his or her options is of paramount importance and marketers should ensure that their interpretation
of the competitive set is shared by their target market customers.
The scoping of the competitive arena and the identification of the competitive set are important
marketing analysis tasks. Competitors are outside the control of an organization, so the forces
of competition are generally included within the forces of the marketing environment, as part of
what is termed the ‘micro marketing environment’. This concept is described in Chapter 3, which
discusses further the forces of the competitive environment.
For the identified competitive set, marketers should assess the objectives and strategies of
these rivals, their strengths and weaknesses, and determine how competitors are likely to react
to their own marketing strategy and programmes. In effect, this leads to a decision about which
competitors to ‘fight’, which to avoid antagonizing and which to treat as unimportant. Wong and
Kotler suggest that competitor-aware marketers should be able to answer six key questions, as
described in Figure 2.6. Marketers require these insights into competitors.
Identifying the Determining Identifying competitors’

company’s competitors competitors’ objectives strategies
Figure 2.6 Assessing competitors’

Steps in analyzing competitors Selecting competitors Estimating competitors’
strengths and
Source: Veronica Wong, MBA to attack and avoid reaction patterns
weaknesses
course notes, Warwick Business
School, 1996
Before examining the concept of differential advantage, this chapter looks at the increasingly
popular use of warfare analogies in identifying the relative threat posed by the competitors in a
market. While Marketing: Concepts and Strategies is not intended to be a marketing strategy
text, analysis of the competition is a core principle for effective marketing and, as explained in
Chapter 1, without a thorough appreciation of the competitive arena an organization cannot have
a marketing orientation.
Competitive positions
Evidently, it is important to understand the nature of competition. This involves more than a cursory
examination of like-for-like major rivals. Most organizations consider only similar companies or
brands to be their competitors. As shown in Figure 2.7, there are other facets of competition that
must be evaluated. What of the smaller players that may one day emerge as dominant in a market
or specific segment? Why not pre-empt such an outcome by developing a strategy to destroy
them while still only a small rival? What about the new entrant into the marketplace? Could its
appearance have been foreseen? What actions are required to minimize its threat? How did Nokia
or Moto fend off the entry of Samsung in the mobile market? Did they even anticipate Samsung’s
entry? What of innovative solutions to customers’ problems? How will traditional watch manufac-
turers combat Apple’s smart watches?
JCB produces construction equipment that digs trenches for the laying of pipes and cables.
Micro-bore tunnelling moles lay pipes without the need for a trench. Such moles are a form of sub-
stitute competition, which could be missed by JCB’s marketers as a competitive threat, without a
Research reveals that most companies

merely monitor like-for-like major
competitors, often less than effectively.
The problems associated with poor
knowledge of competitors and the
implications of their activities reach
beyond failing to adequately assess
known players and their likely
strategies and activities.
New
entrants
Rivalry
Variable Relative
between
pressures power of
existing
from buyers
major
suppliers
players
Substitute
solutions Strategists such as Michael Porter
argue that organizations should look
to emerging threats from substitute
technologies and solutions to a
customer’s need, the appearance of
new players, as well as recognize that
not all suppliers or customers will be
impacted in the same way by market
conditions and the activities of an
individual competitor or market issue.
Figure 2.7
Understanding the competitive arena
rigorous analysis of the forces of the competitive environment. Web-cams and comms online posed
a threat to traditional BT phone services, who then went online in order to remain competitive and
ended as a major broadband player. The iPhone threatened Samsung, which then developed a
successful range of rival smartphones.
The power of suppliers and of consumers can also vary per company and act as a competitive
force, particularly if one organization encounters greater supply problems or more severe customer
bargaining than its rivals face from their suppliers and customers. These competitor categories are in
addition to the like-for-like rivals considered by most organizations to be their competitors.
five competitive
Figure 2.7 is particularly useful for scoping the nature of a market place. This frame-
forces work still offers management teams a very smart approach for assessing their competi-
Together these deter- tive arenas. Porter defined five competitive forces that together determine competition
mine competition in an in an industry or market:
industry or market: rivalry
amongst existing like-for- 1. rivalry among existing like-for-like players
like players; the threat of
2. the threat of new entrants
new entrants; the threat
of substitute solutions; 3. the threat of substitute products or services as a solution to customers’ problems
the bargaining power of or needs
buyers; and the bargain-
ing power of suppliers. 4. the bargaining power of buyer
5. the bargaining power of suppliers.
Many marketing directors find this framework ideal for persuading their colleagues to consider
competitive threats from more than just like-for-like rivals. Most marketing dissertations use Porter’s
framework in order to provide the perspective for describing the competitive pressures prevalent
in a particular market.
In addition to realizing the importance of examining all categories of competitors, it is necessary
to understand what must be known about rivals. Most companies can describe their competi-
tors: who, where, with what and at what price. However, few organizations genuinely understand
their rivals’ strategies or endeavour to predict their rivals’ reaction to moves they themselves may
make. Very few companies attempt to identify those individual competitors it is sensible to avoid
in a head-to-head marketing campaign or those most likely to be vulnerable to attack at low risk
to the company’s resource base. It is prudent to avoid head-to-head conflict with a similarly sized
and resourced adversary, or one bigger and better resourced. It is more desirable to identify the
weaknesses of more vulnerable competitors and address these through the proposed marketing
mix programmes. No marketing strategy should be formulated without a shrewd analysis of com-
petitors. For some companies, carrying out this kind of analysis has recently been made more
complex by the fact that they operate in both the physical and digital marketplace.24
Many marketers view their marketplace as a battlefield, opting to compete on only certain fronts,
engaging with carefully selected opponents, where there is a perceived differential advantage
over the enemy. This warfare analogy has become increasingly popular and hinges on identifying
the competitive positions of the various businesses competing in a market segment.25
competitive positions
The categories of competitive positions, competitors’ roles in the marketplace that
Competitors’ roles in influence their marketing strategies and programmes, include the market leader, market
the marketplace, which challengers, fast movers, market followers and market nichers. These should be iden-
influence their mar- tified within each target market segment: a market challenger in one market segment
keting strategies and may be a follower or even absent in a second market segment.
programmes.
In the ranking of market shares, there is one and only one market leader: the player
enjoying individually the largest slice of the market. In some business-to-business mar-
kets, a market leader can have a majority of industry sales, particularly when patent
market leader
The single player enjoy-
protection or technical innovation gives it an advantage over competitors. In most mar-
ing the largest individual kets, however, the market leader may have only 10 to 20 per cent of the market’s sales.
share in the market. The market leader has the highest market share and retains its competitive position by
expanding the total market or expanding market share at the expense of its rivals, while
protecting or defending current market share by retaining its customer base. In this con-
text, the market leader, although successful, has the most difficult task: it must find strategies to
increase market size and market share, as well as maintaining strategies to defend its current share.
The marketing programmes necessary for maintaining ongoing relationships with existing custom-
ers are quite different to the marketing programmes used to attract and entice potential customers.
Behind the market leader are competing companies, which are market challengers, fast
movers, market followers or market nichers. Market challengers are non-market leaders
that aggressively attack rivals, including the market leader, to take more market share,
market challengers
Non-market leaders that
as they strive for leadership. In most instances, these players are number two, three and
aggressively try to cap- perhaps four in a market, aspiring to market leadership. When Virgin entered the transat-
ture market share from lantic market, its intention was to steal BA’s market leadership. Apple wants leadership of
their rivals. the smartphone market, while Samsung wants to dominate in tablets. It is important to
remember that to qualify as challengers, these companies must be proactive and aggres-
sive in their sales and marketing rather than passively reinforcing the existing hierarchy. Fast
fast movers movers are smaller rival companies not yet destined to be major challengers, but growing
Smaller rival companies rapidly on a smaller scale. A new entrant may have only two per cent of the market but
not yet destined to be
major challengers, but
what is to stop it from increasing its share to eight per cent within two years? A business
growing rapidly on a may only have four per cent of the market, but three years ago it only had one per cent.
smaller scale. What is to prevent it from having eight per cent or 19 per cent in three years’ time? The
market leader and key challengers should take steps to prevent such continued growth.
Market followers are low-share competitors without the resources, market position,
market followers
Low-share competitors research and development, or commitment to challenge for extra sales and market
without the resources, share. These companies tend to be the ‘me-too, also-rans’ in a market, whose raison
market position, research d’être is to do as before and simply survive. In boom times these players can latch on
and development, or the to the success of their larger rivals, but in recession or when faced with larger rivals’
commitment to challenge
product innovations they often struggle to achieve sales. Most markets also contain
for extra sales and mar-
ket share. market nichers: companies that specialize by focusing on only a very narrow range
of products, or on a select band of consumers, such as The Body Shop or Porsche.
Nichers survive by finding a safe, small, profitable market segment, often apparently too
market nichers small to attract the market leaders and challengers. Nichers specialize and can genuinely
Companies that special- prepare a marketing mix that exactly matches their target customers’ needs. They are
ize by focusing on only vulnerable to market downturns, the entry of rival nichers and the sudden attention of
a very narrow range of the major players in the marketplace, as happened to Sock Shop, Tie Rack and Saab.
products or on a select
A market leader must defend its position, while simultaneously seeking more market
band of consumers.
share. Only a market leader should consider defensive warfare as a strategic founda-
tion. Strong defence involves striking a balance between waiting for market developments
defensive warfare
or competitor activity and proactively parrying competitors’ actions. As market leader,
A policy of striking a the company must remember that a false sense of security and passive inactivity lead to
balance between waiting disaster: the best defensive strategy is the courage to attack; and strong moves by com-
for market developments petitors should always be blocked, never ignored. To defend its market share, a market
or competitor activity leader must treat existing customers well and attentively, and never take them for granted.
and proactively parrying
competitors’ actions.
The marketing mix must be updated continually and target customers’ needs must regu-
larly be considered. New markets, products and opportunities should always be sought
and evaluated. Occasionally, if faced by a strong challenger in a small or declining market,
a market leader should consider divesting and concentrating resources in its other markets. Others
may have to turn to defensive warfare when attacked by the market leader or challengers, but only
the market leader should build a strategy around the desire to defend its current position.
A challenger has to attack for market share, but on what basis? The leader, and perhaps other
challengers, will be strong and rich in resources. A challenger’s attack must be well thought out
and not suicidal in terms of the company’s medium-term future. Lidl and Aldi have very effectively
challenged Tesco and Sainsbury’s in certain key market segments in the grocery wars.
In offensive warfare, the main consideration is the market leader’s strength: where are
offensive warfare
A policy whereby chal- there any chinks in the leader’s armour? A challenger seeking market share must identify a
lengers aggressively weakness in the leader’s marketing mix and in other challengers’ marketing programmes,
seek market share by and develop a genuine corresponding strength. With such a differential advantage or com-
identifying any weak- petitive edge, the challenger’s resources may well be sufficient to steal ground successfully
nesses in the leader’s
from the leader and the other challengers. Any attack should be on a narrow front, where
and other challengers’
marketing mixes and the challenger is perceived by the target customers to have an advantage and where
developing a genuine resources can be focused. If no real weakness in the market leader exists, a challenger
corresponding strength. may attack head-on. Such an attack can be successful only if there are numerous, very
weak market followers, if the leader is slow to react and if a price-cutting war does not
result. In the last situation, the leader’s resource base may fend off the challenger’s attack.
Followers are vulnerable, but careful monitoring of market segments, marketing environment
forces and competitive trends can help ensure their survival. They must serve specifically only a few
market segments, specializing rather than diversifying in terms of products and markets, and mak-
ing prudent use of what research and development resources are available. Nichers must watch for
signs of competitor threats and possible changes in target segment customers’ needs, and they
may need to consider product development and, ultimately, diversification. Their marketing mixes
must be tailored exactly to meet the expectations of their target segment.
All organizations should know, for all their markets and target segments, which companies
occupy these competitive positions. They must alter their strategies and marketing programmes
accordingly. Organizations should also review their rivals’ marketing strategies and marketing
programmes: many companies are surprisingly predictable. Response to rivals’ pricing policies,
frequency of new product launches, entry into new markets and timing of promotional
campaigns, for example, can often be accurately anticipated. In this way, competitor
competitor scanning
The monitoring of com- scanning, the monitoring of competitive positions and competitors’ strategies, helps to
petitive positions and establish more realistic marketing goals, develop successful strategies and programmes,
competitors’ strategies. and pre-empt nasty shocks caused by competitors’ actions.26 The leading marketing
strategists agree that it is essential to understand competitors’ strategies, their strengths
and weaknesses in satisfying customers, and any differential advantages they hold that
must be combatted.27 The competitive positions proforma has been developed by the
competitive positions
proforma authors of Marketing: Concepts and Strategies, in conjunction with many organizations
A tool for scoping the – such as JCB, HSBC, Fujitsu, EDF and IBM – as a way of scoping the competitive set,
competitive set, helping helping a company in understanding the competitive positions in its target markets and
a company to understand diagnosing the effectiveness of a marketing strategy. This particular tool for practitioners is
the competitive positions
described in the Marketing Tools and Techniques box that appears below—Practitioners’
in its target markets and
diagnosing the effec- use of competitor intelligence: the Dibb/Simkin competitive positions proforma.
tiveness of a marketing
strategy.
If a marketing mix is developed that matches target market needs and expectations and is
superior to those offered by competitors, there is a real or perceived differential advantage.
A differential advantage is an attribute of a brand, product, service or marketing
differential advantage
An attribute of a brand, mix that is desired by the targeted customer and provided by only one supplier: it is a
product, service or mar- unique edge over rivals in satisfying this customer. If successful in developing a differ-
keting mix that is desired ential advantage, an organization is likely to have its differential advantage copied by
by the targeted customer rivals. Direct Line innovated in selling car insurance over the telephone, cutting out the
and provided by only one
broker. This more convenient and cheaper service was very popular with customers,
supplier.
gaining market leadership for Direct Line. Very high profits followed. Rivals caught up,
offering their own telephone-based direct selling of car insurance. Nevertheless, Direct
Line developed a sizeable and successful customer base, which is still proving difficult for com-
petitors to win back.
Achieving a differential advantage or competitive edge requires an organization to make the
most of its opportunities and resources while offering customers a satisfactory mix of tangible and
intangible benefits.28 When striking a balance between customer requirements on the one hand and
company resources on the other, competitor activity must also be monitored. For example, there is
little sense in promoting speedy distribution to customers if several large competing organizations
offer a faster service. An understanding of competitors and customers’ perceptions of compa-
nies’ propositions is an essential part of identifying a differential advantage. Once determined, it is
sensible to maximize the use of any differential advantage in the marketing mix, particularly in the
promotional mix and all marketing communications.
There are many different sources of differential advantage that companies can pursue. It is
important to ensure that the promoted differential advantage is:
●● unique to the one organization, otherwise it is not a differential advantage, only a strength or
capability
●● desirable to the targeted customer
●● not simply the expected marketing mix, as taken for granted by the target market
●● not simply an internal view by a team of marketers.
For example, a new range may be superior to the company’s former product range, but com-
pared to competitors’ products may offer few benefits to the customer. The marketers could
be guilty of identifying the new range’s advantages over the former range, wrongly, as offering a
differential advantage.
Practitioners’ use of Marketing offered by a single supplier. Failure

competitor intelligence: the tools and to analyze rivals means that the cre-
ation of a differential advantage is
Dibb/Simkin competitive techniques going to occur only by chance, rather
positions proforma than due to knowledge of competitors’
strengths and weaknesses.
The understanding of competition is not The strategists also point to the need to address an orga-
generally strong in most organizations. Managers may be able to nization’s own weaknesses. In particular, a management team
name their rivals, and these businesses’ products, price points should be aware of which rivals are best placed to exploit any
and outline promotional activity, but rarely are managers able weaknesses in the organization or in its marketing mix. Over
to suggest rivals’ next moves or to identify an individual com- time, the competitive set will change, as new entrants and
petitor’s strengths or weaknesses. Therefore managers cannot substitution solutions to customers’ requirements emerge.
be taking into account the capabilities and market standing of The relative strengths and weaknesses of competitors will
such rivals when they construct their own target market strat- alter too, often rapidly. The competitive set must be monitored
egies. The result could be a significant waste, as a company’s closely and not just occasionally.
marketing programme may fail to enable the company to set Chapter 9 identifies methods for collecting competi-
itself apart from its principal rivals. Worse, the company may be tor intelligence. Once the competitive set has been defined
incapable of combatting its rivals’ marketing strategies. through the customer’s eyes and some knowledge has been
The ultimate goal in marketing is to produce a differential built up about these brands, a useful tool to deploy is the
advantage: something desired by targeted customers and only competitive positions proforma.
The Dibb/Simkin competitive positions proforma

Grocery superstores (out-of-town) Supermarkets (town centres)
Market leader ID: Doing Well plc Still Trying plc

Market share: 28%++ (growing) 24% +/– (static)
KCVs: Range, fresh produce, store amenities, deals Locations, fresh produce
Weaknesses: Board’s focus overseas, comp commission No compelling wow factor, poor PR
Differential adv.: Loyalty card scheme —
Challenger 1 ID: Going For It Ltd Doing Well plc

Market share: 21%+ (growing) 16%+ (growing)
KCVs: Range, non-food mix, clothing, amenities, value Brand reputation, e-service, fresh produce
Weaknesses: Some tired stores, no town centre stores Pulled out, now re-establishing
Differential adv.: US owner = greater resources, buying power —
Challenger 2 ID: Still Trying plc New Kid on the Block (merger)
Market share: 19% (declining) 9%++ (growing)
KCVs: Store ambience, range, reputation, amenities Many good locations, fresh produce, value
Weaknesses: Poor analysis and PR, limited non-food Had lost its way, now catching up
Differential adv.: — —
Challenger 3 ID: New Kid on the Block (merger) Still Just About Here plc
Market share: 18%++ (growing) 9%+ (growing)
KCVs: Value, fresh produce Value-for-money, brands stocked
Weaknesses: In-store amenities, no national coverage Poor brand reputation, few strengths
Follower ‘me ID: Still Just About Here plc Also Just Surviving Ltd
too’ Market share: 5% (declining) 7% +/– (static)
KCVs: Store ambience —
Weaknesses: No brand strengths, no buying power Mix of merchandise
Fast mover ID: SavaLot Ltd

Market share: 6%++ (rapid expansion)
KCVs: Value-for-money, merchandise mix
Weaknesses: Low brand awareness, poor buying power
Differential adv.:
Nicher ID: HyperLand plc (JV) Deluxe Deli Ltd

Market share: 3% 2%+ (growing, SE only)
KCVs: Range, value, store amenities, one-stop Service, staff attitude, opening hours,
Weaknesses: Few outlets, few scale benefits locations
Differential adv.: — Poor buying power, limited network,
branding
Upscale appeal and target marketing
This technique is based on warfare analogies and assumes and to identify fast movers, new entrants or emerging sub-
that the analysis is replicated for each individual target market stitute competition. The changing strengths and weaknesses
segment. Within each segment, it is necessary to allocate the of rivals also become apparent. If a company is not moving
competitive set which may include substitutes and possible up the column or ‘league table’ it is likely that its marketing
new entrants into the following categories: strategy and/or marketing programme are inappropriately
specified. Remedial action should be taken.
●● Market leader. Only ever one in a segment: the player or
brand with the biggest market share. The market leader
should (1) expand the total market, (2) expand its own
The Competitive Positions
market share, and (3) protect existing market share. The For reasons of commercial confidentiality, the identities of the
market leader has to defend and attack. cited retailers have been disguised.
●● Market challenger(s). Non-market leaders that want to be The competitive positions proforma identifies:
the leader! Aggressively attacking for market share gains ●● the key players and their relative positions
by investing in new product development, establishing
●● current successes and probable reasons
distribution, promotional activity, field force increases,
customer experience or price incentives. ●● the KCVs (key customer values or needs) each rival is
good at serving—rivals’ customer-facing strengths that
●● Market follower(s). Low-share rivals without resources,
must be addressed
market position, R&D or commitment to challenge. The
‘me-too’ smaller players in a market segment. ●● any differential advantages (DAs) to fear; these must
be combatted
●● Market nicher(s). Companies that specialize in terms of
market/product/customers, by finding a safe, profitable ●● the company’s own standing, which should improve
niche or narrowly defined segment. over time
●● Market fast mover(s). Smaller players with intentions ●● emerging and fast-moving rivals, including substitute
to be much bigger. A rival not yet large enough to be solutions to customers’ needs
classed as a challenger, but one worth watching or ●● the evolving competitive set with which to do battle,
‘knocking out’ before it is too late. and how!
One column of the proforma is completed for each market The proforma, therefore, is a ‘call to action’ to a company’s
segment. A company should include itself within the columns. marketers and leadership teams. In addition, the technique
In this way, a management team may assess the business’s acts as a diagnostic over time of a business’s successes or
relative performance across market segments and identify failures in terms of its marketing strategy and programmes.
rivals making gains in more than one segment. In this context,
the technique is of great value to the board of a company and Note: The Dibb/Simkin competitive positions proforma is copyright Sally Dibb
not only to marketing managers. and Lyndon Simkin. A more extensive explanation of this technique is offered
in The Market Segmentation Workbook (Dibb and Simkin) and The Marketing
Marketing-oriented businesses repeat this analysis every Planning Workbook (Dibb, Simkin and Bradley), both originally published in 1996
few months, in order to reveal movements within the columns by Thomson (London), or in Marketing Planning (Cengage, 2008).
Low price should also be avoided as a differential advantage at the centre of a marketing
rogramme unless a company genuinely has the scale economies to maintain a low cost base
p
and offer cost leadership. Only one company in any market can occupy this platform, as explained
by Porter’s generic routes to achieving a competitive advantage. Others are vulnerable to being
undercut and losing their apparent differential advantage. Tesco’s mighty buying power enabled
keen prices to be offered to its customers, giving it market leadership, but more recently the global
discounters – Lidl and Aldi – have undercut Tesco on price, utilizing their lean supply chains, low-
cost operations and buying power to offer permanently low prices. Low price can be utilized as a
short-term tactic to offload excessive stocks, for example, but should not form a basis for com-
peting unless it can be defended against all challenges.
If there is no observable differential advantage, an organization must look to its strengths over
its rivals. While not unique, these will still form the foundation for its ability to compete effectively.
The SWOT analysis assists marketers in identifying their strengths and capabilities. The
composite of any differential advantage with any strengths is a company’s basis for
basis for competing
A company’s combined competing, which should form a platform for the organization’s marketing strategy.
strengths as identified in For some companies, such as 3M, innovativeness is the basis for competing, while for
a SWOT analysis and any others, like Vidal Sassoon hair salons, image plays an important part. The Body Shop
differential advantage, concentrates on environmentally friendly cosmetics, whereas for Vue multiplex cinemas
which should form the
the basis for competing is the choice of multiple screens and leading technical systems
leading edge of the
company’s marketing at one convenient location. Some of these ways of gaining an edge are easier to sus-
strategy. tain than others. For example, many UK companies that have traditionally focused on
low price have found this advantage difficult to maintain in the long term.29 The airline
industry is just one to be plagued by periodic price wars, with many companies turning
instead to flexibility and customer service as the basis for competing, while others have adopted
a value-based strategy. BMW’s Ultimate Driving Machine positioning seems to endure, as with the
Mini’s fun and novelty positioning.
Identifying differential advantage There is a straightforward sequence that marketers follow

when attempting to identify a differential advantage:
1. Identify the market’s segments.
2. Establish what product and service attributes are desired and demanded by customers in
each segment.
3. Decide which of these attributes the company in question offers.
4. Determine which attributes the company’s competitors offer.
5. Consider what the marketplace perceives the competitors’ genuine strengths to be.
6. Identify whether any gaps exist between customer expectations of the product/service on offer
and perceptions of the competitors’ marketing programmes.
7. Consider whether any gaps identified in step 6 are matched by the company and its own
offerings. If the company is able to match one or more of these gaps, the potential exists for
a differential advantage to be developed.
8. Question whether any of these potential advantages for the company can be emphasized
through sales and marketing programmes.
9. Consider the sustainability of these advantages for the company. How easily and quickly can
competitors catch up? Is it possible for the company to defend these advantages?
10. If there are no current advantages for the company, given the gaps identified between com-
petitors’ propositions and customer expectations, consider which areas offer potential for
developing a future differential advantage.
11. In order to maximize any existing or potential differential advantages, detail the changes the com-
pany must make to its research and development, engineering, sales and marketing activities.
It is important to remember that companies frequently examine their relative strengths and
weaknesses in relation to their rivals. A strength is not the same as a differential advantage. For
example, many rivals may also have strong brand awareness, products that perform well, loyal
distributors or high profitability. A differential advantage is something that targeted customers want
and value, and that only one supplier is able to provide.
Marketing objectives
Once a company has agreed which marketing opportunities are worth pursuing, on which target
markets to focus marketing and sales activities, and how best to compete, the organization must
ensure that its marketing strategy specifies its core marketing objectives. These marketing objec-
tives are typically defined in terms of which are the most desirable market segments to target and,
for each of these priority market segments, what market share is being sought and thereby what
sales volumes or levels are expected to be achieved. They will definitely include financial perfor-
mance measures.
Marketers must specify a raft of performance metrics, including customer satisfaction or brand
awareness measures, profitability and financial contribution, or in retailing sales per square metre
of selling space. Marketing objectives may include various product and market developments that
marketers expect to achieve. These developments may include new product launches, new terri-
tory or market segment entry, the creation of innovative distribution channels or partnerships with
marketing channel members. Without specification of these expectations it is difficult to ensure
a fit with the organization’s overall corporate strategy. It is impossible, too, to monitor ongoing
performance or benchmark the effectiveness of the recommended marketing strategy against
competitors’ strategies.
Marketing mix decisions

As mentioned in Chapter 1, marketers must decide which products or services to offer to
selected target markets, the attributes, specifications, performance characteristics and designs
of these products, and the levels of customer service required to support them and to encourage
customer satisfaction. In addition, prices must be set, payment terms and mechanisms agreed;
distribution channels have to be chosen and distribution channel members orchestrated, in order
to ensure product availability at places appropriate for the targeted customers. These customers
must be made aware of the product through promotional activity marketing communications
and their interest in the product maintained through promotional campaigns. These product,
people, price, place and promotion decisions are what are termed the marketing mix decisions.
They occupy the majority of marketers’ time and account for most of a marketing department’s
budget.
Part Three of Marketing: Concepts and Strategies explores in detail the ingredients of the
marketing mix, and the tactical toolkit utilized by marketers in developing marketing programmes
designed to implement their recommended marketing strategy and target market strategy.
Product, people, price, place/distribution and promotion issues should be determined only
after the marketing strategy has been agreed. The marketing strategy itself should be developed
only after the core marketing analyses have been undertaken addressing market trends, market-
ing environment forces, customer buying behaviour, competition, opportunities, capabilities and
performance. The marketing process outlined in Chapter 1 requires analysis, strategy formulation
and then the specification of a marketing mix to facilitate the implementation of the desired target
market strategy. Marketing programmes created from the ingredients of the marketing mix are part
of the creation of an effective marketing strategy. Without the specification of marketing mixes,
marketing strategies will not be effectively operationalized.
Implementation and performance monitoring

Marketing programmes depend on a detailed marketing mix specification: product, place/
distribution, promotion, price and people issues. In addition, marketing programmes require the
specification of budgets for actioning the desired marketing mix recommendations. These budgets
must reflect the anticipated sales from the sales forecast and the trends inherent in the targeted
market segments. Sales and marketing personnel must know of their responsibilities in implement-
ing the recommended marketing programmes. There may be a requirement on colleagues outside
the sales and marketing functions or on senior executives. Schedules must be determined so that
it is clear when specific marketing mix activities are expected to occur.
It is essential that the implementation of a marketing strategy is managed and facilitated. This
involves specifying by whom, when, how and at what cost the desired marketing mix programmes
will be actioned. There may be internal marketing issues to address, such as those connected
with the sharing of marketing intelligence and strategies; communication channels within the busi-
ness; hierarchical support and resources. Finally, marketing must demonstrate its worth. Marketing
programmes should be evaluated against predetermined performance measures to ensure their
effective implementation and success in terms of the desired marketing objectives detailed within
the marketing strategy.30
Summary
Companies typically have a top-level overarching corporate strategy and an associated strategic market or business
plan. A marketing strategy is developed in order to deliver the corporate strategy, identifying target markets and a basis
for competing. Marketing strategy identifies which opportunities are to be pursued, indicates the specific target markets
on which activities are to be focused, defines the types of competitive advantage that are to be exploited, and provides
direction for marketing programmes. A marketing strategy aims to target customer segments of most benefit to an organi-
zation in a manner that best utilizes the organization’s capabilities, provides a differential advantage over competitors and
matches the organization’s corporate goals. The marketing strategy is an integral part of an organization’s overarching
strategy.
A company’s strategic market plan is an outline of the methods and resources required to achieve an organization’s overall
goals within specific target markets; it takes into account all the functional areas of a business unit that must be coor-
dinated. A strategic business unit (SBU) is a division, product line or other profit centre within a parent company, and is
used to define areas for consideration in a specific strategic market plan. Each business unit must know how its activities
fit with the overarching corporate strategy and each must have a marketing strategy to steer its activities. The process of
strategic market planning yields a marketing strategy that is the framework for a marketing plan.
A marketing plan includes the framework and entire set of marketing mix activities to be performed; it is the written
document or blueprint for specifying, implementing and controlling an organization’s marketing activities and marketing
mixes. The marketing mix and associated implementation processes designed to operationalize the marketing strategy are
the organization’s marketing programme. Most marketing programmes centre around a detailed marketing mix specifica-
tion and include internal controls and procedures to ensure that they are implemented effectively. Marketing environment
forces are important in and profoundly affect the strategic market planning process. These forces imply opportunities and
threats that influence an organization’s overall goals.
Central to the marketing strategy is a clear view of the corporate mission and goals. These may well be developed sepa-
rately to the marketing strategy but the marketing strategy must aim to reflect the overall corporate vision. A company’s
organizational goals should be derived from its mission, which is the overall goals that the organization wants to achieve.
These goals should guide planning efforts and specify the ends or results that are sought. Corporate strategy determines
the means for utilizing resources in the areas of production, logistics, finance, research and development, human resources,
IT and marketing to reach the organization’s goals.
There are three major considerations in assessing opportunities and resources: (1) evaluating marketing opportunities,
(2) environmental scanning, and (3) understanding the company’s capabilities and assets. A marketing opportunity arises
when the right combination of circumstances occurs at the correct time, allowing an organization to take action towards
reaching a target market. An opportunity offers a favourable chance for the company to generate sales from identifiable
markets. A strategic window is a temporary period of optimum fit between the key requirements of a market and the
particular capabilities of a company competing in that market. Market requirements relate to customers’ needs or desired
benefits. Market requirements are satisfied by components of the marketing mix that provide buyers with these benefits.
Environmental scanning is the process of collecting information about the marketing environment to help marketers iden-
tify opportunities and threats, and assist in planning. A company’s capabilities relate to distinctive competencies that it has
developed to do something well and efficiently. A company is likely to enjoy a differential advantage in an area in which its
competencies and marketing assets outdo those of its potential competition. Marketing assets are a categorization of an
organization’s strengths or capabilities in terms of customer-facing assets, distribution-based assets and internal, opera-
tional or resource assets.
The SWOT analysis is little more than a set of checklists, but it is a popular tool for analyzing the capabilities of an orga-
nization in terms of strengths and weaknesses, and for linking identified opportunities and threats to these capabilities.
As long as the analysis identifies the most important issues supported with validation and managers consider appropriate
actions to address the emerging priorities, the SWOT analysis is useful for identifying necessary actions. It is important that
any weaknesses that could be leveraged by competitors are rectified, and that managers strive to pre-empt any threats
identified.
Having evaluated the overall corporate vision, those responsible for devising the marketing strategy must build on their
analysis of opportunities and internal capabilities by analytically assessing the most promising directions for their business
and its marketing activity. Ansoff’s matrix for determining competitive strategies is a suitable tool, offering four options:
market penetration, market development, product development or diversification. Strategic objectives that can be imple-
mented through marketing include intense growth, diversified growth and integrated growth. Intense growth includes
market penetration, market development or product development. Diversified growth includes horizontal, concentric and
conglomerate diversification. Integrated growth includes forwards, backwards and horizontal integration.
Integral to achieving a company’s corporate vision is the need to develop a loyal customer base of satisfied customers.
It is essential to continuously improve the company’s marketing programmes so as to address evolving target market
customer needs and expectations. The market segmentation process of segmentation, targeting and positioning is a
core element of a recommended marketing strategy. Brand positioning is the creation of a desirable, distinctive and
plausible image for a brand that will have strong appeal for the customers in a target market segment. Customer value
propositions should be defined in order to cement the brand positioning and satisfy targeted customers. A target market
strategy is the choice of which market segment(s) an organization decides to prioritize and for which to develop market-
ing programmes.
The competition faced by a company are those organizations viewed as marketing products similar to, or substitutable for,
a company’s products, when targeted at the same customers. Strategists argue that organizations should work to attain a
competitive advantage. While not always possible to achieve, success without a competitive advantage is unlikely in most
markets. Competitive advantage is the achievement of superior performance vis-à-vis rivals: through differentiation to
create distinctive product appeal or brand identity; through providing customer value and achieving the lowest delivered
cost; or by focusing on narrowly scoped product categories or market niches so as to be viewed as a leading specialist.
The so-called generic routes to competitive advantage are cost leadership, differentiation and focus, and are not mutually
exclusive: while it is not possible to pursue all three routes to creating a competitive advantage, many businesses success-
fully pursue two of these routes. To pursue none is likely to result in a failure to be competitive.
It is important to understand the nature of competition and to utilize this knowledge in determining a marketing strategy.
Aspects of the marketing strategy should be purposively designed to maximize any weaknesses in competitors’ activities
and pre-empt any impending moves from rivals. As defined by Porter’s five competitive forces, competitors should not be
viewed only as like-for-like rivals: new entrants, substitute products or services, and the bargaining power of suppliers and
of buyers can all form competitive threats or opportunities. The competitive set must be defined by marketers, ensuring it
reflects customers’ views of direct alternatives and substitute options.
In developing strategies, an organization should consider the competitive positions in the marketplace. The market leader
must both defend its position and seek new sales opportunities. Attack may prove the best form of defence. Market chal-
lengers must aggressively seek market share gains but carefully select the basis on which to attack: a chink in the lead-
er’s armour, for example, or a quick response to changing consumer needs. Fast movers may be small but they have the
potential to win market share from rivals and should be combatted early-on. Market followers are the ‘me-too, also-rans’,
prone to be squeezed in times of recession or in response to challengers’ aggression. Market nichers specialize in terms
of product and customer segment: they can very successfully tailor their marketing to their customers’ needs but are vul-
nerable to competitors’ entry into their target segments. To compete successfully, any organization needs to consider the
principles of defensive and offensive warfare and to understand its competitors’ strategies through competitor scanning.
The competitive positions proforma is an increasingly popular tool for evaluating competition across a company’s seg-
ments or markets.
An organization should strive for a differential advantage or competitive edge in its markets. A differential advantage
is an attribute of a brand, product, service or marketing mix that is desirable to targeted customers and provided by
only one supplier. Marketers should emphasize the desirable attributes of a company’s marketing mix that their target
customers consider unmatched by competitors. The combined strengths, as identified in a SWOT analysis, and any dif-
ferential advantages make up the basis for competing, which should form the leading edge of a company’s marketing
strategy.
A marketing strategy must specify its core marketing objectives: targeted market segments, desired market shares, cus-
tomer satisfaction or brand awareness measures, profitability and financial contribution targets, plus any planned product
and market developments. Without specification of objectives, it is difficult to assess the performance of the marketing
strategy or to ensure its fit with the overall corporate strategy.
The ingredients of the marketing mix – product, place/distribution, promotion, price and people – issues should be deter-
mined only after a guiding marketing strategy has been specified. The marketing strategy must be decided only after the
essential marketing analyses of market trends, the marketing environment forces, customer buying behaviour, competition,
opportunities and capabilities, and current trading performance have been undertaken. Analysis should come first, then
strategic thinking, and finally the determination of marketing programmes to implement the selected strategy, as explained
in Chapter 1’s examination of the marketing process.
Marketing programmes depend on detailed marketing mix specifications, but also on the determination of budgets for
implementing these marketing mix requirements. These budgets must reflect the sales forecast and trends in the targeted
market segments. Sales and marketing personnel should take responsibility for implementing the marketing plan’s recom-
mendations, and schedules for marketing mix activity must be established. Implementation of a marketing strategy has to
be facilitated, which involves specifying by whom, when, how and at what cost the desired marketing programmes will be
implemented. These programmes must be evaluated against predetermined performance measures.
Marketing plan
Key links Marketing programme
Marketing strategy
The content of this chapter examining marketing strategy Offensive warfare
must be read after having understood the scope of market- Product development
ing and the marketing process as outlined in Chapter 1. Strategic business unit (SBU)
Other links include: Strategic market plan
●● Chapter 3’s explanation of the forces of the macro and Strategic objectives
micro marketing environment and the importance of Strategic window
environmental scanning. Strategy
SWOT analysis
●● Chapter 7’s discussion of the market segmentation
Target market strategy
process, central to developing a target market strategy.
●● Chapter 8’s examination of targeting strategy, brand
positioning and customer value propositions. Discussion and review questions
●● Chapter 22’s explanation of marketing planning. 1. What is a marketing strategy?
2. Why should an organization develop a marketing strategy?
Important terms 3. Identify the major components of corporate strategy,

strategic market planning and marketing strategy. Explain
Ansoff matrix how they are interrelated.
Basis for competing 4. In what ways do marketing environment forces affect
Brand positioning strategic market planning? Give some specific examples.
Capabilities
5. What is a mission statement? Why must marketing strate-
Competitive advantage
gists understand their organization’s corporate strategy?
Competitive positions
Competitive positions proforma 6. What are some of the issues that must be considered in
Competitive set analyzing an organization’s opportunities and resources?
Competitor scanning How do these issues affect marketing objectives and
Competitors marketing strategy?
Concentric diversification 7. Why is marketing opportunity analysis necessary? What are
Conglomerate diversification the determinants of marketing opportunity?
Corporate strategy 8. What are the components of a SWOT analysis?
Customer value proposition 9. In relation to resource constraints, how can environmental
Defensive warfare scanning affect a company’s long-term strategic market
Differential advantage planning? Consider product costs and benefits affected by
Diversified growth the environment.
10. What is the difference between market penetration, market
Fast movers
development and product development?
Five competitive forces
Generic routes to competitive advantage 11. Why do you think more companies are diversifying? Give
Horizontal diversification some examples of diversified businesses.
Integrated growth 12. The market segmentation process is at the heart of a
Intense growth marketing strategy. Why must this be so?
Market challengers 13. What is competitive advantage?
Market development
14. Why should companies attempt to understand the strate-
Market followers
gies of their competitors? Explain your views.
Market leader
Market nichers 15. How can a market leader best defend its competitive position?
Market penetration 16. What are the strengths of a market nicher? In what way is a
Market requirements nicher vulnerable?
Marketing assets 17. What is meant by the term differential advantage? How
Marketing opportunities does this relate to the concept of competitive advantage?
18. Why must a marketing strategy include detailed marketing Dibb, S. and Simkin, L., Market Segmentation Success (The Haworth
objectives? Press/Routledge, 2008).
Hooley, G., Piercy, N., Nicoulaud, B. and Rudd, J., Marketing Strategy and
19. In what ways should implementation of a marketing strat-
Competitive Positioning (Pearson, 2016).
egy be managed and facilitated? Moutinho, L. and Southern, G., Strategic Marketing Management: A
Process-Based Approach (Cengage, 2009).
Porter, M.E., Competitive Strategy: Techniques for Analyzing Industries
Recommended readings and Competitors (The Free Press, 1980 and 2004).
Aaker, D. and McLoughlin, D., Strategic Marketing Management (Wiley, Taylor, H., B2B Marketing Strategy: Differentiate, Develop and Deliver
2012). Lasting Customer Engagement (Kogan Page, 2017).
Chernev, A. and Kotler, P., Strategic Marketing Management (Cerebellum West, D., Ford, J. and Ibrahim, E., Strategic Marketing: Creating Compet-
Press, 2016). itive Advantage (OUP, 2015).

Consider a large, well-known com- Since the 1980s, Korean-based Kia,
pany with which you have regular part owned by Hyundai, has been a
dealings, such as a major retailer, financial institution or hotel global player in the car market, now
group. Or select a supplier whose products you purchase fre- producing around 3 000 000 cars per annum. Its European
quently, such as Innocent, Pampers, Samsung or Vodafone. business, run from Frankfurt, has become a key focus for
Log on to the selected organization’s website. growth and has been at the heart of the company’s strategy
Ignore the investors’ pages, corporate information pages, since 2005. By 2009, the Kia brand had become a significant
PR releases and so forth. Look at the site from the perspective player in the UK market, notably in the small, medium and
of a customer and access only the customer-relevant pages SUV sectors, achieving sales of over 50 000 for the first time
(those to do with products, services, offers, customer services, and a market share of two per cent. Its Picanto city car sold
stockist location and so on). 17 000. More recently, its Cee’d range has competed very
effectively against the likes of the VW Polo and Golf, Vauxhall
1. What customer-relevant information is offered by the
Astra and Ford Focus and Mondeo, while Kia’s SUV Sportage
website you have chosen?
and Sorento ranges continue to make strong inroads. Kia does
2. In what ways is the website striving to make the organi- not have as complete a range as Ford or VW, or compete in
zation appear ‘special’ or particularly good? the areas dominated by Audi, BMW or Mercedes, although its
3. Given the website material, how would you interpret new Stinger model is heading into their areas of the market.
the selected strategy for this organization? What is its Should Kia focus on its current core areas of strength or seek
apparent sense of purpose and what seem to be its to expand its range and target additional market segments?
leading priorities? As a successful and growing brand, these are the dilemmas
facing the company’s marketing strategists.
Group tasks
Question
1. Red Bull has identified a varied set of target segments,
ranging from students revising, young adults clubbing, As the senior marketer tasked to assess the market’s potential
sporty types requiring energy, jaded business executives for the growth of sales under the Kia brand, what steps would
in long meetings or flagging motorists on the move. you take?
Consider the nature of competition Red Bull faces in
each of these usage situations.
2. Consider the principal target markets (customer types)
pursued by each of the major mobile phone networks.
To what extent do their target market priorities vary?
St Andrew’s Healthcare: As a charity, its focus is not on helping

a charity’s marketing Case study mental health sufferers in the commu-
nity, or charity shop-style fundraising, or
strategy increasing the general public’s awareness
of mental health issues – other charities
St Andrew’s Healthcare is the market leader in
and bodies address these important tasks.
many types of mental healthcare in the UK. The
St Andrew’s Healthcare is a set of fully specified
National Brain Injury Centre is based at the charity’s Northamp-
hospitals with leading experts, state-of-the-art care
ton headquarters. In addition to its large site in Northampton,
pathways and an eminent reputation within the mental health-
St Andrew’s has also created satellite facilities in Essex, Bir-
care profession. St Andrew’s divisions address everything from
mingham and Nottinghamshire. As a leading specialist pro-
adolescent learning difficulties through to major behavioural
vider, the organization’s patients are referred to its hospitals
problems, with patients requiring secure accommodation and
from throughout the UK and beyond. In its own words:
lengthy treatment programmes. It has a specialist unit dealing
St Andrew’s Healthcare is the UK’s leading charity providing spe- with brain injuries and, through an on-site partner, also offers
cialist mental healthcare and the largest provider of charitable clinic facilities for patients needing to ‘dry out’. Its staff are
services to the National Health Service. recognized as being leading-edge health professionals.
We were established in 1838 and care for people across six The St Andrew’s brand reputation is based on the quality
services: Men’s Mental Health, Women’s Mental Health, Child and
of its care, its specialized care pathways and its ability to
Adolescent Mental Health Service (CAMHS), Neuropsychiatry,
relate to patients, their families, and to the medical staff or
Autistic Spectrum Disorder and Learning Disability.
We care for some of the most clinically complex patients in
personnel in social services who refer patients to the hospital.
the mental health system - people who could not, in many cases, St Andrew’s has charitable status, but sets fees to permit it to
be treated elsewhere. Many are in the criminal justice system and provide the high-quality care that is at the core of its ethos.
are some of the most vulnerable people being treated anywhere It uses these fees and fundraising to continually reinvest in
in the health service. its facilities and treatment programmes, pushing the field to
We develop innovative ways to help patients recover, creating discover more effective pathways and practices.
a package of care designed around each individual, focusing on Despite its success, its diversity of operations places sig-
physical and spiritual well-being as well as mental health. nificant demands on its capital spending: wards and facilities
Our vision: Transforming lives by building world-class mental require modernizing; newly devised care programmes may
healthcare services.
require remodelled facilities and well-paid expert staff to pro-
We’ll achieve our vision by delivering world-class holistic
vide the best available treatment. The expansion of demand led
care, developing innovative therapies and treatments, and putting
people first to prioritize safety and recovery.
by reduced state provision of mental health facilities pressur-
Our five-year target is to transfer 1 500 patients to lower lev- izes the organization’s caring professional to provide expanded
els of security. In the same time frame we want to drive our staff facilities. Private-sector commercial businesses have entered
engagement up to 75 per cent, achieve ‘Outstanding’ ratings from the more financially lucrative parts of the market. St Andrew’s
the Care Quality Commission for our sites and generate £100m must defend its position in these segments, as fee income
to invest in patient care. from these activities is required to support the organization as
www.standrewshealthcare.co.uk/who-we-are, 14 February 2018. a whole and to cross-subsidize other segments of the market
deemed less financially attractive by new-entrant competi-
tors. In order to defend its market share in these segments,
St Andrew’s has to develop marketing strategies and devote
resources to marketing programmes designed to maintain the
loyalty of referring GPs, medical consultants and social work-
ers. The requirement is growing to tailor marketing messages
to a growing mix of audiences. Commercially-minded com-
petitors are developing ‘glitzy’ marketing programmes and St
Andrew’s has to maintain its visibility to key stakeholders in
this quickly evolving marketplace.
While some patients deal directly with the charity, the
vast majority are referred from the National Health Service
(NHS). St Andrew’s has a reputation for being able to deal with
difficult patients suffering from complex mental health prob- The organization has responded to these market forces by
lems. However, the NHS is moving towards fragmented buying, developing a corporate strategy and a marketing strategy, by
with numerous regionalized buying consortia of medics and allocating resources to producing and implementing market-
procurement managers able to purchase services – such as ing programmes, and by recruiting a set of marketing man-
those offered by St Andrew’s – from a variety of providers. agers to support the various divisions’ marketing activities.
In addition to the medical staff diagnosing the patients’ prob-
lems and recommending appropriate courses of treatment, the Questions for discussion
NHS has risk assessors, financial managers and professional 1. For a non-profit organization such as St Andrew’s Health-
purchasing executives, who are all involved in the decisions care, what aspects of a marketing strategy will be the
concerning which treatment programme to purchase and most important?
from which provider. For St Andrew’s and other suppliers to
2. Why are organizations such as St Andrew’s Healthcare
the NHS, such formalized purchasing and group buying centre
turning to marketing and the development of marketing
dynamics complicate the marketing activity and the engage-
strategies?
ment programmes the charity runs with its ‘customers’. For
the patient, to his/her family, to the referring medical staff 3. In what ways would a marketing strategy benefit St
and the numerous administrators involved, St Andrew’s must Andrew’s Healthcare?
develop bespoke messages, marketing communications and Sources: St Andrew’s Healthcare, 2004–18; James Watkins, former direc-
client-handling programmes. This complex buying centre must tor of marketing and strategy, St Andrew’s Healthcare, 2003–15; Marketing
be addressed for St Andrew’s to operate with full bed occu- Briefs, Sally Dibb and Lyndon Simkin (Elsevier Butterworth-Heinemann, 2004);
www. stah.org, February 2011, April 2015 and February 2018.
pancy, in order to fulfil its mission to truly help those suffering
with mental health problems.
Chapter 3
The marketing environment
Marketers must have insights into their emerging market challenges,
many of which will not be of their making, but which will impact hugely on
their practices
Introduction
Objectives This chapter explores the external forces that impact on an
organization’s trading and ability to satisfy its customers. These
To understand the concept of
forces, over which organizations rarely have any direct con-
the marketing environment and
trol, are termed the marketing environment and fall into two
the importance of environmental
categories: the macro and the micro forces of the marketing
scanning and analysis.
environment. Most senior marketers believe that the market-
To explore the broad forces of the ing function should provide market insights to an organization,
macro marketing environment: framing opportunities and threats, and acting as the ‘radar’ for
political forces relevant to colleagues in other functions, so that they can align strategies
marketers, the influence of laws on and plans to developments in the market. A fundamental part of
marketing practices, the impact such a remit is to develop an understanding of the forces of the
of government regulations and marketing environment. This is a core concept in both corporate
regulatory agencies, societal issues strategy and for marketers within their marketing strategy.
important to marketers, the effects The very broad forces are the macro marketing environ-
of new technology on society and ment: the political, legal, regulatory, societal, technological and
marketing activities, economic and economic/competitive forces that impact on all organizations
competitive factors and their impact operating in a market and on their ability to carry out their
on organizations, and customers’ affairs. Authors have increasingly distinguished these broad
willingness and ability to buy. forces from an additional set of more company-specific external
forces termed the micro marketing environment forces. These
To examine the company-specific
micro marketing environment forces are largely aspects of the
micro marketing environment
competitive arena and supply chain.
forces: the competitive pressures
After defining the marketing environment and considering
facing an organization in terms
why it is necessary for marketers to scan and analyze these
of the supply chain, marketing
forces, each of these macro and micro forces is discussed.
intermediaries, competitors and
Awareness of these issues and trends may create strategic
from other publics.
windows of opportunity. Ignorance of such forces jeopardizes
To understand the role of the an organization’s ability to perform well and may leave the
marketing environment in marketing organization more vulnerable to the actions of more aware
opportunity analysis and the competitors.
importance of strategic windows in
marketing strategy.
73
Regulatory influence:
I n 1947 the launching of
the Marshall Plan pre-
sented a blueprint for the
the EU single market
before. Health and safety
working regulations
have been harmonized,
economic reconstruction of a as have air travel regula-
Europe devastated by the Second tions and even standards for
World War. This led in 1948 to the mobile phone networks and VAT
creation of the Organization for European Economic Coopera- collection. The creation of the euro
tion (OEEC), the precursor of today’s economic union. In March currency – to which most member states are now
1957 the Treaty of Rome was signed to establish the European signed up – further simplified cross-border business transac-
Economic Community (EEC). By 1973, with the arrival of Den- tions and travel arrangements. The UK’s referendum in 2016
mark, Ireland and the UK, the EEC had grown to nine member to leave the EU – Brexit – saw a narrow majority of UK voters
states. Greece joined in 1981 and Portugal and Spain in 1986 to deem these benefits to no longer outweigh the disadvantages.
create the ‘Euro 12’. The momentous signing of the Maastricht The EU has many critics, not least due to (a) its Common
Treaty in 1992 established the European Union (EU) and by Agricultural Policy (CAP), which takes more than half of the
1st January 1993 the European single market was at last a entire EU budget, is a significant drain on the resources of
reality. The single market is defined by the EU as ‘an economic the richer member states and is currently being renegotiated;
area within which persons, goods, services and capital have (b) national governments’ reaction to the free-movement of
unrestricted freedom of movement, which entails not only the migrants within the EU, impacting on planning, social pro-
elimination of customs barriers, but also of technical, tax and vision, housing and employment patterns; (c) moans about
legislative obstacles’. By 2013, membership had swelled to 28 the often top-heavy bureaucracy of European government in
countries, including many eastern European countries, such as Brussels; (d) the inevitable formalization of a great number of
the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, working practices when so many countries’ rules and regula-
Slovakia and Slovenia, plus Mediterranean countries Cyprus tions are combined to form a single and cohesive approach;
and Malta. Bulgaria and Romania joined in 2007 and Croatia in (e) the financial conditions that must be met in order to partic-
2013. Candidate countries include Turkey, Serbia, Montenegro, ipate in the euro, and the apparent flouting of these conditions
Albania and Macedonia. Bosnia and Kosovo are also potential by certain ‘major league’ member states and recent member
candidates, but no longer Iceland. Norway, Iceland and Liech- states, which has added to the criticisms; and (f) the inclusion
tenstein are part of the European Economic Area (EEA), which of seemingly ‘weaker’ eastern European economies, which
permits them to be part of the EU’s single market. has concerned people in the western European economies,
The single market has had a significant impact on the which may well be cross-subsidizing these newer member
populations of member and non-member trading states, as economies.
well as on marketers representing their companies. With the However, there are few marketers who would claim that
removal of so many bureaucratic barriers on 1st January in the years since the harmonization of Europe in 1993, doing
1993, professionally qualified personnel could seek employ- business across Europe has not been simplified, opening up
ment without retraining in other member states; companies significant marketing opportunities for many businesses and
could tender for government contracts throughout the EU; presenting new competitive threats. The recent expansion of
imports and exports became subject to far fewer restrictions, EU membership – doubling the number of consumers inside
less ‘red tape’, reduced customs controls and allowed much the single market to 510 million – is of great interest to mar-
freer movement within and between EU states. Immigration keters. The EU continues to present new challenges and a
and travel have become much quicker and simpler than reason to rethink marketing strategies. As Brexit unfolds,
companies, consumers and policy-makers in the UK and
the remaining member states will need to adapt and work
out new ways of trading and operating together. There is lit-
tle doubt that the EU is an external factor in the marketing
environment of most businesses and consumers that cannot
be ignored!
References: EU policy documents, 1990-2007; Europe in Figures, Eurostat,

Luxembourg, 1995; Europe on the Move, From Single Market to European
Union, Internal Market all EU, Brussels, publications; www.gov.uk/eu-eea,
March 2015; europa.eu/about-eu/, March 2015; europa.eu/european-union/
about-eu, February, 2018.
Chapter 3 The marketing environment 75
T
he EU has a tremendous impact on the decisions and activities of marketers. The regula-
tions and legal directives produced by the EU, plus the financial implications of many of its
policies – such as the CAP and the criteria for participating in the euro – are aspects of the
macro marketing environment. The ramifications of Brexit will be immense, in terms of financial
markets, funding for Government services, borders and immigration, customs and tariffs, trading
and logistics, travel and tourism, security and defence, manufacturing and distribution, consump-
tion and policy. There will be significant change. Brexit and its many manifestations present threats
to many brands and businesses, but also many opportunities for new trading relationships and
maintaining existing ones. It is a perfect illustration of the concept of the marketing environment.
This chapter discusses both macro and micro forces, commencing with the broader macro issues.
It includes a discussion of why and how marketers scan the forces of the marketing environment. The
chapter concludes with an examination of how an understanding of these marketing environment
forces assist a company in identifying strategic windows, maximizing marketing opportunities and
recognizing impending threats.
Examining and responding to the marketing

environment
marketing
The marketing environment consists of external forces that directly or indirectly
environment influence an organization’s acquisition of inputs and generation of outputs, or how it
The external forces that does business. Inputs might include personnel, financial resources, raw materials and
directly or indirectly influ- information. Outputs could be information such as advertisements or packaging, goods,
ence an organization’s services and ideas. As indicated in Chapter 1 and as shown in Figure 1.4, the broad
acquisition of inputs and
generation of outputs,
marketing environment consists of six categories of forces: political, legal, regulatory,
comprising six categories societal, technological and economic/competitive. Although there are numerous envi-
of forces: political, legal, ronmental factors, most fall into one of these six categories. These are termed the
regulatory, societal, tech- ‘macro forces’ of the marketing environment, as they affect all organizations operating
nological and economic/ in a particular market. In addition, many authors have identified a set of issues termed
competitive.
the ‘micro forces’ of the marketing environment. These micro forces are more situation-
and organization-specific, including the organization’s internal environment, suppliers,
marketing intermediaries, buyers, competitors and the organization’s publics. . . they tend to be
centred on competitor issues directly impacting on a specific organization.
Whether they fluctuate rapidly or slowly, environmental forces are always dynamic. Changes in
the marketing environment can create uncertainty, threats and opportunities for marketers. Brexit
is a good example. Although the future is not very predictable, marketers can estimate what will
happen, although some fail to do so, thus negatively affecting the performance of their businesses.
Astute marketers continually modify their marketing strategies in response to the dynamic envi-
ronment. Marketing managers who fail to recognize changes in environmental forces leave their
companies unprepared to capitalize on marketing opportunities or to cope with threats created by
changes in the environment.
Organizations that cannot deal with an unfavourable environment are at risk of going under.1 The
1990 Persian Gulf Crisis caused huge increases in the price of petrol, repeated in 2004 following the
start of the last Gulf War. Civil war in the former Yugoslavia had tragic implications for the peoples of
that region and an economic impact on the tour operators who specialized in holidays to the Yugo-
slav coast. The BSE beef crisis affected farmers, meat producers and supermarkets. Genetically
modified (GM) foods caused a storm, with implications for food manufacturers and supermarkets.
The activities of terrorists have had a significant impact on companies and the general public in
many countries, with tourism and airline operators being particularly badly affected. Sub-prime
mortgages led to huge economic troubles, impacting on consumers’ spending potential and their
priorities. Recent political upheaval in Egypt has disrupted the tourism industry there, tour operators
marketing holidays to the country, and consumers planning to holiday there. The Ebola pandemic
impacted on tourism and economic trade to parts of Africa. It is not just such big crises that impact
on marketers. The emergence of autonomous driverless vehicles and electric cars presents oppor-
tunities for many businesses, but these new technologies pose threats to established automotive
and energy businesses. Indeed, the expected surge in EV adoption threatens the basis of many
oil-driven Gulf economies. Monitoring the marketing environment is crucial to an organization’s
survival and to the long-term achievement of its goals.
Environmental scanning and analysis

environmental
scanning To monitor changes in the marketing environment effectively, marketers must engage
The process of collecting in environmental scanning and analysis. Environmental scanning is the process of
information about the
collecting information about the forces in the marketing environment. Scanning involves
forces in the marketing
environment. observation; keeping ‘an ear to the ground’; perusal of secondary sources, such as
the web, business, trade, government and general interest publications; and marketing
research. However, managers must be careful not to gather so much information that
environmental sheer volume makes analysis impossible. Environmental analysis is the process of
analysis assessing and interpreting the information gathered through environmental scanning. A
The process of assessing
manager evaluates the information for accuracy, tries to resolve inconsistencies in the
and interpreting the
information gathered data and, if warranted, assigns significance to the findings. Through analysis, a mar-
through environmental keting manager seeks to describe current environmental changes and to predict future
scanning. changes. By evaluating these changes, the manager should be able to determine pos-
sible threats and opportunities linked to environmental fluctuations. Understanding the
Practitioners’ assessment Marketing the marketing environment, ‘best

of the macro marketing tools and practice’ companies typically adopt
one of three approaches to assess-
environment techniques ing their marketing environments.
The marketing environment forces

are not obviously part of one individual 1. Individual managers or small work groups are allocated
manager’s routine job specification, to each of the macro forces: social, economic, legal,
particularly within the marketing function: their diversity regulatory, political and technological. As ‘champions’
cuts across many functions and roles. However, businesses for their allocated topic, such managers collate intel-
must monitor these forces through environmental scanning, ligence from stakeholders, employees and external
not only to pre-empt possible problems caused by unfa- sources in order to build up a picture of the key trends
vourable market developments, but also in order to lever- and developments. These managers either suggest the
age any emerging opportunities ahead of competitors. The emerging implications for their business and make rec-
identification of strategic windows and the chance to take ommendations, or they present their findings at a sales
first mover advantage are desires among senior managers and marketing meeting or to senior managers for their
and marketers. debate and consideration. The development of company
The forces of the micro marketing environment and intranets has significantly assisted the networking and
competitive pressures are usually evaluated within a mar- sharing that are so important for the collation of topical
keting team’s analysis of competition (see Chapter 2). and relevant information.
However, companies must examine the macro forces, too. 2. The task of assessing the marketing environment may be
Many managers refer to this macro marketing environmen- handed to external consultants. This is not common, as
tal analysis as a PEST analysis: political, economic, societal few consultancies know enough about all of the forces of
and technological. While research indicates that many fail the macro marketing environment, or about the organiza-
to adequately examine the opportunities and threats from tion in question, to judge likely implications. However, in
certain industries, such as automotive, defence, energy, It is important to have a good mix of inputs, from market
telecommunications, IT and pharmaceuticals, it is more information and personnel to any assessment of the macro
commonplace. forces of the marketing environment, and to solicit the views
3. An organization may intermittently stage workshops to of stakeholders other than those participating in the workshop
which cross-functional and multi-hierarchical personnel session. For example, partners, channel members, market
are invited. For example, R&D personnel may be aware of analysts, industry experts or consultants and even customers,
technological trends, the company secretary or counsel are all useful sources both for marketing intelligence and for
of legal or regulatory issues, the salesforce of economic checking out suggested action plans. It is better not to involve
or social forces, and so on. Typically, each of the macro only marketers.
marketing environment forces is discussed in turn, in a Having identified the key issues of the macro marketing
‘brainstorming’ exercise. Certain themes or ‘hot topics’ environment forces currently of relevance, the business must
then emerge to be debated further within the workshop. consider the implications. The ‘So what does this mean to us
The company then allocates an individual manager or and to our business?’ question has to be answered. Is the
creates a small taskforce to subsequently examine a par- issue a threat or an opportunity? What resulting actions must
ticular issue in more detail, in order to develop an action be taken? Certain trends and developments may pose a threat,
plan based on more information. while other forces may create an opportunity. Sometimes, the
Some companies invite external experts, suppliers, same issue is both an opportunity and a threat. In the above
partners or even customers to such a workshop. If these example, had this company failed to implement changes to its
external opinions are not sought as part of the workshop, field force’s working practices, it would not have bolstered its
any planned activity by the business resulting from this reputation or improved the completion rate of its sales repre-
workshop-based analysis must await some external vali- sentatives. Worse, rivals may have been able to steal a march
dation after the workshop. and measures designed to minimize the likelihood of client
Such sessions are an excellent way in which a busi- litigation would not now be in place.
ness can harness the expertise across its functions and
within its marketing channel in order to prioritize actions
The Macro Marketing Environment for a Leading
that should minimize the impact of a negative external
Insurance Company
development or maximize an emerging opportunity.
●● Stock market (worthless investments, own share price/
In this type of forum, the senior management team
company value)
supported by functional experts and channel partner person- ●● New/more regulations (FCA, Gov, EU, within client sectors,
nel brainstormed the key issues from the macro marketing accountancy)
environment for a leading insurance business. The priorities ●● Over/under capacity in the industry/key sectors
emerged as shown in the boxed list (right). ●● Many mergers and changes to the competitive set
●● Structural changes in the sector and for clients
While some of these forces, such as the weather, were
●● Emerging compensation culture among clients and brokers
outside the influence of the business, many of them could be ●● Data privacy, protection and sharing regulations
addressed. Indeed, while the weather could not be altered, the ●● Customers’ expectation of better advice
company did decide to re-examine its exposure to flood plain ●● Greater role for technology such as CRM (customer
customers and modified its policy cover accordingly. relationship management), online quotes/claims, e-business
●● The role of comparison websites, social media fora and online
Within each of these rather broad-brush summary bul-
experts
lets lay much detail to explore and discuss. An example of a ●● Distribution channel developments (role of brokers,
resulting action was to more closely manage the activities of e-commerce, tele-business, retailer new entrants)
the field salesforce, harnessing the latest mobile office tech- ●● Recruitment problems/inability to make the sector attractive
nology solutions and customer relationship management field ●● Global warming/changes to weather: greater claims
systems. As a result, the already low level of client complaints
for inappropriate selling approaches virtually disappeared, and © Dibb/Simkin
the highly ethical stance in controlling the salesforce bolstered Note: a more extensive explanation of this technique is offered in either The
Market Segmentation Workbook (Dibb and Simkin) or The Marketing Planning
the company’s brand reputation and thereby its ability to recruit
Workbook (Dibb, Simkin and Bradley), both originally published in 1996 by
high-calibre personnel. This strategy also reflected the grow- Thomson, London, or in the authors’ later titles Market Segmentation Success:
ing litigious culture among consumers, and thereby addressed Making It Happen! (The Haworth Press/Routledge, 2008) and Marketing Planning
(Cengage Learning, 2008).
another of the trends identified during the workshop.
current state of the marketing environment and recognizing the threats and opportunities arising
from changes within it, help marketing managers assess the performance of current marketing
efforts and develop marketing strategies for the future. As Figure 3.1 shows, Innocent Drinks has
developed products which enable it to benefit from an increase in healthy eating trends. The Mar-
keting Tools and Techniques box above describes how organizations often conduct an analysis of
the marketing environment.
JCB, the construction equipment producer, allocated to individual managers the task of moni-
toring aspects of the macro marketing environment: political, legal, regulatory, societal (particularly
the Green movement), technological, economic and competitive. A small committee met to prepare
short papers and presentations to interested colleagues. When the laws relating to roadworks
were amended, making contractors responsible for the safety of their sites and the long-term
quality of the re-laid road surface, JCB recognized that many of its customers would have to alter
their working practices as a result. So the company produced guides/downloads to assist these
contractors in responding to the new legislation. In so doing, JCB was able to enhance its image
and reputation as a leading player in the industry, and at the same time promote its products and
build relationships with anxious business customers.
Responding to environmental forces

In responding to environmental forces, marketing managers can take two general approaches:
accept environmental forces as uncontrollable or confront and aim to mould them. If environmental
forces are viewed as uncontrollable, the organization remains passive and then has to be reactive
towards the environment, often scrambling to catch up to an issue. Instead of trying to influence
forces in the environment, its marketing managers tend to adjust current marketing strategies to
environmental changes. They approach marketing opportunities discovered through environmental
scanning and analysis with caution. On the other hand, marketing managers who believe that envi-
ronmental forces can be shaped adopt a proactive approach. For example, if a market is blocked
by traditional environmental constraints, marketing managers may apply economic, psychological,
political and promotional skills to gain access to it or operate within it. Once they identify what
blocks a marketing opportunity, marketers can assess the power of the various parties involved
and develop strategies to try to overcome environmental forces.2
Figure 3.1
Growing social awareness of healthy eating and
the problems of obesity have created opportunities
for many brands, including Innocent smoothies and
other products promising to help consumers have
‘five a day’ of fresh fruit and veg.
Source: Image courtesy of Innocent Drinks
In trying to influence environmental forces, marketers may seek to either create new marketing
opportunities or extract greater benefits relative to costs from existing marketing opportunities. For
instance, a company losing sales to competitors with lower-priced products may strive to develop
technology that would make its production processes more efficient; greater efficiency would allow
it to lower the prices of its own products. Political action is another way of affecting environmental
forces. UK retailers, for example, successfully lobbied government to permit longer Sunday trading
and legal opening of retail outlets all day. Recently, bodies representing the alcoholic drinks industry
and the tobacco manufacturers have successfully limited proposed legislation that would have
altered the sales of these products. A proactive approach can be constructive and bring desired
results. However, managers must recognize that there are limits on how much an environmental
force can be shaped and that these limits vary across environmental forces. Although an organi-
zation may be able to influence the enactment of laws through lobbying, it is unlikely that a single
organization can significantly increase the national birth rate or move the economy from recession
to prosperity!
Generalizations are not possible. It cannot be stated that one of these approaches to environ-
mental response is better than the other. For some organizations, the passive, reactive approach is
more appropriate, but for other companies, the aggressive approach leads to better performance.
What is certain is that ignorance of the forces of the marketing environment leads to problems and
creates opportunities for rivals. The selection of a particular approach depends on an organization’s
managerial philosophies, objectives, financial resources, customers and human skills, and on the
specific composition of the set of environmental forces within which the organization operates.
The rest of this chapter explores in detail the macro and micro marketing environment forces,
and then examines the link between an understanding of these issues and marketing opportunity
analysis. Identifying opportunities and mitigating threats are core to developing effective marketing
strategies.
Political forces
The political, legal and regulatory forces of the marketing environment are closely interrelated.
Legislation is enacted, legal decisions are interpreted by the courts, and regulatory agencies are
created and operated, for the most part, by people elected or appointed to political offices or
by civil servants. Legislation and regulations (or the lack of them) reflect the current political out-
look. Consequently, the political force of the marketing environment has the potential to influence
marketing decisions and strategies.
Marketers need to maintain good relations with elected political officials for several reasons.
When political officials are well disposed towards particular companies or industries, they are less
likely to create or enforce laws and regulations unfavourable to these companies. For example,
political officials who believe that oil companies are making honest efforts to control pollution are
unlikely to create and enforce highly restrictive pollution control laws. In addition, governments are
big buyers, and political officials can influence how much a government agency purchases and
from whom. The UK government’s liking of public–private partnerships for financing capital projects
such as schools and hospitals created significant opportunities for construction companies Carillion
and Laing O’Rourke or outsourcing specialists such as Capita and Serco. Finally, political officials
can play key roles in helping organizations to secure foreign markets.
Many marketers view political forces as beyond their control; they simply try to adjust to condi-
tions that arise from those forces. Some organizations, however, seek to influence political events
by helping to elect to political office individuals who regard them positively. Much of this help is
in the form of contributions to political parties. A sizeable contribution to a campaign fund may
carry with it an implicit understanding that the party, if elected, will perform political favours for the
contributing company. There are, though, strict laws governing donations and lobbying in most
countries and, increasingly, ethical considerations for donor marketers.
Legal forces
A number of laws influence marketing decisions and activities.3 This discussion focuses on pro-
competitive and consumer protection laws and their interpretation.
Procompetitive legislation
procompetitive Procompetitive legislation is enacted to preserve competition and to end various
legislation practices deemed unacceptable by society, for example monopolies and mergers. In
Laws enacted to the UK, the Department for Business, Innovation and Skills (BIS) can refer monopolies
preserve competition and
to end various practices
for investigation by the C ompetition and Markets Authority, an independent body
deemed unacceptable by whose members are drawn from a variety of backgrounds, including lawyers, econo-
society. mists, industrialists and trades unionists. The legislation defines a monopoly as a sit-
uation in which at least a quarter of a particular kind of good or service is supplied by
a single person or a group of connected companies, or by two or more people acting
Competition and in a way that prevents, restricts or distorts competition. Local monopolies can also be
Markets Authority referred to the Authority. If the CMA finds that a monopoly operates against the public
An independent body in interest, BIS has power to take action to remedy or prevent the harm that the CMA
the UK that investigates
monopolies to determine
considers may exist. The government believes that the market is a better judge than
whether they operate itself of the advantages and disadvantages of mergers, so most take-overs and pro-
against the public posed mergers are allowed to be decided by the companies’ shareholders. However,
interest. when too much power would be placed in the hands of one organization, company or
person, the government will insist on a Competition and Markets Authority appraisal. If
the CMA believes it is against the public interest for a take-over or merger to proceed,
then it will prohibit or limit any agreement between the companies or organizations involved.4 For
example, Fox’s proposed takeover of satellite and broadband operator Sky was baulked by the
regulators because of the resulting concentrated ownership of so many newspapers and Sky
News. BAA was forced to sell on three UK airports if it wanted to maintain control over Heathrow,
as owning seven major hubs was deemed not to be in the consumers’ or airlines’ interests. The EU
has a commissioner responsible for competition. In recent years, the commissioner has ruled on
anti-competitive practices in many industries, from airlines to financial services, forcing companies
to alter their trading practices and encouraging competition from a broader base of organizations.
Under anti-competitive practices legislation, the Competition and Markets Authority can investigate
any business practice, whether in the public or private sector, that may restrict, distort or prevent
competition in the production, supply or acquisition of goods or services. The Secretary of State
has power to take remedial action.
Within the European Union (EU), the objective of the competition policy is to ensure that there
is free and fair competition in trade among member states and that the government trade barriers,
which the Treaty of Rome seeks to dismantle, are not replaced by private barriers that fragment the
Common Market. The EU has powers to investigate and terminate alleged infringements and to
impose fines. The Treaty of Rome prohibits agreements or practices that may affect trade among
member states, and aims to prevent restriction or distortion of competition within the Common
Market.5 Most countries have similar procompetitive legislation.
Consumer protection legislation

The second category of regulatory laws, consumer protection legislation, is not a recent
development. However, consumer protection laws mushroomed in the mid-1960s and
Financial Conduct
early 1970s. A number of them deal with consumer safety, while others relate to the
Authority
The regulatory authority sale of various hazardous products, such as flammable fabrics and toys that might injure
for financial services in children. With the abolition of the Office of Fair Trading, such responsibilities passed to
the UK. the Competition and Markets Authority and the Financial Conduct Authority, sup-
ported by local Trading Standards agencies. Consumers’ interests with regard to the
purity of food, the description and performance of goods and services, and pricing information are
safeguarded by many Acts of parliament. Legislation more recently has established frameworks for
food labelling concerning the production, packaging, supply and use of food. Branded packaging
for cigarettes has recently been banned in the UK, much to the annoyance of the cigarette manu-
facturers. Data privacy and safeguarding are now benefiting from more protection and regulation.
In the UK, The Information Commissioner’s Office now enforces the recently introduced EU-wide
General Data Protection Regulation (GDPR) framework.
In addition, consumer advice and information are provided to the general public at the local level by
the Citizens Advice Bureau, and the Trading Standards or Consumer Protection departments of local
authorities, and in some areas by specialist consumer advice centres. The independent, non-statutory
Consumer Futures (formerly the National Consumer Council), which receives government finance,
ensured that consumers’ views are made known to those in government and industry.
Consumers’ Nationalized industries and utilities have consumer councils whose members investigate
Association questions of concern to the consumer, and many trade associations in industry and com-
A private organization, merce have established codes of practice. In addition, several private organizations work to
funded by members’
subscriptions, that works
further consumer interests, the largest of which is the Consumers’ Association funded by
to further consumer the subscriptions of its membership of over one million people. The association conducts
interests. an extensive programme of comparative testing of goods and investigation of services; its
views and test reports are published in its monthly magazine Which? and other publications.
Interpreting laws
Laws certainly have the potential to influence marketing activities, but the actual effects of the laws
are determined by how marketers and the courts interpret them. Laws seem to be quite specific
because they contain many complex clauses and sub-clauses. In reality, however, many laws and
regulations are stated in vague terms that force marketers to rely on legal advice rather than their
own understanding and common sense. As a result of this vagueness, some organizations attempt
to gauge the limits of certain laws by operating in a legally questionable way to see how far they
can go with certain practices before being prosecuted. Other marketers, however, interpret regu-
lations and statutes very conservatively and strictly to avoid violating a vague law. Although court
rulings directly affect businesses accused of specific violations, they also have a broader, less direct
impact on other businesses. When marketers try to interpret laws in relation to specific marketing
practices, they often analyze recent court decisions, both to understand better what the law is
intended to do and to gain a clearer sense of how the courts are likely to interpret it in the future.
Regulatory forces
Interpretation alone does not determine the effectiveness of laws and regulations; the level of
enforcement by regulatory agencies is also significant. Some regulatory agencies are created and
administered by government units; others are sponsored by non-governmental sources.
Government
In the UK, the Department for Environment, Food and Rural Affairs (DEFRA) develops and controls
policies for agriculture, horticulture, fisheries and food; it also has responsibilities for environmental
and rural issues and food policies. The Department for Employment and Learning controls the
Employment Service, employment policy and legislation, training policy and legislation, health and
safety at work, industrial relations, wages councils, equal opportunities, small businesses and tour-
ism, statistics on labour and industrial matters for the UK, the Careers Service, and international
representation on employment matters and educational policy. DEFRA controls policies for planning
and regional development, local government, new towns, housing, construction, inner-city matters,
environmental protection, water, the countryside, sports and recreation, conservation, historic
buildings and ancient monuments. The Export Credit Guarantee Department is responsible for
the provision of insurance for exporters against the risk of not being paid for goods and services,
access to bank finance for exports and insurance cover for new investment overseas.
The Office for National Statistics (ONS) prepares and interprets statistics needed for central
economic and social policies and management; it coordinates the statistical work of other depart-
ments. The Department for Business, Innovation and Skills (BIS) controls industrial and commercial
policy, promotion of enterprise and competition in the UK and abroad, and investor and consumer
protection. The Department of Transport is responsible for: land, sea and air transport; rail network
regulation; domestic and international civil aviation; international transport agreements; shipping
and ports industries; navigation issues, HM Coastguard and marine pollution; motorways and trunk
roads; road safety; and overseeing local authority transport.
These examples of British government departments are not unusual. Similar administrative
bodies exist in most countries. Increasingly in the EU, political, legal and regulatory forces are being
harmonized to reflect common standards and enforcement.
Local authorities
The functions of UK local authorities are far-reaching; some are primary duties, whereas others are
purely discretionary. Broadly speaking, functions are divided between county and district councils
on the basis that the county council is responsible for matters requiring planning and administra-
tion over wide areas or requiring the support of substantial resources, whereas district councils on
the whole administer functions of a more local significance. English county councils are generally
responsible for strategic planning, transport planning, highways, traffic regulations, local education,
consumer protection, refuse disposal, police, the fire service, libraries and personal social services.
District councils are responsible for environmental health, housing decisions, most planning appli-
cations and refuse collection. They may also provide some museums, art galleries and parks. At
both county and district council level, arrangements depend on local agreements.
Most countries in Europe have a similar structure: resource-hungry issues with wide-ranging
social and political consequences are controlled centrally. Planning and service provision within
the community are viewed as being better controlled at the local level by the actual communities
that will experience the advantages or problems resulting from such decision-making. The EU aims
to establish commonly accepted parameters for planning, service provision and regulation and a
framework to assist in inter- and intra-country disputes.
Non-governmental regulatory forces

In the absence of governmental regulatory forces and in an attempt to prevent government inter-
vention, some organizations try to regulate themselves. For example, many newspapers have
voluntarily banned advertisements for telephone chat services used for undesirable activities, even
though such services are technically not illegal. Trade associations in a number of industries have
developed self-regulatory programmes. Even though these programmes are not a direct out-
come of laws, many were established to stop or stall the development of laws and governmental
regulatory groups that would regulate the associations’ marketing practices. Sometimes trade
associations establish codes of ethics by which their members must abide, or risk censure by
other members or even exclusion from the programme. For example, many cigarette manufac-
turers agreed, through a code of ethics, not to promote their products to children and teenagers.
The Ofcom Code of Advertising Standards and Practice aims to keep broadcast advertising ‘legal,
decent, honest and truthful’.6
Self-regulatory programmes have several advantages over governmental laws and regulatory
agencies. They are usually less expensive to establish and implement, and their guidelines are
generally more realistic and operational. In addition, effective industry self-regulatory programmes
reduce the need to expand government bureaucracy. However, these programmes also have
several limitations. When a trade association creates a set of industry guidelines for its members,
non-member organizations do not have to abide by them. In addition, many self-regulatory pro-
grammes lack the tools or the authority to enforce guidelines. Finally, guidelines in self-regulatory
programmes are often less strict than those established by government agencies.
Deregulation
Governments can drastically alter the environment for businesses. In the UK, the privatization of
the public utilities created new terms and conditions for their suppliers and sub-contractors. The
state’s sales of Jaguar and Land Rover in the car industry and of British Airways created com-
mercially lean companies that suddenly had new impetus to become major competitors in their
industries. In the EU, deregulation has created opportunities across borders and also new threats.
Car manufacturers were previously able to restrict certain models to specific countries. They placed
rigorous controls on their dealers, forbidding them to retail cars produced by rival manufacturers
in the same showroom or on the same site. Many of these controls have since been swept aside.
Societal forces
societal forces
Societal forces comprise the structure and dynamics of individuals and groups and the
Individuals and groups, issues that engage them. Society becomes concerned about marketers’ activities when
and the issues engaging those activities have questionable or negative consequences. For example, in recent times,
them, that pressure well-publicized incidents of unethical behaviour by marketers and others have perturbed
marketers to provide and even angered consumers, notably in connection with banks’ policies and the resulting
high living standards
and enjoyable lifestyles
economic meltdown. When marketers do a good job of satisfying society, praise or positive
through socially evaluation rarely follows. Society expects marketers to provide a high standard of living and
responsible decisions protect the general quality of life. This section examines some of society’s expectations,
and activities. the means used to express those expectations, and the problems and opportunities that
marketers experience as they try to deal with society’s often contradictory wishes.7
Living standards and quality of life

Most people want more than just the bare necessities; they want to achieve the highest standard
of living possible. For example, there is a desire for homes that offer not only protection from the
elements but also comfort and a satisfactory lifestyle. People want many varieties of safe and
readily available food that is also easily prepared. Clothing protects bodies, but many consumers
want a variety of clothing for adornment and to project a certain image to others. Consumers want
vehicles that provide rapid, safe and efficient travel. They want communications systems that give
information from around the globe, 24/7; a desire apparent in the popularity of products such as
smartphones, social media, mobile devices and the 24-hour news coverage provided by cable and
satellite television networks and by the internet. In addition, there is a demand for sophisticated
medical services that prolong life expectancy and improve physical appearance. Education is
expected to help consumers acquire and enjoy a higher standard of living.
Society’s high material standard of living is often not enough. Many desire a high degree of qual-
ity in their lives. People do not want to spend all their waking hours working: they seek leisure time
for hobbies, voluntary work, recreation and relaxation. Quality of life is enhanced by leisure time,
clean air and water, unlittered beaches, conservation of wildlife and natural resources and security
from radiation and poisonous substances. A number of companies are expressing concerns about
quality of life. Consumers, too, are expressing concern over ‘Green’ issues, such as pollution,
waste disposal and the so-called greenhouse effect . . . sustainability and issues around carbon
footprint are now centre stage. Society’s concerns have created both threats and opportunities for
marketers. For example, one of society’s biggest environmental problems is lack of space for refuse
disposal, especially of plastic materials such as disposable nappies and Styrofoam packaging,
which are not biodegradable. In the US, several cities have passed laws banning the use of all plas-
tic packaging in stores and restaurants, and governments around the world are considering similar
legislation. This trend has created problems for McDonald’s and other fast-food restaurants, which
have now developed packaging alternatives. Other companies, however, see such environmental
problems as opportunities. Procter & Gamble, for example, markets cleaners in bottles visibly made
of recycled plastic.8 Environmentally responsible or green marketing is increasingly extensive. For
example, the German companies Audi, Volkswagen and BMW are manufacturing ‘cleaner’ cars
that do not pollute the atmosphere as much as traditional ones. BP launched a ‘green’ diesel fuel
with hardly any noxious emissions. Italian chemical companies are investing billions to reduce toxic
wastes from their plants, and British industry is investing equally large sums to scrub acid emissions
from power stations and to treat sewage more effectively.9
green movement The Green movement is concerned with these environmental issues. Several years
The trend arising from ago, few consumers were concerned about the well-being of their natural environment
society’s concern about on their planet. Resources were not seen as scarce, pollution was barely acknowl-
pollution, waste disposal,
manufacturing processes
edged and people had a short-term, perhaps selfish perspective. Now there is a grow-
and the greenhouse ing awareness that is affecting everyone: consumers, manufacturers and legislators.
effect. Supermarket shelves are rapidly filling with packaging that can be recycled or reused
and products for which manufacturing processes have altered. Children are now taught
in the classroom to ‘re-educate’ their parents to take a more responsible view of the
Earth’s environment. The changes are not just in the supermarkets and schools, with ever more
households sorting their rubbish into various containers for collection by local authorities striving
to recycle growing amounts of rubbish.
The rising importance and role of the green aspect – sustainability – of the societal forces must
not be underestimated. Changes in the forces of the marketing environment require careful moni-
toring, and often demand a clear and effective response. Since marketing activities are a vital part
of the total business structure, marketers have a responsibility to help provide what members of
society want and to minimize what they do not want.
Consumer movement forces

consumer movement The consumer movement is a diverse collection of independent individuals, groups
A diverse collection of and organizations seeking to protect the rights of consumers. The main issues pursued
independent individuals,
by the consumer movement fall into three categories: environmental protection, prod-
groups and organizations
seeking to protect the uct performance and safety, and information disclosure. The movement’s major forces
rights of consumers. are individual consumer advocates, consumer organizations and other interest groups,
consumer education and consumer laws.
Consumer advocates take it upon themselves to protect the rights of consumers.
They band together into consumer organizations, either voluntarily or under government sponsor-
ship. Some organizations, such as the Consumers’ Association, operate nationally, whereas others
are active at local levels. They inform and organize other consumers, raise issues, help businesses
develop consumer-oriented programmes and pressure legislators to enact consumer protection
laws. Some consumer advocates and organizations encourage consumers to boycott products
and businesses to which they have objections. For marketers, it is better to work with such activists
than to incur their displeasure.
Educating consumers to make wiser purchasing decisions is perhaps one of the most far-reaching
aspects of the consumer movement, which is now impacting on a growing number of organizations
(see Figure 3.2). This is a motive of the Fairtrade Foundation, as detailed in the Topical Insight box
‘Brands and consumers embrace Fairtrade’. Increasingly, consumer education is becoming a part of
school curricula and adult education courses. These courses cover many topics; for instance, what
major factors should be considered when buying specific products, such as insurance, housing,
cars, appliances and furniture, clothes and food? The courses also cover the provisions of certain
consumer protection laws and provide the sources of information that can help individuals become
knowledgeable consumers.
Figure 3.2
Costa’s high-profile scheme to
recycle disposable cups is a
response to societal concerns.
Source: Image courtesy of Costa Coffee
Technological forces
The word technology brings to mind creations of progress such as mobile phones, tablets, com-
puters, the web, superconductors, lasers, hybrid cars, GM foods, wind farms, cloning and organ
transplants. Even though such items are outgrowths of technology, none of them are
technology technology. Technology has been defined as the application of knowledge, processes
The application of and techniques to solve problems and perform tasks more efficiently.10 Often this knowl-
knowledge, processes edge comes from scientific research. The effects of technology are broad in scope
and techniques to solve
problems and perform
and today exert a tremendous influence on everyone’s lives. Technology grows out of
tasks more efficiently. research performed by businesses, universities and not-for-profit organizations. Much
of this research is paid for by governments, which support investigations in a variety of
areas, including health, defence, agriculture, energy and pollution. Because much cen-
trally funded research requires the use of specialized machinery, personnel and facilities, a sizeable
proportion of this research is conducted by large commercial organizations or research institutions
that already possess the necessary specialized equipment and people.
The rapid technological growth of recent decades is expected to continue. Areas that hold great
technological promise include digital electronics, artificial intelligence, superconductors, materials
research and biotechnology. Current research is investigating new forms of memory chips and
computers that will think for themselves or be more responsive to their specific users’ characteris-
tics. Because these and other technological developments will clearly have an impact on buyers’
and marketers’ decisions, it is important to discuss here the effects of technology on society and
marketers, and to consider several factors that influence the adoption and use of technology.
The impact of technology

Marketers must be aware of new developments in technology and their possible effects because
technology does affect marketing activities in many different ways. Consumers’ technological
knowledge influences their desire for goods and services. To provide marketing mixes that satisfy
consumers, marketers must be aware of these influences. For example, the web has led to easy
access for consumers to comparative information about products and brands, while providing
marketers with an important channel for communications and selling. The massive growth of
digital media and social networking is impacting on all markets and marketers’ practices, as they
battle to keep pace with the associated changing consumer behaviours and societal implications.
Within marketing departments, technology has enabled far more sophisticated customer profiling
and engagement through increasingly sophisticated CRM (customer relationship management)
systems. These are three of the most dramatic illustrations in recent years of how markets and
marketing have changed as a result of new technology and associated consumer behaviours.11
The various ways in which technology affects marketing activities fall into two broad categories:
1. effects on consumers and society in general
2. influences on what, how, when and where products are marketed.
Brands and consumers by marginal manufacturers. Now, even

embrace Fairtrade the giants of the global food industry
Topical insight have embraced the movement, reflecting
Fairtrade labelling was created in the the growing interest in ethical trading by
Netherlands in the 1980s, with coffee consumers and major retail chains.
from Mexico being the first recipient of the First, Nestlé announced a Fairtrade addition
eco-label. Fairtrade exists to guarantee that the to its Nescafé brand. Today there is a full range of
suppliers of products consumed in the developed world, Nescafé Partners, Blend Coffee lines, supported with
based in the developing regions, benefit from a fair price. By some innovative branding (www.growmorethancoffee.co.uk).
negotiating better deals, improving the negotiating power and However, before its launch, rival Kraft stole a march by intro-
marketing expertise of farmers and producers, and seeking ducing a Fairtrade coffee range under its well-known Kenco
a greater proportion of the retail price, the movement helps brand. Kenco Sustainable Development comprised two lines:
sustain development and is largely welcomed by the leading a filter pack and an espresso bean pack. First available to
development agencies. A core aim is to minimize dramatically consumers in restaurants, hotels, coffee shops and vend-
fluctuating prices that, when low, force farmers into crippling ing machines, then through supermarkets, both Kenco lines
debt or out of production. More information is available at carry an eco-label from sustainable agriculture organization
www.fairtrade.org.uk. the Rainforest Alliance, which guarantees that the beans
are from certified farms. Kraft also reformulated its flagship
By putting the FAIRTRADE Mark on your products, stocking brands Maxwell House and Kenco Really Smooth so that they
Fairtrade goods or serving them to your customers you can contain at least five per cent certified beans, but they do not
demonstrate your ethical commitment to your customers, have a
carry the eco-label. Now all of the major supermarket groups,
positive impact on the producers of the commodities with which
many buying groups and even the discounters, stock Fairtrade
you work and get closer to your supply chain.
or ethically-sourced coffee lines.
Fairtrade Foundation, April 2015
Did growing consumer interest in Fairtrade encourage
Now there are about 20 organizations around the world, these manufacturers to launch the new lines? Were moves by
including the Fairtrade Foundation, overseeing the labelling the more socially aware retailers responsible? Had lobbying
of Fairtrade products. Over 1140 Fairtrade-certified producer by organizations such as the Rainforest Alliance or Fairtrade
groups and 1 400 000 farmers in 74 countries have helped Foundation created the necessary swell of positive public opin-
many impoverished and vulnerable regions. In order to achieve ion? Were Kraft and Nestlé simply reaping the rewards of their
this, the movement must lobby retailers, the media and con- environmental scanning of market trends? In reality, a mix of
sumers to purchase or support Fairtrade products, which are these drivers combined to create the impetus for these prod-
now sold in 125 countries. In the UK there are now over 4500 ucts and the growth of other companies’ Fairtrade products.
Fairtrade retail and catering products (up from 1500 in 2006),
from tea to fruit, roses to footballs, snacks to wines. These
are now worth £1.6 billion in UK retail sales. One key product
Sources: www.growmorethancoffee.co.uk, 28 February 2011; Kraft, 2004;
receiving such high-profile attention is coffee. www.fairtrade.org.uk, 28 February 2011; Mark Sweeney, ‘Kraft beats Nestlé to
Leading coffee houses Costa Coffee, Prêt à Manger and launch of fair trade coffee’, Marketing, 7 July 2004, p. 1; www.nescafé.co.uk/
Starbucks have retailed Fairtrade coffees for a while, but CoffeeCupboard, 2011; ‘Starbucks and Fairtrade’ at www.starbucks.co.uk, 28
February 2011; www.fairtrade.org.uk/en/what-is-fairtrade/faqs, April 2015;
now it is the turn of the major manufacturers. Until relatively www.nestleprofessional.com, April 2015; www.coffeebeansblog.co.uk/tag/
recently, most Fairtrade products were niche brands produced kenco-sustainable-development-coffee-2, April 2015.
Effects of technology on society Technology determines how consumers as members of

s ociety satisfy their physiological needs. In various ways and to varying degrees, eating and drink-
ing habits, sleeping patterns, sexual activities and healthcare are all influenced both by existing
technology and by changes in technology. Right now, many consumers seek technology solu-
tions for the planet’s sustainability needs and carbon problems. Technological developments have
improved standards of living, thus creating more leisure time; they have also enhanced information,
entertainment and education. Nevertheless, technology can detract from the quality of life through
undesirable side-effects, such as unemployment, ‘couch potato’ lazing around, cyber-bullying,

polluted air and water and other health hazards. Some people believe that further applications of
technology can soften or eliminate these undesirable side-effects. Others argue, however, that the
best way to improve the quality of our lives is to decrease the use of technology.
Effects of technology on marketing Technology also affects the types of product that m arketers
can offer. The introduction and general acceptance of cassette tapes and compact discs drove
most manufacturers of vinyl long-playing (LP) albums out of business or forced them to invest in
new technology. Yet this technology provided new marketing opportunities for recording artists
and producers, record companies, retailers and those in related industries. More recently, music
downloads and streaming have created a new set of opportunities and challenges for marketers in
the music industry, while giving greater flexibility and immediacy to consumers. The following items
are just a few of the many thousands of existing products that were not available to consumers 25
years ago: webcams, digital cameras, smartphones, sat nav, tablets, high-resolution televisions,
mobile video cameras, the internet, mobile media applications, e-readers, skype and social net-
works. All of these are products that have transformed lifestyles and people’s access to information.
Computer technology helps make warehouse storage and keeping track of stored products
more efficient and therefore less expensive. Often, these savings can be passed on to consumers
in the form of lower prices. Because of technological changes in communications, marketers can
now use a variety of media to reach large masses of people more efficiently. The development
and widespread use of fax, email and text messaging, for example, allowed marketers to send
their advertisements or sales specifications directly to selected groups of customers who want
their products. In recent years the internet has permeated the lives of many, bringing a world
of information into the home and allowing consumers to shop for products online. Facebook,
LinkedIn and other digital social media networks have revolutionized how consumers find out about
events, products, services, brands and how they share their views (see Chapter 19). Technolog-
ical advances in transport enable consumers to travel further and more often, to shop at a larger
number of stores, or to broaden their options. Changes in transport have also affected produc-
ers’ ability to get products to retailers and wholesalers. The ability of present-day manufacturers
of relatively lightweight products to reach any of their dealers within hours via express delivery
services would astound their counterparts of 50 years ago. Geographical boundaries for markets
have been revolutionized thanks to transport, digital, communication and customer engagement
technological changes.
The adoption and use of technology

technology Through a procedure known as technology assessment, some managers try to
assessment foresee the effects of new products and processes on their company’s operation, on
A procedure by which
other organizations and on society in general.12 With the information gained through a
managers try to foresee
the effects of new technology assessment, management tries to estimate whether the benefits of using a
products and processes specific kind of technology outweigh the costs to the business and to society at large.
on their company’s Increasing numbers of companies are encouraged to proceed in this direction as car-
operation, on other bon footprint pressures and corporate social responsibility (CSR) policies drive change.
commercial organizations
Although available technology could radically improve their products or other parts of the
and on society in general.
marketing mix, some companies may put off applying this technology as long as their
competitors do not try to use it. The extent to which an organization can protect inven-
tions stemming from research also influences its use of technology. The extent to which a product
is secure from imitation depends on how easily others can copy it without violating its patent. If
new products and processes cannot be protected through patents, a company is less likely to
market them and make the benefits of its research available to competitors. How a company uses
or does not use technology is important for its long-term survival. An organization that makes the
wrong decisions may well lose out to the competition. Poor decisions may also affect its profits by
requiring expensive corrective action. Poor decisions about technological forces may even drive a
company out of business.
When a company’s marketers undertake an assessment of the marketing environment they
will identify many aspects of technology pertinent to their own industry, markets and products,
presenting both opportunities and threats. To illustrate just some of the ramifications of technolog-
ical change, five aspects of technology ahead of all others warrant further discussion in terms of
their implications for how marketing has itself altered: customer relationship management (CRM),
internet marketing, mobile marketing, social media and big data; all of which relate to digital mar-
keting. Digital marketing is explored in Part Three of Marketing: Concepts and Strategies and CRM
is examined in more detail in Chapter 7.
CRM
There is nothing more important for marketers than identifying prospective customers, engaging
effectively with them, building ongoing relationships and managing the varied personnel across
the many functions in a typical company who interact with customers. In today’s multi-media and
multi-channel environment, managing a relationship with a customer across the many ways in
which he or she can interact with the brand or the company is very challenging, but also presents
numerous opportunities for achieving more business. CRM illustrates well how technology has
impacted on marketers.13 Not too long ago it was an arduous and manual paper-driven task to
keep track of contacts with customers and to build up profiles of a company’s customers or cus-
tomer segments. Now CRM packages and suppliers provide off-the-shelf or bespoke approaches
to managing customer contacts and relationships.
In essence, CRM helps a business to recognize the value of its customers and to capitalize on
improved customer relations, in order to extend relationships and extract maximum returns from
individual customers. CRM can be achieved by:
●● Finding out about customers’ purchasing habits, opinions and preferences.
●● Profiling individuals and groups so as to market more effectively and increase sales.
●● Changing the way a company operates, to improve customer service and marketing.
Therefore, using technology to improve CRM makes good business sense. There are many IT
solutions to CRM available.
Many software companies offer CRM applications that integrate with existing customer data
and sales management packages. Cut-down versions of such software may be suitable for
smaller businesses. While not tailored to a company’s unique customer base, product portfolio
and marketing environment, such solutions are readily available and popular. Some users want
to have a more customized and bespoke software solution and are prepared to pay more for
such benefits. If a company does not wish to fully outsource its operation, it may opt to select
a managed solution, in effect renting a customized suite of CRM applications as a
CRM bespoke package. Some companies opt to fully outsource their CRM requirements to
Data capture about IT services businesses. Application service providers, such as Accenture Interactive,
customers and their can provide web-based CRM solutions, increasingly harnessing the benefits of cloud
buying habits, analysis computing, which frees up an organization from having to provide its own IT infra-
and profiling of such
behaviours, so that
structure. Such providers host their clients’ CRM operations for them. Outsourcing is
tailored propositions a significant commitment and tends to be an option for larger corporate clients.
and communications CRM involves data capture about customers and their buying habits, analysis and
may be created in order profiling of such behaviours, so that tailored propositions and communications may be
to maintain an ongoing created in order to maintain an ongoing relationship and continue to interest customers
relationship and continue
to interest customers in
in the company’s brand, products and activities. IT and software have routinized this
the company’s brand, aspect of customer handling in many organizations. There are even CRM apps for
products and activities. smartphone users and most businesses now utilize such ready-made packages. CRM
will be explored in more detail in Chapter 7.
The internet and digital marketing

Fifteen years ago, the internet was big news for marketers and e-marketing was a buzzword.
This was the process of creating, distributing, promoting and pricing products for targeted cus-
tomers in the digital environment of the internet. The internet impacted largely in three ways: (a)
for distributing products, as an alternative marketing channel to retail stores or trade depots; (b)
for marketing communications, as an additional option to sales promotion, traditional advertising,
public relations or personal selling; and (c) as a means for finding out information about markets,
competitors, market trends and customers. Internet marketing was deemed to be a part of what
was termed direct marketing (see Chapter 18). In recent years, the speed of technological innova-
tion, social acceptance of such advances and their deployment by marketers, have rapidly taken
this aspect of marketing to new heights. Now more generally termed digital marketing, this also
encompasses mobile marketing and social media. There is no doubt about the extent to which
the internet has altered the bounds for consumers, business customers, marketers and brands,
as described later in this book.
digital marketing Digital marketing tools and techniques are used by marketers to improve their
The use of technology-led proposition to customers and overall competitiveness, with a value-adding website and
channels of commu- interrelated digital marketing techniques to drive traffic, conversion, positive experience
nication and selling
to manage customer
and referrals. These techniques include website, online public relations, email, blogs/
interaction and provide microblogs, social networks, podcasts, wikis and search engine management to ensure
customer experience preferential web search. There is a bewildering and fast-evolving landscape of digital
in a digitally-connected marketing touch points for marketers to understand. . . consumers have a growing
environment. selection of web and mobile options for learning about products, services and brands,
and sharing opinions and views directly with fellow consumers. The digital era has also
enabled the capture of far more market information and customer insight, providing what
has come to be known as big data. This theme is explored further in Chapter 19.
Two very important aspects of digital marketing are mobile marketing and social media.
Mobile marketing
mobile marketing A traditional definition of mobile marketing is marketing activity in a moving manner or
Encourages consumer encountered by consumers on the move, such as moving advertising boards at sports
engagement anywhere events or stations, but increasingly the term stands for marketing via a mobile device
or anytime while on or
using a mobile device,
such as a smartphone, to provide customers with time and location-sensitive, person-
such as a smartphone alized information, anytime and anywhere, that promotes goods, services and ideas.
or tablet, and heavily Mobile marketing encourages consumer engagement anywhere or anytime while on
dependent on mobile or using a mobile device, such as a smartphone or tablet, and is heavily dependent on
apps which provide mobile apps which provide users with information, entertainment and location-based
users with information,
entertainment and loca-
services.
tion-based services. Brand managers have launched apps and developed interactive websites suitable for
smartphones, tablets, laptops on the move and interactive points at a host of locations.
Technology now permits ready and immediate access to customers wherever they are,
whenever and irrespective of whatever they are doing. Whether searching for flight information
whilst in a meeting or taxi, paying a utility bill when watching TV, betting on a sports result over din-
ner or Googling for the answer to a pub quiz question, instant hooking up whenever and wherever
to the digital community is now routine, providing marketers with a selection of mobile possibilities.
Social media and networks

Facebook, LinkedIn, Twitter and Instagram are familiar to most readers of this text and to most
marketers. Insight consultants Gartner examined 400 social media cases, concluding that, ‘. . .
social-media technologies, such as social networking, wikis and blogs, enable collaboration
on a much grander scale and support tapping the power of the collective in ways previously
unachievable’.14 As explained in Chapter 1, the emergence of social media and networking has
radically shifted the boundaries for marketers and consumers, not least because they have taken
a great deal of communication about brands and products out of the hands of marketers and
into the hands of consumers, who easily may share their experiences and views with each other.
Social media offer a way to more effectively reach audiences and engage them in
social media commercial transactions, but also the social/third sector is able to develop low-cost
Social media incorporate
conversational communication strategies. Social media incorporate the online technol-
the online technology
and methods through ogy and methods through which people can share content and personal opinions, and
which people can swap different perspectives and insights, using text, images, audio and video. Social
share content, personal networking sites such as Facebook are one form of social media; others include wikis,
opinions, different per- video sharing such as YouTube, photo sharing on sites like Flickr, news aggregators
spectives and insights,
typified by Digg, social bookmarking, online gaming and micro-blogging on presence
using text, images, audio
and video, via social apps such as Twitter.
networks, video and
photo sharing, microb-
logs, wikis and news
aggregators.
Economic and competitive forces
The economic and competitive forces in the marketing environment influence both
economic and
marketers’ and customers’ decisions and activities. This section first examines the
competitive forces effects of general economic conditions, also focusing on buying power, willingness to
Factors in the marketing spend and spending patterns. Then the discussion moves to the broad competitive
environment such as forces, including types of competitive structure, competitive tools and some methods
the effects of general for monitoring competitive behaviour. The strategic importance of understanding and
economic conditions,
buying power, willingness
evaluating the competitive arena has been discussed in Chapter 2.
to spend, spending
patterns, types of General economic conditions
competitive structure,
competitive tools and The overall state of the economy fluctuates in all countries. Table 3.1 illustrates
competitive behaviour demographic data linked to economic performance. These changes in general eco-
that influence both mar-
nomic conditions affect and are affected by the forces of supply and demand, buying
keters’ and consumers’
decisions and activities. power, willingness to spend, consumer expenditure levels and the intensity of compet-
itive behaviour. Therefore, current economic conditions and changes in the economy
have a broad impact on the success of organizations’ marketing strategies.
business cycle Fluctuations in the economy follow a general pattern often referred to as the b
usiness
Fluctuations in the cycle. In the traditional view, the business cycle consists of four stages: prosperity,
economy that follow the recession, depression and recovery.
general pattern of pros-
perity, recession, depres-
sion and recovery.
Prosperity During prosperity, unemployment is low and total income is relatively high.
Assuming a low inflation rate, this combination causes buying power to be high. To the
extent that the economic outlook remains prosperous, consumers are generally willing
prosperity
to buy. In the prosperity stage, marketers often expand their marketing mixes (product,
A period during which place/distribution, promotion, price and people) to take advantage of the increased
unemployment is low buying power. They sometimes capture a larger market share by intensifying distribution
and total income is and promotion efforts.
relatively high.
Recession Unemployment rises during a recession, so total buying power
declines. The pessimism that accompanies a recession often stifles both consumer
recession and business spending, as is the case as this edition of Marketing: Concepts and
A period during which
unemployment rises
Strategies is produced. As buying power decreases, many consumers become more
and total buying power price- and value-conscious; they look for products that are basic and functional. For
declines. instance, people ordinarily reduce their consumption of more expensive convenience
foods and strive to save money by growing and preparing more of their own food.
Table 3.1 EU population and gdp
Population, GDP Per Capita Purchasing

in millions Power Standard
EU-28 508.45 n/a
Austria 8.58 130
Belgium 11.26 119
Bulgaria 7.20 47
Croatia 4.23 59
Cyprus 0.85 82
Czech Republic 10.54 85
Denmark 5.66 125
Estonia 1.31 76
Finland 5.47 110
France 66.42 107
Germany 81.20 124
Greece 10.86 73
Hungary 9.86 68
Ireland 4.63 134
Italy 60.80 96
Latvia 1.99 64
Lithuania 2.92 75
Luxembourg 0.56 266
Malta 0.43 84
Netherlands 16.90 131
Poland 38.01 68
Portugal 10.37 78
Romania 19.87 55
Slovakia 5.42 77
Slovenia 2.06 83
Spain 46.45 91
Sweden 9.75 123
United Kingdom 64.88 109
Source: https://europa.eu/european-union/about-eu/figures/living_en#tab-2-5, March 2018
Individuals buy fewer durable goods and more repair and do-it-yourself products. During a
recession, some companies make the mistake of drastically reducing their marketing efforts and
thus damage their ability to survive. Obviously, marketers should consider some revision of their
marketing activities during a recessionary period. Because consumers are more concerned about
the functional value of products, a company must focus its marketing research on determining
what product functions buyers want and then make sure that these functions become part of its
products. Promotional efforts should emphasize value and utility.
depression Depression A depression is a period in which unemployment is extremely high,

A period during which wages are very low, total disposable income is at a minimum and consumers lack con-
unemployment is fidence in the economy. Governments have used both monetary and fiscal policies to
extremely high, wages offset the effects of recession and depression. Monetary policies are employed to control
are very low, total dis-
the money supply, which in turn affects spending, saving and investment by both indi-
posable income is at a
minimum and consumers viduals and businesses. Through the establishment of fiscal policies, the government is
lack confidence in the able to influence the amount of saving and expenditure by adjusting the tax structure and
economy. by changing the levels of government spending. Some economic experts believe that
the effective use of monetary and fiscal policies can completely eliminate depressions
from the business cycle, although the credit crunch at the end of the last decade posed
some challenges to this view.
recovery Recovery Recovery is the stage of the business cycle in which the economy moves
The stage of the busi- from depression or recession to prosperity. During this period, the high unemployment
ness cycle in which the
rate begins to decline, total disposable income increases and the economic gloom that
economy moves from
depression or recession lessened consumers’ willingness to buy subsides. Both the ability and the willingness
to prosperity. to buy rise. Marketers face some problems during recovery; for example, the difficulty of
ascertaining how quickly prosperity will return and of forecasting the level of prosperity
that will be attained. During this stage, marketers should maintain as much flexibility in
their marketing strategies as possible to be able to make the required adjustments as the economy
moves from recession to prosperity. Fluctuations in e conomic conditions have a significant impact
on marketers’ activities and fortunes.
Consumer demand and spending behaviour

Marketers must understand the factors that determine whether, what, where and when people
buy. Chapters 5 and 6 look at the behavioural factors underlying these choices, but here the focus
is on the economic components: buying power, willingness to purchase and spending patterns.
buying power Buying power The strength of a person’s buying power depends on the size of the
Resources such as resources that enable the individual to purchase, as well as on the state of the economy.
goods, services and The resources that make up buying power are goods, services and financial holdings.
financial holdings that
can be traded in an
Fluctuations of the business cycle affect buying power because they influence price
exchange situation. levels and interest rates. For example, during inflationary periods, when prices are rising,
buying power decreases because more pounds or euros are required to buy products.
The major financial sources of buying power are income, credit and wealth. From an
income individual’s viewpoint, income is the amount of money received through wages, rents,
The amount of money investments, pensions and subsidy payments for a given period, such as a month or a
received through wages, year. Normally, this money is allocated among taxes, spending for goods and services,
rents, investments,
pensions and subsidy
and savings. However, because of the differences in people’s educational levels, abilities,
payments for a given occupations and wealth, income is not distributed equally in any country.
period. Marketers are most interested in the amount of money that is left after payment
of taxes. After-tax income is called disposable income and is used for spending
or saving. Because disposable income is a ready source of buying power, the total
disposable income amount available in a country is important to marketers. Several factors affect the
After-tax income, which size of total disposable income. One, of course, is the total amount of income. Total
is used for spending or
national income is affected by wage levels, rate of unemployment, interest rates and
saving.
dividend rates. These factors in turn affect the size of disposable income. Because
disposable income is the income left after taxes are paid, the number of taxes and their
amount directly affect the size of total disposable income. When taxes rise, disposable income
declines; when taxes fall, disposable income increases. Disposable income that is available for
spending and saving after an individual has purchased the basic necessities of food, clothing and
shelter is called discretionary income. People use discretionary income to purchase

discretionary income
Disposable income that entertainment, holidays, cars, education, pets and pet supplies, furniture, appliances
is available for spending and so on. Changes in total discretionary income affect the sales of these products,
and saving after an indi- especially cars, furniture, large appliances and other costly durable goods. The mar-
vidual has purchased the keters of such products must monitor factors likely to alter their target customers’
basic necessities of food,
discretionary income.
clothing and shelter.
Credit enables people to spend future income now or in the near future. However,
credit increases current buying power at the expense of future buying power. Several
factors determine whether consumers use or forgo credit. First, credit must be available to them.
Interest rates, too, affect consumers’ decisions to use credit, especially for expensive purchases
such as homes, appliances and cars. When credit charges are high, consumers are more likely
to delay buying expensive items. Use of credit is also affected by credit terms, such as the size
of the down payment and the amount and number of monthly payments. Many marketers offer
‘interest-free credit’ or low interest rates as part of the marketing proposition for their products.
A person can have a high income and very little wealth. It is also possible, but not
wealth likely, for a person to have great wealth but not much income. Wealth is the accumu-
The accumulation of lation of past income, natural resources and financial resources. It may exist in many
past income, natural forms, including cash, securities, savings accounts, jewellery, antiques and property.
resources and financial
resources.
Like income, wealth is distributed unevenly. The significance of wealth to marketers
is that as people become wealthier they gain buying power in three ways: they can
use their wealth to make current purchases, to generate income and to acquire large
amounts of credit. Buying power information is available from government sources, trade asso-
ciations and research agencies. One of the most current and comprehensive sources of buying
power data is the Office for National Statistics www.statistics.gov.uk and the National Income,
Expenditure and Output Surveys. The EU’s Eurostat epp.eurostat.ec.europa.eu provides similar
data across member states of the EU. Income, wealth and credit equip consumers to purchase
goods and services. Marketing managers should be aware of current levels and expected changes
in buying power in their own markets because buying power directly affects the types and quan-
tities of goods and services that consumers purchase, as explained later in the discussion of
spending patterns. Just because consumers have buying power, however, does not necessarily
mean that they will buy. Consumers must also be willing to use their buying power. Marketers
must encourage them to do so.
willingness to spend Consumers’ willingness to spend People’s willingness to spend is, to some
A disposition towards degree, related to their ability to buy; that is, people are sometimes more willing to buy
using buying power, if they have the buying power. However, a number of other elements also influence will-
influenced by the ability
to buy, expected satisfac-
ingness to spend. Some elements affect specific products; others influence spending in
tion from a product and general. A product’s absolute price and its price relative to the price of substitute products
numerous psychological influences almost everyone. The amount of satisfaction currently received or expected
and social forces. in the future from a product already owned may also influence consumers’ desire to buy
other products. Satisfaction depends not only on the quality of the functional performance
of the currently owned product, but also on numerous psychological and social forces.
Factors that affect consumers’ general willingness to spend include expectations about future
employment, income levels, prices, family size and general economic conditions. If people are
unsure whether or how long they will be employed, willingness to buy usually declines. Current
realignment following the global banking crisis and the credit crunch has caused high levels of
uncertainty for many consumers and businesses, altering spending patterns and willingness to
buy. Willingness to spend may increase if people are reasonably certain of higher incomes in the
future. Expectations of rising prices in the near future may also increase willingness to spend in the
present. For a given level of buying power, the larger the family, the greater the willingness to buy.
One of the reasons for this relationship is that as the size of a family increases, a larger amount of
money must be spent to provide the basic necessities of life to sustain the family members. Finally,
perceptions of future economic conditions influence willingness to buy. For example, rising short-
term interest rates cool consumers’ willingness to spend.
Consumer spending patterns Marketers must be aware of the factors that influence
consumer spending consumers’ ability and willingness to spend, but they should also analyze how con-
patterns sumers actually spend their disposable incomes. Marketers obtain this information by
Information indicating studying consumer spending patterns. Consumer spending patterns indicate the
the relative proportions relative proportions of annual family expenditures or the actual amount of money spent
of annual family expen-
on certain kinds of goods and services. Families are usually categorized by one of sev-
ditures or the actual
amount of money spent eral characteristics, including family income, age of the head of household, geographic
on certain kinds of goods area and family life cycle. There are two types of spending pattern: comprehensive and
and services. product-specific.
The percentages of family income allotted to annual expenditures for general classes
of goods and services constitute comprehensive spending patterns. Comprehensive
comprehensive spending patterns or the data to develop them are available in government publications
spending patterns and in reports produced by the major marketing research companies and by trade asso-
The percentages of
ciations. Product-specific spending patterns indicate the annual monetary amounts
family income allotted to
annual expenditures for families spend for specific products within a general product class. Information sources
general classes of goods used to construct product-specific spending patterns include government publications,
and services. trade publications and consumer surveys. A marketer uses spending patterns to analyze
general trends in the ways that families spend their incomes for various kinds of product.
Analyses of spending patterns yield information that a marketer can use to gain perspec-
product-specific tive and background for decision-making. However, spending patterns reflect only gen-
spending patterns eral trends and thus should not be used as the sole basis for making specific decisions.
The annual monetary
amounts families spend
for specific products Assessment of competitive forces
within a general product
class. Few organizations, if any, operate free of competition. Broadly speaking, all companies
compete with each other for consumers’ money. In other walks of life, such as the public
sector or third sector, organizations may compete for attention, people’s time or involve-
competition ment, goodwill, donations or payment. In commercial settings, a business generally
Those companies mar- defines competition as those organizations marketing products that are similar to, or
keting products that are
similar to, or can be sub-
can be substituted for, its own products in the same geographic area or marketing chan-
stituted for, a given busi- nel. For example, a local Tesco or Aldi supermarket manager views all grocery stores
ness’s products in the in a town as competitors, but almost never thinks of other types of local or out-of-town
same geographic area or stores (DIY or electrical, for example) as competitors. This section considers the types
marketing channel. of competitive structure and the importance of monitoring competitors.
Types of competitive structure The number of organizations that control the supply
monopoly of a product may affect the strength of competition. When only one or a few companies
A market structure that
exists when a company
control supply, competitive factors will exert a different sort of influence on marketing
turns out a product that activities than when there are many competitors. Table 3.2 presents four general types
has no close substitutes of competitive structure: monopoly, oligopoly, monopolistic competition and perfect
or rivals. competition.
A monopoly exists when a company turns out a product that has no close substi-
tutes or rivals. As the organization has no competitors, it completely controls the supply
oligopoly of the product and, as a single seller, can erect barriers to potential competitors. In real-
A market structure that
ity, the monopolies that survive today are some utilities, such as telephone, electricity
exists when a few sellers
control the supply of and some railways (in many countries), and cable companies, which are heavily regu-
a large proportion of a lated. These monopolies are tolerated because of the tremendous financial resources
product. needed to develop and operate them; few organizations can obtain the resources to
mount any competition against a local electricity producer, for example. An oligopoly
Table 3.2 Selected characteristics of competitive structures
Number of Ease of entry Knowledge

Type of structure competitors into market Product of market Examples
Monopoly One Many barriers Almost no substitutes Perfect Non-privatized railways,
many government
departments
Oligopoly Few Some barriers Homogeneous or Imperfect Airlines, petroleum
differentiated (real or retailers, some utility
perceived differences) providers
Monopolistic Many Few barriers Product differentiation More knowledge than Jeans, fast food,
competition with many substitutes oligopoly; less than monopoly audio-visual
Perfect Unlimited No barriers Homogeneous Perfect The London commodity
competition products markets, vegetable farms
exists when a few sellers control the supply of a large proportion of a product. In this case, each
seller must consider the reactions of other sellers to changes in marketing activities. Products
facing oligopolistic competition may be homogeneous, such as aluminium, or differentiated,
such as cigarettes and cars. Usually, barriers of some sort make it difficult to enter the market
and compete with oligopolies. For example, because of the enormous financial outlay required,
few companies or individuals could afford to enter the oil-refining or steel-producing industries.
Moreover, some industries demand special technical or marketing skills that block the entry of
many potential competitors.
monopolistic Monopolistic competition exists when an organization with many potential com-
competition petitors attempts to develop a differential marketing strategy to establish its own market
A market structure that share. For example, Levi’s has established a differential advantage for its blue jeans
exists when a business
with many potential
through a well-known trademark, design, advertising and a quality image. Although
competitors attempts many competing brands of blue jeans are available, this company has carved out its
to develop a differential market share through use of a differential marketing strategy. Perfect competition, if it
marketing strategy to existed at all, would entail a large number of sellers, not one of which could significantly
establish its own market influence price or supply. Products would be homogeneous, and there would be full
share.
knowledge of the market and easy entry. The closest thing to an example of perfect
competition would be an unregulated agricultural market. Few, if any, marketers operate
in a structure of perfect competition. Perfect competition is an ideal at one end of the
perfect competition
A market structure that continuum, with monopoly at the other end. Most marketers function in a competitive
entails a large number of environment that falls somewhere between these two extremes.
sellers, not one of which
could significantly influ- Competitive tools
Another set of factors that influences the level of competition
ence price or supply.
is the number and types of competitive tools used by competitors. To survive, an
organization uses one or several available competitive tools to deal with competitive
economic forces. Once a company has analyzed its particular competitive environment
and decided which factors in that environment it can or must adapt to or influence, it can choose
among the variables that it can control to strengthen its competitive position in the overall mar-
ketplace. Probably the competitive tool that most organizations grasp is price. Bic, for example,
markets disposable pens and lighters that are similar to competing products but less expensive.
However, there is one major problem with using price as a competitive tool: competitors will often
match or beat the price. This threat is one of the primary reasons for employing non-price com-
petitive tools that are based on the differentiation of market segments, product offering, service,
promotion, distribution or enterprise.15 By focusing on a specific market segment, a marketer
sometimes gains a competitive advantage.
For instance, Bentley cars and Porsche sports coupés are narrowly targeted at specific groups
of consumers. Most manufacturers try to gain a competitive edge by incorporating product features
that make their brands distinctive to some extent. Companies use distinguishing promotional meth-
ods to compete, such as advertising and personal selling. Competing producers sometimes use
different distribution channels to prevail over one another. Retailers may compete by placing their
outlets in locations that are convenient for a large number of shoppers. Dealers and distributors
offer wide ranges, advice and service.
Monitoring competition Marketers in an organization need to be aware of the actions of

major competitors. They should monitor what competitors are currently doing and assess
the changes occurring in the competitive environment, as explained in Chapter 2.
competitor monitoring Competitor monitoring allows organizations to determine what specific strategies
The process by which competitors are following and how those strategies affect their own. It can also guide
a company studies the
marketers as they try to develop competitive advantages and can aid them in adjusting
actions of its major
competitors in order to current marketing strategies, as well as in planning new ones. Information may come
determine what specific from direct observation and product testing of competing products, or from sources
strategies they are such as the web, sales people, customers’ feedback and marketing research, trade
following and how those publications, media comments, online postings, syndicated marketing research ser-
strategies affect its own;
vices, distributors, supply chain feedback and marketing studies. Unfortunately, less
also used by marketers
as they try to develop ethical information sources for competitor insights sometimes are utilized. An orga-
competitive advantages, nization needs information about competitors that will allow its marketing managers
adjust current marketing to assess the performance of its own marketing efforts. Comparing their company’s
strategies and plan performance with that of competitors helps marketing managers recognize strengths
new ones.
and weaknesses in their own marketing strategies. Data about market shares, product
movement, sales volume and expenditure levels can be useful. However, accurate
information on these matters is often difficult to obtain.
Competition exists in most markets and situations. Even charities compete with one another
and with manufacturers for consumers’ attention and financial commitment. Marketing places an
emphasis on meeting consumers’ needs and offering satisfaction. To be successful, however, com-
peting organizations need to identify unique marketing programmes; otherwise all rival products
and services will merely replicate each other. The search for a competitive edge over competitors is
central to effective marketing strategy. As well as monitoring direct competitors, marketers should
be aware of new entrants coming into a market with competing propositions, and of
macro marketing the danger of substitute products or services being developed. Marketers’ strategic
environment
The broader forces
understanding of competition was addressed in Chapter 2.
affecting all organizations
in a market: political,
legal, regulatory, societal/
green, technological and The micro marketing environment
economic/competitive.
Many authors, notably Michael Porter,16 have made a distinction between the very broad
forces of the macro marketing environment, discussed up to now in this chapter –
micro marketing political, legal, regulatory, societal, technological, economic/competitive – and a set of
environment
The more company-
more company-specific forces often termed the micro marketing environment forces.
specific forces reflect- The distinction, put simply, is that the broad macro forces have an impact on every
ing the nature of the organization operating in a particular market, from manufacturers to distributors to cus-
business, its suppliers, tomers, and such an impact is largely universally felt by such organizations. The micro
marketing intermediaries, forces, on the other hand, are still forces external to the organization and not directly
buyers, all types of com-
petitors: direct, substitute
controllable, but often have an organization-specific impact subject to the characteristics
and new entrant and its and status of the individual business. For example, a new entrant competitor might only
publics. target customer segments currently served by certain existing rivals and not impinge on
the activities of other competitors.
The core aspects of the micro marketing environment

Although categorizations vary among authors, the core aspects of the micro marketing environ-
ment worthy of note include the organization itself, suppliers, marketing intermediaries, buyers,
competitors and publics (see Figure 3.3).
Political
The organization/
Economic internal audiences
and Legal
competitive
Publics The company Suppliers
Customer
Marketing
Competitors inter-
Techno- mediaries
Regulatory
logical
Buyers
Societal/green
Micro marketing
Figure 3.3
environmental forces
The forces of the marketing
environment: macro and micro,
impacting on the company and Macro marketing
its customers environmental forces
The organization It is necessary when creating and implementing marketing strategies and
marketing mix programmes to consider the reaction, attitudes and abilities of the internal environ-
ment: top management, finance, research and development, purchasing, manufacturing, sales
and marketing, and logistics. The marketing function’s recommendations must be consistent with
senior management’s corporate goals; be conveyed to other functions within the organization; and
reflect colleagues’ views, input, concerns and abilities to implement the desired marketing plan.
Marketers must be aware of these organizational factors, monitor them, and modify their actions
accordingly to ensure internal take-up of their ideas and plans.
Suppliers Most organizations source raw materials, components or supplies from third parties.
Without the understanding and cooperation of these other organizations, a business would fail to
deliver a quality product or service that satisfies its customers’ needs. Marketers must be aware
of aspects of supply that might affect the way in which their organization functions in satisfying its
customers. These forces could include supplier innovations; deals with rivals; supply shortages,
delays or quality concerns; strikes or recruitment difficulties; legal actions or warranty disputes;
supply costs and price trends; new entrants into the supply chain; or anything prone to altering
the business’s receipt of its required supplies.
Marketing intermediaries Some businesses sell directly to their targeted customers. Most,
though, utilize the skills, network and resources of intermediaries to make their products avail-
able to the end-user customer. Intermediaries are discussed later (see Chapters 14 and 15) and
include resellers such as retailers, wholesalers, agents, brokers, dealers; as well as physical
distribution companies responsible for logistical needs; providers of marketing services such
as advertising agencies or packaging design consultancies; and financial facilitators of credit
lines and export guarantees. Without the smooth cooperation of such intermediaries, an orga-
nization is unlikely to be able to deliver its products as required by its customers. For example,
the collapse of a credit company or bank severely reduces the ability of a client business to
fund its activities. A striking workforce in a business’s preferred road haulage company will
lead to the urgent need to negotiate alternative logistical support with a new haulier, requiring
time and perhaps legal intervention given existing contractual arrangements. An advertising
agent’s new account win might be that of a direct rival to an existing client. The existing client
business might sensibly choose to find a different advertising agency, but this move will have
a penalty in terms of management time and perhaps the timely execution of a planned adver-
tising campaign.
In each of these examples, shrewd awareness of developments by an organization’s marketers
would have reduced the likelihood of any impediment to its own activities and ability to serve its own
customers. Failure to pick up on any of these events would have resulted in a loss of business as
the marketers and colleagues in other business functions sought alternative lines of credit, haulage
agreements or advertising expertise.
Buyers Customers are central to the marketing concept. They are often fickle and have
ever-changing requirements, needs and perceptions, which marketers must understand, anticipate
and satisfy. As Chapters 5 and 6 describe, consumers and business customers should be ana-
lyzed, and the marketing programme developed by a set of marketers must be designed to satisfy
these customers’ requirements. Each individual organization will have a unique set of resources,
skills, marketing programmes and products to offer its customers. Therefore, as customers’ needs
evolve, separate businesses will find that their required response is different. As the consumer
came to demand more customer service from retailers, John Lewis and Sainsbury’s have been
better placed to upgrade their service-oriented propositions than Primark or Iceland. This micro
environmental force has had a variable impact on these retailers’ strategies.
Competitors Marketers must strive to satisfy their target customers, but in a manner that
ifferentiates their product, brand and overall proposition from competing companies’ marketing
d
mixes. In order to achieve this, marketers require an in-depth understanding of their competitive
arena, as explained in Chapter 2. There are two important considerations in this analysis. First,
competition stems not only from like-for-like or direct rivals. There are substitute solutions to monitor
and new entrants to anticipate. For example, construction equipment manufacturer JCB competes
with a plethora of big businesses such as Caterpillar or Case. Iseki manufactures none of the same
equipment, but it produces a micro-bore tunnelling ‘mole’ that lays pipes without the need to dig
trenches, thus rendering the JCB backhoe loader digger redundant. Such substitute competition
can seriously erode an organization’s market position if not observed and combated. Kindles and
e-readers have been a non-store competitor for book shop chains such as Waterstones. Skype has
become a rival to long landline-based phone conversations or sometimes meeting face-to-face.
The second consideration is the organization’s own position: resources, market standing,
capabilities, strengths and any competitive edge held over rivals. These characteristics are differ-
ent for each organization, so the impact of any competitive activity will vary between businesses.
Marketers must be aware of direct, substitute and new entrant competitor activity but should also
gauge the likely impact of competition on their own business in the context of a sound understand-
ing of their capabilities and standing, as explained in Chapter 2.
In terms of the micro marketing environment, competitors are external forces beyond the direct
control of marketers. The impact of a particular competitor will vary for one organization to the
next or for one brand to the next in the same market. These are the reasons why competition is
included in Porter’s view of the micro marketing environment.
Publics The micro marketing environment also includes any group public that does or could
impact on an organization’s ability to satisfy its target customers and achieve its corporate objec-
tives.17 These include financial bodies such as banks, investment houses, financial analysts or
shareholders; newspaper, magazine, radio, television, or web media that carry features about a
business, its products and activities; government bodies that may intervene over operating or con-
sumer issues; consumer and pressure groups; neighbourhood publics such as residents adjacent
to a large manufacturing plant; the general public, whose view of an organization must be assessed
and taken into account when developing marketing programmes; and internal publics such as
the workforce. Most businesses are increasingly recognizing the importance of communicating
effectively with these audiences. The growth of social media and networks such as Facebook or
LinkedIn has made communication with publics more straightforward, but has also significantly
increased the risk of groups of consumers or other parties instigating discussions about a compa-
ny’s products, services or practices, and not necessarily constructively or positively.
The notion of relationship marketing outlined in Chapter 1 is designed to emphasize the need to
address more publics than solely customers through marketing programmes and communications
(see Chapter 23). In order to achieve this effectively, however, it is necessary for an organization to
understand these micro marketing environment forces.
The marketing environment and strategic

opportunities
When changes occur in the marketing environment they can trigger major developments.
strategic windows If large enough, such changes are called strategic windows or paradigm shifts.18 If
Major developments or market leaders have failed to spot the underlying development or evolutionary change,
opportunities triggered
rivals may have an opportunity to gain an advantage over established companies and
by changes in the mar-
keting environment. brands by ‘stepping through the open window’. The established company must strive to
‘close the window’ with its own proposition speedily enough to pre-empt competitors’
inroads. For example, global recession created opportunities for value brands at the
expense of premium brands, many of which had to work hard to re-engineer their propositions in
order to maintain relevance for their customers and to ‘close the window’ on their upstart rivals.
Tesco failed to close the window on Aldi and Lidl. Failure to monitor the marketing environment and
take appropriate action invariably results in an organization being unable to react to the change
quickly enough to keep out competitors.
Opening strategic windows

Marketing strategists believe there are six broad causes of strategic windows opening, as described
below.19
New technology Duracell overtook market leader Eveready because it took advantage of new
lithium technology before Eveready modified its product range. Now rechargeable lithium batteries
are impacting on Duracell. Direct Line gained leadership in the car insurance market because it
turned to direct selling via telephone call centres before any of the major insurance companies
recognized this evolving use of technology. However, more recently, other brands were quicker
to harness the web and comparison sites, helping them to compete with Direct Line. Motorola
and Nokia, once dominant in mobile phones, were overtaken by smartphone technologies such
as Android and the iPhone. Digital media have taken over from old media such as newspapers.
New markets Many businesses have been quick to recognize how digital channels, mobile
communications and changing consumer behaviours combine to open up new markets, with
companies being newly established to provide online and mobile gaming and gambling services.20
New distribution channels Ocado, the online grocery retailer, has no supermarkets. Unlike
established players such as Tesco or Sainsbury’s, it entered the grocery market directly on an
e-commerce platform, negating the need to create a store network in order to serve consumers
across much of England. Amazon similarly sidestepped the need for a network of retail stores by
turning to the web and home delivery.
Market redefinition NCR – National Cash Registers – used to dominate the market for providing
electronic cash tills in retailers’ stores. As retailers discovered the convenience of stock manage-
ment through barcodes and epos (electronic point-of-sale) systems, they turned to more sophisti-
cated systems. Retail management’s desire to monitor and record detailed sales data altered the
buyer’s requirement for in-store technology. Fujitsu and Nixdorf were quick to spot this change
and build on their computer industry resources to develop all-in retail systems that incorporated
the cash till with much more. This redefinition of the market eroded NCR’s once dominant position
while giving rivals a marketing opportunity.
New legislation and regulation Laws, regulations and international agreements create strate-
gic windows. The ‘open skies’ policy of the EU has created route opportunities for smaller airlines
once precluded from hubs by state-protected national airlines. Privatization of the UK rail network
enabled Stagecoach and Virgin to diversify their businesses into rail services. Growth of the EU
presented new trading opportunities in Eastern Europe for EU member states, but not all compa-
nies were quick to recognize the opportunities for business growth in this region.
Financial and political ‘shocks’ Sudden changes in currency prices, interest rates, trade agree-
ments, inflation, unemployment levels, protectionist policies or political leadership can have a major
impact on business. A new government might decide to privatize state-owned assets or regulate an
industry’s activities more tightly. A trade war between states will impact on organizations operating
in such markets. The UK’s approach to addressing the global financial crisis was very different
under the Conservative/Liberal Democrat coalition than had there been a Labour government,
with implications for many companies serving the public sector which faced large budget cuts,
reduced spending and job losses. Brexit, with the UK leaving the EU, will present financial and
political shocks and offer opportunities.
The importance of keeping a lookout for the strategic window

Often managers only notice sales dips months after a marketing environment force has created
a problem. In the meantime, this has created a window for competitors to enter. While there are
many psychological factors that can hinder managerial activity, such as a preference for retrench-
ment and an aversion to change,21 a common problem is simply the failure to formally and routinely
monitor the forces of the marketing environment through environmental scanning, the process of
collecting and analyzing information about the forces of the marketing environment. An organization
must determine which aspects of the marketing environment – macro and micro – to monitor and
how. Strategists believe a regular and routinized system enables identification of strongly-signalled
issues, which senior management or a marketing function can then prioritize for more detailed
investigation. Clearly, given the vast array of issues examined in this chapter, it is not feasible or
desirable for a set of managers to address every conceivably pertinent facet of the trading environ-
ment. However, failure to examine the marketing environment is a major problem for many poorly
run organizations lacking a marketing orientation.
As described in the Marketing Tools and Techniques box earlier in this chapter entitled
Practitioners’ assessment of the macro marketing environment, companies opt for different solu-
tions.22 Some require line managers to undertake environmental scanning in addition to their other
responsibilities. Occasionally, a strategic planner undertakes such monitoring, although this head
office position is often too divorced from the organization’s operations to identify which crucial core
forces to investigate. Consultancies may be handed the task. A few large companies have created
a bespoke marketing environment unit of cross-functional managers responsible for researching,
analyzing, disseminating and recommending. This ensures scanning occurs but is costly and,
again, can be too removed from a company’s operations. More frequently, marketing planning
identifies core trends and evolving forces to monitor.23
Marketing planning is practiced in most medium-sized and large companies, and part of the
cross-functional, multi-hierarchical team’s remit is to report annually on marketing environment
forces likely to have implications for the organization.
Some companies have no more than a box in which any manager can deposit marketing environ-
ment information stemming from press comments, customer feedback, dealer observations, trade
show intelligence, analysts’ reports or any other inputs. This material is sifted regularly, summarized
and circulated, with individual issues followed up as determined necessary by managerial judge-
ment. Other organizations have formalized this approach using email newsletters, intranet
PEST analysis/ discussion boards or a wiki for personnel and sites within the organization, often globally,
PESTLE analysis
with interactive dialogue aiding the understanding of the environmental forces noted.
PEST is a popular name
for an evaluation of the No matter how it is orchestrated, it is essential that the marketing environment is
marketing environment, monitored thoroughly and regularly.24 This must translate into managerial recommen-
looking at political, dations when necessary, with target market strategies and marketing programmes
including legal and regu- reflecting the issues identified. Such an analysis is often termed by marketing manag-
latory issues, economic,
ers as a PEST analysis, looking at political (P) including legal and regulatory issues,
social and technological
developments, and economic (E), social (S) and technological (T) developments, and assessing the impli-
assessing the implica- cations of such issues, or it is referred to as a PESTLE analysis (political, economic,
tions of such issues. societal, technological, legal and environmental issues). An understanding of the mar-
Another term used by keting environment macro and micro forces is essential for a rigorous and meaningful
marketers is PESTLE:
assessment of marketing opportunities.
political, economic,
societal, technological, Without such an analysis, any recommended marketing strategy is unlikely to take
legal and environmental account of newly opening strategic windows. Competitors may be offered the chance
forces. to make inroads and the organization may fail to benefit from potential marketing oppor-
tunities. Threats will go unnoticed until they are damaging a company’s revenues.
Summary
The marketing environment consists of external forces that directly or indirectly influence an organization’s acquisition
of inputs (personnel, financial resources, raw materials, information) and generation of outputs (information, packages,
goods, services, ideas). Generally, the forces of the marketing environment are divided into two categories: macro and
micro. The macro marketing environment comprises political, legal and regulatory forces, societal forces, including con-
cerns for the Earth’s natural environment, and technological forces. Along with economic forces and trends, these macro,
broader, aspects of the marketing environment have an impact on manufacturers and their customers. The forces of the
micro marketing environment are more company-specific and include the organization’s internal environment, suppliers,
marketing intermediaries, buyers, specific competitors and publics.
To monitor changes in these forces, marketers should practice environmental scanning and analysis. Environmental scan-
ning is the process of collecting information about the forces in the marketing environment; environmental analysis is the
process of assessing and interpreting the information obtained in scanning. This information helps marketing managers
predict opportunities and threats associated with environmental fluctuation. Marketing management may assume either a
passive, reactive approach or an active, aggressive approach in responding to these environmental fluctuations. The choice
depends on an organization’s structure and needs, and on the composition of the environmental forces.
The political, legal and regulatory forces of the marketing environment are closely interrelated. The current political outlook
is reflected in legislation and regulations, or the lack of them. The political environment may determine what laws and reg-
ulations affecting specific marketers are enacted, and how much the government purchases and from which suppliers; it
can also be important in helping organizations secure foreign markets.
Legislation affecting marketing activities can be divided into procompetitive legislation laws designed to preserve com-
petition and to end various practices deemed unacceptable by society and consumer protection laws. In the UK, Acts of
Parliament sought to prevent monopolies and activities that limit competition; while much legislation has been enacted
to protect consumers in terms of safety, pricing and descriptions of products. Consumer protection laws generally relate
to product safety and information disclosure. The actual effects of legislation are determined by how marketers and the
courts interpret the laws.
Regulatory agencies influence most marketing activities. For example, in the UK the Competition and Markets Authority
and the Financial Conduct Authority usually have the power to enforce specific laws and some discretion in establishing
operating rules and drawing up regulations to guide certain types of industry practice. Self-regulation by industry rep-
resents another regulatory force; marketers are more in favour of this type of regulation than government action, because
they have more opportunity to take part in creating the guidelines. Self-regulation may be less expensive than government
regulation, and its guidelines are often more realistic. However, such regulation generally cannot assure compliance as
effectively as government agencies.
Societal forces refer to the structure and dynamics of individuals and groups, and the issues that concern them. Many
members of society want a high standard of living and a high quality of life, and they expect business to help them achieve
these goals. Of growing concern is the well-being of the Earth, its resources, climate and peoples. The Green movement is
increasing general awareness of the natural environment and sustainability, and is altering product design, manufacture,
packaging and use. The consumer movement is a diverse collection of independent individuals, groups and organizations
that attempt to protect the rights of consumers. The major issues taken up by the consumer movement fall into three
categories: environmental protection, product performance and safety, and information disclosure. Consumer rights orga-
nizations inform and organize other consumers, raise issues, help organizations develop consumer-oriented programmes
and pressure legislators to enact consumer protection laws. Some are quite formally organized, such as the Consumers’
Association.
Technology is the knowledge of how to accomplish tasks and goals. Product development, packaging, promotion, prices
and distribution systems are all influenced directly by technology. Several factors determine how much and in what way
a particular organization will make use of technology. These factors include the company’s ability to use technology;
consumers’ ability and willingness to buy technologically improved products; the business’s perception of the long-term
effects of applying technology; the extent to which the company is technologically based; the degree to which technology
is used as a competitive tool; and the extent to which the business can protect technological applications through patents.
Many organizations conduct a technology assessment. For marketers, technological forces of the marketing environment
have provided significant consequences in recent years, particularly in terms of more sophisticated customer relationship
management systems, eMarketing with web-based communications and selling, big data, mobile marketing and social
media fostering greater consumer-to-consumer communication about products, brands and companies’ activities. The
digital marketing era has radically impacted on marketing.
The economic forces that can strongly influence marketing decisions and activities are general economic conditions, buy-
ing power, willingness to spend, spending patterns and competitive forces. The overall state of the economy fluctuates in
a general pattern known as the business cycle. The stages of the business cycle are prosperity, recession, depression and
recovery.
Consumers’ goods, services and financial holdings make up their buying power – their ability to purchase. The financial
sources of buying power are income, credit and wealth. After-tax income used for spending or saving is called disposable
income. Disposable income left after an individual has purchased the basic necessities of food, clothing and shelter is
called discretionary income. It is important to identify levels of wealth. The factors that affect consumers’ willingness to
spend are product price, the level of satisfaction obtained from currently used products, and expectations about future
employment, family size, income, prices and general economic conditions. Consumer spending patterns indicate the
relative proportions of annual family expenditures, or the actual amount of money spent, on certain kinds of goods and
services. Comprehensive spending patterns specify the percentages of family income allotted to annual expenditures for
general classes of goods and services. Product-specific spending patterns indicate the annual amounts families spend for
specific products within a general product class.
Competition is a fundamental concern for all marketers. Although all businesses compete for consumers’ spending, a com-
pany’s direct competitors are usually the organizations in its geographic area marketing products that resemble its own or
which can be substituted for them. The number of businesses that control the supply of a product may affect the strength
of competition. There are four general types of competitive structure: monopoly, oligopoly, monopolistic competition and
perfect competition. Marketers use competitor monitoring to determine what competitors are currently doing and to assess
the changes occurring in the competitive environment.
Increasingly, marketers make a distinction between the broader trading macro marketing environment forces: political,
legal, regulatory, societal, technological, economic/competitive, and the more company-specific forces of the micro
marketing environment. Micro forces include the organization in question, its suppliers, marketing intermediaries, b uyers,
business-specific competition, direct, substitute and new entrant rivals, and the various publics of an organization:
financial bodies, media, government, consumer and pressure groups, neighbours, the general public and the internal
workforce.
Changes in the marketing environment often create strategic windows that, if they are not quickly identified, can enable
rivals to gain an edge. There are six key causes of the creation of strategic windows, all aspects of the macro or micro
marketing environment: new technology, new markets, new distribution channels, market redefinition, new legislation
and regulation, plus financial and political ‘shocks’. Often, managers fail to notice sales dips until months after the impact
of an aspect of the marketing environment. This may be because they are averse to change and prefer retrenchment,
but often it stems from a lack of environmental scanning. Strategists believe a regular and routinized assessment of the
marketing environment is essential prior to the formulation of any target market strategies or marketing mix programmes.
Practitioners often term such an assessment a PEST analysis or PESTLE analysis. Companies adopt different solutions to
monitoring the marketing environment, it can be carried out by line managers, strategic planners, consultants, specialist
units or be incorporated as an integral part of the annual marketing planning process. It is essential that the marketing
environment macro and micro forces are monitored continually in order to maximize marketing opportunities and fend off
competitors’ actions.
Wealth
Key links Willingness to spend
Marketers must analyze the marketing environment in order Discussion and review questions
to identify opportunities and minimize threats. This chapter
should be read in conjunction with: 1. Why are environmental scanning and analysis so important?
●● Chapter 1, examining marketing opportunity analysis. 2. How are political forces related to legal and regulatory forces?
●● Chapter 2, the overview of marketing strategy 3. Describe marketers’ attempts to influence political forces.
development. 4. What types of procompetitive legislation directly affect
marketing practices?
5. What is the major objective of most procompetitive laws?
Important terms Do the laws generally accomplish this objective? Why or
why not?
Business cycle
Buying power 6. What types of problem do marketers experience as they
Competition interpret legislation?
Competition and Markets Authority 7. What are the goals of the Competition and Markets Authority?
Competitor monitoring How does the Authority affect marketing activities?
Comprehensive spending patterns 8. Name several non-governmental regulatory forces. Do you
Consumer movement believe that self-regulation is more or less effective than
Consumer spending patterns governmental regulatory agencies? Why?
Consumers’ Association
9. How is the so-called ‘Green movement’ altering the shape
CRM
of business?
Depression
Digital marketing 10. Describe the consumer movement. Analyze some active
Discretionary income consumer forces in your area.
Disposable income 11. What does the term ‘technology’ mean to you?
Economic and competitive forces 12. How does technology affect you as a member of society? Do
Environmental analysis the benefits of technology outweigh its costs and dangers?
13. Discuss the impact of technology on marketing activities.
Financial Conduct Authority
Green movement 14. What factors determine whether an organization adopts and
Income uses technology?
Macro marketing environment 15. In what ways can each of the business cycle stages affect
Marketing environment consumers’ reactions to marketing strategies?
Micro marketing environment 16. What is the current business cycle stage? How is this stage
Mobile marketing affecting businesses in your area?
Monopolistic competition
17. Define income, disposable income and discretionary
Monopoly
income. How does each type of income affect consumer
Oligopoly
buying power?
Perfect competition
PEST analysis/PESTLE analysis 18. How is consumer buying power affected by wealth and
Procompetitive legislation consumer credit?
Product-specific spending patterns 19. How is buying power measured? Why should it be
Prosperity evaluated?
Recession 20. What factors influence a consumer’s willingness to spend?
Recovery
21. What are the principal types of competition?
Social media
Societal forces 22. What differentiates the forces of the micro marketing envi-
Strategic windows ronment from those of the macro marketing environment?
Technology 23. Why must marketers monitor changes in supplier and
Technology assessment marketing intermediary practices?
24. Why should marketers not only track direct, like-for-like Otter, D. and Wetherly, P., The Business Environment: Themes and Issues
competitors? What other types of competitor are there? in a Globalizing World (OUP, 2018).
Worthington, I. and Britton, C., The Business Environment (Pearson, 2014).
25. Why should marketers be aware of their organization’s
publics?
26. How does an assessment of marketing environment forces Member states of the European Union
assist in marketing opportunity analysis?
Full Members
27. What are the main causes of the opening of strategic windows?
Austria (1995), Belgium (1958), Bulgaria (2007), Croatia (2013), Cyprus
28. How can a business instigate environmental scanning? (2004), Czech Republic (2004), Denmark (1973), Estonia (2004), Fin-
land (1995), France (1958), Germany (1958), Greece (1981), Hungary
(2004), Ireland (1973), Italy (1958), Latvia (2004), Lithuania (2004),
Luxembourg (1958), Malta (2004), Netherlands (1958), Poland (2004),
Blythe, J. and Megicks, P., Marketing Planning: Strategy, Environment Portugal (1986), Romania (2007), Slovakia (2004), Slovenia (2004),
and Context (FT Prentice-Hall, 2010). Spain (1986), Sweden (1995), United Kingdom (1973).
Dibb, S. and Simkin, L., Marketing Planning (Cengage, 2008).
Drucker, P., Management in Turbulent Times (Butterworth-Heinemann/
Pan, 1994).
Candidate countries
Hiriyappa, B., Business Environment (Independently Published, 2017). Turkey is the next candidate country, along with Albania, Mon-
Palmer, A. and Hartley, B., The Business Environment (McGraw-Hill, 2011). tenegro, Serbia and the former Yugoslav Republic of Macedonia,
Porter, M.E., ‘How competitive forces shape strategy’, Harvard Business as probable members to join the EU. Future possible candidates
Review, March–April 1979, pp. 137–45. include Bosnia Herzegovina and Kosovo.
Web task Classroom tools colas as aiding healthy diets or

encouraging greater awareness
Choose the websites of key govern- of obesity issues. A decade ago,
ment departments, EU departments the leading suppliers launched
or of leading regulatory bodies and learn more about the low-carb versions, and now they are
ways in which their activities and powers impact on mar- proactively striving to educate consumers. Coca-Cola, for
keters and consumers. For example, log on to the websites example, launched a major initiative to encourage people
for the Competition and Markets Authority and the Financial to exercise more. Coke launched an anti-obesity campaign
Conduct Authority at: www.gov.uk/government/organisations/ under the title ‘Active Lifestyle’, engaging with young people
competition-and-markets-authority and www.fca.org.uk. through a variety of media. The initiative aimed to promote
1. What are the implications of these organizations’ powers the route to a healthy lifestyle through a combination of
and recommendations for marketers? effective hydration, a balanced diet and physical activity.
The focus has now switched to reducing the sugar content
2. In what ways do the activities of these bodies impact on
of all of its brands. Its website has a wide array of health-
consumers?
related messages and educational campaigns under Brands,
Community, Sustainability and Reducing Sugar (www.coca-
Group tasks
cola.co.uk).
1. For the marketers of theme park resorts such as
Disneyland Paris, Universal Orlando Resort or PortAven-
tura in Spain, what forces of the marketing environment
Question
currently present opportunities and threats? As Coca-Cola’s marketing manager, how would an
2. After the UK leaves the European Union, consider the understanding of the marketing environment have led to
implications for brands currently widely available across the themes now featuring on its web pages? How might
Europe and the UK. the company have monitored the forces of its marketing
environment?
Applied mini-case
References: www.coca-cola.co.uk/?kid=sr3_43523989_go&WT.srch=1, 18
Until recently, excepting the low-sugar variants, few observ- February 2011; www.coca-cola.co.uk, March 2015; www.coca-cola.co.uk/health,
ers would have included the producers of the leading March 2018.
The world of rice: external food for its own population. As basmati in
challenges for Tilda’s Case study its purest form comes only from the foot-
hills of the Himalayas, any ban on exports
marketers from India would catastrophically impact on
the basmati part of Tilda’s rice business. Til-
Known as the ‘Prince of Rice’, basmati can only
be grown in one place on earth at the foothills of
da’s stock pile of reserves was just adequate
the Himalayas. It is here where the combination of unique cli- to cover the period of the ban, but the company’s
mate and soil conditions allow basmati to truly flourish. We select marketers and executives felt significant pressure
the highest quality pure basmati from over 10 000 independent from this regulatory impact within the marketing environment
farmers, all of whom we know by name. thousands of miles from its Essex milling base.
www.tilda.com Tilda’s sourcing of basmati, from farmers the company
Tilda is rightly proud of basmati rice, which it is largely knows and who nurture their rice using traditional methods,
responsible for introducing to the UK and many other markets. precludes the use of GM rices. However, a leading competitor
Today, basmati accounts for 46 per cent of all UK rice sales, allowed GM grains to enter its supply chain, causing negative
or around £72m, much of which comes from Tilda. Something publicity for rice in the press and in Government circles, not
of a ‘supergrain’, being gluten-free and low in fat, basmati only for its own brand but for rice in general. Although Tilda
is a delicate, light and fluffy grain with a wonderful aroma – had no link with this adulterated rice, the company had to
literally translated it is ‘the fragrant one’. However, with the invest significant time and resources explaining this and to
need to help protect the single annual harvest, a fairplay buy- reassuring its retail stockists.
ing policy with farmers, storing grains until they are suitably The global economic meltdown has caused many con-
mature, and Tilda’s long-held belief in providing consistency sumers to re-evaluate their consumption patterns and spend-
to the consumer’s experience with extensive and fastidious ing priorities. Tilda has many ranges and brands, catering for
milling techniques, there comes a high price. Compared with most rice-eating communities and consumer segments, but
many other rices, basmati is far from cheap and Tilda’s is its flagship brand, Tilda blue bag basmati, is premium priced
premium-priced to reflect the quality of its famously blue- and branded to reflect its status amongst rices. Few observ-
bagged basmati and the care of its milling processes. ers predicted the credit crunch or its longer-term implications
A difficulty of premium-pricing is that if external factors on global finances and consumer priorities. Most premium
force changes to supply costs or to the availability of quality brands, such as BMW or John Lewis, have worked very hard to
rice, there are difficulties (a) persuading consumers to pay re-engineer their propositions to provide relevance and value
more if Tilda raises its retail prices or (b) in maintaining such for target consumers. Upmarket grocer Waitrose is now well-
prices, especially if the harvest leads to inferior grains in a known for its Essentials range and competitive pricing com-
particular season. In recent years, Tilda’s marketers have parison for 1000 brands versus Tesco. Tilda’s marketers also
faced a number of challenges, none of which has been in had to come up with a value-based proposition, launching its
their control or a result of Tilda’s decisions. Everyday Rice range.
A few years ago, the world’s rice harvest was poor, with The above examples are aspects of Tilda’s macro
basmati badly affected. Tilda has no control over the rains and marketing environment, but micro marketing environmental
climatic conditions necessary for a good harvest. The quality forces are also important for Tilda’s marketers. The eco-
of the grain was poorer, but there was also much lower vol- nomic crisis has forced retailers to re-think their strategies
ume available to purchase from the farmers, so competing and merchandising, putting pressure on suppliers such as
brands were chasing scarce supplies. Inevitably, raw material Tilda to reduce prices and margins offered to trade cus-
prices soared. Tilda had to almost double its retail prices in tomers such as the major supermarkets. Many retailers are
order to cover the costs of acquiring adequate tonnages and seeking ways for reducing their carbon footprints to reflect
for the extra milling activities required to provide discerning social and regulatory pressures, in turn demanding lower
consumers with an appropriate cooking and taste experience. delivery miles, environmentally responsible packaging and
Sales dropped, as many consumers were priced out of buying altered manufacturing processes from their suppliers, such
this ‘Prince of Rice’. No-one could have predicted the poor as Tilda. Such buyer pressures are commonplace for mar-
harvest and huge rise in world rice prices. keters examining the micro environment. The rise of own
Owing to rice shortages, largely caused by poor harvests, label has been an issue for Tilda and its leading branded
the Indian Government had to protect supplies of this staple competitors such as Uncle Ben’s, Veetee or Kohinoor, and
is an example of the competitive forces within the micro

marketing environment.
Readers should not think that the marketing environ-
ment brings little good news to a company’s marketers. The
increased attention by Government, nutritionists, medics, edu-
cationalists, the media and many food producers to health-
ier eating presents an opportunity for Tilda, as many health
experts and nutritionists believe rice to be preferable to other
carbs such as potatoes and pasta. Within the rice arena, bas-
mati has specific health attributes, being gluten-free, low in
fat, very low in sodium, with no cholesterol and containing
all eight essential amino acids. Perfect for diabetic sufferers
and very useful in many diets as an alternative to chips or
butter-filled jacket potatoes, there is a window of opportunity
for rice producers – such as Tilda – caused by obesity scares
and healthier eating social marketing initiatives from various
state bodies, medics and the media.
These are just a few examples of how external forces
for their organizations, so as to foster an understanding of
impact on one large food company, but Tilda is far from
the issues and their implications.
being alone in facing such a diverse and never-ending set
of externally-derived challenges, many of which flair up
unexpectedly. The demands on marketers in such compa- Questions for discussion
nies are to identify such issues and raise awareness of
1. Which of the issues faced by Tilda’s marketers would
their concerns, where possible in advance of any nega-
cause them the most concern and why?
tive impact on customer demand, financial performance
or brands; and, to provide suggestions for how best to 2. What approaches could a company such as Tilda adopt
navigate such market conditions. Inevitably, even the most in order to develop a sound appreciation of changes to its
tuned-in marketers on occasion are caught out by sur- marketing environment?
prising events. In such circumstances, the expectation is 3. Why might marketers struggle to gain appropriate
that marketers will quickly evaluate and propose a plan for insights into aspects of their marketing environments?
addressing the issue in question. All organizations face a
Sources: www.tilda.com, February 2011 and March 2015; www.waitrose.
myriad of challenges from their marketing environments. It com/footer/corporateinformation, February, 2011 and March 2015; www.
should be the onus of marketers to be the ‘eyes and ears’ riceassociation.org.uk, 20 February 2011 and 15 March 2015.
Chapter 4
Marketing in international
markets and globalization
The world is seemingly smaller, while markets are feeling bigger
Introduction
Objectives International marketing generally refers to marketing activities
performed across national boundaries.1 With international
To understand marketing beyond
travel and trade now commonplace, digital communications
just a national market.
creating access to new consumers in other locations, and
To define international marketing many brands marketed globally, marketers often find them-
and understand the nature of selves addressing a variety of markets in addition to their
international involvement. domestic market. Not only consumer goods such as those
produced by Pepsi, Nike and Sony involve marketing in many
parts of the world. Services, from healthcare to education,
international marketing intelligence.
banking to management consultancy, theme parks to real
To recognize the impact of envi- estate, are marketed internationally, as are products in most
ronmental forces on international business markets.
marketing efforts. The fundamental concepts and practices of marketing
as described so far in Marketing: Concepts and Strategies
To become aware of regional trade
apply whether the product is a consumer good, service or
alliances and markets.
business product, in local, national or international markets.
To look at alternative market entry Nevertheless, the marketer involved with international markets
strategies for becoming involved in has a more complex task than colleagues only responsible
international marketing activities. for a national market. Market knowledge outside the domes-
tic market may be less robust and complete; understanding
To appreciate that international
of the forces of the marketing environment is essential for all
marketing strategies fit along a
marketers, but is a more complex undertaking when scanning
continuum from customization to
numerous countries, many of which may be relatively unfamil-
globalization.
iar; there are market entry strategies to consider; and the oper-
To understand the growing impor- ationalization of marketing programmes is far more challenging
tance of international cooperation. to control when operating in several countries. Assuming that
the marketing concept and marketing process are similar
to the marketing activities described so far, this chapter exam-
ines the nuances of international marketing.
108
Chapter 4 Marketing in international markets and globalization 109
Global growth by
F or well-known drinks
brands Red Bull and
Coca-Cola, the relation-
acting locally
continue to explore oppor-
tunities outside our core
areas. Coca-Cola has
ship between alcohol and always focused entirely on
their products until now has been non-alcoholic beverages, and
left to the bartender or consumer. this is a modest experiment for a
Neither is the producer of alcoholic beverages. Any party night specific slice of our market.”
at university and most Friday and Saturday nights ‘out on the There is a rapidly growing demand
town’ will, however, witness many requests for vodka and amongst Japanese consumers for Chu-Hi, which are canned,
coke, rum and coke, or any other permutation of coke with sparkling flavoured drinks given an alcoholic kick with a local
well-known alcohol brands. The same alcohols are popular spirit called shochu. This vodka-like spirit is distilled from
when mixed with Red Bull or other energy drinks. However, potatoes, barley, rice or sugar and has seen 40% growth in
until now neither well-known producer has ventured into the recent years. Chu-Hi is short for shochu highball, marketed
production of alcohol-laced product lines. as an alternative to beer and proving to be very popular with
For the first time in its 125-year-old history, Coca-Cola female drinkers. Added ingredients have included acerola,
is planning to launch an alcoholic drink. Not for the clubs wild basil and yoghurt. In Japan, the most popular flavours
in UK cities, the cafes in Paris or the bars on the streets are strong citrus-based ones such as lemon or grapefruit, but
of Berlin, but as an alcopop-type product in Japan, Coca- there are grape, apple and peach varieties, too. Strong Zero,
Hol. Speaking to BBC News, Jorge Garduno, Coca-Cola’s Highball Lemon and Slat are some of the leading brands
head in Japan, explained, “We haven’t experimented in the already on the market, but there are hundreds competing
low alcohol category before, but it’s an example of how we in a market enjoying huge growth over the past five years.
The large Japanese alcohol players, Kirin, Suntory, Takara
and Asahi all have Chu-Hi products, ranging from 3% to 8%
alcohol by volume. As these canned products are pre-mixed,
they pre-empt consumers asking for a vodka and coke or
rum and coke, potentially reducing in-bar sales of Coca-Cola.
So, if Coca-Cola sat back and did not enter the category, it
would inevitably witness a falling demand for its colas in bars
as some consumers preferred to buy the pre-mixed Chu-Hi
alcopops. By entering this growing segment, Coca-Cola can
benefit from these new sales and have a slice of the action,
utilizing its obvious expertise in canning and distributing spar-
kling drinks.
Consumers the world over are familiar with the Coca-Cola
brand, the vintage bottle design, popular flavour varieties
and Coke’s distribution across bars, supermarkets, kiosks
and vending machines. The company’s entry into alcopops
in Japan demonstrates how global brands recognize oppor-
tunities in local markets and modify their marketing strategy
in order to satisfy local consumer behaviour, fend off local
competition and leverage local sales potential.
Sources: “Coca-Cola to launch alcoholic drink in Japan”, Financial Times,

March 7 2018; Coca-Cola plans to launch its first alcoholic drink”, BBC News,
March 7 2018; “COCA-HOL. What is Chu-Hi, what’s the Coca-Cola alcoholic
drink and is it available in the UK?”, The Sun, March 7 2018.
T
his chapter looks closely at the unique features of international marketing. It begins by
examining companies’ levels of commitment to and degrees of involvement in international
marketing, and then considers the importance of international marketing intelligence when
a company is moving beyond its domestic market. Coca-Cola’s strategy in Japan would not be
feasible without such market insights. Next, the chapter focuses on the need to understand var-
ious environmental forces in international markets and discusses several regional trade alliances
and markets. The concluding section describes alternative market entry strategies for becoming
involved in international marketing and trading globally.
Involvement in international marketing

In order to practice international marketing, companies with the necessary resources and skills
have to develop an interest in expanding their businesses beyond national boundaries. Once
interested, marketers engage in international marketing activities at several levels of involvement.
Regardless of the level of involvement, they must decide on the degree to which it is possible to
standardize their marketing strategies for different markets.
Levels of international involvement

domestic marketing
Marketing activities The level of involvement in international marketing covers a wide spectrum, as shown in
directed exclusively to a Figure 4.1. A business that undertakes marketing activities exclusively in its home market
business’s home market. is involved in domestic marketing.
Domestic Export International Multinational Global

marketing marketing marketing marketing marketing
Home market This is an attempt Greater Further steps are Total commitment
involvement only. to create sales commitment to taken to adapt to to international
without significant international local tastes. marketing which
changes in the markets. Modifications may involves applying
company’s products International be made to aspects the organization’s
and overall marketing activities of the marketing assets, experience
operations. An are seen as part of mix to make them and products to
active effort to find overall planning. more appealing to develop and
foreign markets for Direct investment in local markets. maintain marketing
existing products is non-domestic strategies on a
most typical. markets is likely global scale.
and products may Although a single
also be sourced global marketing
away from the strategy is required,
home market. some adaptation to
local needs is still
needed.
Domestic Global
orientation orientation
Figure 4.1
Levels of involvement in international marketing
Such organizations may have deliberately chosen to restrict their business to domestic
export marketing
Marketing activities customers or may simply not have considered the possibility of international marketing.
through which a busi- Export marketing takes place when a business takes advantage of opportunities out-
ness takes advantage of side its home market. In some cases, exporting activity begins almost by accident. For
opportunities outside its example, the products of a small medical supplies manufacturer may occasionally be
home market but con-
purchased by hospitals or clinics in nearby countries, or its products may be purchased
tinues production in the
home country. by other countries through an export agent. Whatever the reasons behind the initial
export activity, production in the home country will be used to supply these new markets;
for most companies the domestic market will remain the key area of business. Com-
international panies that go beyond simple exporting become involved in international marketing,
marketing reducing their reliance on intermediaries and establishing direct links and relationships
Marketing activities in the countries in which trading takes place. At this stage a foreign subsidiary may be
in which a business set up or a joint venture, and products may be sourced away from the domestic market.
reduces reliance on
intermediaries and
Multinational marketing takes marketing for non-domestic markets one step
establishes direct further by adapting some of the company’s marketing activities, such as marketing
involvement in the communications, to appeal to local culture and differences in tastes. Multinational
countries in which trade companies are those that behave in their foreign markets as if they were local compa-
takes place. nies. Full-scale global marketing requires total commitment to international marketing
and involves applying the organization’s assets, experience and products to develop,
resource and maintain marketing strategies on a global scale. Global marketing occurs
multinational when marketing strategies are developed for major regions or the entire world to enable
marketing
Adaptation of some of
organizations to compete globally.
a company’s marketing
activities to appeal Understanding global marketing
to local culture and
differences in taste. Global marketing is the most extreme case of international involvement, representing
the full integration of international marketing into strategies and strategic planning.2 The
underlying principle is to identify products or services for which similarities across many
multinational markets allow a single global strategy to be pursued. This approach is attractive to man-
companies agers because one marketing strategy can be used across a number of markets; a busi-
Companies that behave ness can spread the costs of its research and development, technology and distribution,
in their foreign markets
as if they were local
taking advantage of economies of scale in the process. True globalization goes further.
companies. Economist Daniel Park summed up globalization well:
Globalization is, in my view, about creating a new set of competencies that

global marketing enable a company to utilize resources on an optimal basis to meet differentiated
A total commitment to customer demand profitably and cost-competitively without regard for geogra-
international marketing, phy. Put more simply, globalization is about getting an organization into a position
in which a company of doing business in any market it chooses, and doing business is not just about
applies its assets, expe-
marketing and selling. Looking at globalization as a process of acquiring and
rience and products to
develop and maintain renewing competencies helps us understand how and why new forms of orga-
marketing strategies on a nization are emerging to take on and defeat established high-profile companies.
global scale.
www.b2binternational.com/publications/white-papers
/globalization-and-marketing
Despite the fact that global marketing strives for a single overarching global strategy, 3 it is a
mistake to assume that local differences can be ignored. During the 1980s, marketers sought to
globalize the marketing mix as much as possible by employing standardized products, promotion
campaigns, prices and distribution channels for all markets. The potential economic and compet-
itive pay-offs for such an approach were certainly great. More recently, marketers have realized
that, while it may be feasible to standardize a company’s offerings in different markets, a degree of
adaptation to local differences is also required. Many companies design and manufacture in their
home territory, but customer engagement, interaction and management are tailored to fit with local
cultures, customs, expectations and behaviours. Honda, IBM, HSBC and Tesco are just some large
global players operating in this way. Even IKEA – famous for its ‘one approach globally’ stance –
has recognized that it has to modify its strategy, merchandizing and engagement region by region,
creating a whole new marketing planning approach to provide regional teams with the necessary
skills for creating their own plans.
While brand name, product characteristics, packaging and labelling may be relatively straight-
forward to standardize, media allocation, retail outlets, customer service and price may be more
difficult. For example, a supplier of animal feeds may decide to send promotional material about
a new product range to farmers and producers in a variety of different markets. Although the
business may have decided on a suitable platform for the promotion, help may be needed from
each country’s marketing team to devise an appropriate mailing list and tone of voice to adopt. In
many business markets, interaction between customer personnel and an organization’s own staff
is integral to the marketing and sales processes: cultural differences vary significantly between
countries, and a standardized marketing approach is unlikely to succeed. This is particularly so in
global banking, management consultancy and corporate legal affairs, where marketers must take
account of local practices, cultures and behaviours.
Some companies have moved from customizing or standardizing products for a particular region
of the world, to offering globally standardized products that are advanced, functional, reliable and
low in price.4 Reebok, for example, provides a standardized product worldwide. Examples of
globalized products are electrical equipment, DVDs, USB sticks, movies, soft drinks, rock music,
cosmetics and toothpaste. Sony televisions, Levi’s jeans and UK confectionery brands seem to
make annual gains in the world market. Even McDonald’s restaurants seem to be widely accepted
in markets throughout the world. Yet, even here, there is some adaptation to local tastes, with
small variations in McDonald’s menus in certain countries. For example, in Portugal there is more
emphasis on ice creams and in Switzerland more beer and wine than in the UK. Some products
that are regarded by many as globally standard, such as Coca-Cola, are in fact adapted for certain
markets. Coke’s flavouring, packaging, promotion and range are often modified between countries.
Debate about the feasibility of globalized marketing strategies has continued for nearly 50
years. Questions about standardized advertising have been a primary concern. The debate about
customization versus globalization will doubtless continue, although neither is implemented in
Screening Market potential Sales potential
Demographic characteristics Market access Size of segments and

available levels of business
Physical access considerations
Regulatory compliance issues
Costs of doing business
Political status and behaviours
Customer requirements,
expectations and loyalty
Economic and trading issues
Required resources
Marketing channel structures
Social/cultural environment and relationships
Likely achieved sales
Acceptance of non-domestic Nature of competition volumes and pricing
brands and products
Figure 4.2
Information needed for international marketing analyses
its pure form.5 Consumers’ access to global insights via the web is altering the parameters for
marketers and changing expectations in many non-domestic markets. In the end, the feasibility
of globalization is determined by the degree of similarity between the various environmental and
market conditions. Some marketers now believe that some of the best global opportunities are
presented by ‘global market segments’, as long as similar product needs, buying behaviour and
brand perceptions are evident across national borders. Even if such global market segments are
identified – and there is no doubt they exist for many consumer goods, services and business
products – the marketing programmes may require modification to reflect local market conditions,
culture and customer purchasing. It should be remembered that failure to reflect properly local
consumer needs and buying behaviours will create a window of opportunity for more attuned com-
petitors. Marketers must understand the detail of the markets being considered, and this requires
international marketing intelligence.
International marketing intelligence

Despite the ongoing debate over globalization, most businesses perceive international markets as
differing in some ways from domestic markets, which is often true. Analyses of international mar-
kets and possible marketing efforts can be based on many dimensions (see Figure 4.2). Chapter 9
contains a more detailed discussion of marketing research and data collection.6
Gathering secondary data (see Chapter 9) should be the first step in analyzing a foreign market.
Sources of information include government publications and databases, financial services compa-
nies, international organizations such as the United Nations, foreign governments and international
trade organizations. UK companies seeking to market their products in Russia, for example, can
obtain information about Russian markets and regulations from government departments, embas-
sies, the Chamber of Commerce, the Industry of the Russian Federation and various international
analysts. Marketers must be vigilant in assuring the reliability, validity and comparability of data, as
information from some sources may be misleading.
In some circumstances, marketers may need primary data to understand consumers’ buying
behaviour in the country under investigation. Customer buying behaviour is discussed in detail in
Chapters 5 and 6. Marketers may have to adjust their techniques of collecting primary data for
foreign markets.7 Attitudes towards privacy, unwillingness to be interviewed, language differences,
low literacy rates and erratic web access can be serious research obstacles. In a bi-cultural coun-
try such as Canada, a uniform national questionnaire cannot be used because of the cultural and
language differences. In China, certain restrictions on free speech mean that many businesses or
consumers are reluctant or not permitted to respond to questionnaires.
Primary research should uncover significant cultural characteristics before a product is launched,
so that the marketing strategy is appropriate for the target market. It may be necessary to inves-
tigate basic patterns of social behaviour, values and attitudes to plan a final marketing strategy.
Overall, the cost of obtaining such information may be higher than the cost of domestic research;
the reasons include the large number of foreign markets to be investigated, the distance between
the marketer and the foreign market, unfamiliar cultural and marketing practices, language differ-
ences, and the scarcity or unreliability of published statistics.8
After analyzing secondary and primary data, marketers should plan a marketing strategy, as
explained in Chapter 2. An organization must be clear about which consumers or business cus-
tomers are being targeted, with what compelling proposition, through which marketing programme,
against which rivals, and with the involvement of which partners and marketing channel members.
A full appreciation of the forces of the marketing environment (as described in Chapter 3) is critical
to ensuring markets with growing potential are prioritized as part of the marketing strategy. A full
assessment of the market situation will enable decisions to be made about whether to withdraw
from the foreign market, to continue to expand operations or to consider additional foreign markets.
Marketers must ensure they acquire the necessary marketing intelligence in order to provide a full
understanding of trading conditions in all of the non-domestic markets.9
Figure 4.3
KFC practices global marketing
Environmental forces in international markets

A detailed analysis of the marketing environment is essential for any business considering entry into
a foreign market. If a marketing strategy is to be effective across national borders, the complexities
of all the environments involved must be understood, as this is crucial to tailoring marketing for
different global markets (see Figure 4.3). This section examines how the cultural/social, economic,
political, legal and technological forces of the marketing environment in different countries vary.
The process for examining the forces of the marketing environment as described in Chapter 3 also
apply in this context.
Cultural forces
Culture can be defined as the concepts, values and tangible items (such as tools, buildings and foods)
that make up a particular society. Culture is passed on from one generation to another and is a kind
of blueprint for acceptable behaviour in a particular society. When products are introduced into one
nation from another, acceptance is far more likely if there are similarities between the two cultures.10
The connotations associated with body motions, greetings, colours, numbers and shapes,
sizes and symbols vary considerably across cultures. In many parts of Europe black has negative
overtones, whereas in the Middle East it has positive connotations. The Topical Insight box ‘Much
more than understanding customers’ behaviours and culture’, later in this chapter, explains how
knowledge of cultures and behaviours for a marketer’s colleagues and supply chain contacts is
also of paramount importance, if applicable business practices are to be adopted to support a
company’s global ambitions.11
The Building Customer Relationships box ‘A cross-cultural comparison of colour and international
branding’ details more examples of the role of colour in marketing. Yet even here it is important to
watch out for more subtle cultural differences. This is important because multinational marketers
know that cultural differences have implications for product development, personal selling, advertis-
ing, packaging and pricing. For example, the illustration of feet is regarded as despicable in Thailand.
An international marketer must also know a country’s customs regarding male–female social inter-
action. In Italy it is unacceptable for a salesman to call on a woman if her husband is not at home.
It is also important for marketers to tune in to changes in culture. For example, in Japan the
government expressed concern about its citizens’ emphasis on work and has declared that people
should start enjoying life. With an official reduction of the working week to 40 hours, many new
leisure industry opportunities were created. In one year alone, 200 companies applied for permits
to develop new theme parks. Meanwhile, to help people deal with these new leisure opportunities,
the National Recreation Association offered a one-year course on how to enjoy life.12, 13
Product adoption and use are also influenced by consumers’ perceptions of other countries.14,15
When consumers are generally unfamiliar with products from another country, their perceptions of
the country itself affect their attitude towards and adoption of its products. The digital economy and
access to the web are shrinking the world and introducing populations to the behaviours of others,
but still awareness of consumers in non-domestic markets tends to be questionable.
If a country has a reputation for producing quality products, marketers will want to make the
country of origin well-known. For example, a generally positive image of Western computer tech-
nology has fuelled sales of HP personal computers and Microsoft software in Japan.16 Consumers’
perceptions of a country are influenced by more than its products, however. Recently, America’s
‘war on terrorism’ created a problem for the marketers of many US companies, as consumers in
parts of the world and particularly those adhering to specific religions boycotted US brands. Even
US pop and rock stars found it difficult to tour safely in parts of the world previously visited routinely.
Culture may also affect the marketing negotiations and decision-making behaviour of mar-
keters, business buyers and other executives. Research has shown that when marketers use a
problem-solving approach, that is to gain information about a particular client’s needs and tailor
products or services to meet those needs, it leads to increased customer satisfaction in marketing
negotiations in France, Germany, the UK and the US. Furthermore, the role and status of the seller
are particularly important in both the UK and France.17 However, the attractiveness of the sales per-
son and his or her similarity to the customer increase the levels of satisfaction only for Americans.
A cross-cultural are surprisingly similar across national

comparison of colour and Building customer boundaries, and apparently support the
international branding relationships notion that standardization of brand colours
across international markets may be possi-
Anthony Grimes and Isobel Doole explored ble. However, the research also highlights that
the relationship between colour and inter- colour is only one aspect of the make-up of
national branding. Their cross-cultural compar- an international brand and as such may have a
ison, which focused on consumers in the UK and Taiwan, relatively small role to play in developing brand image.
used a series of semi-structured focus groups to examine This is demonstrated clearly by the fact that while percep-
perceptions of colour and international branding. The findings tions of colour across cultures may fluctuate relatively little,
of their research appear to suggest that associations of colour impressions of international brands may vary widely.
Colour association in the UK and Taiwan
Colour UK associations Taiwan associations

Green Inexpensive, reliable, light and good-tasting. Inexpensive, reliable, light and good-tasting.
Old, quiet, traditional, trustworthy and safe. Quiet, calm, male and old.
Life, calm, tenderness, health and happiness. Safe, trustworthy, unadventurous and stable.
Environment, natural, pure and fresh. Environment, life, tender, pure, fresh, natural.
Ireland and to some extent Italy. Ireland and to some extent the UK.
Red Expensive, premium, high quality and good-tasting. High quality, expensive and good-tasting.
Young, warm, fun, loud, playful and happy. Warm, female, loud, playful and adventurous.
Dangerous, adventurous, luxurious and exciting. Love, passion, danger and aggression.
Life, love, passion, power and aggression. Life, excitement and happiness.
China and to some extent the US. US and to some extent Italy.
Colour UK associations Taiwan associations

Blue Heavy, reliable, high quality and expensive. Heavy, reliable, high quality and expensive.
Male, mature, quiet, subdued, calm and thoughtful. Calm, dignified, trustworthy.
Serious, trustworthy, dependable, dignified and sad. Sadness, depression and to some extent power.
US, and the UK to a limited extent.
Black Expensive, high quality, high tech and premium. High quality, high tech, premium and expensive.
Old, heavy and reliable. Old, male, quiet and heavy.
Male, old, quiet and serious. Mysterious, sophisticated and serious.
Mysterious, luxurious, sophisticated and dangerous. Death, sadness, depression, power, fear and aggression.
Death, dignity, power and aggression. Strongly associated with China.
Yellow High quality, expensive, reliable, light and good-tasting. New, expensive, light and good-tasting.
Pert, fresh and playful. Young, warm, loud, playful and adventurous.
Luxury, sophistication and to some extent safety. Life, love, happiness and power.
Life, happiness, tenderness and warmth. Strongly associated with China.
Purple Expensive, luxurious and good-tasting. High quality, premium and expensive.
Warm, and to some extent female. Warm, female, old and quiet.
Sophisticated and mysterious. Love, passion, luxury, sophisticated and mystery.
Death, dignity, passion and power. Serious, sadness, dignity, power and aggression.
France and to some extent Japan. France and to some extent Japan.
Perceptions of key brands in the UK and Taiwan

Brand UK Taiwan
Pepsi Male, muscular, young, sexy and energetic. Male, muscular, young, energetic, sporty and attractive.
Wild, fun and sporty. Fun, sexy, loud, wild and a little crazy.
Associated with beach settings. Associated with the beach, the sun and the Spice Girls.
Not very healthy—sugar and caffeine. Good-tasting and refreshing.
Challenger to Coca-Cola and the status quo. Intensely competitive with regard to Coca-Cola.
Marlboro Original brand is masculine, American and red. Masculine, American and red.
Cool, sexy, wild, adventurous and strong. Cool, strong, young, adventurous and exciting.
Rough but with a lot of style. Powerful and stylish.
Associated with cowboys, the desert and music. Associated with cowboys, the desert and music.
Unhealthy and anti-social—cancer, smoke and smells.
Marlboro Lights are less damaging and more popular.
Associated with pubs, music, youth and the colour gold.
Cadbury Feminine, smooth, silky, sexy and sultry. Masculine, old, friendly, warm, loving but poor brand.
Beautiful, luxurious, stylish and expensive. Feminine, young, sweet, sensual and cute.
High in quality, reliability and class. Overall: low quality, cheap, no class and largely unpopular.
Associated with velvet, satin and silk. A sticky, sickly, lazy brand, predominantly for children.
Old, friendly, aristocratic and eccentric.
Very young, sweet and cute.
BP Masculine, big, old, greedy, rich, powerful and British. Masculine, rich, powerful, distinguished and serious.
Grey, faceless, boring, uncaring, mysterious, even sinister High in class and style, intelligent and authoritative.
and to some extent arrogant. A leader.
Associated with intelligence, power, wealth, technology,
heavy production and pollution.
Brand UK Taiwan
Guinness Masculine, modern, young, cool, streetwise, sociable, Male, powerful, intelligent, attractive and mysterious.
attractive, quiet, secretive and mysterious. Calm, quiet and distant on the surface, but crazy inside.
Old, traditional, simple and genuine. Independent, unique, stylish and dangerous.
Associated with goodness, honesty and hard work.
Overall: smooth, creamy, bitter, heavy and good quality.
Source: E xploring the Relationships Between Colour and International Branding: A Cross Cultural Comparison of the UK and Taiwan, Anthony Grimes,
Isobel Doole, Journal of Marketing Management, 15(6), pp. 449–62, copyright © Westburn Publishers Ltd, reprinted by permission of Taylor
& Francis Ltd, www.tandfonline.com on behalf of Westburn Publishers Ltd. v1.9.
Social forces
Marketing activities are primarily social in purpose; therefore, they are structured by the institu-
tions of family, religion, education, health and recreation. For example, in the UK, where listening
to music is a common form of relaxation, Japanese and American products have a large target
market. In all countries, these social institutions can be identified. By finding major deviations
in institutions among countries, marketers can gain insights into the adaptation of a marketing
strategy and can ensure that they reflect local social differences (see Figure 4.4). Although Amer-
ican football is a popular sport in the US and a major opportunity for many television advertisers,
football (soccer) is the most popular television sport in Europe. The role of children in the family
and a society’s overall view of children also influence marketing activities. For example, in the
Netherlands, children are banned from appearing in advertisements for sweets, and confectionery
manufacturers are required to place a little toothbrush symbol at the end of each confectionery
advertisement.18
Economic forces
Economic differences dictate many of the adjustments that must be made in marketing abroad.
The most prominent adjustments are caused by differences in standards of living, availability of
credit, discretionary buying power, income distribution, national resources and condi-
gross domestic tions that affect transport. Exchange rate fluctuations and differences in interest rates
product (GDP) can also have a major impact. The strength of a country’s currency and high interest
The total value of all
goods and services
rates may make it difficult for companies to succeed in exporting their goods and
produced by a country in services. Consumers place different values on specific product categories or brands
one year. in different countries, reflecting social mores, standards of living, religion, culture and
so forth.
Figure 4.4
Global brands adapt to local cultural
and social conditions, here in terms of
signage, menus and beverages, in-room
entertainment options and staffing
Source: Premier Inn
Gross domestic product (GDP) is the total value of all goods and services produced by
a country in one year. A comparison of GDP for Europe, the US and Japan shows that the US
has the largest gross domestic product. By dividing this figure by the size of the population, an
understanding of the standard of living can be achieved. In this way it is possible to gain insight
into the level of discretionary income or buying power of individual consumers. Knowledge about
aggregate GDP, credit and the distribution of income provides general insights into market poten-
tial. For example, China has overtaken Japan as the world’s second biggest economy, reflecting
the significant growth of China’s industry and consumerism. This creates opportunities for Western
brands inside China, but presents Chinese-sourced products and brands as emerging rivals on
the international stage.
Opportunities for international marketers are certainly not limited to those countries with the
highest incomes. Indeed, as recent events in the Asia-Pacific region and parts of the Middle East
have shown, high income is no guarantee of an attractive market. Some countries are progressing
faster than they were even a few years ago; and these countries, especially in eastern Europe,
Latin America, Africa and parts of Asia, have great market potential for specific products. However,
marketers must first understand the political and legal environment before they can convert buying
power into actual demand for specific products.
Political, regulatory and legal forces

A country’s political system, national laws, regulatory bodies, national pressure groups and
courts each have a great impact on global marketing. A government’s policies towards public
and private enterprise, consumers and foreign companies, influence marketing across national
boundaries. The types of measures a government can take to govern cross-border trade include
the use of tariffs, quotas and non-tariff barriers. For example, the Japanese have established
many barriers to imports into their country. Even though they are reducing the tariffs on certain
items, many non-tariff barriers still make it difficult for other companies to export their
tariffs products to Japan.19 Tariffs are taxes that affect the movement of goods across eco-
Taxes that affect the nomic or political boundaries, and can affect imports, exports or goods in transit.20
movement of goods These taxes provide governments with revenue and can give domestic companies an
across economic or
political boundaries,
important advantage. For example, import tariffs in the form of import duties effec-
and that can also affect tively increase the price of imported products, giving local companies an automatic
imports, exports or goods advantage. The UK is anxious about tariffs post-Brexit, having left the EU within
in transit. which there are no restrictions or tariffs for member states. Quotas involve physical
restrictions on the amount of goods that can be imported into a particular country
or region. The imposition of quotas is not always in the best interest of consumers,
quotas as choice is limited and allocations tend to be used up on imports of goods carrying
Physical restrictions on
the greatest profit margin. Non-tariff barriers are much more difficult to define: they
the amount of goods
that can be imported into include a wide range of rules, regulations and taxes that have an impact on trade. As
a particular country or shown in Table 4.1, these barriers can include anything from port and border taxes
region. to trademark and health and safety regulations. For example, not too many years
ago, companies exporting electronic equipment to Japan had to wait for the Japa-
nese government to inspect each item. A government’s attitude towards cooperation
non-tariff barriers with importers has a direct impact on the economic feasibility of their exporting to
A wide range of rules, that country. As barriers to trade decline, opportunities are presented. Attempts to
regulations and taxes
bring trade barriers down and improve the flow of goods between countries have
that have an impact on
trade. come to the forefront in recent decades, notably in the practices adopted between
‘partner’ countries within the EU. The rules and frameworks for world trade are partly
determined by the General Agreement on Tariffs and Trade (GATT). From a marketing
standpoint, principles such as those defended by GATT increase competition.
Differences in political and government ethical standards are enormous. The use of pay-offs
and bribes is deeply entrenched in many governments and trade authorities, while in others such
involvement is prohibited. European companies that do not engage in such practices may have
a hard time competing with foreign businesses that do. Some businesses that refuse to make
pay-offs are forced to hire local consultants, public relations businesses or advertising agencies,
resulting in indirect pay-offs. The ultimate decision about whether to give small tips or gifts where
they are customary must be based on a company’s code of ethics and their scrutiny panels.
It is a difficult challenge in many markets for international marketers striving to compete effectively in
a country exhibiting markedly different or ‘worse’ ethics than in the domestic market, while adher-
ing to the laws governing the company’s head office and the codes stipulated by the company’s
domestic stakeholders. Arms business BAE discovered this to its cost in terms of US and UK fines
for dubious business practices21 in various overseas markets.
Table 4.1 Non-tariff trade barriers
Non-tariff price-related import restrictions ●● Laws and regulations hindering imports

●● Discriminatory and non-discriminatory excise duties, registration charges ●● Government’s own procurement practices and preferred
and state insurance requirements suppliers
●● Discriminatory and non-discriminatory turnover/sales taxes ●● Discriminatory tax relief
●● At-border surcharges ●● Credits and state-provided guarantees
●● Port handling levies ●● State-sponsored boycotts
●● Import levies ●● State-controlled consortia and trading partnerships
●● Variable levies ●● Golden shareholdings in domestic companies/sectors
●● Consular fees ●● Political global trading blocs and arrangements
●● Stamp taxes ●● Sector-specific regulatory regime
●● Sales surcharges Consumer protection and product specifications
Trade limitations and quantity-related restrictions ●● R&D control regulations
●● Embargoes and export restrictions ●● Intellectual property rights
●● Quotas and ceiling limits ●● Trademark and patent provision and guarantees
●● Licencing regulations and stipulations ●● Pharmaceutical controls
●● Foreign exchange and currency restrictions ●● Health and safety regulations
●● Government price-setting ●● Shipment regulations
●● Purchase stipulations ●● Product design and safety regulations
●● Specified performance standards ●● Size and weight regulations
●● Restrictive business practices ●● Packaging and labelling regulations and standards
●● Regulated preference for domestic producers ●● Usage regulations
●● Discriminatory bi-lateral trading agreements and partnerships ●● Consumer guarantees and safeguards
●● Discrimination regarding permitted countries of origin and trading partners ●● Complaint procedures and adjudication
●● Consumer redress practices and penalties
Discriminatory freight rates
Customs processing and administration
●● Preferential treatment of certain countries of origin
●● Insistence on haulage providers/channel players ●● Anti-dumping regulations
●● Bureaucratic at-border levies and delays ●● Customs processing and costs
●● Consular arrangements and fees
State’s participation in trading ●● Certification and labelling regulations
●● State-controlled competitors ●● Merchandise classification
●● Subsidies and government payments ●● Usage classification
●● Preferential loan rates ●● Regulations for samples and trials
●● Government monopolies ●● Re-export regulations
●● Government domestic R&D resourcing and investment ●● Appeal law
●● Granting of licences or concessions ●● Transparency of practices
Technological forces
Much of the marketing technology used in Europe and other industrialized regions of the world may
be inappropriate for developing countries. For example, promoting products via the internet will be
difficult in countries where computer ownership is low or state-controlled. Many countries, particularly
China, South Korea, Mexico and the countries of the former Soviet Union, are engaging in international
trade, often through partnerships with American, European and Japanese businesses, so that they
can gain valuable industrial and agricultural technology. However, there may be export restrictions
that limit trade in certain goods. For example, the export of defence equipment is tightly controlled
by many European governments. Distribution channels, logistics, the tracking of goods in transit,
automatic reordering using IT, CRM systems, customer interaction and internal company communi-
cations, may be severely impeded in certain countries owing to their infancy in terms of the life cycles
of technology used routinely in North America, the EU or Asia-Pacific to manage such marketing
activities. Over a decade since its UK introduction, Tesco’s Clubcard loyalty scheme appeared in its
stores in Asia, becoming the first loyalty card to embrace the opportunities provided by current CRM
technology in those markets. In other instances, the non-domestic market may be more advanced
than the domestic market, providing marketers with a different set of challenges.
Regional trade alliances and markets

While some businesses are beginning to view the world as one huge marketplace, opportunities for
companies are affected by a range of regional trade alliances. This section examines several regional
trade alliances and changing markets, including NAFTA, the European Union, the Pacific Rim mar-
kets, changing conditions in central and eastern Europe, GATT and the World Trade Organization.
The North American Free Trade Agreement (nafta)

North American Free
Trade Agreement The North American Free Trade Agreement (NAFTA), implemented in 1994, effec-
(NAFTA) tively merged Canada, Mexico and the US into one market of more than 575 million
Implemented in 1994, consumers. NAFTA has eliminated virtually all tariffs on goods produced and traded
and designed to between Canada, Mexico and the US.
eliminate all tariffs on
NAFTA makes it easier for businesses to invest in the participating countries; provides
goods produced and
traded between Canada, protection for intellectual property of special interest to high-tech and entertainment
Mexico and the US, industries; expands trade by requiring equal treatment of companies in all countries; and
providing for a totally free simplifies country-of-origin rules, hindering Japan’s use of Mexico as a staging ground for
trade area. further penetration into US markets. NAFTA also links the US with other Latin American
countries, providing additional opportunities to integrate trade among all the nations
in the Western hemisphere. Although NAFTA has been controversial, it has become a
European Union (EU) positive factor for US companies wishing to engage in international marketing. Since
The major grouping in
licencing requirements have been relaxed under the pact, smaller businesses that pre-
western Europe, the
EU has 28 members: viously could not afford to invest in Mexico and Canada are able to do business in those
Austria, Belgium, markets without having to locate there.
Bulgaria, Croatia, Cyprus,
the Czech Republic,
Denmark, Estonia,
The European Union (eu)
Finland, France, The European Union (EU) is one of three major market groups in western Europe.22
Germany, Greece,
Hungary, Ireland, Italy,
Formed by the Treaty of European Union, the EU has its origins in the European Com-
Latvia, Lithuania, mon Market, set up in 1958, which later became known as the European Community
Luxembourg, Malta, the (EC). Following the signing of the Maastricht Treaty in 1992 and the creation of the
Netherlands, Poland, single European market in 1993, the group became known as the European Union (EU).
Portugal, Romania, At the time of writing, the EU has 28 members, including many eastern European coun-
Slovakia, Slovenia, Spain,
Sweden and the UK
tries, such as the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia
(which is in the process and Slovenia, plus Mediterranean countries Cyprus, Greece and Malta. Bulgaria and
of exiting). Romania joined in 2007 and Croatia in 2013. The objectives of the Union are set out in
the following extract from Article B of the Treaty on European Union:23
●● to promote economic and social progress which is balanced and sustainable, in
Maastricht Treaty
The treaty, signed in
articular through the creation of an area without internal frontiers, through the
p
1992, that established strengthening of economic and social cohesion and through the establishment of
the European Union. economic and monetary union, ultimately including a single currency in accordance
with the provisions of this Treaty;
●● to assert its identity on the international scene, in particular through the implementation of a
common foreign and security policy including the eventual framing of a common defence policy,
which might in time lead to a common defence;
●● to strengthen the protection of the rights and interests of the nationals of its member states
through the introduction of a citizenship of the Union;
●● to develop close cooperation on justice and home affairs.
On 1st January 1999 the EU moved closer to economic and monetary union with the launch of
the euro, the unit of European currency;24 11 of the then 15 EU members became committed to the
new currency. Only Sweden, Denmark and Britain postponed participation in the single currency,
while Greece initially failed to meet the economic criteria!
Although the 28 countries of the EU essentially function as one large market, and consumers
in the EU are likely to become more homogeneous in their needs and wants, marketers know that
cultural and social differences among the member states will require modifications in the marketing
mix for consumers in many countries. Some researchers believe that eventually it will be possible to
segment the EU into six markets on the basis of cultural, geographic, demographic and economic
variables. For example, the UK and Ireland would form one market, while Greece and southern
Italy would form another.25 Differences in taste and preferences among these markets are signif-
icant for international marketers. For example, the British consume far more instant coffee than
their European neighbours. Consumers in Spain eat far more poultry products than Germans do.26
In some geographic regions, preferences even vary within the same country. Thus international
marketing intelligence efforts remain very important in determining European consumers’ needs
and in developing marketing strategies that will satisfy those needs. It is also clear that EU organi-
zations will have to face up to considerable changes in the way they operate and, for some, such
as pharmaceutical companies, the prospects include harmonization of prices and formulations
and likely job losses.
Pacific Rim nations

Countries in the Pacific Rim represent an enormous part of the world market, with 60 per cent of
the world’s population living there. Although the region is characterized by considerable diversity,
in general companies of the Pacific Rim nations: Japan, China, South Korea, Taiwan, Singapore,
Hong Kong, the Philippines, Malaysia, Indonesia, Australia and Indochina, have become increas-
ingly competitive and sophisticated in their marketing efforts in the last three decades. Throughout
the early to mid-1990s the performances of Japan and the four so-called Tiger economies of
the region: South Korea, Singapore, Taiwan and Hong Kong, were particularly impressive.27 The
Japanese, in particular, made considerable inroads into the world consumer markets for cars,
motorcycles, watches, cameras and audio-visual equipment. Products made by Sony, Sanyo,
Toyota, Honda, Canon, Suzuki and others are sold all over the world and have set quality standards
by which other products are often judged. Through direct investment in Europe, the Japanese built
strong distribution and developed a keen understanding of the market. However, Japan’s marketing
muscle attracted criticism in certain quarters, fuelled partly by fears that Japanese products might
swamp the market. These concerns are compounded by Japan’s reluctance to accept imports
from other countries.28
South Korea also became very successful in world markets with familiar brands such as
Samsung and Hyundai. South Korean companies even took market share away from Japanese
companies in the world markets for VCRs, televisions and computers, despite the fact that the
South Korean market for these products is limited. In Canada, the Hyundai Excel overtook Japan’s
Honda in just 18 months.29
Less visible Pacific Rim regions, such as Singapore, Taiwan and Hong Kong, are major man-
ufacturing and financial centres. Singapore also has large world markets for pharmaceutical and
rubber goods. Taiwan may have the most promising future of all the Pacific Rim nations. It has
a strong local economy and has lowered many import barriers, sending imports up.
Taiwan has privatized state-run banks and is also opening its markets to foreign busi-
Association of South nesses. Some analysts believe that it may replace Hong Kong as a regional financial
East Asian Nations power centre.30
(ASEAN)
Much attention is now being given to the Pacific Rim nations that have reached
Formed in 1967 with
the intention of building the point of massive industrial growth. Thailand, Malaysia, Indonesia and of course
trade and other links China all offer considerable marketing potential.31 For example, China has great mar-
among its members: ket potential and opportunities for joint venture projects. Analysts are keeping a close
Brunei, Cambodia, watch on how these countries are affected by economic uncertainty in the region. The
Indonesia, Laos,
emergence of China presents marketers with considerable opportunities for exporting
Malaysia, Myanmar, the
Philippines, Singapore, via joint ventures or trading alliances aided by China’s ‘open door’ policy. There is also
Thailand and Vietnam. a huge threat to Western companies, as Chinese enterprises strive to emulate Japan
and enter global markets with their own products and services, and acquire Western
businesses (Weetabix, Pizza Express, Sunseeker, Wentworth, Hamleys, Aston Villa,
Asia-Pacific Economic Northumbrian Water, Emerald Energy and nuclear infrastructure).
Cooperative (APEC) In general, attempts to form groups promoting trade and other links between Pacific
Aims to promote trade Rim countries have not been particularly successful. Perhaps the best known is the
between its members:
Association of South East Asian Nations (ASEAN), formed in 1967, which aims to
Australia, Brunei,
Canada, Chile, China, build trade and other links between its members: Brunei, Cambodia, Indonesia, Laos,
Hong Kong, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. More recently, the
Japan, Malaysia, Mexico, Asia-Pacific Economic Cooperative (APEC) has been set up to for 21 Pacific Rim
New Zealand, Papua states: Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia,
New Guinea, Peru, the
Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore,
Philippines, Russia,
Singapore, South Korea, South Korea, Taiwan, Thailand, the US and Vietnam.32
Taiwan, Thailand, the US
and Vietnam.
Central and Eastern Europe (cee)
Central and Eastern Europe (CEE) encompasses the Commonwealth of Indepen-
Central and Eastern dent States (CIS, formerly the Soviet Union), the Czech and Slovak Republics, Hungary,
Europe (CEE) Poland, Slovenia, Croatia, Bosnia Herzegovina, Serbia, Montenegro, Bulgaria, FYR
Encompasses the
Commonwealth of
Macedonia and Albania. The decline of communism in central and eastern Europe,
Independent States the fall of the Berlin Wall in 1989 and the break-up of the former Soviet Union in 1990
(formerly the Soviet resulted in a host of new marketing opportunities in the region.
Union), the Czech Following a policy of perestroika, encompassing considerable political and economic
and Slovak Republics, change, the CEE countries replaced the Communist Party’s centrally planned econo-
Hungary, Poland,
Slovenia, Croatia, Bosnia
mies with marketing-oriented democratic institutions. This process of market reforms,
Herzegovina, Serbia, designed to lead to greater imports and exports, was not without difficulty. The chal-
Montenegro, Bulgaria, lenge for many of the eastern European countries has been to move forward from the
FYR Macedonia and inefficiencies of state-owned industry and to develop the marketing expertise, business
Albania. culture, infrastructures and legal frameworks required to trade with capitalist countries.33
For example, the poorly developed distribution infrastructure in many parts of central
and eastern Europe restricted the outlets where Western products can be sold and
Commonwealth of limits the opportunities domestic companies can pursue.34 However, the move towards
Independent States
(CIS)
market change has resulted in considerable social upheaval and, in some cases, unrest
The CIS unites in countries going through this transition.
Azerbaijan, Armenia, The Commonwealth of Independent States (CIS) emerged in 1996 as a loosely
Belarus, Georgia, connected group of former Soviet Union states. The CIS unites Azerbaijan, Armenia,
Kazakhstan, Kyrgyzstan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan,
Moldova, Russia,
Tajikistan, Turkmenistan,
Ukraine and Uzbekistan.35 But key economic data show these countries to be relatively
Ukraine and Uzbekistan weak compared with western EU states.
in a trading bloc. Although after it was set up there were potential opportunities for the CIS to trade as a
market group, in practice this idea has been severely restricted by the lack of co-operation
between member states and in particular by economic and political problems in Russia and political
rivalries, such as tensions between Ukraine and Russia.36 The importance of Russia, the largest
market, cannot be overlooked in the region’s development.37 For Western companies, the poten-
tial is considerable. Hewlett Packard enjoyed a four-fold increase in sales in one year alone, and
others such as Coca-Cola and McDonald’s have also taken advantage of the new opportunities.
General Agreement on Tariffs and Trade (gatt)

and the World Trade Organization (wto)
General Agreement Like NAFTA and the EU, the General Agreement on Tariffs and Trade (GATT) was
on Tariffs and Trade based on negotiations among member countries to reduce worldwide tariffs and increase
(GATT) international trade. Originally signed by 23 countries in 1947, GATT provided a forum for
An agreement between
countries to reduce
tariff negotiations, and a place where international trade problems could be discussed
worldwide tariffs and and resolved. Eventually, GATT involved some 124 countries before giving way to the
increase international World Trade Organization in the mid-90s. The Uruguay Round of negotiations reduced
trade. trade barriers for most products and provided new rules to prevent dumping – the
selling of products at unfairly low prices.
The most significant outcome of the Uruguay Round was the establishment of the
dumping World Trade Organization (WTO) to promote free trade among member countries.
Selling products at
Fulfilling this purpose requires eliminating trade barriers; educating individuals, compa-
unfairly low prices outside
domestic markets. nies and governments about trade rules around the world, and assuring global markets
that no sudden changes of policy will occur. The WTO also serves as a forum for trade
negotiations and dispute resolution. At the heart of the WTO are agreements that provide
World Trade legal ground rules for international commerce and trade policy.
Organization (WTO)
An entity that promotes
and facilitates free trade
between member states. Alternative market entry strategies
The level of commitment to international marketing is a major variable in deciding what
kind of involvement is appropriate. A company’s market entry options range from occa-
sional exporting to expanding overall operations (production and marketing) into other countries.
This section examines exporting, licencing, franchising, contract manufacturing, joint ventures,
trading companies, foreign direct investment, cooperation and other approaches to international
involvement.38, 39, 40
Exporting
exporting Exporting is the lowest and most flexible level of commitment to international market-
Use of an intermediary ing. A business may find an exporting intermediary that can perform most marketing
that performs most functions associated with selling to other countries. This approach entails minimum
marketing functions
associated with selling to
effort and cost. Modifications in packaging, labelling, style or colour may be the major
other countries; entails expenses in adapting a product. There is limited risk in using export agents and
the minimum effort, cost merchants because there is no direct investment in the foreign country.
and risk involved in inter- Export agents bring together buyers and sellers from different countries; they collect a
national marketing. commission for arranging sales. Export houses and export merchants purchase p roducts
from different companies and then sell them to foreign countries. They s pecialize in
understanding customers’ needs in foreign countries.
Foreign buyers from companies and governments provide a direct method of exporting and
eliminate the need for an intermediary. Foreign buyers encourage international exchange by
contacting domestic businesses about their needs and the opportunities available in exporting.
Domestic companies that want to export with a minimum of effort and investment seek out foreign
importers and buyers.
Licencing
licencing
When potential markets are found across national boundaries and when production,
System in which a technical assistance or marketing know-how is required, licencing is an alternative to
licensee pays commis- direct investment. The licensee (the owner of the foreign operation) pays commissions or
sions or royalties on royalties on sales or supplies used in manufacturing. An initial fee may be charged when
sales or supplies used in the licencing agreement is signed. Exchanges of management techniques or technical
manufacturing.
assistance are primary reasons for licencing agreements. Yoplait is a French yoghurt that
is licenced for production in the US and numerous other countries, but the Yoplait brand
tries to maintain a French image.
Licencing is an attractive alternative to direct investment when the political stability of a foreign
country is in doubt or when resources are unavailable for direct investment. This approach is
especially advantageous for small manufacturers wanting to launch a well-known brand inter-
nationally. For example, Pierre Cardin has issued 500 and Yves St Laurent 200 licences to make
their products.41 Löwenbrau has used licencing agreements to increase sales worldwide without
committing capital to build breweries.
Franchising
franchising Another alternative to direct investment in non-domestic markets is franchising. This
A form of licencing form of licencing, which grants the right to use certain intellectual property rights, such
granting the right to use
as trade names, brand names, designs, patents and copyrights, is becoming increas-
certain intellectual prop-
erty rights, such as trade ingly popular in Europe.42 Under this arrangement the franchiser grants a licence to the
names, brand names, franchisee, who pays to be allowed to carry out business under the name owned by
designs, patents and the franchiser. The franchiser retains control over the manner in which the business is
copyrights. conducted and assists the franchisee in running the business. The franchisee retains
ownership of his or her own business, which remains separate from that of the fran-
chiser.43 Franchising has recently experienced a period of rapid growth. Companies such
as Benetton, Burger King, Holiday Inn and IKEA are particularly well-known for their commitment
to growing global business in this way. There are various reasons why the popularity of franchising
has increased so rapidly.44 First, the general world decline in manufacturing and shift to service
industries has increased the relevance of franchising. This is significant, because franchising is
a very common internationalization process for service organizations. Second, franchising has
been relatively free of restrictions from legislation, especially in the EU. Third, an increase in self-
employment has provided a pool of individuals willing to become involved in franchising, and this
activity has generally been supported by the major clearing banks.45
contract
Contract manufacturing
manufacturing Contract manufacturing is the practice of hiring a foreign company to produce a
The practice of hiring
designated volume of the domestic company’s product to a set specification. The final
a foreign company to
produce a designated product carries the domestic company’s name. Gap, for example, relies on contract
volume of product to a manufacturing for some of its clothing, and Reebok uses Korean contract manufacturers
set specification. to produce many of its sports shoes. Marketing activity may be handled by the contract
manufacturer or by the contracting company.
joint venture Joint ventures and strategic alliances

A partnership between a
domestic company and In international marketing, a joint venture is a partnership between a domestic com-
a foreign company or pany and a foreign company or government. Joint ventures are especially popular in
government. industries that call for large investments, such as natural resources extraction or car
manufacturing. Control of the joint venture can be split equally or can be retained by
one party. Joint ventures are often a political necessity because of nationalism and governmental
restrictions on foreign ownership. They also provide legitimacy in the eyes of the host country’s
people. Local partners have first-hand knowledge of the economic and socio-political environ-
ment, access to distribution networks or privileged access to local resources (raw material, labour
management, contacts and so on). Moreover, entrepreneurs in many less-developed countries
actively seek associations with an overseas partner as a ready means of implementing their own
corporate strategy.46
Joint ventures are assuming greater global importance because of cost advantages and the
number of inexperienced businesses entering foreign markets. They may be the result of a trade-
off between a company’s desire for completely unambiguous control of an enterprise and its
quest for additional resources. They may occur when internal development or acquisition is not
feasible or unavailable, or when the risks and constraints leave no other alternative. As project
sizes increase in the face of global competition, and businesses attempt to spread the huge costs
of technological innovation, there is increased impetus to form joint ventures.47 Joint ventures are
also possible between partners from different continents. The leading IT consultancies frequently
form joint ventures or alliances with partners in order to exploit domestic and non-domestic
opportunities.48
Joint ventures are sometimes criticized as being inherently unstable,49 or because they might
result in a takeover attempt. For businesses trying to build longer-term joint ventures, there is
also the danger that the relationship stifles flexibility. Of course, for many companies that become
involved in joint ventures this may be their only feasible mode of entry at the time and may in any
case be regarded purely as a transitional arrangement.50 For example, European construction
companies bidding for business in the Middle East found that joint ventures with Arab construction
companies gain local support among the handful of people who make the contracting
decisions.
strategic alliances Strategic alliances are partnerships formed to create a competitive advantage on
Partnerships formed a worldwide basis. They are very similar to joint ventures. Strategic alliances have been
to create a competitive defined as ‘cooperation between two or more industrial corporations, belonging to dif-
advantage on a world-
wide basis.
ferent countries, whereby each partner seeks to add to its competencies by combining
its resources with those of its partner’.51 The number of strategic alliances is growing at
an estimated rate of about 20 per cent per year.52 In fact, in some industries, such as
cars and high technology, strategic alliances are becoming the predominant means of competing.
International competition is so fierce and the costs of competing globally so high that few busi-
nesses have the required individual resources, and it makes sense to collaborate with
global strategic
other companies. Many car models are co-created by apparently rival manufacturers
partnerships acting in a strategic alliance.53
Link-ups between The partners forming international strategic alliances share common goals, yet often
companies from two retain their distinct identities, each bringing a distinctive competence to the union. What
or more regions which distinguishes international strategic alliances from other business structures is that mem-
jointly decide to pursue
a marketing opportunity,
ber companies in the alliance may have been traditional rivals competing for market
share resources and share in the same product class.54 This situation is common in the aerospace industry.
combine ideas, retaining Raytheon may partner certain companies in bidding for work from Boeing, while com-
independence, but peting with the same suppliers when seeking work with Lockheed or Airbus.
pooling many activities Global strategic partnerships are increasingly prevalent. They are link-ups between
and sharing rewards.
companies from two or more regions which jointly decide to pursue a marketing oppor-
tunity, share resources and combine ideas. The participants retain independence, but
pool many activities and share the rewards. Many high technology, automotive designs
virtual corporations
A pop-up global strategic
and power technologies are collaboratively developed and marketed. Sometimes, the
partnership to exploit partners allocate markets between themselves or they might all seek to commercialize
specific opportunities. an opportunity under separate brands, each harnessing the same underlying design or
technology. Virtual corporations are a spin on this concept.
Trading companies
trading company A trading company provides a link between buyers and sellers in different countries. As
A company that provides its name implies, a trading company is not involved in manufacturing or owning assets
a link between buyers related to manufacturing. The trading company buys in one country at the lowest price
and sellers in different
countries.
consistent with quality and sells to buyers in another country. An important function of
trading companies is taking title to products and undertaking all the activities necessary
to move the products from the domestic country to a foreign country. Large grain trading
companies, for example, control a major portion of the world’s trade in basic food commodities.
These trading companies sell agricultural commodities that are homogeneous, and can be stored
and moved rapidly in response to market conditions.
Trading companies reduce risk for companies interested in becoming involved in international
marketing, assisting producers with information about products that meet quality and price expec-
tations in domestic or international markets. Additional services a trading company may provide
include consulting, marketing research, advertising, insurance, research and development, legal
assistance, warehousing and foreign exchange.
Much more than ●● Any meeting with Chinese business
understanding customers’ people is always relaxed and informal,

Topical insight so it is good to be the first to break the
behaviours and culture ice with good-humoured anecdotes. In
reality, this is far from the truth.
In order to be actively involved in an
overseas market, marketers must have the ●● In Japan it is common to celebrate agreeing
required insights into the market’s trends, com- a contract with a Japanese client by going to a
petitive set, supply considerations, business practices and, of karaoke club or sushi bar, but visiting businesspeople are
course, customers’ behaviours. However, the required skills not expected to join in or stay as late as the Japanese
and understanding go much deeper, particularly as most glob- hosts. True in terms of the expectation to go to the bar or
ally engaged companies will have executives in control who club, but the hosts would want visitors to join in and stay
do not originate from the part of the world they now must as late as them.
manage. ●● An Egyptian colleague will stand much closer and display
In order to operate their brands effectively, such personnel more physical contact than might be the norm in another
must have capabilities beyond an understanding of the mar- country. This is generally the case.
keting toolkit and how to operationalize a marketing plan . . . ●● In Russia respect must be shown to the bosses of
they must also be able to quickly deduce how to do business a company and to the hierarchy. Very much the
in the markets for which they have responsibility. In reality, this expectation.
involves re-learning how to be a manager and what must take
●● Appearances matter little in Brazil, so wearing jeans,
place in order to be able to practice marketing.
flip-flops and other similar casual dress signals success
In order to be successful in non-domestic markets it is
and being at ease. In practice this is not true, but were
important to understand not only the culture and behaviours
you certain?
of potential consumers, but also how to engage with busi-
ness partners, suppliers, distributors, agencies and all par- ●● Appointments with Saudi Arabian business contacts
ties n ecessary for doing business. Business-to-business are often interrupted by phone calls and family visits,
marketers face particularly complicated interactions with and visitors must remain cool and not exhibit signs of
their customers, with whom they must have direct contact. frustration. Often this is the case.
To illustrate these challenges, consider these scenarios as
posed by Marketing Week magazine, a weekly publication Reference: ‘Costa, M. (2010) ‘Beware the culture gap on global growth trail’,
targeted at marketers: Marketing Week, 7 October, p. 20–4.
Foreign direct investment

Once a company makes a long-term commitment to foreign marketing, direct ownership of a
foreign subsidiary or division is a possibility. Foreign direct investment (FDI) involves making
a long-term commitment to marketing in a foreign nation through direct ownership of a foreign
subsidiary or division. The expense of developing a separate foreign distribution system,
foreign direct in particular, can be tremendous. For example, as French hypermarket chain Carrefour
investment (FDI) discovered, the opening of retail stores in neighbouring countries can require a large
A long-term commitment financial investment in facilities, logistics, research and management.
to marketing in a foreign
The term multinational enterprise refers to companies that have operations or sub-
nation through direct
ownership of a foreign sidiaries located in many countries. Often the parent company is based in one country
subsidiary or division. and cultivates production, management and marketing activities in other countries. The
company’s subsidiaries may be quite autonomous in order to respond to the needs of
individual international markets. Companies such as Dell, Unilever, Tata and General
multinational Motors are multinational companies with worldwide operations.
enterprise A wholly-owned foreign subsidiary may be allowed to operate independently of the
A company with opera- parent company so that its management can have more freedom to adjust to the local
tions or subsidiaries in
environment. Cooperative arrangements are developed to assist in marketing efforts,
many countries.
production and management. A wholly-owned foreign subsidiary may export products
to the home country. Some car manufacturers, such as Ford and General Motors,
for example, import cars built by their foreign subsidiaries. A foreign subsidiary offers import-
ant tax, tariff and other operating advantages. The greatest advantages of direct foreign invest-
ment are greater strategy control and enhanced market capacity. To maximize these, a subsidiary
may o perate under foreign management, so that a genuinely local identity can be developed.
A company’s success in achieving these advantages will tend to depend on whether the business
has a competitive advantage allowing it to recover the costs of its investment.
Customization versus the globalization of

international marketing strategies
As is the situation for marketers managing a domestic market, international marketers develop
marketing strategies to serve specific target markets. Traditionally, international marketing strate-
gies have customized marketing mixes according to cultural, regional and national differences.55
Detergent producers such as Procter & Gamble or Unilever customize their products to local water
conditions, weather, equipment and washing habits. Colgate-Palmolive even developed a cheap
hand-powered washing machine for households lacking electricity in developing regions. Such
customization of the product or service, to reflect local nuances, attitudes and behaviours, can
bring significant rewards to marketers. Failure to reflect such localized market conditions may leave
marketers with an unattractive customer-facing proposition.
Along the continuum, away from customization, is the globalization of marketing.
globalization Globalization involves developing marketing strategies as though the world’s con-
The development of sumers or business customers share homogeneous product needs and purchasing
marketing strategies that behaviour. Nike and Adidas footwear, for example, are standardized globally and the
treat the entire world, or
its major regions, as a
same advertising campaigns are run across the globe. Mobile phones, televisions,
single entity. clothing, movies, soft drinks, cosmetics, toothpaste, batteries and cigarette brands are
examples of globalized products: the same product attributes and specifications are
marketed around the world.
Throughout the 1980s and 1990s, the trend was for large corporations to globalize their prod-
ucts and, wherever possible, the remaining ingredients of their marketing programmes, notably
marketing communications, pricing and distribution channels. The goals were to reduce costs
by harmonizing product mixes, branding, packaging and labelling and to create a more cohesive
and recognizable brand identity. The choice of marketing channels, media options for advertising,
pricing and particularly customer service often proved more challenging to harmonize: different
practices and cultures from region to region or country to country proved difficult to address
through a single marketing mix. Table 4.2 reveals the largest global brands.
Table 4.2 Most valuable global brands – $m value, 2017
Country Brand value Country of Brand value

Brand of origin ($m) Brand origin ($m)
Apple USA 184 154 Cisco USA 31 930
Google USA 141 703 Oracle USA 27 466
Microsoft USA 79 999 Nike USA 27 021
Coca-Cola USA 69 733 Louis Vuitton France 22 919
Amazon USA 64 796 Honda Japan 22 696
Samsung S Korea 56 249 SAP Germany 22 635
Toyota Japan 50 291 Pepsi USA 20 491
Facebook USA 48 188 H&M Sweden 20 488
Mercedes Benz Germany 47 829 Zara Spain 18 573
IBM USA 46 829 IKEA Sweden 18 472
GE USA 44 208 Gillette USA 18 200
McDonald’s USA 41 533 AmEx USA 17 787
BMW Germany 41 521 Pampers USA 16 416
Walt Disney Co USA 40 772 UPS USA 16 387
Intel USA 39 459 JP Morgan USA 15 749
Source: Interbrand’s Best Global Brands 2017 report is a look at financial performance of the brand, role of brand in the purchase decision
process and the brand strength. Go to www.bestglobalbrands.com for more information.
Over time, the champions of globalized marketing recognized that a ‘think globally, act locally’
compromise was sensible. Economies of effort and scale in a single product and brand identity
were worthwhile, but the route to market, the way in which the brand and product were commu-
nicated to the intended target audiences, the pricing and service required, often had to be manip-
ulated at a local level to reflect the pertinent localized market conditions. Even such ubiquitous
brands as McDonald’s and Coca-Cola modify their marketing mixes to reflect local tastes, customs,
buying behaviour and social values. This requirement by international marketers to manipulate the
ingredients of the marketing mix in order to reflect local needs is developed further in Chapter 21.
International marketing and globalization require strategic planning if a company is to incorporate
non-domestic sales into its overall marketing strategy. International marketing activities often require
customized marketing mixes to achieve an organization’s goals. Globalization requires a total com-
mitment to the world, regions or multinational areas as an integral part of the company’s markets.
Regardless of the extent to which a company chooses to globalize its marketing strategy, extensive
analysis of the marketing environment, marketing intelligence and often marketing research, are
required in order to understand the needs and desires of the target market(s) and to implement
the selected marketing strategy successfully. While a global presence does not guarantee a global
competitive advantage (see Chapter 2) a global presence does generate five opportunities for
creating value:
1. to adapt to local market differences
2. to exploit economies of global scale
3. to exploit economies of global scope
4. to seek optimal locations for activities and resources
5. to maximize the transfer of knowledge across locations.
However, without a sound appreciation of the forces of the marketing environment internation-
ally, an organization’s ability to seek suitable opportunities will be limited. A marketing strategy, as
described in Chapter 2, must be developed in order to specify the opportunities to be pursued

internationally, select an appropriate target market strategy and basis for competing, and specify
applicable marketing programmes to operationalize the agreed international marketing strategy.
This use of the marketing process may suggest customization, full globalization or some hybrid
part-way between these two extremes.
Summary
Marketing activities performed across national boundaries are usually significantly different from domestic marketing
activities. International marketers must have a profound awareness of the foreign environment. The marketing strategy is
ordinarily adjusted to meet the needs and desires of markets across national boundaries.
The level of involvement in international marketing covers a wide spectrum from domestic marketing to export marketing,
international marketing, multinational marketing and global marketing. Although all companies involved in international
marketing must make some modifications to their marketing activities, full-scale global marketing requires total com-
mitment to international marketing and involves applying the company’s assets, experience and products to develop and
maintain marketing strategies on a global scale. Globalized marketing occurs when marketing strategies are developed for
major regions or the entire world to enable organizations to compete globally. Multinational companies are those that oper-
ate in overseas markets as if they were local companies.
Marketers must rely on international marketing intelligence to understand the complexities of the international marketing
environment before they can formulate a marketing strategy and develop a marketing mix. That is why they collect and
analyze secondary data and primary data about international markets.
Environmental aspects of special importance include cultural, social, economic, political, regulatory, legal and technological
forces. Cultural aspects of the environment that are most important to international marketers include customs, concepts,
values, attitudes, morals and knowledge. Marketing activities are primarily social in purpose; they are structured by the
institutions of family, religion, education, health and recreation. The most prominent economic forces that affect interna-
tional marketing are those that can be measured by income and resources. Gross domestic product (GDP) is the total value
of all goods and services produced by a country in a year. Credit, buying power and income distribution are aggregate
measures of market potential. Political and legal forces include the political system, national laws, regulatory bodies,
national pressure groups and courts.
Measures that governments can take to govern cross-border trade include the use of tariffs, quotas and non-tariff barri-
ers. Tariffs are taxes that affect the movement of goods across economic or political boundaries. Quotas involve physical
restrictions on the amount of goods that can be imported. Non-tariff barriers include a wide range of rules, regulations
and taxes that have an impact on trade. The foreign policies of all nations involved in trade determine how marketing can
be conducted. The level of technology helps define economic development within a nation and indicates the existence of
methods to facilitate marketing.
Various regional trade alliances and specific markets are creating both difficulties and opportunities for organizations.
The North American Free Trade Agreement (NAFTA), set up in 1994, aims to eliminate all tariffs on goods produced and
traded between Canada, Mexico and the US. The creation of the single European market in 1993, following the signing of
the Maastricht Treaty in 1992, led to the formation of the European Union (EU), which was enlarged in 2013 to include 28
countries, most of which adopted the euro as their currency. More recently, the Asia-Pacific Economic Cooperative (APEC)
has been set up to promote trade in the region. The group includes the US, Australia, Canada, New Zealand, Japan, China,
South Korea, Hong Kong, Taiwan and ASEAN members. The best-known trading group in the Pacific Rim is the Association
of South East Asian Nations (ASEAN). Central and Eastern Europe (CEE) encompasses the Commonwealth of Independent
States (CIS), the Czech and Slovak Republics, Hungary, Poland, Slovenia, Croatia, Bosnia Herzegovina, Serbia, Montenegro,
Bulgaria, FYR Macedonia and Albania. The CIS unites Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Mol-
dova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.
The General Agreement on Tariffs and Trade, known as GATT, was an agreement between countries to reduce worldwide
tariffs and increase international trade. There was a particular focus on preventing dumping, the selling of products at
unfairly low prices outside domestic markets. An important development out of GATT has been the World Trade Organiza-
tion (WTO), an entity that promotes and facilitates free trade between member states.
There are several ways of becoming involved in international marketing. Exporting is the easiest and most flexible method.
Licencing is an alternative to direct investment; it may be necessitated by political and economic conditions. Franchising
is a form of licencing, granting the right to use certain intellectual property rights such as trade names, brand names,
designs, patents and copyrights. Contract manufacturing is the practice of hiring a foreign company to produce a des-
ignated volume of product to a specification. Joint ventures and strategic alliances are often appropriate when outside
resources are needed, when there are governmental restrictions on foreign ownership or when changes in global markets
encourage competitive consolidation. Global strategic partnerships are increasingly prevalent; link-ups between compa-
nies from two or more regions who jointly decide to pursue a marketing opportunity, share resources and combine ideas.
Virtual corporations are a spin on this concept. Trading companies are experts at buying products in the domestic market
and selling to foreign markets, thereby taking most of the risk in international involvement. Foreign direct investment (FDI)
in divisions or subsidiaries is the strongest commitment to international marketing and involves the greatest risk. When a
company has operations or subsidiaries located in many countries, it is termed a multinational enterprise.
Most organizations adjust their marketing programmes to reflect differences in target markets and marketing environ-
ments. Some companies standardize their marketing activity worldwide. Traditionally, international marketing has involved
customizing products according to cultural, regional or national differences. Globalization, on the other hand, involves
developing marketing strategies for the whole world, or major regions, ignoring localized market dynamics. A globalized
company standardizes products in the same way, everywhere.
International marketing demands strategic planning, the assessment of the international marketing environment and the
development of a marketing strategy in order to specify the opportunities to be pursued internationally, select an appro-
priate target market strategy and basis for competing, and specify applicable marketing programmes to operationalize the
agreed international marketing strategy. This use of the marketing process may suggest customization, full globalization,
or some hybrid part-way between these two extremes. Most organizations practicing globalization in fact tailor aspects of
their customer engagement and interaction to reflect local expectations, conditions and behaviours.
Contract manufacturing
Key links Domestic marketing
Dumping
This chapter should be read in conjunction with: European Union (EU)
●● Chapter 2’s explanation of marketing strategy. Export marketing
Exporting
●● Chapter 3’s examination of the forces of the marketing
Foreign direct investment (FDI)
environment and environmental scanning.
Franchising
●● Chapter 21’s exploration of the manipulation of the
General Agreement on Tariffs and Trade (GATT)
marketing mix to reflect localized market conditions. Global marketing
Global strategic partnerships
Globalization
Important terms Gross domestic product (GDP)
Asia-Pacific Economic Cooperative (APEC) International marketing
Association of South East Asian Nations (ASEAN) Joint venture
Central and Eastern Europe (CEE) Licencing
Commonwealth of Independent States (CIS) Maastricht Treaty
Multinational companies 6. How do religious systems influence marketing activities in

Multinational enterprise foreign countries?
Multinational marketing 7. Recent recession has affected trade opportunities for many
Non-tariff barriers businesses. How could businesses minimize the impact of
North American Free Trade Agreement (NAFTA) such problems?
Quotas
8. If you were asked to provide a small tip or bribe to have a
Strategic alliances
document approved in a foreign nation where this practice
Tariffs
was customary, what would you do?
Trading company
Virtual corporation 9. What should marketers consider as they decide whether to
World Trade Organization (WTO) licence or to enter into a joint venture in a foreign nation?
10. Discuss the impact of strategic alliances on marketing
strategies.
Discussion and review questions
11. What is meant by globalization?
1. How does international marketing differ from domestic 12. What are the differences between customization and
marketing? globalization?
2. What must marketers consider before deciding whether to
become involved in international marketing?
3. Are the largest industrial companies in Europe committed to Recommended readings
international marketing? Why or why not? Doole, I., Lowe, R. and Kenyon, A., International Marketing Strategy
4. Why do you think so much of this chapter is devoted to an (Cengage, 2019).
analysis of the international marketing environment? Ghauri, P. and Cateora, P., International Marketing (McGraw-Hill, 2014).
Hollensen, S., Global Marketing (Pearson, 2016).
5. A manufacturer exported peanut butter with a green label to Keegan, W.J. and Green, M.C., Global Marketing Management (Pearson,
a nation in the Far East. The product failed because it was 2016).
associated with jungle sickness. How could this mistake Kotabe, M. and Helsen, K., International Marketing (John Wiley, 2014).
have been avoided? Terpstra, V. and Sarathy, R., International Marketing (South Western, 2000).
Web task Classroom tools Group tasks

There are many organizations 1. Your group’s business has
with global aspirations. Examine a established a strong presence in
selection by logging on to the following websites: its domestic market, but to achieve
www.jcb.com significant growth it now must consider international
www.ikea.com markets. What process of investigation is required in
www.samsung.com order to identify non-domestic target markets?
www.ford.com 2. Your group’s business has identified some attractive
www.carrefour.com markets to enter outside of your home territory. Explore
1. To what extent have these organizations tailored their your entry options and their respective merits.
messages to specific geographic regions?
2. To what extent are these organizations practicing global- Applied mini-case
ized marketing? What is your favourite flavour of lollipop? Cherry? Root beer?
3. To what extent do these organizations’ websites Blue raspberry? These are options in the US, but the choice
infer a knowledge of their international marketing may have been liquorice in the Netherlands, lychee nut in
environments? China or tarte-tatin in France. Barcelona-based Chupa Chups,
owned by Italy’s Perfetti Van Melle, produces over four billion Question
lollipops each year, distributed to more than 270 countries. The
As the marketing director of Chupa Chups, when considering
sixth largest seller of hard candy in the world now achieves
an additional country in which to operate, what information
more than 90 per cent of sales from outside Spain. The lollies,
about the territory would be required before the country in
distributed across the globe, vary in flavour from country to
question received Chupa Chups lollipops?
country. Throughout its 60-year history, Chupa Chups has
opted to tailor its products to suit tastes in specific target
market territories. Reference: Chupa Chups, 2018.
Carrefour’s ‘G4’ and An international retailer
international growth Case study A pioneer in countries such as Brazil in 1975 and
strategy China in 1995, the Group now operates in three
major markets: Europe, Latin America and Asia.
With a presence in more than 30 countries, it
Carrefour has been in the business of managing
generates more than 55 per cent of its sales outside
hypermarkets for more than 50 years. The orig-
France.
inal business idea was generated in the early 1960s, when
Marcel Fournier and Denis and Jacques Defforey visited a A force in local economic development
retailing conference in the US. The hypermarket concept they
Everywhere it operates, the Carrefour Group demonstrates its
developed is based on choice, low prices, self-service and free
commitment to local economic growth. As retail involves people,
car parking, allowing consumers to do all their shopping under
it always gives priority to recruiting people who live locally, and
one roof. The first outlets were opened in the Paris suburbs, to training its managers and staff on site.
followed in 1966 by Europe’s largest self-service hypermarket Very often, the Carrefour Group is the premier private
outside Lyon. The main features of the Carrefour concept are: employer in the countries in which it operates. This is obviously
the case in France – where the group was founded – but it also
●● large, spacious stores with wide aisles and free car parks
holds true in countries such as Brazil, Argentina and Italy. At the
●● store size of around 10 000 square metres, serving three same time, the Group gives priority to local supply chains. So, 73
million shoppers each year per cent of all its food products come from local suppliers in the
●● flexibility in product and service offerings to reflect local countries in which it operates.
tastes www.carrefour.com
●● food representing about 45 per cent of sales, gross mar- An early foray into international expansion, with new
gins of about 18 per cent stores in Belgium, Italy, Switzerland and the UK, was not
●● narrow profit margins and high-volume purchases, particularly successful and the group quickly abandoned this
allowing discount prices to be offered on a daily basis activity to concentrate on its home operations. However, in
●● a choice of branded, private and generic labels, usually the mid-1970s a period of organic growth began, with new
arranged on the shelves vertically in that order. openings in France, Spain and Brazil. This continued until the
early 1980s, with Carrefour opening its first Argentinian and
The Carrefour Group: one of the world’s leading retailers Taiwanese outlets. During this same time period, Carrefour
France concentrated on developing new retail concepts and
The Carrefour Group is the leading retailer in Europe and the
formats that might be adopted in overseas markets. Once
second-largest retailer in the world, employing more than
such initiative was the change of name in Spain from Carre-
374 000 people. With more than 12 300 stores in 30 countries
four to Pryca. Carrefour was one of the first large retail groups
and 1.3 unique web visitors daily, it generated revenues of
€88 billion under its various banners in 2017. As a multi-local, to truly exhibit global ambition.
multi-format and multi-channel retailer, Carrefour is a partner for At the beginning of the 1990s, Carrefour decided to con-
daily life. The company welcomes more than 104 million cus- centrate on growth by acquisition, buying the French chains
tomer households around the world, offering them a wide range Montlaur and Euromarché. But Carrefour was not confining
of products and services at fair prices. its growth to the hypermarket sector. By acquiring Picard
Sugelés, a French frozen-food business, Carrefour was sig-

nalling its expansion into other retail sectors, such as eyewear,
frozen food, discounting, cash and carry, and office supply
stores in 15 different countries.
Carrefour’s commitment to an international strategy was
initially encouraged by problems in developing its domestic
business. These difficulties were caused partly by government
regulations designed to protect small retailers. For example,
tight controls were imposed on the opening of new stores and,
in some cases, on the increase of selling space in existing
outlets. For Carrefour, this restricted new domestic opportu-
nities to those that could be gleaned through the acquisition
of existing businesses. Once these opportunities had been
exploited, the only other growth option for Carrefour was to with France form its so-termed ‘G4 countries’, and (iii) signifi-
expand overseas. cant expansion in key fast growing international markets, such
The international success the business has enjoyed can as Brazil, China and India.
be attributed to a number of factors. First, the business has The Carrefour commitment to expansion means that the
been a fast mover in many of the countries in which it has business has often been prepared to forgo short-term profits
expanded. By carefully choosing the right time to enter new in the interests of longer-term competitive advantage. How-
countries, Carrefour has been able to make the most of appro- ever, as retail globalization continues, Carrefour will have to
priate retail conditions. Second, Carrefour has consistently continue reacting with speed and flexibility if it is to maintain
applied its proven and well-developed hypermarket and cash its position. In particular, as the growing use of the internet and
and carry concepts. In many cases, by maintaining the same home shopping begin to alter buying behaviour and recession
basic operational and marketing characteristics, the business encourages more value-driven consumers and discounting,
has been able simply to transplant its operation to a new mar- the company must address how the hypermarket concept will
ket. However, Carrefour has also shown the flexibility to make be able to adapt to changing consumer needs and profiles.
appropriate modifications to local taste where required. Finally,
Sources: www.carrefour.com, 15 February 2018 and previous editions.
the business has a deep-seated commitment to its interna-
tional expansion strategy.
The 1999 acquisition of Promodes created the world’s Questions for discussion
second largest retail group behind only Walmart of the US.
1. What drove Carrefour to expand its businesses
Current successes lie primarily outside France, although the
internationally?
domestic supermarket chain has staged something of a recov-
ery. There has been significant success for Carrefour in Poland 2. What new international opportunities might be open to
and Romania, Argentina, Brazil and now China. Carrefour has Carrefour?
a three-pronged strategy: (i) leadership in its domestic French 3. To what extent has Carrefour adopted a strategy of
market, (ii) dominance in Spain, Italy and Belgium, which along globalization?
Part one postscript target market selection and marketing mix

development.
Effective marketing hinges on satisfying c ustomers ●● Grasp the ethos and structure of this book.
and establishing relationships. There are many
forces at work, however, which affect how organi-
zations endeavour to achieve these goals. Part One Define and explain the nature of marketing
of Marketing: Concepts and Strategies has explored strategy
the nature and scope of the concepts of marketing, ●● Define marketing strategy and explore the
marketing orientation and marketing strategy, and relationship with a company’s organizational
gone on to describe the forces of the macro and micro mission, goals and corporate strategy.
marketing environment and the essential requirements
●● Assess organizational opportunities, capabilities
for marketing in global markets.
and the SWOT analysis.
The focus of Marketing: Concepts and Strategies
now turns to the customer and the identification of ●● Consider strategic objectives.
target markets. As outlined in Figure 1.4, the cus- ●● Appreciate the role of target market strategy,
tomer must be at the centre of the marketing process. ustomer value and brand positioning in
c
Organizations must target specific groups of custom- marketing strategy.
ers, understand their needs, and endeavour through ●● Examine competitive advantage, competitive
their marketing activities to satisfy those needs. It positions and differential advantage.
is essential to recognize that a business does not
●● Explore marketing objectives and understand the
deal with its customers in a vacuum: there are many
role of marketing mix programmes in marketing
marketing environment forces at work, affecting the
strategy.
behaviour of customers and those organizations
attempting to market to them. The role of technology, ●● Understand the importance of implementation
in particular, has created many opportunities for mar- and performance monitoring in marketing
keters to communicate with customers and build rela- strategy.
tionships. For businesses operating across national
borders, involved with marketing in global markets, Outline the forces at work in the marketing
the impact of these forces and the trading decisions environment
required are even more complex. These are the issues
●● Understand the concept of the marketing envi-
that have been examined in Part One.
Before progressing, readers should be confident ronment and the importance of environmental
that they are now able to do the following. scanning and analysis.
●● Explore the broad forces of the macro marketing
environment: political forces relevant to market-
Define and explain the marketing concept
ers, the influence of laws on marketing practices,
●● Define marketing. the impact of government regulations and regu-
●● Appreciate the context of marketing and latory agencies, societal issues important to mar-
marketing orientation. keters, the effects of new technology on society
●● Explain the marketing process. and marketing activities, economic and competi-
tive factors and their impact on organizations and
●● Understand the importance of marketing.
customers’ willingness and ability to buy.
●● Gain insight into the basic elements of the mar-
●● Examine the company-specific micro marketing
keting concept and its implementation.
environment forces: the competitive pressures
●● Understand how the marketing concept has facing an organization in terms of the supply
evolved and some of the current ‘hot’ themes. chain, marketing intermediaries, competitors and
●● Appreciate the major components of a marketing from other publics.
strategy and the marketing mix. ●● Understand the role of the marketing environment
●● Gain a sense of general strategic marketing in marketing opportunity analysis and the impor-
issues, such as market opportunity analysis, tance of strategic windows in marketing strategy.
Part One MARKETING DEFINED AND MARKETING IN CONTEXT 135
Describe the additional complexities facing mar- ●● Look at alternative market entry strategies for
keters engaged in international markets becoming involved in international marketing
●● Define international marketing and understand
activities.
the nature of international involvement. ●● Appreciate that international marketing strategies
●● Understand the importance of international

fall along a continuum from customization to
globalization.
marketing intelligence.
●● Understand the growing importance of interna-
●● Recognize the impact of environmental forces on
tional cooperation.
international marketing efforts.
●● Become aware of regional trade alliances and
markets.
Understanding and directives and changes in the regulatory

managing fast-changing Strategic case environment. In terms of understanding
markets, developing aligned marketing
markets: creating a strategies and executing such disruptive
marketing strategy strategies in the face of very fast-moving
market challenges, this sector presents an
From robots emerging in everyday life to new uses ideal illustration for the sentiments of Part I of
of drones, increasing applications for virtual reality, social media Marketing: Concepts and Strategies.
networking, 24/7 mobile commerce, 3D printing of components Existing automotive producers are fearful and are strug-
or body parts, breakthrough medical innovation, space tourism… gling to keep up with new entrants and challengers from other
the possibilities for enticing new market developments are end- sectors, such as Tesla, Google and Amazon. New entrants are
less; all creating challenges and excitement for marketers and mindful of the powerful positions occupied by stalwarts such
business strategists. However, a recent poll of thought leaders as Ford, VW and Toyota. At the heart of everyone’s concerns
identified a more pedestrian and long-established sector as lies consumer resistance or inertia and the potential impact of
offering the biggest opportunities for change and with it present- legislation and regulation. Few other markets are encounter-
ing the most striking hurdles for understanding and instigating ing such game-changing dynamics and market forces.
consumer adoption… the automotive sector.
Today’s key drivers and pressures in the automotive sec-
The sector’s current drivers
tor include autonomy (driverless cars) and connectivity, cyber
resilience, electrification and electric vehicles (EVs), the green Workshops involving the leading players in this sector sug-
economy, lean and innovative supply chain management, gested the following as the primary driving forces for change
strategic global partnerships, disruptive innovation from new and argued that their understanding is the essential founda-
market entrants, and the business context of public policy tion for creating successful business strategies:
●● autonomy (driverless cars) ●● strategic global partnerships

●● connected cars, the IoT and cyber resilience ●● new entrants from outside automotive
●● emissions and electrification (EVs) ●● agile defence and security vehicles for urban settings
●● the green economy ●● new powerhouse economies and global market priorities
●● lean and innovative supply chain management ●● tariffs and trade deals
●● new materials ●● congestion and increasing drive-times
●● 3D printing and plug and play components ●● congestion charging

●● virtual reality (VR) ●● insurance policies/requirements
●● in-vehicle information systems ●● health and safety requirements
●● through-life costing and predictive analytics ●● road use legislation
●● end-of-life disposal/re-use ●● SMART cities and traffic management
●● the digital economy and new routes to market ●● personal transport solutions
●● greater C2C communication ●● individualization and personalization.
The biggest developments from this set were viewed by presents truly radical innovation and disruptive change for
these experts as autonomy, connectivity and electrification. those in the automotive industry, regulators and of course
EVs are now familiar on our streets, but mainstream producers motorists, with many arguing that being driven by the car itself
are announcing big moves away from the combustion engine is a step too far, in terms of consumer acceptance, safety and
as they focus on EVs and hybrids, encouraged by governments legality.
and legislators in many major conurbations. Many cars are
now live online and connected, sending and receiving infor- Autonomy or driverless vehicles
mation relating to traffic conditions, engine management and
The sales manager might desire to use his or her time on
vehicle maintenance, web searches and mobile media use.
the move between sales calls working in a mobile office pod
This is only the start of where connectivity will lead, with
rather than focusing on driving a car; the gamer might want
vehicles increasingly connected to and communicating with
to spend the two hours from Birmingham to Heathrow playing
each other and with SMART transport grids, remotely from
games and connecting to other players remotely; the sports
their occupants. The first driverless autonomous production
fan will enjoy Sky Sports broadcasts of matches while on the
vehicles legally tested on public highways are currently on the
move; families will prepare whilst on their journeys for visits
streets of Coventry, UK - Jaguars. Driverless pods, production
and vacations by researching local attractions and virtually
cars, delivery vans and now HGVs are all in the early stages of
exploring their impending destinations… prototype pods exist
market testing, soon to head to full-scale commercialization.
for all of these applications and usage behaviours. For drivers
However, not all consumers are prepared for these changes
not desiring such a departure as offered by driverless pods,
– which will radically impact on their usage of vehicles – or
simply sitting in the driver’s seat of a well-known model of car,
willing to trust the technologies underpinning electrification,
but letting the vehicle make decisions and operate all controls,
connectivity or autonomy. Battery range and recharging times
might well appeal in the growing range of autonomous vehi-
worry drivers. Cyber resilience and security are concerns for
cles now being trialled. Both forms of driverless mobility are
increasing numbers of drivers whose vehicles now tend to rely
being developed: pods and conversions of mainstream car,
on remote interventions and potentially are highly vulnerable
van and HGV models.
to hacking. But it is autonomy – driverless vehicles – which
There is also considerable interest in driverless vehicles
and platforms within the defence and security communities,
taking the latest developments from the automotive sector
and applying them to hazardous situations in war, combatting
terrorism and surveillance. There are already autonomous
tractors harvesting fields, and construction giants such as JCB
and Caterpillar are bringing to market driverless vehicles for
the construction and mining industries.
However, when will this new-thinking for production road
cars and HGVs be deemed socially acceptable, legally safe
and economically viable? And what of the many consumers
who will be reluctant to adopt and indeed resistant to change,
preferring instead to drive themselves as they do now? For
Part One MARKETING DEFINED AND MARKETING IN CONTEXT 137
manufacturers and brand managers, these potential market is that there are too few such individuals and firms to make the
opportunities are fraught with worries and many dilemmas difference or create viable target markets for manufacturers.
to ponder. Cost to acquire, ease of use and being fit for purpose, are the
And where will it end? No more driving tests or require- key consumer values which must be satiated if a brand in this
ments for ‘drivers’ to know how to drive? The elderly on the market is to succeed.
roads long after their faculties have declined in terms of their The finances currently are unattractive in terms of pur-
traditional motoring capabilities? All vehicles following each chase price for EVs and other alternatives (although better
other on prescribed routes at identical speeds? Or will there when calculating running costs) and few governments have
be a much more complex set of market segments to cater for, surpluses enabling the provision of hefty state subsidies. The
with associated trade-off choices for the existing and new functionality is not yet available to allow easy substitution
entrant manufacturers striving to serve this sector? Devel- of vehicles in a company’s operating fleet. Yet without mass
oping successful marketing strategies in this market will be adoption and falling prices, it will be a struggle to comply with
pivotal to the well-being of many businesses, many of which the regulators or to improve environments.
will undoubtedly struggle to remain viable. Mass adoption in other markets has undoubtedly occurred
since purchasing really started to take off and more consum-
For an explanation of autonomy see this clip from FIA:
ers entered the market. In most instances, such a take-off has
www.youtube.com/watch?v=HgF7E5q9sU4
been triggered by the entry of a low-price game-changing
Wired offers a good update of developments:
competitor (such as the impact of Amstrad computers in
www.wired.com/tag/autonomous-vehicles/
the 1980s), or a new level of functionality surpassing exist-
For a view of ongoing issues see this clip from The Guardian:
ing technologies (such as a microwave oven), or a life-style
www.theguardian.com/global/video/2017/mar/02/the-
changing innovative technology (such as the first cellphones
guardian-test-drives-a-driverless-car-it-doesnt-go-well-video
and then the smartphone).
In the case of diesel and petrol vehicles, the innovative
EVs and electrification
alternative technology has existed for twenty years, but is
The long-standing impediments restricting EV commercializa- still priced beyond reason in the minds of most consumers.
tion have been price, range, battery life/cost, charging infra- So maybe our destiny lies in the hands of those brands and
structure and social acceptability. A niche of consumers with marketers who can commercialize new technologies as ‘must-
a conscience has existed for many decades, but in numbers have’ trend-setting desirable consumer gadgets and brands
too insignificant to warrant a roll-out of readily accessible deemed essential to be seen owning?
charging infrastructure. The costs to acquire hybrids and EVs The emergence of highly desirable EV and hybrid ‘gadgets’
have proved a barrier to many consumers. Declining battery from Tesla, BMW and JLR – rather than functional and sensible
life and high replenishment costs add to these consumer con- offerings such as the Prius or Leaf – might well be about to
cerns. Worries about being stranded and running out of battery prove a game-changer, bringing to EVs consumers who buy for
charge compound these barriers to adoption. However, the looks, trends and the badge of ownership, rather than a desire
biggest barrier to switching is inertia, with familiarity of the to save the planet. If this happens, sales are likely to acceler-
combustion engine and forecourt giving many consumers no ate dramatically, bringing a fall in retail prices as production
‘need’ to consider the latest alternatives. volumes escalate.
EV and hybrid power options, offering cleaner air and less Mass adoption of EVs for two decades has been blocked
noise, are still much more expensive. The Nissan Leaf comes by the cost of acquisition, functionality limitations, resistant
at a £10 000 premium, compared to cars of a similar size and parties in channels to market, and resulting consumer inertia.
demographic. Just as with the early stage home computers or Changing consumers’ behaviour and resulting infrastructure
large flat screen TVs, or with manufacturing robots and com- investment are required for there to be large scale product
puter servers, new technology invariably comes at a price. It adoption. Ignoring the minority of ‘consumers with a con-
is usually only once a market has taken off that unit prices science’ might have to be the necessary solution if producers
fall, enabled by rising customer purchases and driven by more are to prompt rapid take-off. Focusing on the EV as a desir-
competing suppliers entering the market. able gadget, badge of honour and ‘must-have’ brand, is likely
There are companies, consumers and policy makers with to bring about mass adoption and a step-change in sales in
a conscience who strive to ‘do the right thing’, but experi- this fledgling market. Future success lies not in targeting
ence of researching EVs since their emergence in the 1990s only the sustainability segment. Arguably, gadgetizing and
premium branding will open up this market. . . Tesla, BMW, Questions for discussion
JLR, Maserati, Google, FIA are the new, trendier and more
1. What are the forces of the marketing environment impact-
desirable ‘gadgets’ and must-have brands now transforming
ing on marketing strategy in the automotive sector?
this sector. If these really are the drivers for change, what are
the implications for these emerging brands, for the traditional 2. In developing an effective marketing strategy, what are
automotive OEMs, channels of distribution and policy-makers? the biggest issues to consider for producers of autono-
mous vehicles or EVs?
Go Ultra Low lobbies for EVs but offers some good insights
for the uninitiated: 3. In what ways is the nature of competition faced by
www.goultralow.com/#videos those pursuing this fast-developing market particularly
Tesla is at the forefront of EV development: challenging?
www.youtube.com/watch?v=3SAxXUIre28 4. Which consumers will be adopters of these disruptive
A view of the future: new products and which consumers will resist? How
www.youtube.com/watch?v=vod6TmjUVoo might marketers find out?
Part Two
Understanding and
targeting customers
Legal
forces
Customer
value
proposition
engagement
Buyer/
Place/
Price/ consumer
distribution/
value satisfaction
channel
logical green
forces forces
edge
Desired
customer
experience
Economic and
competitive forces
A
s outlined in the above figure, customers must understanding of customers and potential customers,
be at the centre of the marketing process. marketing cannot be effective.
Organizations – whether for-profit or not-for- Part Two of Marketing: Concepts and Strategies
profit – must target specific groups of customers, commences with a thorough examination of the
target audiences or stakeholders, understand their nature of consumer buying behaviour and buying pro-
needs, develop appropriate positioning and messag- cesses, and continues to examine the nature of buy-
ing, and endeavour through their marketing activities ing in b
usiness-to-business or organizational markets.
to satisfy these customer needs. Without a thorough Having developed an understanding of a marketplace
139
140 Part Two Understanding and targeting customers
and particularly the customers within it, marketers when managers’ existing knowledge of their custom-
must then develop a target market strategy. This ers is sufficient for marketing decision-making, or
should identify which customers they wish to target when they are content to trust their intuition. On many
and those to ignore, what positioning they intend to occasions, however, marketers may not feel confident
use and which approach will provide an advantage with the level of marketing intelligence available and
over competitors. Part Two includes, therefore, an will instigate research into the market in order to fill any
examination of target market strategy selection and gaps in their understanding of customers, competi-
the all-important concept of market segmentation. tors or market trends. The nature, uses and types of
The segmentation process embraces targeting deci- marketing research are introduced in the final chapter
sions and brand positioning strategy. There are times of Part Two of Marketing: Concepts and Strategies.
Part Two of Marketing: Concepts and Strategies examines buying behaviour for consumers
and organizations, the issues concerned with target market strategy selection, and the nature
and tools of marketing research.
Chapter 5, ‘Consumer buying behaviour’, describes the different types of consumer buying
behaviour, the stages of consumer buying decision-making and the different categories of buying
decision. The chapter examines how personal, psychological and social factors influence the
consumer buying decision process. Chapter 5 explains why marketers must understand con-
sumer buying behaviour and use their understanding to determine marketing strategy. The chapter
includes an examination of how social media and growing consumer-to-consumer communication
have altered the dynamics of buying behaviour and indeed the role of marketers in their custom-
ers’ decision-making and purchasing behaviour. Having an understanding of customers’ buying
is fundamental to the marketing concept and to developing a marketing orientation.
Chapter 6, ‘Business markets and business buying behaviour’, familiarizes readers with
the various types of business market, identifies the major characteristics of business-to-business
buyers and transactions, outlines the attributes of business-to-business demand and presents
the concept of the buying centre. The chapter emphasizes the notion of relationship marketing
and exchanges between business buyers and sellers. The focus then shifts to the stages of the
business-to-business buying process and the factors that influence it. The chapter concludes
by examining how to select and analyze business-to-business target markets. Marketers in
business-to-business markets modify the marketing toolkit differently to marketers interacting
with consumers: this theme is introduced in this chapter, but is explored more comprehensively
in Part Three of Marketing: Concepts and Strategies.
Chapter 7, ‘Segmenting markets’, explains the core aspect of developing a marketing strategy:
the process of target market strategy selection. The chapter commences by defining the concept
of a market and outlining the various types of market. The focus then shifts to how organizations
segment markets and identify target markets. Finally, the chapter discusses the importance of
maintaining a strong relationship with those markets, segments and customers deemed to be
priority targets, along with the related topic of customer relationship management (CRM). This is
a key chapter as companies must be clear regarding which customers to pursue and which not
to expend effort in chasing.
Part Two Understanding and targeting customers 141
Chapter 8, ‘Targeting and positioning’ builds from Chapter 7 to explore the rest of the
segmentation process, namely targeting criteria and target market selection, and brand position-
ing strategy. It first explores the available strategies for addressing a market and the opportunities
identified. Positioning strives to ensure targeted consumers or business customers empathize
with the brand and customer value proposition that is offered to them, and that the brand has
a compelling and differentiated image or appeal. The chapter also highlights the importance of
understanding market and sales potential in target market selection.
Chapter 9, ‘Marketing research’, explains the importance of research in marketing

decision-making, distinguishes between research and intuition in solving marketing problems,
and outlines the five basic steps for conducting formal marketing research. The fundamental
methods of gathering data for marketing research are examined. The chapter then introduces
the wide variety of marketing research tools available and explains their relative pros and cons.
By the conclusion of Part Two of Marketing: Concepts and Strategies, readers should under-
stand the concepts of buying behaviour in consumer and business-to-business markets, the
fundamentals of target market strategy selection and brand positioning and the essentials of
marketing research necessary to glean customer insight. Arguably many of the most important
concepts for marketing are located in Chapters 5 to 8.
Chapter 5
Consumer buying
behaviour
Getting into the heads and hearts of consumers is the fundamental
requirement of marketing
INTRODUCTION
Objectives The decision processes and actions of people involved in b uying
and using products are termed their buying behaviour.1
To understand the different types of
Consumer buying behaviour is the
consumer buying behaviour.
buying behaviour buying behaviour of ultimate consum-
To recognize the stages of the con- The decision processes ers – those who purchase products
sumer buying decision process and and actions of people for personal or household family use.
involved in buying and
understand how this process relates Consumer buying behaviour is not
using products.
to different types of buying decisions. concerned with the purchase of items
for business use. The next chapter of
To explore how personal factors
Marketing: Concepts and Strategies
may affect the consumer buying consumer buying
behaviour examines business or organizational
decision process.
The buying behaviour buying behaviour.
To learn about the psychological of ultimate consumers There are important reasons for
factors that may affect the con- – those who purchase marketers to analyze consumer buying
products for personal or
sumer buying decision process. behaviour. The success of a compa-
household use.
ny’s marketing strategy will depend on
To examine the social factors that
how buyers react to it. As C hapter 1
influence the consumer buying
indicated, the marketing concept requires companies to
decision process.
develop a marketing mix that meets customers’ needs. To
To understand why it is important find out what satisfies customers, marketers must examine
for marketers to attempt to under- the main influences on what, where, when and how consum-
stand consumer buying behaviour ers buy. Having a good understanding of all of these factors
and the role of this behaviour in enables marketers to satisfy customers better because they
marketing strategy. are able to develop more suitable marketing strategies. Ulti-
mately, this information helps companies compete more effec-
To appreciate the growing role of
tively in the marketplace.
consumer-to-consumer communica-
Although marketers try to understand and influence con-
tion, social media and the digital envi-
sumer buying behaviour, they cannot control it. Some critics
ronment regarding buying behaviour.
credit them with the ability to manipulate buyers, but market-
To also understand the growing ers have neither the power nor the knowledge to do so. Their
impact of consumer-to-consumer knowledge of behaviour comes from what psychologists, social
communication on the buying psychologists and sociologists know about human behaviour
choices that consumers make. in general.
142
Chapter 5 Consumer buying behaviour 143
Raleigh cycles to stay

F rom its 19th century
roots as a British bicy-
cle company, Raleigh has
in touch with consumers
to public places where
potential buyers can hop
on one of the company’s
developed a worldwide reputa- bicycles and pedal for a few
tion for marketing sturdy, comfort- minutes. The idea is to allow
able, steel-frame bicycles. The firm, consumers who enjoy cycling to
named after the street in Nottingham in England where it was actually experience the fun feeling of
originally located, was a trend-setter in designing and manufac- riding a Raleigh. As Raleigh sought to increase its share of
turing bicycles. Despite being an iconic brand, the company has the US bike market, it sent representatives out to visit bicycle
to keep a close eye on changing consumer tastes and behaviour. races and meet cyclists in cities and towns across America.
As a result of these insights and inspired by the European tradi- The company wanted to encourage discussion about Raleigh
tion of getting around by bike, Raleigh is developing new models and about cycling in general, so that it could gain feedback on
for contemporary consumers that are lighter, faster and better. Raleigh products and on the factors which influence purchase.
Urban bikes, electric bikes, commuter bikes and carbon profes- To stay in touch with current and potential customers,
sional racing bikes have all joined the portfolio. Raleigh has increased its social media activity. It has many
Raleigh’s marketers know how important it is for consumers thousands of visitors to its Facebook page to see the latest
to find out about and try out their products. In recent years they product concepts and post their own photos and comments
have stepped up the practice of bringing demonstration fleets about Raleigh bicycles. It also uses Twitter to keep custom-
ers informed and answer questions about its bicycles and
upcoming demonstration events. The company’s main blog
communicates the latest news about everything from frame
design and new bike colours under consideration to product
awards and racing activities.
By listening to customers and showing that it understands
the daily life of its target market, Raleigh is developing a better
understanding of consumer buying in this marketplace, and
wheeling toward higher sales.
References: www.raleighusa.com/blog and www.raleigh.co.uk/news
W
hen someone decides to buy a new bicycle, there are many factors directing their
choices and numerous underlying motivations. Raleigh must understand these
behaviours and influences. Any set of marketers has a responsibility to explore the
buying behaviour of intended purchasers and those consumers expected to return for more.
Chapter 5 begins by examining the types of decision-making in which consumers engage. The
chapter then analyzes the major stages of the consumer buying decision process and the per-
sonal, psychological and social factors that influence it. How the growth of social media and
consumer-to-consumer communication are changing how individuals buy is considered next.
Finally, the chapter examines why marketers must develop a good understanding of consumer
buying behaviour.
Types of consumer buying behaviour

Different consumers have a varied and wide range of needs and wants. The acquisition of products
and services helps these consumers to satisfy their current and future needs. To achieve this objec-
tive, consumers make many purchasing decisions. For example, people make many decisions daily
regarding food, clothing, shelter, medical care, education, recreation, communication or transport.
When making these decisions, they engage in decision-making behaviour. The amount of time
144 Part two Understanding and targeting customers
and effort, both mental and physical, that buyers expend in decision-making varies considerably
from situation to situation – and from consumer to consumer. Consumer decisions can thus be
classified into one of three broad categories: routine response behaviour, limited decision-making
and extensive decision-making.2
Routine response behaviour

A consumer practices routine response behaviour when buying frequently purchased,
routine response
behaviour low-cost, low-risk items that need very little search and decision effort. When buying
Behaviour that occurs such items, a consumer may prefer a particular brand, but will probably be familiar
when buying frequently with several brands in the product class and view more than one as acceptable. The
purchased, low-cost, products a consumer buys through routine response behaviour are purchased almost
low-risk items that
automatically. For most buyers, the time and effort involved in selecting a bag of sugar,
need little search and
decision effort. a can of fizzy drink, or a bar of soap is minimal. If the supermarket has run out of the
preferred brand, the buyers will probably choose an alternative brand instead, without
any deliberation.
Limited decision-making
limited Buyers engage in limited decision-making when they buy products occasionally and
decision-making when they need to obtain information about an unfamiliar brand in a familiar product
Behaviour that occurs category. This type of decision-making requires a moderate amount of time for infor-
when buying products mation gathering and deliberation. For example, when a new Sony PlayStation game
purchased only occa-
is launched aimed at teenagers, buyers may seek additional information about the new
sionally, for which a
moderate amount of product, perhaps by asking a friend who has tried the game or seen it reviewed. Simi-
information gathering larly, if a well-known brand appears in a new form, the consumer will take extra time to
and deliberation is consider whether to buy it.
needed.
Extensive decision-making
extensive
The most complex decision-making behaviour, extensive decision-making, comes
decision-making into play when a purchase involves unfamiliar, expensive, high-risk or infrequently bought
Behaviour that occurs products – for instance, cars, homes, holidays or personal pensions. The buyer uses
when a purchase many criteria to evaluate alternative brands or choices, and takes time seeking informa-
involves unfamiliar, tion and comparing alternative brands before making the purchase decision.
expensive, high-risk
or infrequently bought Impulse buying By contrast, impulse buying involves no conscious planning but a
products for which the powerful, persistent urge to buy something immediately. Self-control failure is one factor
buyer spends much
time seeking information
that appears to affect whether or not consumers indulge in this kind of buying.3 As the
and comparing brands Topical Insight box explains, consumers are increasingly engaging in impulse buying.
before deciding on the Sophisticated point-of-sales (POS) displays are part of the reason. For some individuals,
purchase. impulse buying may be the dominant buying behaviour. Impulse buying, however, often
provokes emotional conflict. For example, a young adult buying a new outfit for clubbing,
may later regret the expense because a friend has purchased the same item or s/he only
impulse buying uses the outfit once. Marketers often capitalize on the tendency towards impulse buying
Behaviour that involves – for example, by placing magazines and confectionery next to supermarket checkout
no conscious planning
but results from a power-
counters or messaging a customer when they are out shopping.4
ful, persistent urge to buy
something immediately. Variations in decision-making behaviour
The purchase of a particular product does not always elicit the same type of decision-
making behaviour.5 In some instances, buyers engage in extensive decision-making the first time
they purchase a certain kind of product, but find that limited decision-making suffices when they
buy the product again. If a routinely purchased brand no longer pleases the consumer, either
Point-of-sale moves into New technology is even being incor-

the changing room porated into the way that we try on outfits
Topical insight when shopping for clothes with the poten-
When did you last buy something that you tial to increase sales.
spotted on promotion? Consumers who John Lewis is testing an interactive fitting
make such purchases are often responding room mirror which allows customers to view
to a point-of-sale (POS) promotion. themselves in a variety of garments, so that they
POS tools are an important element in this picture. In the don’t need to undress to try on different clothes. A range
past, POS tools were mostly used to offer one-off promotions, of options and outfits can quickly be viewed, so customers
such as buy one, get one free. Now a new generation of POS can judge which items fit together well, with the prospect of
is working much harder to educate consumers about product increasing their spend. The Burberry flagship store in London
features, explain how they work, or to deliver messages about has incorporated RFID enabled mirrors into its fitting rooms
product fit with people’s lifestyle. Asda promoted Johnson & which display content that is relevant to the items being tried
Johnson baby bath products using a branded bath and rubber on. Meanwhile, lingerie business Boux Avenue has incorpo-
duck tray. The launch of Dr Dre Beat’s ‘Mini Pill’ WiFi speaker rated a new lighting system into its changing rooms. Custom-
was supported by a specially created POS display, incorporat- ers can choose from three different moods of lighting – day,
ing an illuminated logo, special lighting and a bespoke mp3 dusk or night – each of which is designed to flatter and help
player. Meanwhile, Burberry is attempting to inspire consum- them look their best.
ers about the brand by streaming live images of its fashion As a spokesperson from retail design consultants Dalziel &
shows direct to video walls in its stores. A visit to any Apple Pow explained: ‘If handled well, both in terms of environment
Store reveals POS immersively surrounding the shopper, at and service, they (changing rooms) can be a valuable asset
the entrance, along the walls, on counters, and often outside in terms of tipping the balance of a decision to buy. Flattering
in the mall. lighting, a comfortable atmosphere, helpful staff and event
Technological advances, such as the development of details like the right temperature can add up to a big differ-
digital signage, have revolutionized the possibilities for POS, ence in the bottom line.’ It is widely anticipated that virtual
which include 3D signage and augmented reality displays. reality will open up a host of innovative ways for retailers to
Fashion retailers are amongst those to benefit from these engage and service customers.
developments. New Look has added in-store screens that Sources: Gemma Balmford, ‘Changing Ways’, Retail Focus, November 2012, at:
can promote new lines while entertaining store visitors at the www.retail-focus.co.uk/features/671-changing-ways-790; Kate Hilpern, ‘POS
same time. The real beauty is that messages can be tailored to persuasion’, The Marketer, May 2011, pp. 28–32; Caroline Parry, ‘Enthusiastic
for listless shopping’, Marketing Week, 4 March 2004, pp. 30–1; fastrakretail.
suit the location and store catchment and can readily updated co.uk/case-studies/dre-beats/; www.insider-trends.com/top-50-innovations-
to reflect the latest offers. in-retail/, March 2018; www.retail-week.com/topics/stores, March 2018.
limited or extensive decision processes may be used to switch to a new brand. For example, if the
weed killer that a gardener buys to keep his or her allotment free of weeds is no longer effective,
a different brand may be chosen in future.
The consumer buying decision process

consumer buying A major part of buying behaviour is the decision process used in making purchases.
decision process The consumer buying decision process, shown in Figure 5.1, includes five stages:
A five-stage process
that includes problem 1. problem recognition
recognition, information
search, evaluation of 2. information search
alternatives, purchase 3. evaluation of alternatives
and post-purchase
evaluation. 4. purchase
5. post-purchase evaluation.
Possible influences on the decision process
Personal Psychological Social influences

influences influences
Roles and family
Demographic Perception Reference groups
Situational Motives Social classes
Involvement Learning Culture and
Attitudes sub-cultures
Personality
Consumer buying decision process
Problem Information Evaluation of Post-purchase

Purchase
recognition search alternatives evaluation
Feedback
Figure 5.1
The consumer buying decision process and possible influences on the process
Although a detailed understanding of these stages is needed, a number of general observations

are also pertinent. First, the actual act of purchasing is only one stage in the process; the process
begins several stages before the purchase itself. Second, not all decision processes lead to a
purchase, even though the diagram implies that they do. A consumer may stop the process at any
time, follow a different sequence of stages, or revisit certain stages. Finally, consumer decisions
do not always include all five stages. People engaged in extensive decision-making usually go
through all stages of this decision process, whereas those engaged in limited decision-making
and routine response behaviour may omit certain parts, leaping from problem recognition (need)
to purchase.
Stage 1: Problem recognition

Problem recognition occurs when a buyer becomes aware that there is a difference between a
desired state and an actual condition. For example, when a driver making deliveries for a florist
runs low on fuel for her van, she recognizes that a difference exists between the desired state
(sufficient fuel) and the actual condition (an empty tank). She therefore calls at a fuel station to
replenish the tank.
Sometimes a person has a problem or need but is unaware of it. Some consumers may be
concerned about their weight but may not be aware that low-calorie options exist for favourite
products or that there are mobile apps available to help monitor their eating habits. Marketers
use sales staff, advertising, sales promotion and packaging to help trigger such need recognition.
This is why weight loss clubs such as Weight Watchers advertise their services after national
holidays, a time when people might have over-indulged. Consumer problem recognition can be
either slow or rapid, depending on the individual concerned and the way in which need recognition
was triggered.
Figure 5.2
Along with the web, travel agents provide a
valuable source of information for consumers
selecting a holiday
Stage 2: Information search

After recognizing the problem or need, the buyer (if continuing the decision process) searches for
information about products that will resolve the problem or satisfy the need. For example, con-
sumers who have recognized they need to lose weight may search online for information about
different weight loss clubs or peruse the supermarket for low calorie meals. Information is acquired
over time from the consumers’ surroundings. The impact the information has will depend on how
the consumers interpret it.
There are two aspects to information search. In the internal search, buyers search
internal search
One in which the buyer their memory for information about products that might solve the problem. If they cannot
searches his or her retrieve enough information from their memory to make a decision, they seek additional
memory for information information in an external search. The external search may involve communicating with
about products. friends and colleagues, comparing available brands and prices, looking at online offers,
reading reviews on social networking sites or reviewing press advertisements. An individu-
al’s personal contacts – friends, relatives, associates – are often viewed as credible sources
external search of information because the consumer trusts and respects them. A consumer study has
One that focuses on
information not available
shown that word-of-mouth communication often impacts more strongly on consumer
from the consumer’s judgements of products than printed communications. Using marketer-dominated infor-
memory. mation sources, such as sales staff, advertising, packaging, corporate websites, in-store
demonstrations and displays, typically does not require much effort on the consumers’
part. Often a range of such sources will be consulted, as Figure 5.2 shows. Buyers can
also obtain information from public sources – for instance, government reports, news stories, the
internet, consumer publications and reports from product testing organizations. Many companies
use public relations to try to capitalize on these sources because consumers often perceive them as
factual and unbiased. The external search is also characterized by the extensiveness, manner and
order in which brands, stores, attributes and sources are considered. For example, a person buying
a new suit for work may look at or try on several styles at a number of clothing outlets before reaching
a final decision. Online searches and Google have transformed the search process and its immediacy,
providing consumers with access to so much product information, third-party comment and reviews.
Consumer groups are increasingly demanding access to greater quantities of relevant product
information. However, research shows that buyers make poorer choices if overloaded with too
much information.6 Improving the quality of information and stressing features important to buyers
in the decision process may help buyers make better purchase decisions.
How consumers use and process the information obtained in their search depends on features
of the information itself, namely availability, quantity, quality, repetition and format. If all the neces-
sary information for a decision is readily to hand, either in-store or online, consumers may have no
need to conduct an internal information search and the decision process may be easier.7 However,
adequate information may not always be available, and consumers may have to make do with
whatever data are to hand. For example, a motorist replacing a broken windscreen following a
road accident may not have enough time to review all relevant sources of information because the
car is needed again urgently.
Repetition Repetition, a technique well known to advertisers, increases consumer learning of

information. When seeing or hearing an advertisement for the first time, the recipient may not
grasp all its important details but learns more as the message is repeated. Nevertheless, even
when advertisements are initially effective, repetition eventually causes ‘wear-out’: consumers pay
less attention and respond less favourably to the advertisement than they did at first.8 Consumers
are more likely to be receptive to repetition when making a low-involvement purchase.
involvement
The level of interest, Involvement refers to the level of interest, emotion and activity the consumer is pre-
emotion and activity the pared to expend on a particular purchase. For example, consumers who buy replace-
consumer is prepared to ment lightbulbs may buy whatever brand is stocked at their local store.
expend on a particular
purchase.
Format The format in which information is transmitted to the buyer may also deter-
mine its effectiveness. Information can be presented verbally, numerically or visually.
Consumers often remember pictures better than words, and the combination of pictures
and words further enhances learning.9 Consequently, marketers pay great attention to the visual
components of their advertising materials. Online endorsements and ratings are now particularly
important.
A successful information search yields a group of possible brand alternatives. This
group of products is sometimes called the buyer’s evoked set. For example, an evoked
evoked set
The group of products set of hairdryers might be those manufactured by Babyliss, Braun and Remington.
that a buyer views as
possible alternatives
after conducting an Stage 3: Evaluation of alternatives
information search.
When evaluating the products in the evoked set, a buyer establishes criteria for
comparing the products. These criteria are the characteristics or features that the buyer
wants (or does not want). For example, one buyer may favour a compact hairdryer
because they travel a lot, while another may prefer a high-powered model. The buyer
salience
also assigns a certain salience, or level of importance, to each criterion; some features
The level of importance carry more weight than others. The salience of criteria varies from buyer to buyer. For
a buyer assigns to each example, when choosing a newspaper one buyer may consider the political stance of
criterion for comparing the editorial to be crucial, while another may place greater importance on the quality
products. and coverage of sports. The criteria and their salience are used by the buyer to rank the
brands in the evoked set. This involves comparing the brands with each other as well
as with the criteria. If the evaluation stage does not yield a brand that the buyer wishes
to buy, further information search may be necessary.
Marketers can influence consumers’ evaluation by framing the alternatives – that is, by the
manner in which the alternative and its attributes are described. Framing can make a character-
istic seem more important and can facilitate its recall from memory. For example, by emphasizing
whitening ingredients in toothpaste, manufacturers can encourage the consumer to consider this
particular aspect to be important. Framing affects the decision processes of inexperienced buyers
more than those of experienced ones. If the evaluation of alternatives yields one or more brands
that the consumer is willing to buy, the consumer is ready to move on to the purchase stage.
Stage 4: Purchase
The purchase stage, when the consumer chooses which product or brand to buy, is mainly the
outcome of the consumer’s evaluation of alternatives, but other factors have an impact too. The
closeness of alternative stores and product availability can both influence which brand is pur-
chased. For example, if the brand the buyer ranked highest is not available locally, an alternative
may be selected.
During this stage, the buyer also picks the seller from whom the product will be purchased and
finalizes the terms of the sale. Other issues such as price, delivery, guarantees, service agreements,
installation and credit arrangements are discussed and settled. Finally, provided the consumer does
not terminate the buying decision process before then, the purchase is made.
Stage 5: Post-purchase evaluation

After the purchase has taken place, the buyer begins evaluating the product to check whether its
actual performance meets expected levels. Many of the criteria used in evaluating alternatives are
revisited during this stage. The outcome will determine whether the consumer is satisfied or dis-
satisfied, and will influence future behaviour. The level of satisfaction a consumer experiences will
determine whether they make a complaint, communicate with other possible buyers or purchase
the product again.10 Figure 5.3 illustrates the types of action that dissatisfied consumers may take.
Complained to Trading Standards Officers
No complaint but ceased visiting store
Wrote letter of complaint
Moaned in social media
Told peers face-to-face

Figure 5.3
The nature of customer
complaints Made phone complaint
Source: A recent survey of
customer dissatisfaction
In-person complaint in store
and complaint behaviours
for a retailer of consumer
electronics. 0 10 20 30 40 50 60 70
% adopting the response behaviour
The likelihood that consumers will stop buying a particular product will depend on a range of
factors, including how much knowledge they have about alternatives.11 Some marketing experts
believe that increasing consumer assertiveness is a positive move, which illustrates industry’s will-
ingness to respond to feedback about products and services.12 As consumers routinely now share
their product experiences via social media, marketers must increasingly be ready to respond. 13 The
impact of post-purchase evaluation is illustrated by the feedback loop in Figure 5.1.
The evaluation that follows the purchase of some products, particularly expensive
or important items, may result in cognitive dissonance – doubts that occur because
cognitive dissonance
Doubts that occur as the the buyer questions whether the best purchase decision was made. For example, after
buyer questions whether buying a branded football shirt from a market stall, a consumer may worry about whether
he or she made the right the item is genuine. A buyer who experiences cognitive dissonance may attempt to
decision in purchasing return the product or may seek positive information about it to justify the choice. For
the product or service.
example, motoring journalists often note with amusement that car shows and exhibitions
are frequented by consumers who have recently purchased a new car.
As shown in Figure 5.1, three major categories of influence are believed to affect
the consumer buying decision process: personal, psychological and social factors. These factors
determine which particular coffee, shampoo, mobile apps, cleaning products, holiday, car or house
a particular consumer will buy. Understanding these aspects helps marketers gain valuable insights
into their customer base and can help ensure that a more suitable marketing mix is developed.
The remainder of this chapter focuses on these factors. Although each major factor is discussed
separately, it is a combination of their effects that influences the consumer buying decision process.
Personal factors influencing the buying decision

process
Personal influencing factors are unique to a particular person. Many different personal
personal influencing
factors factors can influence purchasing decisions. In this section, three types are considered:
Demographic, situational demographic factors, situational factors and level of involvement.
and level of involvement
factors unique to a par-
ticular individual Demographic factors
Demographic factors are individual characteristics such as age, sex, race, ethnic
origin, income, family life cycle and occupation. These and other characteristics are
demographic factors discussed in Chapter 7 as possible segmentation variables. Given the potential impact
Individual characteristics
of such features on buying requirements and behaviour, marketing professionals must
such as age, sex, race,
ethnic origin, income, develop a clear understanding of them.
family life cycle and Demographic factors have a bearing on who is involved in family decision-making.
occupation. For example, the UK, Germany and Turkey are some of the largest markets for children’s
toys and clothes, based on the number of children in the population. Children aged 6
to 17 are known to have growing influence in the buying decision process for breakfast
cereals, ice cream, soft drinks, holidays and even the family car.14 This influence is increasingly
reflected in the way such products are designed and marketed. For example, the packaging of
many breakfast cereals includes pictures and competitions designed to appeal to children and
teenagers. Demographic factors may also shape behaviour during a specific stage of the decision
process. For example, during information search, a young person may consult more information
sources than an older, more experienced adult.
Demographic factors also affect the manner in which products in a specific product category are
used. While consumers aged 20 to 30 may spend a lot of their disposable income on necessities
for establishing their households, such as furniture, appliances and DIY products, those aged 45
to 54 whose children have left home spend more on luxury and leisure items.15 Brand preferences,
retailer choice and timing of purchases are also affected by demographic factors. Consider, for
example, how differences in occupation result in variations in product needs. A teacher and a
plumber may earn similar incomes, yet spend their earnings entirely differently. While both require
work clothes, the plumber will buy heavy-duty boots and overalls, while the teacher opts for a
smarter, more formal wear. Their choice of vehicle is also likely to differ. While the plumber selects
a basic but robust van to carry tools and other equipment, the teacher only needs to transport
books and papers to his or her place of work.
Situational factors
Situational factors are the external circumstances or conditions that exist when a
situational factors
External circumstances consumer is making a purchase decision. These factors can influence the buyer at any
or conditions that exist stage of the consumer buying decision process and may cause the individual to shorten,
when a consumer is lengthen or terminate the process. For example, a commuter who usually buys her
making a purchase take-out coffee from Starbucks may be forced to go elsewhere when her local branch
decision.
is refurbished.
Similarly, a family trip to the movies may have to be postponed if one of the family
members is ill. The effects of situational factors can be felt throughout the buying deci-
sion process. Uncertainty about employment may sway a consumer against making a purchase.
On the other hand, a conviction that the supply of a particular product is sharply limited may impel
an individual to buy it. Consumers have purchased and hoarded fuel, food products and even
toilet tissue when these products were believed to be in short supply. These and other situational
factors can change rapidly; their influence on purchase decisions can be sudden and short-lived.
The amount of time a consumer has available to make a decision strongly influences buying
decisions. If there is little time for selecting and purchasing a product, an individual may quickly
decide to buy a readily available brand. The time available also affects the way consumers process
the information contained in advertisements16 and the length of the stages within the decision
process. For example, if a family is planning to redecorate their house, everyone may get together
to collect and review a wide range of information from a variety of sources. They may read home
and garden magazines, visit DIY outlets to collect paint charts and wallpaper samples, talk to
friends and decorators, look at a number of advertisements and spend time comparing special
offers in-store and online. However, if the family has just moved to a new house that urgently needs
renovating, the extent of the information search, the number of alternatives considered and the
amount of comparative shopping may be more restricted.
Levels of involvement
level of involvement
Many aspects of consumer buying decisions are affected by the individual’s level of
The level of interest, involvement. This term refers to the level of interest, emotional commitment and time
emotional commitment spent searching for a product in a particular situation. The level of involvement deter-
and time spent searching mines the extent to which a buyer is motivated to spend time seeking information about
for a product in a partic- a particular product or brand. The extensiveness of the buying decision process there-
ular situation.
fore varies greatly with the consumer’s level of involvement. The sequence of the steps in
the process may also be altered. Low-involvement buyers may form an attitude towards
a product – perhaps as a result of an advertising campaign – and evaluate its features
after purchasing it rather than before.17 Conversely, high-involvement buyers often spend a great
deal of time and effort researching their purchase beforehand. For example, the purchase of a car
is a high involvement decision (see Figure 5.4).
The level of consumer involvement is linked to a number of factors. Consumers tend to be
more involved in the purchase of high-priced goods and products that are visible to others, such
as fashion items, electronic goods or cars. As levels of perceived risk associated with a purchase
increase, involvement levels are likely to rise.
Enduring involvement Sometimes individuals experience enduring involvement with a product

class. Enduring involvement is an ongoing interest in a product class because of personal rele-
vance. For example, people often have enduring involvement with products associated with their
leisure activities. These individuals engage in ongoing search and information gathering for these
products over extensive periods of time, irrespective of whether or not a purchase is imminent.
Football fans often watch the sport on television, attend their local club’s games, read the football
pages of the newspaper and may even buy their favourite team’s football strip.
Situational involvement Situational involvement is experienced by buyers as a result of the

articular circumstance or environment in which they find themselves. This type of involvement,
p
sometimes also called pre-purchase involvement, is temporary because the conditions that trig-
gered this high involvement may change.18 A man searching for an engagement ring for his pro-
spective fiancée, for example, will probably experience a high level of involvement in the purchase
decision. His information search and evaluation of alternatives may be lengthy. However, once the
choice is made, an engagement ring is probably no longer personally relevant. Advertisements
for baby products resonate with adults expecting a baby, but not with other viewers or readers.
Low consumer involvement Many purchase decisions do not generate much consumer
involvement. When the involvement level is low, as with routine response purchases, the buying is
Figure 5.4
The purchase of a car is high involvement
almost automatic, and the information search and evaluation of alternatives are extremely limited.
Thus the purchase of bottled water is low involvement for many consumers; the product is chosen
out of habit and with minimal effort.
Psychological factors influencing the buying

decision process
psychological factors Psychological factors operating within individuals partly determine people’s general
Factors that influence behaviour and thus influence their behaviour as consumers. The primary psychological
consumer behaviour, influences on consumer behaviour are:
including perception,
motives, learning, atti- ●● perception
tudes and personality.
●● motives
●● learning
●● attitudes
●● personality.
Even though these psychological factors operate internally, it will become apparent later in this
chapter that they are highly affected by social forces external to the individual.
Perception
Are the fish in Figure 5.5 changing into birds or are the birds changing into fish? It could be either
depending on how you perceive the birds. People’s perception of the same thing varies.
Figure 5.5
Fish or birds? Do you see the fish chang-
ing into birds or the birds changing into
fish?
Source: M.C. Escher’s ‘Fish and Birds’ © 2004
The M.C. Escher Company – Baarn – Holland.
All rights reserved.
Similarly, the same individual at different times may perceive the same item in a
perception
The process of selecting, number of ways. Perception involves a three-step process of selecting, organizing and
organizing and interpret- interpreting information inputs to produce meaning.
ing information inputs to Information inputs are the sensations received through sight, taste, hearing, smell
produce meaning. and touch. Each time we see an advertisement, go online, visit shops or use a product,
we receive information inputs.
The first step of the perceptual process is the selection of information. Individuals
information inputs receive numerous pieces of information all the time, yet only a few of these reach aware-
The sensations received
through sight, taste,
ness. Certain inputs are selected while others are ignored. Selective exposure occurs
hearing, smell and touch. because consumers cannot be conscious of all inputs at the same time, and involves
the selection of inputs that are to be exposed to awareness. A student typing a report
may be unaware that the light is on, that the computer is making a humming sound, that
selective exposure there is background noise in the room or that other students are working at the same
The selection of inputs table. All of these inputs are being received, but the student will ignore them unless his
that people expose to or her attention is specifically drawn to them.
their awareness. An input is more likely to reach awareness if it relates to an anticipated event or
relates to current needs. A couple who are moving house are much more likely to notice
a newspaper advertisement promoting removal services. Similarly, thirsty people are
more likely to notice a billboard advertising a soft drink or a café that they pass than are
those who are not thirsty.
selective distortion
The changing or twisting
Finally, an input is more likely to be noticed if its intensity changes significantly.
of currently received Consumers are much more likely to notice if a gym or health club cuts its prices by
information. half than if the same facility offers a much smaller reduction. The selective nature of
perception leads to two other conditions: selective distortion and selective retention.
Selective distortion is the changing or twisting of currently received information. This
selective retention sometimes happens when someone receives information that is inconsistent with per-
The process of remem- sonal feelings or beliefs. For example, an individual who reads some favourable pub-
bering information inputs licity about a company s/he dislikes is likely to distort the information to make it more
that support personal
feelings and beliefs, and
consistent with personally held views. The publicity may therefore have greater impact
of forgetting those that on another consumer who views the same brand more positively. Selective retention
do not. means that an individual remembers information inputs that support personal feelings
and beliefs and forgets inputs that do not. After hearing a sales presentation and leaving
the shop, a customer may forget many of the selling points if they contradict pre-existing beliefs.
The information inputs that do reach awareness are not received in an organized form. For them to
be meaningful, an individual must enter the second step of the perceptual process – organizing and
integrating the new information with that already stored in the memory. Although this step is usually
carried out quickly, it may take longer when the individual is considering an unfamiliar product area.
Interpretation – the third step in the perceptual process – is the assignment of meaning to what
has been organized. All consumers base their interpretation on what is familiar, on knowledge
already stored in memory. For this reason, a company that changes a package design or logo can
face major problems. Since people look for the product in the old, familiar package, they may not
recognize it in the new one. Companies often try to get around this difficulty by making only small
changes to their logo or brand identity. Unless a package or logo change is accompanied by a
promotional programme making people aware of the change, sales may be lost. Even when such
a programme is conducted, positive consumer reaction cannot be guaranteed. When Gap gave its
logo a makeover, consumers were quick to insist that the old logo be reinstated. An online social
media backlash quickly showed that the company had got it wrong. Initially, Gap decided to use
crowdsourcing to help solve its branding crisis, by seeking the consumers’ views. In practice, Gap
quickly made the decision to return to the original logo only a week later.
Although marketers cannot control people’s perceptions, they often try to influence them. This
may be difficult to achieve for a number of reasons. First, a consumer’s perceptual process may
prevent the information from being received. Second, a buyer may receive the information but per-
ceive it differently from the way that was intended. For example, when an anti-wrinkle face cream
manufacturer advertises that ‘80 per cent of consumers using this product notice a reduction in
wrinkles’, a customer might infer that 20 per cent of the people who use the product have more
wrinkles. Third, buyers who perceive information inputs to be inconsistent with their personally held
beliefs tend to forget the information quickly. Sometimes consumers can be overwhelmed by the
large number of information inputs they encounter, making it difficult to interpret the information.19
For example, a lifestyle magazine may contain dozens of different advertisements, but a consumer
reading it may notice only one or two. In addition to perceptions about packages, products, brands
and organizations, individuals also have self-perceptions. These perceptions are known
as the self-concept or self-image.
self-concept
Self-concept is the Understanding how consumers perceive themselves is important because consumers
thoughts, beliefs and use brands and select products to help meet their self-needs. They purchase brands
concerns that individuals in part to construct their self-concept and to create their personal identity. To express
hold about their own themselves, consumers tend to purchase brands that are congruent with their self-
attributes and character-
concept. Researchers argue that consumers are drawn towards brands that reflect both
istics: their self-image.
their actual self and ideal social self-concepts. Consumers are likely to choose brands
which represent their ideal self-concept. Consumers are often attracted to certain brands
because they reinforce the idea they have of themselves. For instance, one man might buy a Boss
suit to project a sophisticated and business-like image, while another might buy an outfit from
Hollister to enhance acceptability within his peer group.
Motives
A motive is an internal, energy-giving force that directs an individual’s activities towards
motive
An internal, energy- satisfying a need or achieving a goal. Motivation is the set of mechanisms for controlling
giving force that directs movement towards goals.20 At any time a buyer’s actions are affected by a set of motives
a person’s activities rather than by just one. These motives are unique to the individual and to the situation. At
towards satisfying a need any point in time some motives in the set will have priority. For example, someone’s motives
or achieving a goal.
for stocking up on food may be particularly strong if a prolonged period of bad weather
is forecast. Motivation affects the direction and intensity of behaviour, as individuals must
choose which goals to pursue at a particular time.21 Motives influencing where a person regularly
purchases products are called patronage motives. A buyer may use a particular shop because of
patronage motives such as price, service, location, honesty, product variety or friend-
patronage motives
Those motives that liness of sales staff. Marketers seeking to capitalize on these motives should determine
influence where a person why regular customers patronize a store and then emphasize these characteristics in the
purchases products on a store’s marketing mix. Motivation research can be used to analyze the major motives that
regular basis. influence whether consumers buy particular products. However, some of these motives are
subconscious and people are therefore unaware of them. As a consequence, marketers
cannot always elicit these motives through direct questioning. Most motivation research
therefore relies on interviews or projective techniques (see Figure 5.6).
Figure 5.6
Discussing the customers’
buying decision-making
process, perceptions and atti-
tudes is an important aspect
of the marketer’s role
Researchers using interviews to study motives may use individual in-depth

in-depth interviews
The collection of data interviews, focus groups or a combination of the two. In an in-depth interview, the
from an individual by researcher encourages the subject to talk freely about general topics before focusing
interview. the discussion on the areas of interest. In a process that may last for several hours, the
interviewer can then probe the subject’s answers for clarification. In a focus group,
the moderator – through leadership that appears to be not highly structured – tries to
focus group generate discussion about one or several topics in a group of six to 12 people. Through
A semi-structured the discussion, the moderator attempts to discover people’s motives relating to some
discussion involving six
to 12 people, led by a
issue such as the use of a product. The researcher usually cannot probe as far in a
moderator. focus group as in an in-depth interview, and some products may not be suitable for
such group discussion. To determine successfully the subconscious motives reflected
in the interviews, motivation researchers must have certain qualities: they must be
perceived as non-threatening by members of the group, must be able to adopt a demeanour
appropriate to the characteristics of those in the group and must be well trained in clinical
psychology. The use of sound and video recordings can simplify the process of analysis. Both
in-depth and focus group techniques can yield a variety of information. For example, they may
help marketers discover why customers continue to buy and smoke cigarettes despite being
aware of the profound health risks.
Projective techniques are tests in which subjects are asked to perform specific
projective techniques
Tests in which subjects tasks for particular reasons, while actually being evaluated for other purposes. Such
are asked to perform tests are based on the assumption that subjects will unconsciously ‘project’ their
specific tasks for motives through the tasks they perform. Researchers trained in projective techniques
particular reasons, while can analyze the results and make predictions about the subject’s subconscious
actually being evaluated
motives. Common types of projective technique include word association tests, sen-
for other purposes.
tence completion tests and bubble drawings. These are illustrated in Figure 5.7. Such
tests can be useful to marketers in a number of ways, such as helping to make adver-
tising more effective.22 The complexity of motivation research means that marketers wishing to
research people’s motives should employ the services of professional psychologists with specific
skills in the area.23
Word association tests

Subjects are asked to say what words come into their minds when a particular
topic/product is mentioned.
Fresh foods are . . . Frozen foods are . . .
Natural Processed
Fresh Quick
Healthy Simple
Expensive Convenient
Good for you Preservatives
Real Manufactured
Sentence completion tests
Subjects are asked to complete the sentences.

‘People who use recycled toilet tissue . . .’
‘People who look for the ingredients on packets before they buy them are . . .’
‘People who buy Swatch watches . . .’
Bubble drawings
Subjects are asked to say what the man is thinking.
I just love the

CAR SHOWROOM EV...the one with
flowers on it!
Figure 5.7
Common types of projective
technique
Learning
Learning refers to changes in behaviour caused by information and experience. The
learning consequences of behaviour strongly influence the learning process. Thus behaviour
Changes in a person’s
behaviour caused
resulting in satisfying outcomes tends to be repeated. For example, if a consumer
by information and buys a hair gel that he believes makes him appear trendy, he is more likely to buy
experience. the same brand next time. If the consumer’s hair subsequently starts to look out of
condition, he may switch allegiance to an alternative brand.
The ability of buyers to process information when making purchasing decisions varies. For
example, when purchasing a tablet computer, a well-educated potential buyer who has experi-
ence with tablets may be able to read, comprehend and synthesize the considerable quantities
of information found in the technical brochures for competing brands. On the other hand, a buyer
with more limited abilities may be incapable of performing this task and will have to rely instead on
information obtained from advertisements, sales staff or acquaintances.
A critical aspect of an individual’s ability to process information is knowledge.
Knowledge, in this context, has two components: familiarity with the product, and
knowledge
Familiarity with the expertise or the ability to apply the product.24 The duration and intensity of the buying
product and expertise – decision process depends on the buyer’s familiarity with or prior experience in pur-
the ability to apply the chasing and using the product. The individual’s knowledge influences his or her search
product. for, recall and use of information.25 Inexperienced buyers may use different types of
information from more experienced shoppers when making purchasing decisions. Inex-
perienced buyers use price as an indicator of quality more frequently than buyers who
are knowledgeable about a particular product category.26 Thus, two potential buyers of climbing
equipment may use quite different types of information in making their purchase decision. The
more experienced climber, who has scaled several of the world’s most challenging mountains, will
seek detailed information about the performance of the equipment in extreme conditions; while
the novice climber may judge the kit on the basis of its affordability.
Consumers who lack expertise are more likely to seek advice from others when making a
purchase. More experienced buyers have greater confidence, are more knowledgeable about the
options, and can tell which features are reliable indicators of product quality. For example, consider
two families choosing a long-haul holiday. Members of one family are unused to overseas travel,
are unsure of the suitability of locations offered on online websites, and do not understand how
to investigate flight options or insurance requirements. Members of the other family have regularly
holidayed abroad. Even if they intend to visit a country that is new to them, they are sufficiently
conversant with this type of travel to make their purchase without assistance and with confidence.
Consumers can gain the knowledge they need to make decisions from marketers or from other
sources. Marketers sometimes help customers to learn about and gain experience of their prod-
ucts. Free samples encourage consumer trial and reduce purchase risk. In-store demonstrations
help people acquire knowledge of product uses. Innovative technology company Dyson, well
known for its bagless vacuum cleaners and Airblade hand dryers, has videos on its website which
explain how its Air Multiplier range of bladeless fans work.
However, consumers are increasingly turning to other consumers for information about different
product offerings. As discussed later in this chapter, sharing of information on the internet through
social networking sites and other digital sources has provided a host of new opportunities for
consumers gathering insights into product and services. The website, Gransnet, provides social
networking and advice forums for older people, as well as featuring information about brands
targeting this group.
In view of these trends, it is no surprise that marketers encounter problems in attracting and
holding consumers’ attention, providing the kinds of information that are important for making
purchase decisions, and convincing consumers to try the product. These attempts are most likely
to be successful when designed to appeal to a well-defined target market. In Figure 5.8, Walkers
is striving for attention through strong and evocative images for its ‘posh crisps’.
attitude
Attitudes
An individual’s enduring An attitude is an individual’s enduring evaluation, feelings and behavioural tendencies
evaluation, feelings and
behavioural tendencies
towards an object or activity. These objects or activities may be tangible or intangible,
towards an object or living or non-living. Some attitudes relate to things that have a major impact on our
activity. lives, while others are less important. For example, we have attitudes towards rela-
tionships, culture and politics, just as we do towards pop music, football and sushi.
Figure 5.8
These advertisements for ‘posh’ crisps evidently play on consumers’ aspirations to portray a certain image through the brands and products
they select
Source: Courtesy of Kate Plumb, Abbot Mead Vickers. BBDO.
An individual learns attitudes through experience and interaction with others. Just as attitudes are
learned, they can also be changed. Nevertheless, an individual’s attitudes are generally quite stable
and do not change from moment to moment. Likewise, at a particular point in time, some attitudes
may be stronger than others. For example, a consumer who recently lost money to an internet
scam may have strong views about the need for consumer protection legislation in this area. An
attitude consists of three major components: cognitive, affective and behavioural. The cognitive (or
thinking) component is a person’s knowledge and information about the object or idea, whereas
the affective (or feeling) component comprises feelings and emotions towards the object or idea.
The behavioural (or action) component consists of the action tendencies exhibited towards the
object or idea. Changes in one of these components may or may not alter the other components.
Thus consumers may become more knowledgeable about a specific brand without changing the
affective or behavioural components of their attitude towards that brand.
Consumer attitudes towards a company and its products greatly influence the products individ-
uals will buy, and therefore impact on the success or failure of the company’s marketing strategy.
When consumers are strongly negative towards aspects of a business’s practices, they may stop
using the business’s product, and may urge relatives and friends to do the same. When Apple
made U2’s latest album automatically available free to iTunes customers, there was an indignant
reaction from those who did not like the band. Apple quickly had to develop a way for subscribers
to remove the album from their libraries. In this case, however, the effects were not long-lived.27
Since attitudes can play such an important part in determining consumer behaviour, marketers
should measure consumer attitudes towards prices, package designs, company logos and brand
names, advertisements, warranties, store design and location, features of existing or proposed
products, and social responsibility issues. Marketers can use a range of techniques to gauge these
attitudes. One of the simplest ways is to question people directly. A marketing research agency
carrying out attitude research for Rayban, for example, might question consumers about their opin-
ions on the latest trends in eyewear. Sometimes marketers evaluate attitudes through
attitude scales. An attitude scale usually consists of a series of adjectives, phrases or
attitude scale
A series of adjectives, sentences about an object. Subjects are asked to indicate the intensity of their feelings
phrases or sentences towards the object. For example, attitudes towards flexible mortgages might be mea-
about an object used by sured by asking respondents to state the degree to which they agree or disagree with a
a subject to indicate his number of statements, such as ‘When I have spare money I would like the opportunity
or her feelings towards
to pay more than my usual monthly repayment amount.’
that object.
If marketers identify particularly negative attitudes towards an aspect of a marketing
mix, they may try to make consumer attitudes more favourable. This task is generally
long, expensive, difficult and may require extensive promotional efforts. For example, in the UK,
the Post Office embarked on a prolonged advertising campaign to draw customers’ attention to the
fact that local post offices offer a wide range of services. This publicity aimed to alter customers’
attitude that the Post Office exists purely for mailing letters and parcels.
Personality
Personality includes all the internal traits and behaviours that make a person unique.
personality
All the internal traits and Each person’s unique personality is both inherited and the result of personal experiences.
behaviours that make a Personalities are typically described as having one or more characteristics, such as
person unique. compulsiveness, ambitiousness, gregariousness, dogmatism, authoritarianism, introver-
sion, extroversion, aggressiveness and competitiveness. Many marketers believe that
a consumer’s personality does influence the types and brands of products purchased,
and there has been a drive to increase research in this area.28 For example, the type of make-up
or clothing that people buy, as well as the social activities in which they engage, may reflect one or
more personality characteristics. Perhaps surprisingly, marketing researchers who have tried to find
relationships among such characteristics and buying behaviour have reported inconclusive results.
However, some of these researchers see this apparently weak association between personality and
buying behaviour as due to unreliable measures rather than because no such relationship exists.29
At times, marketers aim advertising campaigns at general types of personality. In doing so,
they use positively valued personality characteristics, such as gregariousness, independence or
competitiveness. Products promoted in this way include drinks, cars, e-cigarettes, clothing and
computer games. For example, television advertising promoting the alcoholic beverage Lambrini
is designed to appeal to young, outgoing women.
Social factors influencing the

social factors buying decision process
The forces that other
people exert on buying The forces that other people exert on buying behaviour are called social factors. As
behaviour.
shown in Figure 5.1, they can be grouped into four major areas:
1. roles and family
role 2. reference groups
A set of actions and
activities that a person 3. social classes
in a particular position 4. culture and sub-cultures.
is supposed to perform,
based on the expecta-
tions of both the indi- Roles and family
vidual and surrounding
people. All of us occupy positions within our family, social setting, organizations and institutions.
Associated with each position is a role – a set of actions and activities that a person
is supposed to perform, based on their own expectations and those of others around them. As
people occupy numerous positions, they also have many roles. For example, one woman may
perform the roles of mother, wife, grandmother, daughter, sister, teacher, part-time youth club
organizer and member of the local music society. Thus there are several sets of expectations for
each person’s behaviour.
An individual’s roles influence both general behaviour and buying behaviour. The demands of
different roles may be inconsistent and confusing. For example, assume that a man is thinking
about buying a boat. While he wants a boat for fishing, his children want one suitable for water
skiing. His wife wants him to delay the boat purchase until next year. A colleague at work suggests
that he should buy a particular brand, known for high performance. Thus an individual’s buying
behaviour may be partially affected by the opinions of family and friends.
Family roles relate directly to purchase decisions. One partner in a household may be heavily
involved in the purchase of products such as household insurance, DIY products or arranging the
servicing of the household car. The other may make buying decisions relating to food and other
household items. Both may share these roles or be jointly involved in buying durable goods, such
as a washing machine or DVD player. Children are also increasingly involved in household purchase
decisions that were traditionally made only by their parents. Some buying decisions, such as the
purchase of a family holiday, are made by the whole family, with different family members playing
different roles in the process. When two or more individuals participate in a purchase, their roles
may dictate that each is responsible for performing certain tasks: initiating the idea, gathering
information, deciding whether to buy the product or selecting the specific brand. The particular
tasks performed depend on the types of product being considered. Marketers need to be aware
of how roles affect buying behaviour. To develop a marketing mix that precisely meets the target
market’s needs, marketers must know not only who does the actual buying but also what other
roles influence the purchase.
Reference groups
A group is referred to as a reference group when an individual identifies with it so
reference group
A group with which much that s/he takes on many of the values, attitudes or behaviour of group mem-
an individual identifies bers. Most people have several reference groups, such as families, friends, work
so much that he or colleagues and social, religious and professional organizations. Social media networks
she takes on many of have added a new dimension to the notion of reference groups, with consumers
the values, attitudes
sharing opinions and experiences about products, services and brands in contexts
or behaviour of group
members. deemed relevant by many consumers. Sometimes such digital networks are created
or encouraged by brands themselves, otherwise they are within people’s Twitter or
Facebook networks.
A group can be a negative reference group for an individual. Someone may have been a part of
a specific group at one time but later have rejected its values and members, even taking specific
action to avoid it.30 However, in this discussion reference groups mean those that the individual
involved views positively.
An individual may use a reference group as a point of comparison and a source of information,
and may change his or her behaviour to be more in line with other group members. For example,
a young couple may decide not to eat at a new restaurant on the advice of a close friend. An indi-
vidual may seek information from a reference group about the best brand to buy or about where
to buy a certain product. The degree to which a reference group will affect a purchase decision
depends on an individual’s susceptibility to its influence, and the strength of his or her involvement
with the group. Young people are often especially susceptible to this kind of influence. In general,
the more conspicuous a product, the more likely the brand decision will be influenced by reference
groups. A marketer sometimes tries to use reference group influence in marketing communications
by suggesting that people in a specific group buy and are highly satisfied with a product. The
marketer is hoping that people will accept the suggested group as a reference group and buy (or
react more favourably to) the product as a result. Whether this kind of marketing communication
succeeds depends on three factors:
1. how effectively the message is communicated
2. the type of product
3. the individual’s susceptibility to reference group influence.
For example, as the Building Customer Relationships box ‘Teenage trends, Twilight and the
power of reference groups’ in this chapter demonstrates, teenagers are heavily influenced by their
peers, with the result that they often follow the same trends.
In most reference groups, one or more members stand out as opinion leaders. An
opinion leader
The member of a refer- opinion leader provides information about a specific sphere of interest to reference
ence group who provides group participants who seek such information. Opinion leaders are viewed by other
information about a group members as being well informed about a particular area, and easily accessible.
specific sphere of inter- Such individuals often feel a responsibility to remain informed about the sphere of inter-
est to reference group
est, and thus seek out websites, discussion groups, advertisements, manufacturers’
participants seeking
information. brochures, sales people and other sources of information.
Social classes
Within all societies, people rank others into higher or lower positions of respect. This
social class
An open group of indi- ranking results in social classes. A social class is an open group of individuals who have
viduals who have similar similar social rank. A class is referred to as ‘open’ because people can move into and
social rank. out of it. The criteria for grouping people into classes vary from one society to another.
In the UK, as in other Western countries, many factors are taken into account, including
occupation, education, income, wealth, race, ethnic group and possessions. In Russia,
wealth and income are less important in determining social class than education and occupation:
although Russian doctors and scientists do not make a great deal of money, they are highly valued
in Russian society. A person who is ranking someone does not necessarily apply all of a society’s
criteria. The number and importance of the factors chosen depend on the characteristics of the
individual being ranked and the values of the person who is doing the ranking. For example, one
individual may particularly respect status within a church or religious sect, while another may regard
it as having little relevance.
To some degree, people within social classes develop and assume common patterns of
behaviour. They may have similar attitudes, values, language patterns and possessions. Social
class influences many aspects of people’s lives. For example, it affects whom they marry, their
likelihood of having children and the children’s chances of surviving infancy. It influences childhood
training, choice of religion, selection of occupation and the way in which people spend their time. As
social class has a bearing on so many aspects of a person’s life, it also affects buying decisions. For
example, upmarket fashion labels Fendi and Versace are popular among upper-class Europeans
because they believe these brands symbolize their status, income and aspirations.
Social class affects the type, quality and quantity of products that a person buys and uses.
Social class also affects an individual’s shopping patterns and the types of store patronized.
Advertisements are sometimes based on an appeal to a specific social class. Different countries
often collate data about their populations based on social or socio-economic factors. For exam-
ple, for many years the UK, like some other countries, used a relatively simple classification based
on social status and occupation (see Table 5.1). However, in 2001, the UK’s Office for National
Statistics introduced a modified system known as NS SEC (National Statistics Socio-Economic
Classification). This approach is still based on occupation, but aims to more closely reflect
consumers’ purchasing power on the basis of their position in the labour market.31 Table 5.2
describes the NS SEC social class categories. You can find your NS SEC category online.
Table 5.1 Socio-economic classification
Social grade Social status Head of household’s occupation

A Upper middle class Higher managerial, professional or administrative positions; often living in expensive accom-
modation in the best residential areas
B Middle class Middle managerial, professional or administrative jobs; good living standards, usually in
good accommodation in reasonable areas
C1 Lower middle class Junior managerial, professional or administrative, supervisory or clerical jobs; sometimes
referred to as ‘white collar’ workers
C2 Skilled working class Skilled manual workers, perhaps who have served some kind of apprenticeship to train
D Working class Semi-skilled and unskilled manual workers
E Those at lowest levels Old age pensioners, widows, casual workers, the unemployed or those who are dependent
of subsistence on social security or have little in the way of independent means
See www.nrs.co.uk/nrs-print/lifestyle-and-classification-data/social-grade/
Table 5.2 NS SEC eight-class socio-economic classification
Class Occupation groups

1 Higher managerial and professional occupations (ABs): e.g. business executives, doctors, vets, teachers
2 Lower managerial and professional occupations (C1s): e.g. nurses, police sergeants and constables, market researchers, junior
managers
3 Intermediate occupations (C2s): e.g. secretaries, clerical staff, technicians and telephone engineers
4 Small employers and own-account workers: e.g. the self-employed and those employing fewer than 25 people
5 Lower supervisory and technical occupations: e.g. supervisors in factories
6 Semi-routine occupations: e.g. drivers, assembly-line workers, shop staff
7 Routine occupations: e.g. porters, labourers, domestic staff
8 Never worked or long-term unemployed
Source: Adapted from Angela Donkin, Yuan Huang Lee and Barbara Toson, ‘Implications of change in the UK social and occupational classifications in 2001
for vital statistics’, Population Trends, 107, National Statistics, Spring 2002, pp. 23–9.
Culture and sub-cultures

culture Culture consists of everything in our surroundings that is made by human beings. It
All the things around us includes tangible items, such as food, furniture, buildings, clothing and tools and intangi-
that are made by human ble concepts, such as education, the legal system, healthcare and religion. Culture also
beings: tangible items,
such as food, furniture,
includes the values and wide range of behaviours that are acceptable within a specific
buildings, clothing and society. The concepts, values and behaviours that make up a culture are learned and
tools; and intangible con- passed on from one generation to the next.
cepts, such as education, Culture influences buying behaviour, determining what people wear and eat, how they
the legal system, health- socialize, where they live and travel. Society’s interest in the health-related aspects of
care and religion, plus
values and behaviours.
food has affected companies’ approaches to developing and promoting their products.
Recent concern about increasing levels of obesity and its impact on health has caused
the food industry to question how it markets high-fat and high-sugar products.32 Culture
also influences how consumers buy and use products, and the satisfaction gained from them. For
example, the consumption of packaged goods, and the usage and ownership of durable goods
varies across cultures.33 In many Western cultures, shortage of time is a growing problem because
of the increasing number of women who work and the current emphasis placed on physical and
mental self-development. Many people buy convenience and labour-saving products to cope with
this problem.34
As culture partly determines how products are purchased and used, it also affects the
evelopment, promotion, distribution and pricing of products. Food marketers have needed to
d
radically overhaul their marketing efforts to reflect day-to-day changes in how consumers live their
lives. Some 45 years ago, most families ate at least two meals a day together, and the mother
devoted four to six hours a day to preparing those meals. Over the same time period, the number
of women in the UK employed outside the home has risen from a little over 50 per cent to 65 per
cent, while male employment has dropped from just over 90 per cent to 76 per cent. Average
family incomes have also risen considerably. These shifts, along with lack of time, have resulted
in dramatic increases in per capita consumption of refrigerated and frozen ready meals and shelf-
stable foods such as microwavable rice and pre-prepared sauces. As a result of increasing
demands from those wishing to shop on the way to and from work, retailers such as Sainsbury’s
and Marks & Spencer have opened up convenience stores at fuel stations.35
An increase in ethnic diversity in many societies has important implications for the way in which
new products and services are developed and marketed. A key part of this process is ensuring the
availability of good-quality data, so that the attitudes and behaviour of minority groups are properly
understood. When marketers sell products overseas, they often see the tremendous impact that
culture has on the purchase and use of products. International marketers find that people in other
regions of the world have different attitudes, values and needs, which call for different methods of
doing business. Some international marketers fail because they do not adjust to cultural
sub-cultures differences. A culture can be divided into sub-cultures according to geographic regions
Sub-divisions of culture or human characteristics, such as age or ethnic background. In any country, there are a
according to geographic
number of different sub-cultures. Within these, there are even greater similarities in peo-
regions or human char-
acteristics, such as age ple’s attitudes, values and actions than within the broader culture, resulting in stronger
or ethnic background. preferences for specific types of clothing, furniture or leisure activity. For example, the
wearing of kilts tends to be confined to Scotland rather than England or Wales. Mar-
keters must recognize that, even though their operations are confined to one country,
state or city, sub-cultural differences may dictate considerable variations in what products people
buy and how they make their purchases. To deal effectively with these differences, marketers may
have to alter their product, promotion, distribution systems, price or people to satisfy members of
particular sub-cultures.36
The impact of new thinking and new

technologies
Marketers must continually endeavour to understand consumer buying behaviour and the factors
which influence it, in order to offer consumers greater satisfaction. In doing so, they need to be
aware of changes in thinking about how purchase decisions are made. The model of consumer
decision-making presented in this chapter is often described as rational, because it depicts the
stages that consumers progress through in making choices. However, marketers now recognize
that there is also a subconscious element to consumer choice. Techniques from neuroscience are
increasingly being used to uncover these less tangible aspects of choice.37
New technologies and the increased time that consumers spend online are also affecting their
shopping habits and purchase decisions. Companies are extending their efforts to understand
how these developments are changing product and service choices, and modifying their marketing
efforts accordingly.
Neuromarketing
Marketers now recognise that in addition to the rational model of consumer decision-making
depicted in this chapter, there is a subconscious element to consumer choice. Daniel Kahneman
developed a framework of decisions and behaviour which distinguishes between two systems
of processing: System 1 is implicit, quick, effortless, and automatic, while System 2 is explicit,
methodical and thinking-based. Experts believe that both systems work in conjunction in order to
reach a decision.38 The Stroop test, illustrated in Figure 5.9, illustrates the combined effects of these
systems. Both the colour and meaning of these words can readily be processed under System 1;
however, because of the mismatch between them, consideration needs to be given to the answer
through processing under System 2.39
Green Yellow Blue Red Red

Blue Green Blue Yellow Green
Figure 5.9
The Stroop effect colour Yellow Yellow Red Blue Green
test Blue Red Yellow Green Red
Neuromarketing, which is the study of consumers’ brain patterns to reveal

neuromarketing
The study of consumers’ responses to marketing stimuli, uses brain scanning approaches from neuroscience to
brain patterns to reveal shed light on these subconscious elements. Techniques such as functional magnetic
responses to marketing resonance imaging (fMRI), allow researchers to assess responses to particular stimuli by
stimuli. monitoring changes in brain activity. Another approach, electroencephalography (EEG),
monitors electrical activity in the brain via electrodes attached to the head. As these
approaches do not require conscious input from the consumer, the responses can be
judged in the absence of other interference.
The value of these approaches is shown in experiments that assess consumer preferences
for products. Tests examining neural responses to tasting identical wines, showed that these
responses were greater when consumers were informed that they were testing an expensive wine.
Those participating in the experiment also expressed a preference for the wine they believed to
be more costly. These findings demonstrate that the judgements we make about products extend
beyond their physical characteristics.40
Social media and consumer-to-consumer (C2C) communication

The amount of time that consumers spend online is influencing how they share product information and
experiences. As a consequence, the influence of social media, online forums and price comparison
websites on the purchase decisions that they make is also increasing. For example, when searching
for a restaurant in an unfamiliar town, many consumers now routinely study reviews on TripAdvisor.
A growing body of scientific evidence demonstrates the impact of such behaviour on the choices we
make. For example, research carried out in the hotel sector shows that how consumers rate their stay
is affected by what others say online as well as by their own experience. As one expert explains: ‘…
these findings suggest that social influence effects make positive online product ratings a double-edged
sword, exacerbating the negative effect of failure and strengthening the benefit of failure recovery’.41
Increasingly this sharing of views takes place without company interferences, allowing indi-
viduals to get the ‘real story’ about a brand or company. In many ways the power of marketing
practitioners to control and disperse information is being placed in the hands of the
consumer- consumers. C onsumer-to-consumer communication (C2C) refers to communica-
to-consumer tion taking place between consumers through face-to-face, online or other electronic
communication media. Today, blogs, wikis, podcasts and rating sites and the like have the capability to
(C2C)
Communication taking
publicize, praise or challenge the company.42, 43
place between consum- Forrester Research, a technology and marketing research company, emphasizes the
ers through face-to-face, importance of understanding these changing relationships between corporates and con-
online or other electronic sumers. By grouping online customers into different segments based on how they use
media. digital online media, marketers can gain a better understanding of the online influences on
consumers. As well as learning about how C2C is likely to affect their products, they can use
these insights to influence consumers through their own marketing strategies. The Social
Teenage trends, Twilight Marie-Claire reported a huge growth in

and the power of reference Building customer the sale of pale foundations following the
launch of the second Twilight film.
groups relationships Social media sites, such as Facebook and
Twitter, provide momentum for these trends,
Ever since Elvis Presley and The Beatles,
enabling enthusiasts from across the globe to
teenagers have followed their favourite
come together and build communities, through
music bands, films, actors and books, some-
which they can share their views and become iden-
times affording cult-like status upon them. Such trends
tified as ‘fans’. Fanzine websites are part of this picture,
are common among this age group, because of a desire to
enabling these enthusiastic followers to co-create the trends,
find ways to ‘fit in’ and connect with their peers.
as they share anecdotes, observations and images. According
The power of mobile technology has accelerated these
to Danny Weitzkorn from content marketing agency Kameleon,
trends, as teenagers enjoy 24/7 smartphone access to fanzine
‘Teenagers are brought into a digital world in which everyone
sites, blogs and social media through which they can share
is going along the same journey. The trends have enabled
their interest. Books have often been at the heart of these
brands to develop definitive identities and sell a lifestyle for
obsessions. Who can forget the impact of a young wizard
teenagers to buy into.’
called Harry Potter on teens and tweens alike? In recent years,
This process of co-creation via digital media is reinforced
books series Twilight, The Hunger Games and Divergent have
by the artists, who use the same sites to connect with and
all achieved cult status among this group. In each of these
reinforce their bonds with fans, one day by posting a pho-
cases, the initial success of the books has been the impetus
tograph and another by offering insights into how they are
for Hollywood movies and memorabilia, which have reinforced
spending their time. As Zoe Jones, Digital Cinema Media
and caused the phenomenon to grow.
marketing director explains, ‘Social media enables artists to
Huge merchandise sales occur alongside this media
have a powerful direct relationship with fans internationally,
activity. An avalanche of such products accompanied the
something that wasn’t possible with traditional media.’
success of the Disney film Frozen; while sales of boy band
One D irection’s merchandise were huge. As well as dress- Sources: Leonie Roderick, Cult creation, The Marketer, March/April 2015, 30–3;
ing to match characters in the Twilight films, some fans – Steven Eggermont, Youth culture, media, and the vampire franchise, Journal of
Children and Media, 5(4) 2011, 474–7; Melissa Click, Jennifer Stevens Aubrey
known as Twi-Hards – have even splashed out hundreds of and Elizabeth Behm-Morawitz, Bitten by Twilight: Youth Culture, Media, & the
pounds in having vampire fangs fitted. Meanwhile magazine Vampire Franchise, 2010, Peter Lang Publishing, New York.
Technographics Profile developed by Forrester Research, groups the online community into six seg-
ments according to how they interact with new digital media. It is important to note that in this particular
analysis some consumers can belong to multiple segments at the same time. Table 5.3 describes the
six groups. Creators are consumers who create their own media outlets, such as blogs, podcasts,
consumer-generated videos and wikis. Online marketers are recognizing the power of this C2C commu-
nication and are harnessing it as a conduit for addressing consumers directly. For instance, many mar-
keters are now pitching public relationship products or stories to professional reporters and bloggers.
The second group of internet users are the Critics. These are people who comment on blogs or
post ratings or reviews. Anyone who has ever posted a product review or rated a bar or movie has
engaged in this activity. Critics need to be an important component in a company’s digital marketing
strategy, because the majority of online shoppers read ratings and reviews to aid in their purchasing
decisions. Consumer-generated content like ratings and reviews tends to be viewed as more credi-
ble than corporate messages. Hence marketers must carefully monitor what consumers are saying
about their products and address consumers’ concerns that may affect their corporate reputation.
Collectors are the most newly recognized group of the six. They gather information and organize
content generated by Critics and Creators. The growing popularity of this segment is leading to the
creation of social networking sites and RSS feeds. Such sites allow users to vote on the sites or sto-
ries that they like the best; collectors are active members in the online community, a company story
or site that catches the eye of a collector is likely to be posted and discussed on collector sites.
Table 5.3 Social technographics

Creators ●● Publish a blog
●● Publish personal web pages
●● Upload original videos
●● Write articles or stories and post them
Critics ●● Post ratings/reviews of products or services
●● Comment on someone else’s blog
●● Contribute to online forums
●● Contribute to/edit articles in a wiki
Collectors ●● Use RSS feeds
●● Add tags to web pages or photos
●● ‘Vote’ for websites online
Joiners ●● Maintain profile on a social networking site
●● Visit social networking sites
Spectators ●● Read blogs
●● Watch video from other users
●● Listen to podcasts
●● Read online forums
●● Read customer ratings/reviews
Inactives ●● None of the activities
Source: Charlene Li and Josh Bernoff, Groundswell (Boston, MA: Harvard Business Review) 2008, p. 43.
Another technographic segment known as Joiners is growing dramatically. Anyone who

becomes a member of Snapchat, Twitter, Facebook, or other social networking sites is a Joiner.
These consumers are often members of more than one such site. Joiners join these sites to con-
nect and network with other users. Marketers can also take significant advantage of these sites to
connect with consumers and form customer relationships.
The last two segments are the Spectators and Inactives. Online users who are Inactives do not
participate in any digital online media, but as more and more people use computers as a resource, this
number is dwindling. Spectators are the largest group in most countries. They are those consumers
who read what other consumers produce but do not post any comment themselves.
trust Trust The growing value to consumers of other consumers’ opinions relates to
Trust is a willingness another important concept in buying behaviour… trust.
to rely on an exchange Marketers have traditionally focused on developing trust to develop strong customer
partner in whom one has
confidence.
relationships. Trust and commitment tend to go hand in hand. It is unlikely that an indi-
vidual will remain committed to a partner that they do not trust. Trust and commitment
are critical for an exchange relationship to endure, for repeat buying and for brand loyalty.
Because some level of trust must exist before commitment can develop, trust has more impact on
the overall relationship. The combination of trust and commitment enhances relationship outcomes
by increasing loyalty, satisfaction, market share, sales growth and favourable word-of-mouth com-
munication. In an era of increasing cynicism, fake news and distrust following the banking collapse,
there is strong evidence that many consumers trust the opinions of fellow consumers on social
media more than the claims of brands and their marketing statements.
Understanding consumer behaviour

Marketers try to understand consumer buying behaviour so that they can satisfy consumers more
effectively. For example, consumer concerns about the exploitation of clothing workers in less
developed countries following disasters such as Rana Plaza in Bangladesh have raised the profile
of workers’ rights and encouraged retailers to stock more ethical products. Shoppers now have a
greater awareness of these issues. An appreciation of how and why individuals buy products and
services helps marketers design more appropriate and relevant marketing programmes.44
At a time when consumers are increasingly focused on maximizing the value of what they buy,
it is more important than ever to keep abreast of trends in consumer behaviour. If marketers are
to keep consumers satisfied, they must focus carefully on the marketing concept and on being
consumer oriented. They must be equipped with a clear understanding of the process and moti-
vations of consumer buying, and also of how changing use of media is altering how that process
takes place.
The fact that it may be difficult to analyze consumer behaviour precisely does not detract from
the importance of doing so. Even though research on consumer buying behaviour has not supplied
all the knowledge that marketers need, considerable progress has been made in recent years.
Advances in technology, changing shopping habits and the huge growth in big data are increasing
the opportunities for capturing and managing information about consumers. For example, the
increasing use of online banking has been made possible by the development of computer sys-
tems that can handle the full range of banking transactions in which consumers wish to engage.
The same systems are enabling providers such as First Direct and Barclays to store and analyze
a huge variety of information about customers’ spending and savings patterns. When analyzed,
this information provides vital insights into the needs and wants of different customer types. These
insights can be used to develop and market new products and services. At a time when an
increasingly competitive business environment is making it more difficult to develop an edge over
rival organizations, the demands for such information are only likely to grow.
Summary
Buying behaviour comprises the decision processes and actions of people involved in buying and using products.
Consumer buying behaviour refers to the buying behaviour of ultimate consumers – those who purchase products for
personal or household use, not for business purposes. Analyzing consumer buying behaviour helps marketers to deter-
mine what satisfies customers, so that they can implement the marketing concept and better predict how consumers will
respond to different marketing programmes.
Consumer decisions can be classified into three categories: routine response behaviour, limited decision-making and
extensive decision-making. A consumer uses routine response behaviour when buying frequently purchased, low-cost,
low-risk items that require very little search and decision effort. Limited decision-making is used for products purchased
occasionally or when a buyer needs to acquire information about an unfamiliar brand in a familiar product category. Exten-
sive decision-making is used when purchasing an unfamiliar, expensive, high-risk or infrequently bought product. Impulse
buying is an unplanned buying behaviour involving a powerful, persistent urge to buy something immediately. The purchase
of a certain product does not always elicit the same type of decision-making behaviour. Individuals differ in their response
to purchase situations. Even the same individual may make a different decision in other circumstances.
The consumer buying decision process comprises five stages: problem recognition, information search, evaluation of
alternatives, purchase and post-purchase evaluation. Decision processes do not always culminate in a purchase, and not
all consumer decisions include all five stages. Problem recognition occurs when a buyer becomes aware that there is a
difference between a desired state and an actual condition. After recognizing the problem, the buyer searches for product
information that will help resolve the problem or satisfy the need. Internal search involves buyers searching their memory
for information about products that might solve the problem. If insufficient information is retrieved in this way, additional
information is sought through external search. A successful information search will yield a group of brands, called an
evoked set, that are viewed as possible alternatives. The level of involvement, which is the amount of interest, emotion
and activity expended on a purchase, affects the degree of the external search. To evaluate the products in the evoked set,
a buyer establishes certain criteria and assigns each a certain salience – or level of importance – by which to compare,
rate and rank the different products. During purchase, the consumer selects the product or brand on the basis of results
from the evaluation stage and on other factors. The buyer also chooses the seller from whom to buy the product. After the
purchase, the buyer evaluates the product’s actual performance. Shortly after the purchase of an expensive product the
post-purchase evaluation may provoke cognitive dissonance – dissatisfaction brought on by the consumer’s doubts as to
whether he or she should have bought the product in the first place. The results of the post-purchase evaluation will affect
future buying behaviour.
Three major categories of influences are believed to affect the consumer buying decision process: personal, psychological
and social factors. A personal factor is one that is unique to a particular person. Personal factors include demographic fac-
tors, situational factors and level of involvement. Demographic factors are individual characteristics such as age, sex, race,
ethnic origin, income, family life cycle and occupation. Situational factors are the external circumstances or conditions that
exist when a consumer is making a purchase decision, such as the time available. An individual’s level of involvement –
the level of interest, emotional commitment and time spent searching for a product in a particular situation – also affects
the buying decision process. Enduring involvement is an ongoing interest in a product class because of personal relevance.
Situational involvement is a temporary interest resulting from the particular circumstance or environment in which buyers
find themselves.
Psychological factors partly determine people’s general behaviour and thus influence their behaviour as consumers. The
primary psychological influences on consumer behaviour are perception, motives, learning, attitudes and personality. Per-
ception is the process of selecting, organizing and interpreting information inputs (the sensations received through sight,
taste, hearing, smell and touch) to produce meaning. The first step in the perceptual process is the selection of information.
Selective exposure is the phenomenon of people selecting the inputs that are to be exposed to their awareness; selective
distortion is the changing or twisting of currently received information. Selective retention involves remembering infor-
mation inputs that support personal feelings and beliefs; forgetting those that do not. The second step of the perceptual
process requires organizing and integrating the new information with that already stored in memory. Interpretation – the
third step in the perceptual process – is the assignment of meaning to what has been organized. In addition to perceptions
of packages, products, brands and organizations, individuals also have a self-concept or self-image.
A motive is an internal, energy-giving force directing a person’s activities towards satisfying a need or achieving a goal.
Patronage motives influence where a person purchases products on a regular basis. To analyze the major motives that
influence consumers to buy or not buy products, marketers conduct motivation research, using in-depth interviews, focus
groups or projective techniques. Common types of projective technique include word association tests, bubble drawings
and sentence completion tests.
Learning refers to changes in a person’s behaviour caused by information and experience. Knowledge, in this context, has
two components: familiarity with the product and expertise – the ability to apply the product.
Attitude refers to an individual’s enduring evaluation, feelings and behavioural tendencies towards an object or activity.
Consumer attitudes towards a company and its products greatly influence the success or failure of its marketing strategy.
Marketers measure consumers’ attitudes using attitude scales.
Personality comprises all the internal traits and behaviours that make a person unique. Although the results of many
studies have been inconclusive, some marketers believe that personality does influence the types and brands of products
purchased.
Social factors are the forces that other people exert on buying behaviour. They include the influence of roles and family,
reference groups, social classes and culture and sub-cultures. We all occupy positions within groups, organizations and
institutions. Each position has a role – a set of actions and activities that a person in a particular position is supposed to
perform. A group is a reference group when an individual identifies with the group so much that he or she takes on many
of the values, attitudes or behaviours of group members. In most reference groups, one or more members stand out as
opinion leaders. A social class is an open group of individuals who have similar social rank. Culture is everything in our
surroundings that is made by human beings, plus values and behaviours. A culture can be divided into sub-cultures on the
basis of geographic regions or human characteristics, such as age or ethnic background. The arrival of social networking
sites and digital media like blogs is changing the way consumers learn about and evaluate products. Through these con-
nections consumers can share information and experiences without company interferences. This is putting more power to
control and disperse information in the hands of consumers. The growing value to consumers of other consumers’ opinions
relates to trust. Trust is a willingness to rely on an exchange partner in whom one has confidence. Many consumers trust
the views of fellow consumers more than brands’ own messaging.
Marketers try to understand consumer buying behaviour so that they can offer consumers greater satisfaction. In doing
so they need to consider the impact of new thinking and new technologies on consumer behaviour. Marketers now recog-
nise that in addition to the rational model of consumer decision-making depicted in this chapter, there is a subconscious
element to consumer choice. Neuromarketing research using approaches from neuroscience, such as MRI and other
brain-scanning approaches, to shed light on these subconscious aspects.
Greater consumer access to digital and online technologies is also affecting the buying decisions that are made. Social
media, online forums and price comparison websites all have an influence on consumer perceptions of the products and
services that they buy. Consumer-to-consumer communication (C2C) refers to communication taking place between con-
sumers through face-to-face, online or other electronic media.
Improvements in technology, the increasing availability of digital data and refinements in research methods are increasing
opportunities to capture and manage data about consumers and their behaviour. The combination of the pressure of rising
consumer expectations, and an increasingly competitive business environment, will spur marketers to seek a fuller under-
standing of consumer decision processes.
Cognitive dissonance
Key links Consumer buying behaviour
Consumer buying decision process
This chapter, about consumer buying behaviour, should be Consumer-to-consumer (C2C) communication
read in conjunction with Chapter 6, which examines buying Culture
behaviour in business markets. Demographic factors
●● Without an understanding of customers’ buying Evoked set
behaviour, it is difficult for marketers to develop Extensive decision-making
effective marketing programmes, as discussed in External search
Part Three. Focus group
Impulse buying
●● An understanding of customer buying behaviour
In-depth interview
is also essential for two core facets of marketing
Information inputs
strategy: developing target market strategies (see
Internal search
Chapter 8) and creating powerful brand propositions
Involvement
(see Chapters 8 and 11).
Knowledge
Learning
Level of involvement
Important terms Limited decision-making
Attitude Motive
Attitude scale Neuromarketing
Buying behaviour Opinion leader
Patronage motives 7. What is selective exposure and what effect does it have on
Perception consumer buying?
Personal influencing factors 8. How do marketers attempt to shape consumers’ learning?
Personality
9. Why are marketers concerned about consumer attitudes?
Projective techniques
Psychological factors 10. Describe reference groups. How do they influence buying
Reference group behaviour? Name some of your own reference groups.
Role 11. In what ways does social class affect a person’s purchase
Routine response behaviour decisions?
Salience 12. What is culture? How does it affect a person’s buying
Selective distortion behaviour?
Selective exposure
13. Describe the sub-cultures to which you belong. Identify
Selective retention
buying behaviour that is unique to your sub-culture.
Self-concept
Situational factors 14. If consumers are dissatisfied with a particular purchase,
Social class what actions are open to them? What can marketers do to
Social factors respond to these actions?
Sub-cultures 15. How is consumer-to-consumer communication changing
Trust the way consumers buy products?
Discussion and review questions Recommended readings

1. Name the types of buying behaviour consumers use. List Evans, M.E., Foxall, G. and Jamal, A., Consumer Behaviour (John Wiley,
some products that you have bought using each type of 2009).
behaviour. Foxall, G.R., Advanced Introduction to Consumer Behaviour Analysis
(Elgar, 2017).
2. In what circumstances have you bought a product on
Jansson-Boyd, C.V., Consumer Psychology (Open University Press,
impulse?
2010).
3. What are the five stages in the consumer buying deci- Nelson, M., Understanding Consumer Behaviour: Cracking the Code of
sion process? Are all these stages used in all consumer Consumer Psychology (Independently Published, 2017).
purchase decisions? Sethna, Z. and Blythe, J., Consumer Behaviour (Sage, 2016).
Solomon, M., Bamossy, G., Askegaard, S. and Hogg, M.K., Consumer
4. What are the personal factors that affect the consumer
Behaviour (Pearson, 2016).
buying decision process? How do they affect the process?
Szmigin, I. and Piacentini, M., Consumer Behaviour (Oxford University
5. How does a consumer’s level of involvement affect his or Press, 2014).
her purchase behaviour?
6. What is the function of time in a consumer’s buying
decision process?
Web task Classroom tools 1. What might motivate some

consumers to read a ‘best-selling’
Some mass market or mainstream list?
eCommerce sites, such as Amazon.
2. Is the consumer’s level of
co.uk, have extended the concept of customization to their
involvement with online book purchase likely to be high
customer base. Amazon has analyzed its customer data, then
or low?
used its understanding of certain users’ likes and dislikes to
make recommendations to other users. Take a look at this online 3. Discuss the consumer buying decision process as
retailer at: www.amazon.co.uk or www.amazon.com. Focusing it relates to a decision to purchase from Amazon.co.uk.
on the organization’s bookselling activities, answer the following:
Group tasks Express, as well as hotel suite operations Staybridge and Can-
dlewood. Hualuxe is the first upscale brand created specifically
1. Your team is made up of very similar people. . . all for Chinese guests. In deriving its brand and target market
well-educated, studying the same course and with strategies, InterContinental’s marketers have considered a
student-like lifestyles. But is this true? Are you all really host of customer characteristics, requirements and behaviours,
similar? Select an item of clothing and a technology such as duration of stay, hotel location and proximity to other
product that you all own. To what extent do you all have addresses, amenities and services sought or expected, desired
identical needs, preferences and buying behaviour when luxury, value-for-money, hotel ambience and feel, hotel usage,
shopping for these items? size of guest room, purpose of stay, booking/decision-making
2. You need to acquire some new smart clothes for a round personnel and organizations, among other variables.
of job interviews. Where do you go for these purchases?
What influences your choices? To what extent are you Question
all voicing similar points and opinions or are there differ-
ences amongst you? A large company such as InterContinental Hotels Group is
interested in finding out more about the factors that influence
Applied mini-case people buying hotel weekend breaks. Relating your answer to
this example, review the different personal, psychological and
InterContinental Hotels Group is one of the world’s largest social influences that might impact on someone seeking to
hotel operators, with 5 450 hotels and 798 000 guest rooms make this kind of purchase.
in almost 100 countries. The company has adopted a multi-
segment strategy in order to address a variety of consumer
requirements in the lodging industry. Its hotels include the
Sources: Sally Dibb and Lyndon Simkin, Market Segmentation Success: Making
upmarket InterContinental and Crown Plaza brands, boutique It Happen!, 2008, New York: The Haworth Press; www.ihgplc.com /files/pdf/
chain Hotel Indigo, Holiday Inn, budget brand Holiday Inn factsheets/factsheet_worldstats.pdf; www.ihgplc.com/en/about-us, March, 2018.
Crayola: colouring in the stores and retailers of children’s clothing

21st century Case study followed up the theme.
After marketing research indicated
While Nintendo and Playstation games, music that children prefer brighter colours,
downloads, iPads, satellite TV cartoon channels the company decided to retire blue grey,
and web-based interactive gaming have cap- green blue, lemon yellow, maize, orange red,
tured children’s attention, Crayola Crayons has maintained a orange yellow, raw umber and violet blue to
role in children’s play and remained on store shelves. Crayola the Crayola Hall of Fame and to replace them with
LLC, part of Hallmark Cards, fought back with a new market- the more vivid cerulean, dandelion, fuchsia, jungle green,
ing strategy and marketing plan for the venerable crayon. The royal purple, teal blue, vivid tangerine and wild strawberry.
company launched a huge MTV-style campaign, targeted at This decision was controversial, however. The company was
children rather than parents. inundated with phone calls, letters and petitions from people
Traditionally, Crayola Crayons were targeted at parents, who missed the old colours. Protesters marched on the com-
using educational themes. But after recognizing that children’s pany, carrying placards with slogans like ‘We hate the new
purchasing power and influence on family purchases have 8!’ and ‘They call it a retirement, I call it a burial’. RUMPS,
increased in recent years, the company decided to change the the Raw Umber and Maize Preservation Society, finally got
crayon’s image as an old-fashioned toy to an exciting way for its way. The company issued a commemorative tin contain-
kids and teens to express themselves. To this end, the coming the 64-crayon box and a special pack of the eight colours
pany developed new advertisements featuring rock music, dropped one year earlier. Even though children liked the new
‘hip’ kids and soaring colours for showing during television colours, parents liked the old eight colours. The company
programmes seen by children. In-store videos provided to toy issued a statement saying that the old colours were revived
internet. As well as providing a shop window for Crayola prod-

ucts, the website – www.crayola.com – offers free colouring
pages, craft activities, educational resources and lesson plans.
The company has very effectively created an online community
around its wax crayon brand. Kids can also visit the Crayola
Playzone, where they can become the star of their own colour-
ing book, transform digital photos into colouring pages, or get
involved in a range of online games. For parents, the DIY Crafts
& Activities offers a wealth of make-at-home activities that can
be filtered by age and colour. Step-by-step guidance helps kids
to make their own circus out of recyclable items, create a neon
flower bouquet, or construct a birds-in-the-tree mobile.
Despite its focus on children, the company has not forgot-
ten who actually holds the purse strings. The company con-
tinues to target parents with advertisements in women’s and
parents’ magazines, while new products or services include
educational and child development messages aimed at par-
ents. However, the revised marketing strategy and accom-
panying marketing plan have led more children to reach for
partly because the company is in the business of providing Crayola Crayons. Sales are up and shelf space in toy stores
what the consumer wants. could not be better, despite stiff competition from a host of
Along with new advertisements and colours, the company rival entertainment products and toys. ‘We believe in unleash-
introduced ColourWorks, a line of erasable crayon sticks and ing the originality in every child’, is still the essence of the
retractable coloured pencils and pens. The company brought Crayola brand.
out Silver Swirls, crayons that have twirls of silver mixed in
with the wax colours. Pictures coloured with Silver Swirls can
References: www.crayola.com, 2015; Ellen Neuborne, ‘Crayola crayons have
be buffed to a high sheen with tissue. The new line was not old colors back’, USA Today, 2 October 1991, p. 2B; Ken Riddle, ‘Crayola draws
only tested by children but also named by them. The company brighter lines in the market’, Marketing, 21 January 1991, p. 4; Beefeater
Restaurants, 1993; Toys ‘R’ Us, Leicester, 1996; Loretta Roach, ‘Single use
has also launched a range of Crayola clothing and other mer-
explosion’, Discount Merchandiser, September 1995, pp. 28–30; Robyn Parets,
chandise and has extended its range of toys. These include ‘Children’s edutainment titles vie for shelf space’, Discount Store News, 19 June
Doodle Dog, Beadola bead maker and other jewellery kits, a 1995, pp. C6-C9; Binney & Smith UK, 1999; Toys ‘R’ Us, 1999, 2004, 2007, 2011,
2018; www.crayola.com/about-us/company.aspx, March 2018.
range of light designers, and interactive colouring software
that encourages art and design featuring Barbie, mythical
creatures and skylanders. Questions for discussion
The familiar wax crayon remains the company’s core line,
1. Why did Crayola LLC have to update its marketing and
though it now features as part of making kits – Badge Bonanza
change its strategy?
or Crayola Jewellery – and a whole host of design sets. Clearly
the Crayola brand is still very popular with children, parents 2. What are Crayola’s target audiences? Why did the com-
and toy stores. More and more children are discovering the pany need to approach them differently?
Crayola name, encouraged by Crayola’s embracing of the 3. Why has the company embraced the internet?
Chapter 6
Business markets and
business buying behaviour
Business customers are complex, multi-faceted, highly demanding and
their relationships require managing differently to consumers
Introduction
Objectives Most readers of this book will have related the material in
the previous chapter to their own purchasing experiences
To become familiar with the various
as consumers. Many marketers, though, do not address
types of business market.
consumers. Instead, their target customers are other busi-
To identify the major character- nesses or organizations and personnel in them. Or they
istics of business buyers and must develop marketing strategies for consumers and
transactions. engage with them, while also managing trade channel rela-
tionships in order to reach their final customers, so they
To understand several attributes of
must be able to engage with both business customers and
business demand.
consumers. Either way, many marketers are involved with
To become familiar with the major B2B (business-to-business) rather than B2C (business-to-
components of a buying centre or consumer) marketing. This chapter addresses the nature
decision-making unit. of b
usiness-to-business marketing, known here as busi-
ness marketing. It needs to be read
To understand relationship market- business market in conjunction with Chapter 21,
ing and exchanges between busi- The customers are not
which examines business marketing
ness buyers and sellers. consumers, private indi-
viduals or households: programmes.
To understand the stages of the instead the target cus- A business market is one in
business buying decision process tomers are other busi- which the customer is not a consumer,
and the factors that affect this nesses and organizations ap rivate individual or household. In
that purchase a specific
process. business markets, the target custom-
type of product or service
for resale, for use in ers are other businesses and organi-
To learn how to select and analyze
making other products, zations that purchase a specific type of
business target markets.
or for use in their daily product or service for resale, for use in
To appreciate some of the nuances operations. making or marketing other products,
of marketing business products. or for use in their daily operations. In
older books, this used to be known
industrial, organiza- as industrial or o rganizational
tional or business- marketing. More recently, the term
to-business marketing
business-to-business marketing
See business market
has become popular. Now, this
has been abbreviated to ‘business
173
marketing’ or B2B. Whether known as industrial, organizational, business-to-business or simply

business marketing, the emphasis is on other businesses and organizations as customers, rather
than end-user consumers.1
Shaping tomorrow
M ost organizations
require support
with IT. For many, the
with you
At Fujitsu, we firmly believe
that technology enables
people’s happiness and
effectiveness of their systems wellbeing. As technology plays
a more important role than ever
impacts on their ability to deliver
before, we must put people at the
their goods and services, engage
centre of everything we do.
with their customers and meet their sales targets. In a digital Our 156 000 people across the world
era in which an online presence is part of most organizations’ are committed to Digital Co-creation with our
multi-channel strategy, customer engagement and marketing customers. We are confident that this will deliver
communications, IT capability has become part of the neces- significant benefits for our customers and for society. Fujitsu will
sary armoury. The need to identify meaningful insight in a big continue to collaborate with our customers and partners to innovate
data-driven environment has added to these pressures. and realize a safer, more prosperous world.
The use of cloud-based storage, the emergence of the www.fujitsu.com/global/microsite/vision/president/
Internet of Things and Virtual Reality, data compliance regu-
lations, privacy and security concerns, as well as governance Fujitsu is one of the many companies able to help the
protocols, all have brought IT provision and support to the top likes of ING Bank, Marks and Spencer or the Inland Revenue
of the agenda for most corporate leadership teams. to embrace the latest technology-led systems and solutions.
Few organizations have the resources or knowledge base Operating internationally, Fujitsu has a large B2B marketing
to address all of these technology-led challenges in-house. team responsible for implementing marketing strategies,
Most assume that leading technology companies will be more creating and executing marketing campaigns and managing
aware of best practices and be able to harness the latest customer relationships in its main target markets. Public sec-
thinking more smoothly, than if they opted to tackle these tor and local government systems, manufacturing, financial
challenges themselves using in-house staff. Fujitsu is one services, retailing, transport and defence are just some of the
such ‘helping hand’ provider of IT support. areas on which Fujitsu concentrates its marketing activity.
Each of Fujitsu’s core areas of excellence requires market-
ing support. Each product area, whether digital transforma-
tion, connectivity or the future workplace, has its own target
market strategy and customer engagement plan, supported
with dedicated marketing specialists. In addition, each core
territory in which the company has a strong presence requires
marketers expert in doing business in such a culture, from
Spain to Germany, the UK, Portugal, Belgium or Finland. The
deployment of IT services and infrastructure often must be tai-
lored to specific market sectors and regulatory environments,
so each customer category has its own marketing experts.
Over 120 specialist marketers work closely with product
and technology experts across many countries and product
groups to engage successfully with target market segments
and client personnel. Compared with Mars, Red Bull or Ford,
Fujitsu might have very few customers, but this B2B environ-
ment is no less challenging for Fujitsu’s marketers and the
requisites for marketing success are just as pertinent in this
B2B context.
Source: www.fujitsu.com/uk, March 2018
Chapter 6 Business markets and business buying behaviour 175
T
his chapter explores what is meant by business marketing, before examining the charac-
teristics of business buying and the nature of demand for business products and services,
as provided by Fujitsu. The chapter’s focus is on the buying centre or decision-making
unit and the buying decision process as applied to business-to-business marketing. The chapter
concludes by examining how marketers select and analyze business markets, and the ways in
which marketers in business markets modify their use of the marketing toolkit in terms of branding,
addressing customer needs, determining market segments, understanding competitive forces,
undertaking marketing research and in constructing marketing programmes. Read in conjunction
with the previous chapter, users of Marketing: Concepts and Strategies will have a sound appre-
ciation of buying behaviour and also how marketing must differ between business and consumer
markets (a theme picked up in Chapter 21). An understanding of buying behaviour is central to
market segmentation and target market strategy, as explained in the next two chapters, but addi-
tionally without such understanding of consumers or business customers it is difficult for marketers
to successfully develop marketing programmes, engage with customers or provide satisfaction.
Types of business market

There are four broad kinds of business markets: producers, resellers (retailers, wholesalers or
distributors), public sector and governments, plus institutions. Some would argue that aspects of
the third sector warrant their own category. The following section describes the characteristics of
the customers that make up these markets.
Producer markets
Individuals and business organizations that purchase products to make a profit by using
them to produce other products or by using them in their own operations are classified as
producer markets. Producer markets include buyers of raw materials and semi-
producer markets
Buyers of raw materials
finished and finished items used to produce other products. For example, a manufac-
and semi-finished and turer such as BMW or Ford buys raw materials and component parts to use directly
finished items used to in the production of its products. Grocers and supermarkets are producer markets for
produce other prod- numerous support products, such as paper and plastic bags, displays, scanners and
ucts or in their own floorcare products. Hotels are producer markets for food, cleaning equipment, laundry
operations.
services and furniture. Producer markets cover a broad array of industries, ranging from
agriculture, forestry, fisheries and mining, to construction, transport, communications
and public utilities.
Manufacturers tend to be geographically concentrated in certain industries, particularly if depen-
dent on certain locally available raw materials, grants and financial inducements or skills. Heavy
industry centred on the Ruhr valley in Germany, North Sea oil support around Aberdeen in Scotland,
or technology along the M4 corridor in the UK, for example. Sometimes an industrial marketer may
be able to serve customers more efficiently as a result. Within certain sectors, production in just a
few regions may account for a sizeable proportion of total industrial output.
Reseller markets
Reseller markets consist of intermediaries, such as wholesalers and retailers, who buy
reseller markets finished goods and resell them to make a profit. These intermediaries are discussed in
Intermediaries, such as Chapter 15. Other than making minor alterations, resellers do not change the physical
wholesalers and retailers,
who buy finished goods
characteristics of the products they handle. Tesco stocks and sells Heinz or Tilda prod-
and resell them to make ucts without altering the branding, content or packaging. With the exception of items
a profit. that producers sell directly to consumers, all products sold to consumer markets are
first sold to reseller markets.
wholesalers Wholesalers
Wholesalers or distributors purchase products for resale to retailers,
Intermediaries who other wholesalers and producers, governments and institutions. Although some highly
purchase products technical products are sold directly to end users, many products are sold through whole-
for resale to retailers, salers/intermediaries, who in turn sell products to other companies in the distribution
other wholesalers and
system. Thus wholesalers are very important in helping to get a producer’s product to
producers, governments
and institutions. customers. Wholesalers often carry many products, perhaps as many as 250 000 items.
From the reseller’s point of view, having access to such an array of products from a single
source makes it much simpler to buy a variety of items. When inventories are vast, the
re-ordering of products is normally automated and the wholesaler’s initial purchase decisions are
made by professional buyers and buying committees.
retailers Retailers Retailers purchase products and resell them to final consumers. Some
Intermediaries that retailers carry a large number of items. Chemists, for example, may stock up to 12 000
purchase products
items, and some supermarkets may handle in excess of 20 000 different products. In
and resell them to final
consumers. small, family-owned retail stores, the owner frequently makes purchasing decisions.
Large department stores or supermarket retailers have one or more employees in each
department or product category who are responsible for buying products for that depart-
ment. As for chain stores, a buyer or buying committee in the central office frequently decides
whether a product will be made available for selection by store managers. For smaller businesses,
local managers or the owners make the actual buying decisions.
Factors considered by resellers When making purchase decisions, resellers consider several
factors. They evaluate the level of demand for a product, to determine in what quantity and at what
prices it can be resold. They assess the amount of space required to handle a product relative
to its potential profit. Sometimes resellers will put a product on trial for a fixed period, allowing
them to judge customers’ reactions and to make better-informed decisions about shelf space and
positions as a result. Retailers, for example, sometimes evaluate products on the basis of sales
per square metre of selling area or contribution to overall gross margin. Since customers often
depend on a reseller to have a product when they need it, a reseller typically evaluates a supplier’s
ability to provide adequate quantities when and where wanted. Resellers also take into account
the ease of placing orders, and the availability of technical assistance and training programmes
from the producer.
More broadly, when resellers consider buying a product not previously carried, they try to
determine whether the product competes with or complements the products the company is
currently handling. These types of concern distinguish reseller markets from other markets.
Sometimes resellers will start stocking a new line of products in response to specific
requests from customers. Marketers dealing with reseller markets must recognize
government markets these needs and be able to serve them.
Departments that buy
goods and services to
support their internal Government and public sector markets
operations, and to
provide the public with National and local governments make up government markets and contribute to
education, water, energy, public sector markets. They spend huge amounts annually for a variety of goods and
national defence, road services to support their internal operations and to provide the public with education,
systems and healthcare. utilities (in some countries), national defence, road systems and healthcare. In Europe,
the amount spent by local governments varies from country to country, depending on
the level and cost of services provided. The types and quantities of products bought
public sector markets by government markets reflect social demands on various government agencies. As
Government and
institutional not-for-
the public’s needs for government services change, so do the government markets’
profit customers and demands for products.
stakeholder groups. As government agencies spend public funds to buy the products they need to provide
services, they are accountable to the public. This accountability is responsible for a
relatively complex set of buying procedures. Some organizations, unwilling to deal with so much
red tape, do not even try to sell to government buyers, while others have learned to deal efficiently
with government procedures. For certain companies, such as BAE, and for certain products, such
as defence-related items, the government may be one of only a few customers.
Governments usually make their purchases through bids or negotiated contracts. To make
a sale under the bid system, a company must apply and receive approval to be placed on a list
of qualified bidders. When a government unit wants to buy, it sends out a detailed description
of the products to these qualified bidders. Organizations that wish to sell such products then
submit bids. The government unit is usually required to accept the lowest bid. When buying non-
standard or highly complex products, a government unit often uses a negotiated contract. Under
this procedure, the government unit selects only a few companies, negotiates specifications
and terms, and eventually awards the contract to one of the negotiating companies. Most large
defence contracts held by such companies as BAE or Thales are reached through negotiated
contracts.
Although government markets have complicated requirements, they can also be very lucrative.
When government departments modernize obsolete computer systems, for example, successful
bidders can make high sales with attractive margins during the life of a contract, which may last
for five years or more. Some companies have established separate departments to facilitate mar-
keting to government units, while others specialize entirely in this area. The buying behaviour of
governments is complex, though. A business such as Fujitsu sells IT services to banks, retailers,
manufacturers and utility companies. Fujitsu is a leading supplier of IT services to central and local
government and the health service: it has specialist management teams and sales and marketing
specialists who focus purely on these public-sector clients owing to the specialized nature of their
buying.
Institutional markets
Organizations with charitable, educational, community or other non-business goals con-
institutional markets stitute institutional markets. Members of institutional markets include libraries, muse-
Organizations with ums, universities, charitable organizations and some churches and hospitals. Some
charitable, educational, of these are also public-sector bodies, such as libraries and museums. Increasingly,
community or other
non-business goals.
government and institutional markets are being grouped together and referred to as
public sector markets, although the term third sector has emerged to cover charities,
the voluntary sector, not-for-profit organizations and NGOs.
third sector Institutions purchase large amounts of products annually to provide goods, services
Includes charities, the and ideas to members, congregations, students and other stakeholder groups. For
voluntary sector, not-for- example, a library must buy new books for its readers; pay rent, fuel and water bills; fund
profit organizations and the staffing and cleaning of its buildings; invest in IT facilities; and pay to produce public-
NGOs.
ity material about its services. Although such institutions often have different goals and
fewer resources than other types of organization, marketers may use special marketing
activities to serve these markets. Public sector markets consist of government and insti-
tutional not-for-profit customers and stakeholder groups: public sector marketing is a significant
growth area within the marketing discipline. Within some of these activities, notably government
bodies promoting health and well-being for the population and the planet, there is a role for social
marketing (see Chapter 1), which has further extended marketing’s contribution in this domain.
Dimensions of business buying

Having clarified the different types of business customer, the next step is to consider the dimensions
of business-to-business buying. After first examining several characteristics of business transac-
tions, this section then discusses various attributes of business buyers and some of their primary
concerns when making purchase decisions. Next it looks at methods of business buying and the
major types of purchase that organizations make. The section concludes with a discussion of how
the demand for business products and services differs from the demand for consumer products
and services. Figure 6.1 shows how Dun & Bradstreet advertise their services to business users.
Figure 6.1
An advertisement from Dun & Bradstreet targeting business users
Characteristics of business transactions

Although the marketing concept is equally applicable to business and consumer markets, there
are several fundamental differences between the transactions that occur in each. Business buyers
tend to order in much larger quantities than individual consumers and often demand customized
or tailored propositions. Suppliers must often sell their products in large quantities to make profits;
consequently, they prefer not to sell to customers who place small orders.
Generally, business purchases are negotiated less frequently than consumer sales. Some pur-
chases involve expensive items, such as machinery or office equipment, that are used for a number
of years. Other products, such as raw materials and component items, are used continuously in
production and may have to be supplied frequently. However, the contract regarding the terms of
sale of these items is likely to be a long-term agreement, requiring formal and periodic negotiations.
Negotiations in business sales may take much longer than those for consumer sales. Most
consumers do not negotiate on prices paid, whereas many business customers never pay the list
price. Purchasing decisions are often made by a committee; orders are frequently large, expensive
and complex; and products may be custom built. There is a good chance that several people or
departments in the purchasing organization will be involved. One department might express a
need for a product; a second department might develop its specifications; a third might stipulate
the maximum amount to be spent; and a fourth might actually place the order. This approach
allows individuals with relevant expertise to be incorporated into the process when required. Sales
personnel play an important role in negotiations with customers. The quality of the rela-
tionship that develops has been shown to impact on the outcome of such negotiations.
reciprocity One practice unique to business-to-business sales is reciprocity, which is an
An arrangement unique arrangement in which two organizations agree to buy from each other. In some coun-
to business-to-business
tries, reciprocal agreements that threaten competition are illegal and action may be taken
marketing in which two
organizations agree to to stop anti-competitive reciprocal practices. Nonetheless, a certain amount of reciprocal
buy from each other. dealing occurs among small businesses and, to a lesser extent, among larger companies
as well. Such companies often find that developing long-term relationships of this kind
can be an effective competitive tool.2 Reciprocity can create a problem because coercive
measures may be used to enforce it or because reciprocity influences purchasing agents to deal
only with certain suppliers.
Attributes of business buyers

Business buyers are usually thought of as being different from consumer buyers in their purchasing
behaviour because they are better informed about the products they purchase and often deliberate/
negotiate for longer. The viability of their employer’s business and thereby their own careers may
well depend on their purchasing decisions, so they must be well informed. To make purchasing
decisions that fulfil an organization’s needs, business buyers demand detailed information about
a product’s functional features and technical specifications, as well as aftermarket support and
back-up.
Business buyers, however, also have personal goals that may influence their buying behaviour.
Most buyers seek the psychological satisfaction that comes with promotion and financial rewards.
In general, managers are most likely to achieve these personal goals when they consistently exhibit
rational buying behaviour and perform their jobs in ways that help their companies achieve their
organizational objectives. Suppose, though, that a business buyer develops a close friendship
with a certain supplier. If the buyer values the friendship more than organizational promotion or
financial rewards, s/he may behave irrationally from the company’s point of view. Dealing exclusively
with that supplier regardless of better prices, quality or service from competitors may indicate an
unhealthy or unethical alliance between the buyer and seller. Companies have different ways of
dealing with such problems. Some require more than one person to be involved in buying products,
while others periodically review their use of suppliers.
Primary concerns of business buyers

When they make purchasing decisions, business customers take into account a variety of factors.
Among their chief considerations are quality, delivery, service and price. For example, in the busi-
ness advertisement in Figure 6.2 the use of the latest IT thinking is emphasized. Product range,
innovation, reliability and logistical support may also be significant considerations. Increasingly,
business buyers are concerned with service support levels and ongoing commitment from their
selected suppliers. There is also a growing view that a supplier’s personnel in terms of knowledge,
motivation, attitude and passion for assisting the customer, are an integral part of the product
proposition being ‘consumed’ by the business customer (see Chapter 10).
Most business customers try to achieve and maintain a specific level of quality in the products
they offer to their target markets. To accomplish this goal, they often buy their products on the
basis of a set of expressed characteristics, commonly called specifications. These allow a business
buyer to evaluate the quality of the products being considered according to particular features and
thus to determine whether or not they meet the organization’s needs.
Meeting specifications and deadlines is extremely important to business customers. If a product
fails to meet specifications and malfunctions for the ultimate consumer, that product’s supplier may
be dropped and an alternative supplier sought. On the other hand, a business buyer is usually
cautious about buying products that exceed specifications, because such products often cost
Figure 6.2
This business-to-business advertisement from
Accenture focuses on the use of the latest
technology to gain attention
more and thus increase production costs. Suppliers, therefore, need to design their products
carefully to come as close as possible to their customers’ specifications without incurring any
unnecessary extras.
Business buyers also value service. The services offered by suppliers directly and indirectly influ-
ence their customers’ costs, sales and profits. When tangible goods are the same or quite similar,
as with most raw materials, they may have the same specifications and be sold at the same price
in the same kind of containers. Under such conditions, the mix of services a business marketer
provides to its customers represents its greatest opportunity to gain a competitive advantage. For
example, bitumen supplier Nynas has a reputation for technical expertise, technical assistance and
flexible logistics. Competitors may be able to offer a similar bitumen product, but few can emulate
Nynas’s ability to look after customers or offer bespoke solutions.
Among the most commonly expected services are market information, regulatory compliance sup-
port, inventory maintenance, on-time delivery, flexible ordering and logistical support, technical assis-
tance, warranty back-up, repair services and credit facilities. Specific services vary in importance,
however, and the mix of services that companies need is also affected by environmental conditions.
Market information Business buyers in general are likely to need technical product information,
data regarding demand, information about general economic conditions or supply and delivery
information. For example, when technology is changing rapidly, forcing companies to change their
production machinery, the demand for consultancy support services and warranty assurances will
be especially high.
Regulatory compliance In many markets, regulators and government agencies insist on certain
product conformity, production and distribution practices, commercial practices and customer
management. Customers may demand or welcome support in these regards from their suppliers.
Inventory maintenance It is critical for suppliers to maintain an adequate inventory in order

to keep products accessible for when a business buyer needs them and to reduce the buyer’s
inventory requirements and costs.
On-time delivery Reliable, on-time delivery by suppliers also enables business customers to
carry less inventory.
Warranty back-up Purchasers of machinery and high-tech equipment are especially concerned
about adequate warranties. They are also keen to obtain repair services and replacement parts
quickly, because equipment that cannot be used is costly.
Credit facilities Suppliers can also give extra value to business buyers by offering credit. Credit
helps to improve a business customer’s cash flow, reduces the peaks and troughs of capital
requirements and thus lowers the company’s cost of capital.
Although no single supplier can provide every possible service to its customers, a marketing-
oriented supplier will try to create a service mix that satisfies the target market.
The importance of service quality

Service quality has become a critical issue because customer expectations of service have broad-
ened. Marketers also need to strive for uniformity of service, simplicity, truthfulness and accuracy; to
develop customer service objectives; and to monitor or audit their customer service programmes.
Companies can monitor the quality of their service by formally surveying customers or calling on
them informally to ask questions about the service they have received. Marketers with a strong
customer service programme reap a reward: their customers keep coming back long after the first
sale.3 With customer expectations increasing, it is becoming more difficult for companies to achieve
a differential advantage in these areas, and companies must take care to ensure that complaints
are handled properly.4 This reduces the likelihood that dissatisfied customers will give negative
feedback to others in the marketplace.5 One study found that boosting customer retention by five
per cent could double a small company’s profitability.6 As explored in Chapter 13, some experts
argue that service quality delivery is the most important aspect of marketing.
The importance of price

Price matters greatly to a business customer because it influences operating costs and costs of
goods sold, and these costs affect the customer’s selling price and profit margin. When purchas-
ing major equipment, an industrial buyer views the price as the amount of investment necessary
to obtain a certain level of return or savings. Such a purchaser is likely to compare the price of
a machine with the value of the benefits that the machine will yield. A while ago, Caterpillar lost
market share to foreign competitors because its prices were too high, so it had to re-engineer its
cost base and align pricing to customer expectations. A business buyer does not compare alter-
native products by price alone. Other factors, such as product quality and supplier services, are
also major elements in the purchase decision. For example, one study found that in the buying
decision process for mainframe computer software operating systems, intangible attributes, such
as the seller’s credibility and understanding of the buyer’s needs, were very important in the buyer’s
decision process.7
Methods of business buying

Although no two business buyers go about their jobs in the same way, most use one or more of
the following purchase methods: description, inspection, sampling and negotiation.
Description When products being purchased are commonly standardized according to certain
characteristics, such as size, shape, weight and colour and graded using such standards, a busi-
ness buyer may be able to purchase simply by describing or specifying quantity, grade and other
attributes. Agricultural produce often falls into this category. In some cases, a buyer may specify a
particular brand or its equivalent when describing the desired product. Purchases on the basis of
description are especially common between a buyer and seller who have established an ongoing
relationship built on trust.
Inspection Certain products, such as large industrial machinery, used vehicles and buildings,
have unique characteristics and are likely to vary in condition. A clothing producer would want to
see the latest automated pattern-cutting machine in action with another customer before com-
mitting to purchase. Consequently, buyers and sellers of such products must base their purchase
decisions on inspection.
Sampling In buying based on sampling, a sample of the product is taken from the lot and eval-
uated. It is assumed that the characteristics of this sample represent the entire lot. This method is
appropriate when the product is homogeneous; for instance grain, and examination of the entire
lot is not physically or economically feasible.
Negotiation Some business purchasing relies on negotiated contracts. In certain instances,

a business buyer describes exactly what is needed and then asks sellers to submit bids. The
buyer may take the most attractive bids and negotiate with those suppliers. In other cases,
the buyer may not be able to identify specifically what is to be purchased but can provide only
a general description, as might be the case for a special piece of custom-made equipment.
A buyer and seller may negotiate a contract that specifies a base price and contains provisions
for the payment of additional costs and fees. These contracts are most likely to be used for
one-off projects, such as buildings and capital equipment. For example, the prices that Orbital
ATK charges its customers for launching and placing satellites in orbit are determined through
negotiated contracts.
Types of business purchase

Most business purchases are one of three types: new task purchase, modified re-buy purchase
or straight re-buy purchase. The type of purchase affects the number of individuals involved, the
length of the buying process and the nature of marketing appropriate.
new task purchase New task purchase In a new task purchase, an organization makes an initial
An organization’s initial purchase of an item to be used to perform a new job or to solve a new problem. This
purchase of an item to may take a long time because it might require the development of product specifi-
be used to perform a cations, supplier specifications and procedures for future purchases. To make the
new job or to solve a new
problem.
initial purchase, the business buyer usually needs a good deal of information and
may formally review a set of possible suppliers. A new task purchase is important to
the supplier because it may lead to the sale of large quantities of the product over a
modified re-buy
period of years.
purchase
A new task purchase that Modified re-buy purchase In a modified re-buy purchase, a new task purchase
is changed when it is is changed the second or third time it is ordered, or the requirements associated with a
re-ordered or when the
requirements associated
straight re-buy purchase are modified. For example, an organization might seek faster
with a straight re-buy delivery, lower prices or a different quality of product specifications. When modified
purchase are modified. re-buying occurs, regular suppliers may become more competitive to keep the account.
Competing suppliers may have the opportunity to obtain the business.
straight re-buy Straight re-buy purchase A straight re-buy purchase occurs when a buyer
purchase re-purchases the same products routinely under approximately the same terms of sale.
A routine re-purchase of For example, when re-ordering photocopying paper, a buyer requires little additional
the same products under information and can usually place the order relatively quickly, often using familiar suppliers
approximately the same
that have provided satisfactory service and products in the past. These suppliers try to
terms of sale.
set up automatic re-ordering systems to make re-ordering easy and convenient for
business buyers, and may even monitor the organization’s inventory to indicate to the
buyer what needs to be ordered.
Demand for business products

Products sold to business customers are called business products and consequently the demand
for these products is called business demand. Unlike consumer demand, business demand, for-
merly known as industrial demand, is:
●● derived
●● inelastic
●● joint, and
●● more fluctuating.
Derived demand Because business customers, especially producers, buy products to be used
directly or indirectly in the production of goods and services to satisfy consumers’ needs, the
demand for business products arises from the demand for consumer products; it is,
derived demand therefore, called derived demand. In fact, all businesses’ demand can in some way be
Demand for business traced to consumer demand. This occurs at a number of levels, with business sellers
products that arises
being affected in various ways. For instance, consumers today are more concerned with
from the demand for
consumer products. good health and nutrition than ever before, and as a result are purchasing food prod-
ucts containing less cholesterol, saturated fat, sugar and salt. When some consumers
stopped buying high-cholesterol cooking fats and margarine, the demand for equipment
used in manufacturing these products also dropped. Thus factors influencing consumer buying of
various food products have ultimately affected food processors, equipment manufacturers, suppli-
ers of raw materials and even fast-food restaurants, which have had to switch to lower-cholesterol
oils for frying. Changes in derived demand result from a chain reaction. When consumer demand
for a product changes, a wave is set in motion that affects demand for all of the items involved in
the production of that consumer product.
Inelastic demand The demand for many business products at the industry level is
inelastic demand inelastic demand: a price increase or decrease will not significantly alter demand for
Demand that is not the item. The concept of price elasticity of demand is discussed further in Chapter 20.
significantly affected As many business products contain a number of parts, price increases that affect only
by a price increase or
decrease.
one or two parts of the product may yield only a slightly higher per-unit production cost.
Of course, when a sizeable price increase for a component represents a large proportion
of the total product’s cost, demand may become more elastic, because the component
price increase will cause the price at the consumer level to rise sharply. For example, if manufac-
turers of aircraft engines substantially increase the price of these engines, forcing Boeing in turn to
raise the prices of its aircraft, the demand for aircraft may become more elastic as airlines recon-
sider whether they can afford them. An increase in the price of windscreens, however, is unlikely
to affect greatly the price of the aircraft or the demand for them.
The characteristic of inelasticity applies only to industry demand for the business product, not
to the demand curve faced by an individual company. For example, suppose that a car component
company increases the price of rubber seals sold to car manufacturers, while its competitors retain
their lower prices. The car component company would probably experience reduced unit sales
because most of its customers would switch to the lower-priced brands. A specific organization
is vulnerable to elastic demand, even though industry demand for a particular product is inelastic.
Joint demand The demand for certain business products, especially raw materials
joint demand and components, is subject to joint demand. Joint demand occurs when two or more
Demand that occurs items are used in combination to produce a product. For example, a company that
when two or more
manufactures cork noticeboards for schools and colleges needs supplies of cork and
products are used in
combination to produce wood to produce the item; these two products are demanded jointly. A shortage of cork
another product. will cause a drop in the production of wooden surrounds for noticeboards or a lack of
chips will hinder computer manufacture.
Marketers selling many jointly demanded items must realize that when a customer
begins purchasing one of the jointly demanded items, a good opportunity exists for selling related
products. Similarly, when customers purchase a number of jointly demanded products, the pro-
ducer must take care to avoid shortages of any one of them, because such shortages jeopardize
sales of all the jointly demanded products.
Fluctuating demand As the demand for business products fluctuates according to consumer
demand, when particular consumer products are in high demand, their producers buy large quan-
tities of raw materials and components to ensure that they can meet long-run production require-
ments. Such producers may also expand their production capacity, which entails the acquisition
of new equipment and machinery, more workers, a greater need for business services, and more
raw materials and component parts.
Conversely, a decline in the demand for certain consumer goods significantly reduces the
demand for business products used to produce those goods. When consumer demand is low,
business customers cut their purchases of raw materials and components, and stop buying equip-
ment and machinery, even for replacement purposes. This trend is especially pronounced during
periods of recession.
A marketer of business products may notice changes in demand when its customers change
their inventory policies, perhaps because of expectations about future demand. For example, if
several dishwasher manufacturers who buy timers from one producer increase their inventory of
timers from a two-week to a one-month supply, the timer producer will experience a significant
immediate increase in demand.
Sometimes price changes can lead to surprising temporary changes in demand. A price increase
for a business item may initially cause business customers to buy more of the item because they
expect the price to rise further. Similarly, demand for a business product may be significantly lower
following a price cut as buyers wait for further price reductions. Such behaviour is often observed
in companies purchasing information technology. Fluctuations in demand can be significant in
industries in which price changes occur frequently.
business (or Business buying decisions

business-to-business)
buying behaviour Business (or business-to-business) buying behaviour refers to the purchase
The purchase behaviour
of producers, resellers,
behaviour of producers, resellers, the public sector, government units and institutions.
the public sector, Although several of the same factors that affect consumer buying behaviour (discussed
government units and in Chapter 5) also influence business buying behaviour; a number of factors are unique
institutions. to the latter. This section first analyzes the buying centre to learn who participates in
making business purchase decisions and then focuses on the stages of the buying
decision process and the factors that affect this process.
The buying centre

Most business-to-business purchase decisions are made by more than one person in the orga-
nization. The group of people within an organization, from various functions, who are involved in
making business purchase decisions are usually referred to as the buying centre or
buying centre
The group of people
decision-making unit. These individuals include users, influencers, buyers, deciders and
within an organization gatekeepers, although one person may perform several of these roles.8 Participants in
who are involved in mak- the buying process share the goals and risks associated with their decisions. Effective
ing business-to-business marketers strive to understand the constituents of risk, as perceived by their target cus-
purchase decisions. tomer personnel, so that they may tailor their messages and marketing propositions to
reassure members of the buying centre. In this way, marketers hope to gain an advantage
over those rivals that fail to understand these customer concerns and issues.
Users are those in the business who actually use the product being acquired. They frequently ini-
tiate the purchase process and/or generate the specifications for the purchase. After the purchase,
they also evaluate the product’s performance relative to the specifications. Although users do not
ordinarily have sufficient power to make the final decision to buy, it is important that their views be
considered. A user who is unhappy with a piece of equipment may not work efficiently. Influencers
are often technical personnel, such as engineers, who help develop the specifications and evaluate
alternative products. Technical personnel are especially important influencers when the products
being considered involve new, advanced technology. For example, a chemicals manufacturer seek-
ing to install new processing equipment may take advice from a wide range of technical experts.
Buyers are responsible for selecting suppliers and actually negotiating the terms of purchase. They
may also become involved in developing specifications. Buyers are sometimes called purchasing
agents or purchasing managers and, in retailers, merchandizers. Their choices of suppliers and prod-
ucts, especially for new task purchases, are heavily influenced by individuals occupying other roles
in the buying centre. For straight re-buy purchases, the buyer plays a major role in the selection of
suppliers and in negotiations with them. Deciders actually choose the products and suppliers. Although
buyers may be the deciders, it is not unusual for different people to occupy these roles. For routinely
purchased items, buyers are commonly the deciders. However, a buyer may not be authorized to make
purchases that exceed a certain monetary value, in which case higher-level management personnel are
the deciders. Gatekeepers, such as secretaries and technical personnel, control the flow of information
to and among others in the buying centre. The flow of information from supplier sales representatives
to users and influencers is often controlled by buyers or other personnel in the purchasing department.
Unfortunately, relations between members of the buying centre can become strained at times.
The size and characteristics of an organization’s buying centre are affected by the number of
its employees and its market position, the volume and types of products being purchased and the
company’s overall managerial philosophy regarding exactly who should be involved in purchase
decisions. A marketer attempting to sell to a business customer needs to know who is in the buying
centre, the types of decisions each individual makes and which individuals are the most influential in
the decision process. The marketer should also strive to understand the respective needs of these
members and how each perceives risk in terms of the proposed purchase: the marketer should then
tailor messages to reassure the various members of the buying centre. Then the marketer will be in
a position to contact those in the buying centre who have the most influence. Such an approach is
detailed in the Marketing Tools and Techniques box ‘Practitioners’ use of the buying behaviour theory:
the Dibb/Simkin buying proforma’ which also explains how many organizations deploy the buying
behaviour concepts presented in this chapter as they build up an understanding of their customers.
Relationship marketing and managing exchange relationships

The relationship that exists between a supplying organization and its customers is an important
aspect of the buying process that deserves special consideration. In fact, marketing experts have
Practitioners’ use of the Marketing buying centre. In developing a better

buying behaviour theory: tools and understanding of the buying process,
this agrichemicals business realized
the Dibb/Simkin buying techniques there were important influencing
proforma factors impacting on customer choice
that it had previously ignored. Contact was
Most practitioners do not want to read a made with organizers of the technical seminars and the trade
500-page textbook about understanding association in order to gain an advantage over rivals.
customers, but equally they recognize that in order to fully
appreciate a business customer’s requirements or consumers’
Example 2
buying behaviour, they must be able to:
The example from the civilian aircraft market shown below
●● profile the targeted customers/consumers – be like
reveals the complexity of many business markets. The cus-
them!
tomer needs are extensive but do not provide the challenge.
●● understand the composition of the buying centre The mix of stakeholders identified within the buying centre or
●● identify their key customer values (KCVs), customer/con- decision-making unit requires a variety of the plane manu-
sumer needs and expectations facturer’s personnel and involvement of some of its strategic
●● determine how the customers/consumers buy – their partners. The types of sales approach and messaging likely to
buying process appeal to the airline’s senior executives are not those which will
attract the airline’s inspection (purchasing) team or its share-
●● understand the influences at work on this process.
holders, so different teams will be required along with tailored
In order to devise effective marketing strategies and messaging and content in order to ensure all parties involved in
programmes, marketers must be able to answer three key the decision are adequately addressed. Many of the influencing
questions: factors impacting on the customer’s decision also require such
1. What needs must be satisfied and for whom? careful consideration. The customer value proposition required
2. Where should marketers be active in the business cus- here goes well beyond establishing that the plane satisfies the
tomer (or consumer) buying process? list of customer needs. However, the analysis provides a very
clear picture of what the producer must discuss, with whom
3. Which influencing factors can they in turn influence?
and how, if its plane is to be selected by the airline.
There are many approaches to addressing such an under- The Dibb/Simkin buying proforma:
standing of business customers or consumers, but one pro-
posed by Dibb and Simkin has been widely adopted across ●● forces managers to ‘think customer’!
consumer, business and service markets. Two examples are ●● provides much more than just a description of ‘who to
presented here in order to illustrate this approach. sell to’
●● identifies exactly what a company must provide/offer
Example 1 ●● reveals the influences the company in turn must strive
A leading supplier of herbicides, pesticides and seeds seg- to influence
mented the farmers, its customers in Latin America, identify- ●● provides a framework against which to compare com-
ing 22 market segments (see Chapter 7). As an example, one petitors’ moves and marketing programmes.
segment is profiled below, illustrating the types of farmer in
The Dibb/Simkin buying proforma is copyright Sally Dibb and Lyndon Simkin.
this segment, the nature of the buying centre and the very spe- A more extensive explanation of this technique is offered in either The Market
cific, ego-led customer needs. In order to operate successfully Segmentation Workbook (Dibb and Simkin) or The Marketing Planning Work-
in this market segment, a supplier has to satisfy these needs book (Dibb, Simkin and Bradley), both originally published in 1996 by Thomson,
London; or in the authors’ newer titles Market Segmentation Success: Making
but also tailor marketing campaigns to the characteristics of It Happen! (The Haworth Press/Routledge, 2008) and Marketing Planning (Cen-
these farmers and the varied mix of professionals within this gage Learning, 2008).
The Dibb/Simkin buying proforma: B2B

Example of an Agrochemicals Business Selling to No-Till
Soya Farmers in Latin America
© Sally Dibb and Lyndon Simkin
Customer profile Buying process Influencing factors
PROFILE – Who? Historical performance/ Historical performance of

Young farmers seasonality of need favoured products/brands
Concerned with environmental
protection
Innovators Wholesale depot staff
Field farm managers’
Open-minded planning cycle
Good payers
Manufacturers’ reps
Seek advice of
BUYING CENTRE
project agronomist Manufacturers’
Farm owner
Farm manager marketing materials
Agronomist
Lead field workers Visit main supplier –
wholesale depot Technical meetings/
seminars
KCVs (needs)
Performance of product Owner pays/arranges
delivery NT Association (trade body)
(effectiveness)
Technical support
New technology information
Neighbouring farms’
Recognition in community/ Farm manager + Field product choices
by suppliers workers deploy product
Airbus Industries Marketing Wide Bodied Civilian Jet Aircraft to Airlines

(not Leasing Agents or Governments)
Customer Profile Buying Process Influencing Factors
PROFILE - Who? Customer IDs requirement

Commercial airlines for new aircraft Finance company/
Multi-functional buying team
mechanism
Mainly males
High performance Type of aircraft
individuals/executives required is identified
20+ years in the Passenger perceptions/
airline business Supplier aircraft specs requirements
analysed
BUYING CENTRE RFQ placed with Unions

Selection team likely suppliers
Company’s Board
Shareholders
Government (often) Supplier responds to RFQ
Time/availability
Customer selection team

KCVs (needs) makes recommendation
Initial cost
Operating costs (fuel, Trade reviews/magazines
maintenance, crew, CEO and Board
landing fees) ratify the decision
Passenger comfort
Residual value
Fleet commonality Price and other details Customer competitors
Operational reliability negotiated with supplier
Customer support
Turn around times
Sectors/day capability Basic contract
Maintenance time signed In-trade feedback
Airport compatibility
Meets regulations
Safety First aircraft delivered
Ruggedness
become much more interested in marketing relationships in general.9 The term relation-
relationship marketing
All of the activities an ship marketing has been used to express this particular development, as explained in
organization uses to Chapter 1. Instead of being concerned about individual transactions between suppliers
build, maintain and and buyers, the relationship marketing approach emphasizes the importance of the
develop ongoing cus- whole relationship between the parties. Relationship marketing can be regarded as all
tomer relations.
of the activities an organization uses to build, maintain and develop ongoing customer
relations.10 The intention is to nurture a mutually beneficial sustainable relationship and
to maximize the ‘share of wallet’ from the customer over a period of time.
Put simply, relationship marketing is concerned with acquiring and keeping customers by
ensuring that an appropriate combination of marketing, customer service and quality is provided.11
Underlying the relationship marketing concept is the idea that the relationship between a sup-
plying organization and its buyers is essentially similar to the relationship between two individu-
als. For example, bitumen company Nynas, featured in the case at the end of this chapter, has
achieved market leadership in many of its key markets through building ongoing relationships with
a diversity of customers 24 hours a day and 365 days a year. Such relationships are conducted
over a period of time through a series of meetings and interactions, which allow each party to
get to know the other, to share information, to adapt to each other, and generally to build trust
and cooperation.12
As explained in Chapter 1, the concept of relationship marketing is changing the way in
which marketers for both consumer and business markets are looking at marketing. However,
it is also particularly pertinent to this chapter’s discussion of the exchange relationships that
develop between buyers and sellers.13 When a company buys a product or service from another
company, both organizations become involved in an exchange process. During the transaction,
both buyer and seller will exchange items of value in return for something else. For example,
when a software company provides a printing company with a desktop publishing package, it
will provide the buyer with a package of benefits that include the software, regular updates, a
helpline, on-site support, detailed users’ guide, warranty details, a variety of payment options and
the opportunity to attend a training course. In exchange, the printer will agree to pay the price
negotiated with the manufacturer. Figure 6.3 shows the range of factors that can be exchanged
during the purchase process.
Information
Product
Selling Buying
company company
Financial
Figure 6.3 Social

The exchange process
in business buying
It is often in the interests of both parties to develop long-term relationships. If buying and
selling companies are used to dealing with each other, they are more likely to be able to adapt
to each other’s needs and to reach an agreement quickly and easily. Some research suggests
that adaptation by suppliers happens more often than adaptation by buyers. However, long-term
relationships are often attractive to both companies because they reduce the level of
financial and practical risk associated with the purchase. The trend towards long-term
relationship
management
relationships has resulted in the development of what is called relationship manage-
The process of encour- ment.14 This process encourages a match between the seller’s competitive advantage
aging a match between and the buyer’s requirements over the life cycle of the item being purchased. Larger
the seller’s competitive customer accounts warrant close attention and bespoke customer support, nurturing an
advantage and the buy- ongoing relationship and protecting sales. Key account management is practiced by
er’s requirements over
an item’s life cycle.
businesses with several very large and important customers, whose volume of business
justifies one-to-one tailored handling.
key account
Stages of the business buying decision process
management Like consumers, businesses follow a buying decision process. This process is summa-
Dedicated and close sup-
rized at the top of Figure 6.4.
port for individual busi-
ness customers whose
volume of business is Stage 1 In the first stage, one or more individuals recognize that a problem or need
significant and warrants exists. Problem recognition may arise under a variety of circumstances, either from inside
one-to-one handling. or outside the company. For example, a machine might reach the end of its working life
and need to be replaced, the CEO may dictate the desirability of finding a supplier for an
Specification of Search for Evaluation of Select and order Performance

Problem
needs and product and products/suppliers from one or assessment of
recognition
solutions supplier options vs specification more suppliers products/suppliers
Feedback
Buying decision-making process
Environmental Organizational Cultural Individual
Political Corporate strategy Cultural fit Role and position

Economic Corporate policies Cooperation Level of experience
Societal Strategic alliances Conflict Perceptions of risk
Technological Partnerships Power relationships Extent of empowerment
Legal Commercial objectives Strategic partnershipping Age
Regulatory Financial directives Relative positions Culture
Competitive Resources Behaviours Education/training
Supply chain and channel Purchasing policies Ethical standards Pay and incentives
Codes of conduct Personality
Purchasing transparency Relationship histories
Buying centre structure Key performance
Deciders and influencers indicators
Influencing factors
The B2B decision-making process is similar to that for consumer purchasing, but is more formal and is specified in greater detail.
The set of probable influencing factors is significantly different to those explored in the previous chapter’s examination of consumer buying.
Figure 6.4
The business buying decision process and factors that may influence it
IT outsourcing agreement, a key customer might demand a new material be sourced, or changes
in fire regulations might dictate the need for a new approach to manufacturing. Often, the problem
recognized is simply the need to replenish stocks of raw materials or components. Individuals in
the buying centre, such as users, influencers or buyers, may be involved in problem recognition,
but this may be stimulated by external sources, such as sales representatives or customers.
Stage 2 The second stage of the process, development of product specifications, requires those
involved to assess the problem or need, and to determine what is necessary to resolve or satisfy
it. During this stage, users and influencers, such as technical personnel, production managers and
engineers, often provide information and advice for developing product specifications. By assess-
ing and describing needs, the organization should be able to establish product specifications.
Stage 3
Searching for possible products and suppliers to solve the problem is the third stage
in the decision process. Search activities may involve surfing the web, looking in company files
and trade directories, contacting suppliers for information and networking, visiting trade shows,
identifying suppliers used by rivals, soliciting proposals from known suppliers, and examining
catalogues and trade publications. Suppliers may be viewed as unacceptable because they are
too small to supply the quantities needed, or because they do not have the necessary information
technology systems to keep appropriate delivery records. In some instances, the product may not
be available from any existing supplier and the buyer must then find an innovative company that
can design and build the product. During this search stage, some organizations engage
value analysis
in value analysis, which is an evaluation of each component of a potential purchase.
An evaluation of each Value analysis examines quality, designs, materials and possibly item reduction or dele-
component of a potential tion to acquire the product in the most cost-effective way. Usually suppliers are judged
purchase. against several criteria and some will be ruled unsuitable. Some organizations practice
supplier analysis, a formal and systematic appraisal of current and potential suppliers
or vendors, focusing on factors such as price, product quality, delivery service, product
supplier analysis availability, reliability, reputation, client profile and customer service.
A formal and systematic If all goes well, the search stage will result in a list of several alternative products and
evaluation of current and
potential suppliers.
suppliers.
Stage 4 The fourth stage is evaluating the products on the list to determine which
options (if any) meet the product specifications developed in the second stage. The advertisement
in Figure 6.5 stresses the particular product quality attributes that may help customers evaluate
whether a particular offering meets their requirements. At this point, various suppliers are evaluated
according to multiple criteria, such as price, service, technical support, ability to deliver, as well as
brand reputation and track record.
Stage 5 The results of the deliberations and assessments in the fourth stage are used during
the fifth stage, to select the most appropriate product and supplier. In some cases, the buyer may
decide on several suppliers. In others, only one supplier is selected, which is a situa-
sole sourcing tion known as sole sourcing. Sole sourcing has traditionally been discouraged except
A buying process that when a product is available from only one company. In recent times sole sourcing has
involves the selection of become more popular, partly because such an arrangement means better communica-
only one supplier.
tions between buyer and supplier, stability and higher profits for the supplier and, often,
lower prices for the buyer. The popular manufacturing approach of just-in-time often
requires sole sourcing, in order to facilitate the logistical arrangements between buyer
and supplier. However, many organizations prefer to purchase goods and services from
multiple sourcing
several suppliers, multiple sourcing, to reduce the possibility of disruption caused by
A business’s decision to strikes, shortages, quality problems, delivery glitches or bankruptcy. The actual product
use several suppliers. is ordered in this fifth stage and specific details regarding terms, credit arrangements,
delivery dates and methods, and technical assistance are worked out.
Figure 6.5
DHL promotes the speed and reliability of
its courier services
Stage 6 During the sixth stage, the performance of the supplier and the product or service is
evaluated, by comparing outcomes with specifications and customer expectations of the relation-
ship. Sometimes, even though the product meets the specifications, its performance does not
adequately solve the problem or satisfy the need recognized in the first stage. In such cases, the
product specifications must be adjusted. The supplier’s performance is also evaluated during this
stage, and if it is found wanting, the buyer seeks corrective action from the supplier or searches for
a new supplier. Buyers are increasingly concerned with obtaining high-quality service from suppliers
and may formally set performance targets for them. The results of such performance evaluations
become feedback for the other stages and influence future purchase decisions. In many business
relationships, particularly long-term relationships, suppliers formally audit their customers’ satisfac-
tion levels in order to minimize any problems that may eventually lose a c ustomer to a competitor.
Uses of the business buying decision process This business buying decision process is used
in its entirety primarily for new task purchases. Several of the stages, but not necessarily all, are
used for modified re-buying and straight re-buying, and fewer individuals are likely to be involved
in these decisions. If a buyer–supplier relationship is working well, there may be no consideration
of alternative suppliers. Indeed, customers may work with such well-regarded suppliers when
specifying their next product or purchasing needs. There is a desire in many business markets, par-
ticularly in supplier–manufacturer relationships, to create mutually beneficial ongoing partnerships,
with customers and suppliers openly sharing market data, knowledge of product or competitor
developments, and future plans.15
Influences on business buying

Figure 6.4 also lists the four major categories of factors that influence business buying decisions:
environmental, organizational, interpersonal and individual. In the Topical Insight box ‘Insurance
brokers reflect influences on clients’ decision-making’, insurance broker Willis’s SME clients reflect
in their customer engagement the influencing factors that impact on their corporate customers’
decision-making.16
environmental factors Environmental factors Chapter 3 explained that environmental factors are uncon-
Uncontrollable forces trollable forces such as politics, laws, regulations and regulatory agencies, activities
such as politics, com- of interest groups, changes in the economy, competitors’ actions and technological
petitive and economic changes. These forces generate a considerable amount of uncertainty for an organiza-
factors, legal and regula-
tion, which can make individuals in the buying centre apprehensive about certain types
tory issues, technological
changes and socio-cul- of purchase. Changes in one or more environmental forces can create new purchasing
tural issues. opportunities. For example, changes in competition and technology can make buying
decisions difficult in the case of products such as computers, a field in which competition
is increasingly affected by new cooperative strategies between companies.
organizational factors Organizational factors Organizational factors influencing the buying decision pro-
Include the buyer’s cess include the buyer’s objectives, purchasing policies and resources, as well as the
objectives, purchasing size and composition of its buying centre. An organization may have certain buying
policies and resources, policies to which buying centre participants must conform. For instance, a company’s
as well as the size and
policies may require long-term contracts, perhaps longer than most sellers desire. The
composition of its buying
centre. nature of an organization’s financial resources may require special credit arrangements.
Any of these conditions could affect purchase decision processes.
interpersonal factors
Interpersonal factors Interpersonal factors are the relationships among the people
The relationships among in the buying centre or decision-making unit, where the use of power and the level of
people in the buying cen- conflict significantly influence organizational buying decisions. Certain managers in the
tre and with suppliers’ buying centre may be better communicators than others and thus more persuasive.
personnel. Often these interpersonal dynamics are hidden, making them difficult for business mar-
keters and key account managers to appraise. There are also interpersonal factors to
consider between supplier and customer personnel. While a customer may be purchas-
ing a particular product, the supplier’s personnel involved with placing the order, offering technical
assistance or customer service, and in logistical arrangements, become a very important concern
for the customer’s managers. No matter how good the product may be, if the supplier’s personnel
are not regarded in a good light by the customer’s managers, there is unlikely to be a high level of
customer satisfaction. Suppliers must select, train, motivate and reward, control and orientate their
customer-facing personnel very carefully. The individual factors pertinent to particular managers
are, therefore, important.
individual factors Individual factors Individual factors are the personal characteristics of individuals
The personal charac- in the buying centre, such as age, education, personality, position in the organization
teristics of individuals in and income level. For example, a 60-year-old manager who left school at 16 and has
the buying centre, such
as age, education, per-
been with the organization ever since may affect the decisions of the buying centre dif-
sonality, position in the ferently from a 30-year-old with a two-year employment history, who left university with
organization and income a business studies degree and an MBA. How influential these factors will be depends
level. on the buying situation, the type of product being purchased and whether the purchase
is new task, modified re-buy or straight re-buy. The negotiating styles of individuals will
undoubtedly vary within an organization and from one organization to another. To be
effective, a marketer needs to know customers well enough to be aware of these individual factors
and the effects they may have on purchase decisions.
Selection and analysis of business markets

business marketing
Activities directed
towards facilitating and Marketing research is becoming more important in business markets. Most of the
expediting exchanges marketing research techniques discussed in Chapter 9 can be applied to business
between businesses. marketing. This section focuses on important and unique approaches to selecting and
analyzing business markets.
Insurance brokers reflect customer service, supportive advice and

influences on clients’ peace of mind. The proposition offered
Topical insight and the way in which it is conveyed by
decision-making the broker must reflect these B2B client
requirements. While the product and service
Willis is a global leading Anglo-American
package are key determining factors in gaining
insurance broker serving many large com-
client interest, members of the Willis Network must
mercial clients. In order to look after the SME Willis
reflect other research findings in their sales and market-
market, Willis established the innovative Willis Network and its
ing practices. For example, these corporate customers seek
sister N2. Recent merger activity has created a larger network
value for money, but also reassurance that the provided insur-
embracing the agencies of Willis and Towers Watson. Indepen-
ance cover will be fit for purpose and give them peace of mind.
dent insurance brokers can sign up to become a member of
The personal relationship and degree of empathy between the
the Willis Network and the support, market insight, products
boss of the SME client and the broker’s staff are essential req-
and negotiating power with the large insurers that would nor-
uisites for success and for giving such peace of mind.
mally only be available to large-scale insurance firms. Mem-
One of the most important influences upon these com-
bers are guaranteed a regional monopoly within the Network.
panies’ selection of preferred broker and the purchase of the
The Willis Networks offer independent regional insurance brokers specific insurance package relates as much to peer com-
The Best of Both Worlds through the Willis Commercial Network ments as to the overt activities of the broker’s staff. If the
2
and Willis N . Our regional broker network members can access bosses of other SMEs speak highly about Willis Networks’
Willis’ resources to help them to flourish and grow in a dynamic local broker, there is likely to be a sales opportunity for the
market.
broker. As a result, the broker must identify and then engage
Member broker firms in the network serve many private with clients’ networks and business circles, ensuring positive
and commercial customers. One key market is the insurance reinforcement for its brand reputation, service and products
cover provided to corporate SME clients to cover their com- from the trusted contacts of the prospective SME’s owner. This
mercial activities. For example, the insurance cover required networking and reputation building often involves many after-
by a manufacturing business with turnover of around £5m noons on the golf course, business lunches, sponsoring local
and employing 80 workers. The cover generally is provided by business gatherings and gaining coverage in the business
the major insurers, such as Allianz, AXA, RSA or Zurich, but is pages of the local press or on LinkedIn fora. The importance
purchased via an intermediary, which is the local broker. The of understanding such influencing forces and the various roles
purchasing power and scale of Willis enables the company to within the purchase decision-making process is essential for
negotiate preferential terms and customer service on behalf of marketers in this challenging and very competitive sector.
network members, the local brokers, who in turn may deliver
improved deals and service to their corporate clients.
Marketing research identified SME client needs for com- Sources: www.willisnetworks.co.uk/why-willis-networks/gatewayto-willis,
22 March 2011; www.willis.com/About_Willis, 22 March 2011; Willis, March
mercial combined insurance to be value, credibility of the 2015; IHN, December 2014; www.willis.com/Client_Solutions/Services/
package and supplier, well-specified products, incentives, Commercial_Network/UK/, March 2018.
Many business marketers have easy access to a considerable amount of information about
potential customers, particularly in industrial or manufacturing markets, for much of this informa-
tion appears in government and industry publications. Even though marketers may use different
procedures to isolate and analyze target markets, most follow a similar pattern:
1. determining who potential customers are and what they require
2. deciding how many and locating where they are
3. estimating their purchase potential and likelihood of ongoing loyalty
4. identifying how to engage with them.
Identifying potential customers

All marketers must determine who are potential customers.
Standard Industrial The standard industrial classification system Much information about busi-
Classification (SIC) ness customers is based on the Standard Industrial Classification (SIC) system,
system which provides information on different industries and products, and was developed
A system that provides
to classify selected economic characteristics of industrial, commercial, financial and
information on different
industries and products, service organizations. In the UK, this system is administered by the Office for National
and classifies economic Statistics (www.gov.uk/government/publications/standard-industrial-classification-
characteristics of indus- of-economic-activities-sic). Table 6.1 shows how the SIC system can be used to
trial, commercial, financial categorize products.
and service organizations.
Table 6.1 The Standard Industrial Classification (SIC) system for categorizing industrial customers
Agriculture, Forestry and Fishing

Mining and Quarrying
Manufacturing
Electricity, Gas, Steam and Air Conditioning Supply
Water Supply, Sewerage, Water Management and Remediation Activities
Construction
Transportation and Storage
Accommodation and Food Service Activities
Infrastructure and Communication
Financial and Insurance Activities
Real Estate Activities
Professional, Scientific and Technical activities
Administration and Support Service Activities
Public Administration and Defence
Education
Human Health and Social Work Activities
Arts, Entertainment and Recreation
Activities of Households as Employers and Own Use
Activities of Extraterritorial Organizations and Bodies
The most recent SIC manual contains 19 broad divisions, broken into many sub-types, each
denoted by a five-digit code. For example, one of the broader 19 categories is Accommodation and
Food Service, contains 13 sub-categories, such as Hotels, Trailer Parks and Licenced Restaurants.
The Manufacturing category contains dozens and dozens of sub-types, such as Manufacturers
of Men’s Underwear, Manufacturers of Plaster, Copper Production and Manufacturers of Pumps.
Other countries, including the USA, have their versions of SIC.
Data are available for each SIC category through various government publications and depart-
ments. Table 6.2 shows the types of information that can be obtained from government sources.
Some data are available by town, county and metropolitan area. Business market data also appear
in such non-government sources as Dun & Bradstreet’s Market Identifiers.
The SIC system is a ready-made tool that allows business marketers to allocate industrial
organizations to market segments based mainly on the type of product manufactured or handled.
Although the SIC system is a vehicle for segmentation identifying groupings of customers (see
Chapter 7) it must be used in conjunction with other types of data to enable a business marketer
to determine exactly which customers he or she can reach and how many of them can be targeted.
The SIC system is a convenient grouping categorization, but it does not negate the need to fully
explore customer buying behaviour, as depicted in the Marketing Tools and Techniques box in this
chapter entitled Practitioners’ use of the buying behaviour theory: the Dibb/Simkin buying profoma,
in order to properly consider target market priorities.
Input-output analysis Input–output analysis works well in conjunction with the SIC system. This
type of analysis is based on the assumption that the outputs or sales of one industry are the input
or purchases of other industries. For example, component manufacturers provide products that
form an input for manufacturers of white goods such as washing machines, dishwashers
input–output data and fridges. Input–output data tell what types of industries purchase the products of
Information on what a particular industry.
types of industries pur-
After discovering which industries purchase the major portion of an industry’s output,
chase the products of a
particular industry. the next step is to find the SIC numbers for those industries. Although organizations
are grouped differently in the input–output tables and the SIC system, ascertaining SIC
numbers can be difficult. However, the Office for National Statistics does provide some
limited conversion tables with the input–output data. These tables can assist business marketers
in assigning SIC numbers to the industry categories used in the input–output analysis. Having
determined the SIC numbers of the industries that buy the company’s output, a business marketer
is in a position to ascertain the number of establishments that are potential buyers nationally, by
town and by county. Government publications report the number of establishments within SIC
classifications, along with other types of data, such as those shown in Table 6.2.
Table 6.2 Types of government information available about industrial markets (based on SIC categories)
Value of industry shipments

Number of establishments
Number of employees
Exports as a percentage of shipments
Imports as a percentage of apparent consumption
Compound annual average rate of growth
Major producing areas
Identifying and locating potential customers Once business marketers have achieved this level
of information, they can identify and locate potential customers using the internet or business direc-
tories such as Kompass. Sixty-six countries, over 11.6 million companies, six million websites and
13.6 million executive contacts are included in Kompass’s business database (gb.kompass.com).
These sources contain information about a company such as its name, SIC number, address,
phone number and annual sales, allowing organizations to develop lists of potential customers
by area.
A second approach, which is more expedient but also more expensive, is to use one of the
many marketing services businesses. For example, Market Location (www.marketlocation.com)
and Experian (www.experian.co.uk/business-services/b2bmarketing-overview.html) are able to
provide lists of organizations that fall into particular SIC groups or any categorization created
by clients. Information can include name, location, sales volume, number of employees, types
of product handled and names of chief executives. Business marketers can then decide which
companies on the list to pursue. This will usually involve an assessment of attractiveness and pur-
chase potential. As described in Chapters 8 and 12, there are also many techniques that assist
marketers in assessing the relative attractiveness of customers and market segments, such as
the directional policy matrix and ‘ABC sales: contribution’ analysis, explained later in Marketing:
Concepts and Strategies.
In business marketing, situation-specific variables may be more relevant in segmenting markets
than general customer characteristics. Business customers concentrate on benefits sought; there-
fore, understanding the end use of the product is more important than the psychology of decisions
or socio-economic characteristics. Segmenting by benefits rather than by customer characteristics
can provide insight into the structure of the market and opportunities for new customers.17
To estimate the purchase potential of business customers or groups of customers, a marketer
must find a relationship between the size of potential customers’ purchases and a variable available
in SIC data, such as the number of employees. For example, a fabric manufacturer might attempt
to determine the average number of metres of different materials purchased by a specific type of
potential clothing manufacturer relative to the number of people employed. If the marketer has
no previous experience in this market segment, it will probably be necessary to survey a random
sample of potential customers in order to establish a relationship between purchase sizes and
numbers of people employed. Once this relationship has been established, it can be applied to
potential customer segments to estimate their purchases. After deriving these estimates, the mar-
keter selects the customers to be included in the target market.
More and more businesses are adopting segmentation schemes that are based on the needs,
buying behaviour and characteristics of their customers, rather than on simple trade categories or
SIC codes. Such segmentation demands a thorough understanding of the nature of purchasing,
the buying decision-making process and influencing factors, as described in this chapter. The next
chapter of Marketing: Concepts and Strategies explores the ways in which business marketers
derive market segments and establish target market strategies.
Figure 6.6
Networking, discussing and engaging with
prospective business customers is an
important part of identifying likely sales
leads and honing an appropriate marketing
proposition
Marketing’s variations in business markets

Business marketers often have to address the needs of business customers within a marketing
channel and the needs of their intended business customers. Some business marketers must also
serve the needs of consumers. Marketers of consumer goods often manage many products and
deal with perhaps thousands of customers. Mostly, although not always, such consumer products
pass through a marketing channel so that a manufacturer’s marketing managers deal primarily with
channel member business customers. So for example, the marketers handling Snickers or Mars
bars are concerned with understanding and satisfying their retail customers, such as the large
cash-and-carry groups and the supermarkets. However, these marketers are also developing
the marketing programmes targeting the end-user consumers. Mars’ marketers also handle the
company’s marketing activity aimed at the individual consumer. While a manufacturer’s marketers
often have to address dual audiences, channel member customers and consumers, it is more likely
that their focus will be on the business (trade) customer.
Many business marketers handle a relatively small number of clients and the need to tailor market-
ing propositions to these customers’ wishes is arguably more important than in consumer markets.
While all marketers must properly understand buying behaviour and purchasers’ characteristics, it
is absolutely crucial in business marketing for marketers to develop such an understanding. Sales
staff play a central role in building this understanding. Their relationships with customers can be
leveraged to gain a particularly in-depth appreciation of customers’ needs. Regular networking with
business customers is central to developing this understanding (see Figure 6.6). Not surprisingly, the
sales and marketing personnel in many business-to-business companies work together very closely.
There are other nuances worth mentioning. Most advertisements shown on television over the
course of an evening are for consumer goods and services: they are eye-catching, emotive and
highly persuasive. This style of advertising reflects the emotive brand positionings developed for
many consumer goods, such as Nike or Guinness. While business marketers also strive to create
strong brands18 (see Chapter 11) that are distinctive and attractive, much business branding lacks
the emotion of consumer branding and suffers from a relative paucity of investment in supportive
marketing communications activity and spending. Business branding tends to be more simplistic,
focusing on identification and product differentiation. There are, of course, exceptions, with some
business-to-business brands such as IBM or JCB being just as powerful as consumer brands.19
The role of competition is different, too. It is unlikely that arch-rivals Tesco, Morrisons and ASDA
would ever cooperate and work together. Similarly, why would KP and Walkers ever unite? Many
brands between which a consumer may choose are unlikely ever to cooperate and work in har-
mony with each other. Indeed, the Competition and Markets Authority and EU regulators would
probably be unimpressed if they did. In many business situations, though, individual companies
pool their expertise and resources in order to win contracts with customers. For example, to offer
retailers a viable chip-and-pin payment service, IT services company Fujitsu joined forces with Bar-
claycard Merchant Services (payment transactions), Box (hardware) and Cybertill (installation and
maintenance) as a partnership. However, partners in one market segment may in fact be arch-rivals
in another. Fujitsu may compete with CapGemini, BT or IBM in one segment, but partner such
companies in order to serve the needs of business customers in another. The implication is that
the understanding of competitive forces is often more complex and intriguing in many business
markets and rivals cannot always be treated as the enemy!
Target market strategies are important to all marketers, irrespective of product or market. In
order to develop a target market strategy, marketers must be able to allocate a market’s custom-
ers into groups or market segments. The consumer marketer may use lifestyles, socio-economic
information or consumers’ perceived benefits to create market segments or groups of like-minded
consumers. The business marketer, however, may fall back on more simple criteria, such as SIC
codes or the trade sectors of their customers, in order to determine market segments. This very
important aspect of marketing strategy is explored in Chapter 7. Until an understanding of business
customers’ buying behaviour has been developed, as described in this chapter, it is not possible
to produce a market segmentation scheme. Armed with customer insights as depicted in the
Topical Insight in this chapter Insurance brokers reflect influences on clients’ decision-making, it is
straightforward to develop market segments.
If consumer marketers feel they have an inadequate appreciation of consumers’ issues and
buying behaviour, it is relatively straightforward to embark on suitable marketing research activities
in order to rectify this deficiency. As described in Chapter 9, undertaking observations or surveys
of consumers is fairly routine. However, busy executives and decision-makers inside business cus-
tomers rarely offer to attend focus groups, they discard questionnaires and are not easy to access
for interviews. Apart from access problems, business customers may well use any surveying to
lobby suppliers for a better deal. For example, they may feed back to the supplier’s marketers
behind the survey the apparent importance of a better pricing option or improved customer ser-
vice systems, rather than objectively and openly engage in the marketing research activity. Con-
sumer products are readily visible on retailers’ shelves; their prices, marketing communications
campaigns, product features or attributes, and their channels to market are there to be seen by
competitors’ marketers. In most business markets, it is not easy to gain access to rivals’ products
or services, and the marketing programmes are not so readily visible.
The marketing mix is the set of tactical ingredients manipulated by marketers in marketing pro-
grammes designed to implement a target market strategy. As described in Part Three of Marketing:
Concepts and Strategies, all marketers manipulate the marketing mix in order to reflect the nature
of their market, customer buying behaviour, the activities of competitors, organizational capabili-
ties and corporate objectives. Compared with consumer marketers, those tasked with marketing
business products have to make certain adjustments to their marketing mix programmes.
The overall implication is that business marketers must modify their use of the marketing tool-
kit to reflect the nature of their markets and the characteristics of their business customers. The
overall marketing process and the toolkit apply irrespective of the marketplace, but it is evident
that business marketers, consumer goods marketers and the marketers of services need to make
certain modifications. These themes are discussed in more detail in Chapter 21.
Business marketers often have to address the needs of customers within a marketing channel
as well as the needs of their intended customers. Some business marketers must also serve the
needs of consumers. Many business marketers handle a relatively small number of customers and
must tailor marketing propositions to these customers’ specific wishes. The sales and marketing
personnel in many business-to-business companies work together very closely.
Summary
Business marketing or B2B marketing used to be known as organizational, industrial or business-to-business marketing. Busi-
ness markets consist of individuals or groups that purchase a specific kind of product for resale, for direct use in producing
other products, or for use in their day-to-day operations. Producer markets include those individuals and business organiza-
tions that purchase products for the purpose of making a profit by using them either to produce other products or in their own
operations. Classified as reseller markets are intermediaries, such as wholesalers, distributors and retailers, who buy finished
products and resell them for the purpose of making a profit. Government markets consist of national and local governments,
which spend huge amounts annually on goods and services to support their internal operations and provide citizens with
needed services. Many businesses refer to government, local government and institutions collectively as the public sector, and
the public sector market is a growing area of activity within the marketing discipline. Organizations that seek to achieve char-
itable, educational, community or other non-business goals constitute institutional markets. Aspects of government and much
of institutional marketing today are described as the third sector, with social marketing addressing their customers.
Business-to-business transactions differ from consumer transactions in several ways. The transactions tend to be larger,
and negotiations occur less frequently, though they are often lengthy. Business transactions sometimes involve more than
one person or one department in the purchasing organization. They may also involve reciprocity, an arrangement in which
two organizations agree to buy from each other, although some countries have strict rules governing such agreements.
Business customers are usually viewed as more rational and more likely to seek information about a product’s features
and technical specifications than are ultimate consumers.
When purchasing products, business customers must be particularly concerned about quality, delivery, service, price
and reputation. Quality is important because it directly affects the quality of the organizational buyer’s ultimate product.
To achieve an exact standard, organizations often buy their products on the basis of a set of expressed characteristics,
called specifications. Reliable and fast delivery is crucial to many organizations, whose production lines must be fed with
a continuous supply of component parts and raw materials. Because services can have a direct influence on a company’s
costs, sales and profits, such matters as market information, on-time delivery and availability of parts can be crucial to a
business buyer. Although a business customer does not decide which products to purchase solely by their price, cost is of
prime concern because it directly influences a company’s profitability. Product range, regulatory compliance, innovation,
reliability and logistical support may also be significant considerations. Increasingly, business buyers are concerned with
service support levels and the ongoing commitment from their selected suppliers. There is a view that a supplier’s person-
nel in terms of knowledge, motivation, attitude and passion for assisting the customer, are an integral part of the product
proposition being ‘consumed’ by the business customer.
Business buyers use several purchasing methods, including description, inspection, sampling and negotiation. Most busi-
ness purchases are new task, modified re-buy or straight re-buy. In a new task purchase, an organization makes an initial
purchase of an item to be used to perform a new job or to solve a new problem. In a modified re-buy purchase, a new task
purchase is changed the second or third time it is ordered, or the requirements associated with a straight re-buy purchase
are modified. A straight re-buy purchase occurs when a buyer repurchases the same products routinely under approxi-
mately the same terms of sale.
Business demand differs from consumer demand along several dimensions. Derived demand is the demand for business
products that arises from the demand for consumer products. At the industry level, inelastic demand is a demand that is
not significantly affected by a price increase or decrease. If the price of an industrial item changes, demand for the product
will not change proportionally. Some business products are subject to joint demand, which occurs when two or more items
are used in combination to make a product. Finally, because business demand ultimately derives from consumer demand,
the demand for business products can fluctuate widely.
Business (or business-to-business) buying behaviour refers to the purchase behaviour of producers, resellers, government
units and institutions. Business purchase decisions are made through a buying centre or decision-making unit; the group
of people who are involved in making organizational purchase decisions. Users are those in the organization that actually
use the product. Influencers help develop the specifications and evaluate alternative products for possible use. Buyers are
responsible for selecting the suppliers and negotiating the terms of the purchases. Deciders choose the products and sup-
pliers. Gatekeepers control the flow of information to and among people who occupy the other roles in the buying centre.
When a company buys a product or service from another company, both organizations enter into a process during which items
of value are exchanged in return for something else. This exchange process may lead to a long-term relationship between
buyer and seller. Relationship marketing is the term used to explain the special attention being given to this area and is defined
as the activities an organization uses to build, maintain and develop customer relations (for both business and consumer mar-
kets). The trend towards long-term relationships has resulted in relationship management, increased value analysis and the
more systematic evaluation of suppliers in supplier analysis. Key account management is an associated development.
The stages of the business buying decision process are (1) problem recognition, (2) development of product specifications
to solve the problem, (3) search for products and suppliers, (4) evaluation of products relative to specifications, (5) selec-
tion and ordering of the most appropriate product, and (6) evaluation of the product’s and the supplier’s performance. The
evaluation of product and suppliers will directly affect future purchasing decisions. Sole sourcing, the process of selecting
only one supplier, is becoming more popular, particularly where manufacturers are practicing just-in-time production. Many
organizations still opt to practice multiple sourcing.
Four categories of factors influence business buying decisions: environmental, organizational, interpersonal and individual.
Environmental factors include politics, laws and regulations, economic conditions, competitive forces and technological
changes. Organizational factors include the buyer’s objectives, purchasing policies and resources, as well as the size and
composition of its buying centre. Interpersonal factors refer to the relationships among the people in the buying centre or
decision-making unit, and relationships between supplier and customer personnel. Individual factors refer to the personal
characteristics of individuals in the buying centre, such as age, education, personality, position in the organization and income.
Business marketing is a set of activities directed at facilitating and expediting exchanges between organizations rather
than with consumers.
Business marketers have a considerable amount of information available to them for use in planning their marketing strat-
egies and for identifying sales potential. Much of this information is based on the Standard Industrial Classification (SIC)
system, which classifies businesses into major industry divisions, classes, groups and activities. The SIC system provides
business marketers with information needed to identify market leads. It can best be used for this purpose in conjunction
with other information, such as input–output data. After identifying target industries, the marketer can locate potential
customers by using the internet or directories, or by employing a marketing services business. The marketer must then
estimate the potential purchases of business customers. Segmentation is now at the heart of most business-to-business
marketing strategies, as explained in the next chapter.
Business-to-business branding tends to be more simplistic than is the case with consumer brands, focusing on identifi-
cation and product differentiation. In many business situations, individual companies pool their expertise and resources in
order to win contracts with customers. However, partners in one market segment may in fact be arch rivals in another. The
implication is that the understanding of competitive forces is often more complex and intriguing in business markets and
rivals cannot always be treated as ‘the enemy’.
Although SIC codes and industry trade categories are often used by business marketers, increasingly the approaches deployed
by consumer marketers in creating market segments are being deployed in business markets. Undertaking marketing research
in business markets is quite different from researching consumers. Compared with consumer markets, those tasked with mar-
keting business products have to reflect certain market nuances when developing their marketing mix programmes.
Important terms
Key links Business (or business-to-business) buying behaviour
Business market
●● This chapter must be read in conjunction with
Business marketing
hapter 5, which details the buying behaviour of
C
Buying centre
consumers. A popular examination question is to
Derived demand
compare and contrast the buying behaviour models
Environmental factors
in consumer and business markets.
Government markets
●● In strategic marketing, a key use of an understanding Individual factors
of customer behaviour is the construction of market Industrial, organizational or business-to-business market
segments, as discussed in Chapter 7. Inelastic demand
●● The marketing mix should reflect the nuances of the Input–output data
market in question, as described in Chapter 21. Institutional markets
Interpersonal factors
Joint demand 8. What are the major components of a buying centre or

Key account management decision-making unit?
Modified re-buy purchase 9. What elements may be exchanged by a buyer and seller
Multiple sourcing when a purchase transaction takes place?
New task purchase
10. Why has relationship management attracted so much
Organizational factors
interest in business markets?
Producer markets
Public sector markets 11. Identify the stages of the business buying decision process.
Reciprocity How is this decision process used when making straight
Relationship management re-buys?
Relationship marketing 12. What impact does the evaluation of a particular purchase
Reseller markets have on future buying decisions?
Retailers 13. How do environmental, organizational, interpersonal and
Sole sourcing individual factors affect business purchases?
Standard Industrial Classification (SIC) system
14. What function does the SIC system help business marketers
Straight re-buy purchase
perform?
Supplier analysis
Third sector 15. List some sources that a business marketer can use
Value analysis to determine the names and addresses of potential
Wholesalers customers.
16. In what ways do business marketers have to reflect the
nuances of business markets when deploying the market-
Discussion and review questions ing toolkit?
1. Identify, describe and give examples of four major types of
business market.
2. Why are business buyers generally considered more Recommended readings
rational in regard to their purchasing behaviour than Brennan, R., Canning, L. and McDowell, R., Business-to-Business Mar-
consumers? keting (Sage, 2017).
3. What are the primary concerns of business customers? Ellis, N., Business-to-Business Marketing: Relationships, Networks and
Strategies (Oxford University Press, 2010).
4. List several characteristics that differentiate business trans-
Gillin, P. and Schwartzman, E., Social Marketing to Business Customers:
actions from consumer ones. Listen To Your B2B Market, Generate Major Account Leads and Build
5. What are the commonly used methods of business buying? Client Relationships (Wiley, 2011).
Hakansson, H., Ford, D., Gadd, L.-E., Snehota, I. and Waluszewski, A.,
6. Why do buyers involved in a straight re-buy purchase
Business in Networks (Wiley, 2011).
require less information than those making a new task
Hutt, M.D. and Speh, T.W., Business Marketing Management: B2B
purchase?
(Cengage, 2013).
7. How does business demand differ from consumer demand? Webster, F.E., Industrial Marketing Strategy (Wiley, 1995).
Web task Classroom tools manufacturing, energy, retailing,

financial services, telecommunica-
Log onto Dell’s website. Ignore the tions, as well as government. Visit
sections aimed at consumers, such Dell’s website at: www.dell.com/
as Gaming. Instead, go to the sections targeting business users, en-uk/work/learn/large-enterprise-solutions?~ck=mn
such as Industries, Services, Cloud, Data Centres, Big Data and
Internet of Things. These sections detail Dell’s business-to- 1. In what ways do Dell’s web pages for business products
business products, services and upcoming events. There are reflect the requirements of business customers?
sections offering solutions to small business, public sector and 2. How have the messages been tailored to reflect the buy-
large enterprises, in many areas such as healthcare, education, ing behaviour of Dell’s business customers?
Group tasks leading business executives and management gurus. Visitors

to the site are offered How Can You Be An Effective Leader?
1. In seeking to persuade a business customer to sign a Planning for Growth, Building Your Team, Getting Customers
contract, a supplier must identify the composition of the and Managing Money, or key topics such as Cash Flow, Taxes,
buying centre or decision-making unit, the influencers Digital Tools, Social Media Strategy. Many B2B organisations
and deciders, and address a myriad of different stake- now host online discussion groups and provide networking
holders. Select a business product or service of your opportunities so that topical content attracts traffic to their
choice and map out the likely buying centre. websites and builds brand reputation. Other social media
2. The days of PG Tips and Tetley dominating the tea aisle sites exist purely to create networking opportunities and to
in the supermarket have long gone. Today there are monetize the value of these B2B links and memberships. For
many brands but also many types of infusions on offer. example, LinkedIn enables businesses or individuals to pro-
How does a retailer such as Waitrose or Tesco determine mote their views and join discussion groups across a range of
which brands and what tea types to stock? specialist business topics and sector-specific expertise. Social
media applications are no longer only of interest to marketers
Applied mini-case addressing consumers.
Opportunities from social media are blossoming. American
Question
Express’s B2B networking site Openforum.com is accessible
to both new business customers and current Open Card mem- As the marketing director of a business-to-business organi-
bers. It provides small and medium-sized enterprises (SMEs) zation, why might you be excited by the potential of commu-
access to a wealth of advice and insight, including the views of nicating on social networking sites?
Nynas: in the black and leadership has not occurred by accident.

leading Case study Nynas has established its enviable position
by astutely utilizing the resources required
For most people, oil is evident as a fuel for to develop innovative products, customer
cars, heating and the generation of electricity, service schemes and flexible delivery capa-
or as the basis for the plastics industry. What bilities in order to ensure customer satisfaction.
about the black surfaces of pavements, roads, driveways, car At the heart of its business strategy is a desire to
parks and school playgrounds? Bitumen is an oil-based prod- innovate, listen to customers and develop services that
uct most of us take for granted, but it is a major part of the genuinely enable customers to be served properly.
revenue for companies such as Shell, BP, Esso, Total, Colas or Nynas believes it has several important edges over its
Lanfina. One of the leading bitumen players in the UK, Scandi- rivals, as described below.
navia and much of western Europe is Stockholm-based Nynas.
In the UK, this relatively small player in the petrochemicals Customer dialogue
industry has market leadership in many of the main segments
in the bitumen market and is renowned for its innovative prod- As a major producer with significant R&D technical support,
uct development with polymer formulations. Nynas’s laboratories can determine a product formulation for
Bitumen is one of the most ubiquitous materials made by most bitumen-based applications. Whether the customer is
industry, underfoot almost everywhere as a core ingredient of a local authority requiring a cost-effective thin surfacing for
the macadams and asphalts in roads and pavements. There are a housing estate’s ageing pavements; a contractor such as
numerous specialist applications too, such as the backing for Tarmac requiring 24-hour supply of high-quality, state-of-
carpet tiles, roofing felts, sealants for mighty dams and water- the-art bitumen for the construction of a new motorway; or a
proofing for bridge decks. Inevitably this results in a diverse builder buying polymer-enhanced mastic asphalts to act as a
customer base for an organization such as Nynas. In a market waterproofing membrane for regency mews properties, Nynas
with competitors as large as Esso or Shell, Nynas’s segment can develop a quality bitumen-based product.
Nynas’s composition of customers is varied. A major new

road-building scheme will involve formal tendering and guar-
antees with penalties for inferior product or missed deliveries.
The buying process of such customers will be highly formal,
involving numerous managers, and functions as diverse as
purchasing, technical support, construction, finance and
logistical support. On both sides customer and Nynas cross-
functional teams of scientists, engineers, managers and the
field force will spend many months agreeing on the product
requirements, contractual obligations, delivery requirements
and application techniques. For other customers, the purchase
is perhaps more of a routine re-buy, with only limited inter-
action and discussion between Nynas and the customer. On
Consistent quality and innovative product other occasions, the Nynas helpline may receive a midnight
development telephone call from a highways agency surveyor who has just
discovered cracks in the surface of a major road and requires
Refineries in Belgium, Sweden and the UK, supported by a immediate assistance in both identifying the cause of the
network of terminals and research laboratories across Europe, problem and rectifying the situation before commuters awake
enable Nynas to continually improve its products and their per- the next morning.
formance. Customers do not want to have to resurface major For a rather bland-looking substance such as bitumen, the
roads or busy shopping centre pavements on a frequent basis. market is diverse and challenging. Nynas has established its
Specialist applications such as waterproofing dams or houses successful position in the European market for bitumen-based
are time consuming, costly and inconvenient remedial activ- products by practicing the best principles of marketing. The com-
ities that clients do not want to repeat in a hurry. Nynas has pany strives to understand its customers’ needs and to offer
access to high-grade Venezuelan bitumen, not readily avail- reliable products supported with effective customer service,
able to its major competitors, which gives it added flexibility round the clock. Product innovation is at the forefront of the
in producing high-quality bitumen grades for specific appli- company’s strategy and, coupled with constantly improving ways
cations. Whether it is for a routine commodity bulk job such of offering peace of mind to customers, provides an edge over
as a school playground surface or an unusual requirement for rivals. Shrewd marketing analysis constantly monitors product
waterproofing a royal building, Nynas has developed a repu- changes, customers’ expectations, competitors’ activities and
tation as being a leading supplier. those aspects of the marketing environment, notably techno-
logical and regulatory forces, that will impact on the business’s
fortunes. Resources are allocated to match this thorough assess-
Logistical support ment of market opportunities and marketing requirements.
Users of bitumen often require deliveries at very short notice, in

specific quantities and to guaranteed quality levels. These deliv- Questions for discussion
eries may be anywhere at any time. A contractor repairing a busy 1. Who are Nynas’s customers?
commuter route out of daylight hours needs on-time delivery
2. What types of business markets as classified in this
of ready-to-use bitumen products. Repairs to a remote bridge
chapter purchase the products made by Nynas?
still require guaranteed on-time delivery. Nynas’s depots oper-
ate around the clock despatching computer-monitored deliveries 3. Would most purchases of Nynas’s products be new task,
by tanker to clients as and when the customer has specified. modified re-buy or straight re-buy?
Twenty-four hours a day, 365 days a year, Nynas prides itself References: Siobhan McKelvey and Willie Hunter, Nynas UK; Network magazine;
on its high levels of responsiveness and reliability of delivery. the Nynas Annual Review.
Chapter 7
Segmenting markets
The essence of successful segmentation lies not in fragmentation, but in
building an excellent understanding of the marketplace
INTRODUCTION
Objectives As explained in Chapter 2, marketing strategy revolves around
the choice of which opportunities should be pursued and the
To understand the definition
specification of an appropriate target market strategy. Mar-
of a market.
ket segmentation is a fundamental part of marketing strategy,
To recognize different types assisting organizations to deal with the fact that not all con-
of market. sumers or business customers share identical needs, buying
behaviour or product requirements, while recognizing that com-
To appreciate what is meant
panies do not have the resources or bandwidth to address each
by market segmentation.
individual customer separately.
To grasp why so many marketers The market segmentation process has a number of stages:
place segmentation at the heart segmenting, targeting and positioning. Limited resources gener-
of their marketing strategies. ally result in organizations being unable to serve all of the needs
in the market, and marketers must make trade-off choices
To know the most commonly
based on the relative merits of different market segments in
adopted bases for segmenting
determining which groups to prioritize or target. The consum-
markets.
ers or business customers in those market segments deemed
To learn how companies go about to be priorities for a company must be communicated with in
segmentation. a manner that emphasizes their importance to the company
and demonstrates the company’s attractiveness, which is the
To understand the importance
positioning task. Many marketers believe these aspects of mar-
and role of customer relationship
keting are the most important decisions made by marketers.
management.
Targeting and positioning are explored in the next chapter. The
focus in this chapter is on scoping what is meant by market
segmentation and understanding the approaches for creating
market segments.
204
Chapter 7 Segmenting markets 205
Rice . . . not all grains

D o you enjoy rice?
Which brand and
variety do you buy? In the
seem the same
business is from dry rice,
predominantly top-end
dry basmati. Priced way
rice aisle of the supermarkets above competitors, Tilda
there are many brands, several of enjoys a strong market share
which offer similar varieties such as and has legions of loyal users
basmati or long grain, brown or white. However, most house- who are convinced they can discern
holds have a preference and purchase their favourite brand a taste premium from the perfect looking aromatic basmati
each time they require more rice. This is partly because of the grains. Although far from complicated to cook, Tilda’s appeal
branding adopted by the leading players, sometimes due to is more to scratch cooks and those who enjoy both cooking
a promo price deal, but often it stems from the segmentation and consuming great tasting food. Not that Uncle Ben’s or
strategies adopted by the leading brands. Veetee do not taste good, but their appeal is to consumers in
Market leader Uncle Ben’s, part of the Mars family of com- a hurry or who are less confident cooks, seeking a value for
panies within Masterfoods, has been producing good tasting money reliable rice.
rice since the 1940s, very much targeted at families or cou- Each of these leading rice brands has managed to dif-
ples who are either in a hurry or needing the convenience ferentiate what in many parts of the world is a basic com-
of pre-prepared easy-to-cook rice in a variety of guises and modity . . . grains of rice. Each company, through recipes,
cooking styles. Uncle Ben’s brought rice to the attention of packaging, product formulations, cooking methods, pricing
many consumers in the 1960s and 1970s, with generations and branding, has managed to appeal to a distinctive set of
now having grown up enjoying simple-cook long-grain rice consumers. While they compete with retailers’ own label rice
out of the familiar orange packaging. ranges and with each other for many of the same consumers,
Indian business Veetee launched its Dine In range of each rice company has adopted a segmented approach to
innovative plastic trays packed to show off the ready-cooked guide its product innovation, proposition development, mar-
range of enticing rices: basmati, pilau, long grain, Thai jas- keting messages and consumer engagement programmes.
mine, wild, Thai lime and herb and wholegrain; all ready to eat The consumers for rice are varied. A small segment is
in two-minutes. Not aimed at scratch cooks or those prepared most interested in food provenance, organic credentials
to boil on the hob, this range is targeting ‘food cheats’ who and the ethics of the supplying company. Experienced
want an easy-to-prepare good looking product in no time at scratch cooks are unlikely to favour the brands selected
all, so as to get on with their evening. Re-branded as part of by the microwaving ‘food cheats’. Some consumers switch
its Heat & Eat range of microwavable lines, Veetee now has between being time-pressured in the week and focused on
pasta products in the range, too. limiting time spent in the kitchen, to enjoying trying out new
Further up the rice fixture will be found premium-priced scratch cook recipes at the weekend when entertaining
Tilda. While Tilda also has a microwave range, the bulk of its friends and family. For others, the ever-changing pattern of
commitments of family members suggest mealtimes with
family or alone, dictating the recipe, style of cooking and
brands purchased. Health and nutrition might drive the pur-
chasing decisions of some; while some cooks simply are
scared to cook rice in any form, anticipating disaster if they
do. Understanding these varied behaviours, motives, life-
styles and attitudes is essential as marketers decide which
consumers to pursue.
Even in an apparent commodity market such as rice, seg-
mentation has become firmly entrenched to direct the major
players’ strategies for product development, retailer selec-
tion and marketing programmes. Tilda, Veetee, Uncle Ben’s,
retailer own label and the host of other brands, all have to
decide on which consumers to focus their marketing.
T
his chapter begins by considering the nature of markets, first defining the term and then
describing the different types. The market segmentation concept is then explained and the
rationale for its use explored. Not only rice companies apply the concept of market seg-
mentation. Management consultancies, manufacturers, healthcare providers, leisure operators
and universities all practice market segmentation. The explanation of segmenting focuses on the
variables used to segment consumer and business markets, which in the era of big data have
changed considerably in the last few years. An understanding of customer needs and buying
behaviour, as described in Chapters 5 and 6, is essential for developing market segments. The
importance of customer relationship management to maintain the customer’s interest within key
market segments concludes the chapter.
What are markets?

The word ‘market’ has various meanings. It used to refer primarily to the place where goods were
bought and sold. It can also refer to a large geographic area. In some cases, the word is used
to describe the relationship between the demand and supply of a specific product. For instance,
‘What is the state of the market for IT outsourcing of call centres?’. Sometimes, ‘market’ is used
to mean the act of selling something. The dictionary defines ‘market’ as an occasion on which
goods are publicly exposed for sale, a place in which goods are exposed for sale, or to offer for
sale. In marketing terms, a market is defined in terms of customers, their need for a product, and
their ability to purchase or consume.
In this book a market is defined as a group of people who, as consumers or as
market
An aggregate of people part of organizations, need and have the ability, willingness and authority to purchase
who, as individuals or products in a product class. The definition used here is specific, referring to individuals
within organizations, have seeking products in a specific product category. For example, students are part of the
a need for certain p roducts market for textbooks, as well as being markets for laptops, smartphones, stationery,
and the ability, willingness
accommodation, food, transport, music and other products. Obviously, there are many
and authority to purchase
such products. different markets in any economy. In this section, the requirements for markets are con-
sidered in conjunction with these different types.
Requirements for a market

For a group of people to be a market, the members of the group must meet the following four
requirements:
●● They must need or want a particular product or service.
●● They must have the ability to purchase the product or service. Ability to purchase is related to
buying power, which consists of resources such as money, goods and services that can be
traded in an exchange situation.
●● They must be willing to use their buying power.
●● They must have the authority to buy the specific products or services.
Individuals sometimes have the desire, the buying power and the willingness to purchase
certain products, but may not be authorized to do so. For example, secondary school stu-
consumer market dents may want, have the money for and be willing to buy alcoholic drinks, but a brewer
Purchasers or individuals does not consider them a market until they are legally old enough to buy alcohol. An aggre-
in their households who
personally consume
gate of people that lacks any one of the four requirements does not constitute a market.
or benefit from the
purchased products Types of market
and do not buy products
primarily to make a profit. Markets can be divided into two categories: consumer markets and business markets.
A consumer market consists of purchasers and/or individuals in their households who
personally consume or benefit from the purchased products and who do not buy products primarily
to make a profit. Each of us belongs to numerous consumer markets for such products as housing,
cars, appliances, furniture, clothing, food, financial services and leisure activities. Consumer m
arkets
are discussed in more detail in Chapter 5 of Marketing: Concepts and Strategies.
A business market, also referred to as an organizational or business-to-business
business market
Individuals or groups market, consists of individuals or groups that purchase a specific kind of product for one
that purchase a specific of three purposes: resale, direct use in producing other products, or use in their general
kind of product to resell, daily operations. The four categories of business market – producer, reseller, government
use directly in producing and institutional – are discussed in Chapter 6. The so-termed Third Sector of non-profit
other products or use in
markets generally feature within this category, although some authors now believe they
general daily operations.
warrant separate classification.
What is market segmentation?

undifferentiated
(or total market) Chapter 1 explained that at the heart of marketing strategy are the decisions about
approach which opportunities to pursue and which markets to target. Segmentation is a pop-
An approach which ular approach to identifying target markets. As will be explained later in this chapter,
assumes that all
organizations sometimes decide to target the total market, using an undifferentiated (or
customers have similar
needs and wants, and total market) approach. However, it is much more usual for a differentiated approach
can be served with a using market segmentation to be followed, identifying only certain groups/segments of
single marketing mix. consumers or business customers as the ones to pursue and look after.
Defining market segmentation

heterogeneous
markets The varying characteristics, needs, wants and interests of customers mean that there
Markets in which all are few markets where a single product or service is satisfactory for all. The extensive
customers have different
requirements.
array of goods on supermarket shelves reflects basic differences in customers’ require-
ments. The trend is away from a mass-marketing approach. Even markets that were
traditionally undifferentiated have undergone change, with an ever-increasing number of
market segmentation
products on offer. For instance, the market for food seasoning used to be dominated by
The process of grouping salt. Now, low-sodium substitutes are being offered as alternatives for the increasingly
customers in markets health-conscious consumer. Armed with digital marketing options, few marketers today
with some heterogene- consider a mass-marketing approach as worthwhile.
ity into smaller, more Markets in which all customers have different requirements are termed h
eterogeneous
similar or homogeneous
segments. The identifi-
markets. For example, the market for wrist watches is quite diverse. Swatch designs
cation of target customer relatively low-priced watches for the fashion-conscious customer; Rotary markets much
groups in which cus- more conservative and expensive designs for an older customer group; Apple now
tomers are aggregated provides high-tech smart watches. In completely heterogeneous markets the only way
into groups with similar to satisfy everyone is by offering tailor-made or bespoke products. This situation is
requirements and buying
characteristics.
more prevalent in business-to-business markets where, for example, plant machinery
is designed for a specific task and situation. While it may not be feasible to offer every
customer a tailor-made product, it is often possible to aggregate customers into groups
market segment
with similar product needs and wants.
A group of individuals, Market segmentation is the process by which customers in markets with some
groups or organizations heterogeneity can be grouped into smaller, more similar or homogeneous segments. A
sharing one or more market segment is therefore a group of individuals, groups or organizations sharing one
similar characteristics or more similar characteristics that cause them to have relatively similar product needs
that cause them to have
relatively similar prod-
and buying characteristics. Market segmentation involves identifying such groups, so
uct needs and buying that marketers are better able to develop product or service benefits that are appropriate
characteristics. for them (see Figure 7.1 in which segment II has been selected as the target market).
They do this by designing products and brands to appeal to particular target segments
Product/ Segment I
people
Place/
Segment II
Price distribution
Target market
Figure 7.1 Promotion Segment III

The market
segmentation
approach Organization Single marketing mix Market
and to be supported by an appropriate promotional campaign, relevant customer service, and

suitable pricing and place/distribution strategies.1,2 For example, clothing sold through Top Shop
or New Look is manufactured for youthful female consumers; this is reflected in the product styling,
promotional campaigns, store design and branding.
Once market segments have been identified, marketers decide which they intend to enter. A mar-
keting programme covering all elements of the marketing mix can then be designed to suit the par-
ticular requirements of each segment targeted. German-owned BMW previously concentrated on
selling premium-priced luxury vehicles aimed at the luxury and executive segments of the car market.
In order to appeal to a younger age group, during the 1990s BMW introduced the Compact version
of its popular 3 Series. This had the desired effect of attracting buyers who previously could not
afford this aspirational marque. Now BMW has gone further, with the launch of the 1 Series, aiming
to further broaden the appeal of its brand to young professionals. The 4 × 4, X3 and X5 appeal to
other customers. As BMW launches new models it has very clear target market segments in mind.
Reasons for using market segmentation

Companies have turned to market segmentation with good reason.3 Careful segmentation, and
the customer understanding underlying it, can make it easier for companies to identify and exploit
different market opportunities. For example, segmentation can help minor players in the market
achieve a foothold in a particular niche, perhaps by identifying an opportunity not directly exploited
by market leaders. Larger and more mature companies turn to segmentation in order to more
closely pursue groups of customers with well-honed messages and marketing programmes, seek-
ing to differentiate themselves in highly competitive markets. It is no longer adequate for a mobile
phone brand to think of its market as corporate users, private pay-monthly and private pay-as-
you-go subscribers; instead the major brands all have created detailed and well-researched market
segmentations based on users’ lifestyles, behaviours, demographics and needs. Figure 7.2 shows
how the motorbike producer Harley Davidson supports its branding with a diverse range of mer-
chandizing for its brand community, within its selected target market segments.
Segmentation is seen to offer businesses a number of advantages that make it easier to develop
and capitalize on opportunities available to them. These advantages can be considered at the
customer level, in relation to the competition or in terms of the effectiveness of resource allocation
and strategic planning.4
Customer analysis Segmenting markets facilitates a better understanding of customers’ needs,

wants and other characteristics. The sharper focus that segmentation offers, allows those per-
sonal, situational and behavioural factors that characterize customers in a particular segment to
be considered. In short, questions about how, why and what customers buy can be addressed.
By being closely in touch with segments, marketers can respond quickly to even slight changes
in what target customers want. For example, by monitoring the trends towards healthier eating
and lifestyles, McDonald’s was able to respond by introducing a wider range of salads and healthy
eating options, including grilled chicken, fruit and yoghurt on to its menus.
Figure 7.2
Motorbike producer Harley Davidson
supports its branding with a diverse range
of merchandizing, events and clubs for its
brand community, all intended to cement
its reputation with key target audiences
Competitor analysis Most markets are characterized by intense competition. Within this envi-
ronment, companies need to understand the nature of the competition they face. Who are their
main competitors? At which segments are they targeting their products? Answering these ques-
tions allows marketers to make decisions about the most appropriate segments to target and
the kind of competitive advantage to seek. For example, before opening a new restaurant outlet,
Pizza Express needs to build a picture of the existing café, restaurant and other outlets offering a
comparable proposition in the location. The company must also appraise the extent to which the
needs of the consumers it aims to target are already served by what is currently available and how
strong are such rival restaurants. Companies that do not understand their competitive environment
risk encountering competition they had not envisaged or putting resources into unattractive areas
of the market.
Effective resource allocation All companies have limited resources. To target the whole of
the market and every consumer is usually unrealistic. The effectiveness of personnel and material
resources can be greatly improved when they are more narrowly focused on a particular seg-
ment of customers. With limited resources, Kia and Hyundai target only a few market segments
compared with Ford or Toyota, maximizing their use of resources and marketing mix activities.
Often the sponsor of a segmentation strategy is the Chief Finance Officer rather than the Chief
Marketing Officer. The latter reaps the benefits, but the former seeks prudent allocation of the
company’s resources, budgets and investments, and values the fact that a market segmenta-
tion study identifies customers not of importance, so directing spends to those customers who
really matter.
Strategic marketing planning Companies operating in a number of segments are unlikely to

follow the same strategic plans in them all. Dividing up markets allows marketers to develop plans
that give special consideration to the particular needs and requirements of customers in differ-
ent segments. The timescale covered by the strategic plan can also be structured accordingly,
because some segments change more rapidly than others. The market for recorded music is a
typical example. While tastes in classical music remain fairly steady, tastes in pop music change
very rapidly. Music publishers, distributors and labels clearly need to consider this factor when
developing corporate plans.
Segmenting, targeting and positioning

There are three stages to carrying out market segmentation: segmentation, targeting and position-
ing. Figure 7.3 gives an overview of these stages.
Segmentation
Consider the variables for segmenting market
Look at the profile of the emerging segments
Validate the segments emerging
Targeting
Decide on a targeting strategy
Decide which and how many segments should
be targeted
Positioning
Understand consumer perceptions
Position products in the mind of the consumer
by communicating the desired positioning
Design an appropriate marketing mix
Figure 7.3
Basic elements of segmentation
Segmenting the market

There are many ways in which customers can be grouped and markets segmented. In different
markets, the variables that are appropriate change. The key is to understand which are the most
suitable for distinguishing between different product requirements. Understanding as much as
possible about the customers in the segments is also important, as marketers who ‘know’ their
targets are more likely to design an appropriate marketing mix for them. Betting businesses such
as Ladbrokes or Paddy Power evidently have very clearly defined target market segments when
they develop their gambling products, advertising and sponsorships.
Targeting strategy
Once segments have been identified, decisions about which and how many customer groups to
target can be made. There are several options:
●● adopt an undifferentiated approach, focusing on the total market
●● concentrate on a single segment with one product and marketing programme
●● offer one product and marketing programme to a number of segments
●● target a different product and marketing programme at each of a number of segments.
These options are explored in more detail in the next chapter. The choices companies make
should take resource implications into consideration.
Positioning the product

Companies must decide precisely how and where, for the targeted segments, to aim a product
or products, brand or brands. The needs and wants of targeted customers must be translated
into a tangible mix of product/service, personnel, price, promotion and place/distribution activities,
messaging and tone of voice. Consumers’ views of the product and where it is positioned relative
to the competition are particularly critical. After all, the paying public does not always perceive a
product or brand in the way the manufacturer or marketing team would like. For example, to the
dismay of those who developed it, Blackberry’s attempt to position a smartphone against Apple
for teenagers failed. Whereas the marketers in discounters Aldi and Lidl identified certain Tesco
and Sainsbury’s segments, when faced with economic recession, as being susceptible to their
charms, achieving significant market share gains from the established large supermarket operators.
Each of the three market segmentation stages will now be considered.
Segmentation variables
Segmentation variables or bases are the dimensions or characteristics of individuals,
segmentation
variables or bases groups or businesses that are used for dividing a total market into segments.5 There is
The dimensions or char- rarely one best way to segment a market. Companies must make choices about the most
acteristics of individuals, appropriate variables to use but they must consider the needs and buying behaviour
groups or businesses of their intended customers, as discussed in Chapters 5 and 6. In consumer markets,
that are used for divid-
background characteristics like age, sex and occupation are widely used. In business-
ing a total market into
segments. to-business markets, customer size, location and product use are often the focus.
The choice of segmentation variables is based on several factors. The variables chosen
should relate to customers’ needs for, uses of, or behaviour towards the product or ser-
vice. The selected bases should be usable and easy to measure. Laptop computer manufacturers
might segment the market on the basis of income and age, but not on the basis of religion, because
one person’s usage of computer equipment does not differ from those of people of other religions.
Furthermore, if individuals or businesses in a total market are to be classified accurately, the segmen-
tation variable must be measurable. For example, segmenting a market on the basis of intelligence
or moral standards would be quite difficult because these attributes are hard to measure accurately.
Creativity is also a factor; sometimes organizations benefit from moving away from a tradition-
ally popular segmentation approach. For example, First Direct bank led the way in telephone and
online banking, by responding to the fact that some customers’ needs were not being met by
existing banking operations. By developing a better understanding of the demographics, lifestyles,
behaviours and needs of these customers, the bank was able to develop a new kind of service,
with no branches and high levels of customer service. Later in this chapter there is a more detailed
review of segmentation effectiveness, which focuses on some of these issues.
Selecting appropriate variables

Selecting appropriate variables for market segmentation is an important marketing management
decision, because the chosen variables are the primary factor in defining the target market.6 Gener-
ally, segmentation is based on more than one variable, particularly in today’s big data environment.
Tracking of consumers’ online behaviour, customer relationship management systems and data anal-
ysis, ongoing capture of customers’ subsequent spending behaviour, and the dialogues permitted
by digital marketing and social media, have added to the wealth of customer insight readily to hand
when thinking about market segmentation. The era of big data in the digital age has transformed how
marketers explore segmentation, which is now faster, cheaper and more data-driven than ever before.
In general, as developments in information technology make it easier to capture and manage

customer information, the move is towards more complex segmentation schemes. Many organiza-
tions now have databases providing a wider range of segmentation variables than was previously
possible.7 One outcome is that there is increasingly a tendency to use multivariable segmenta-
tion rather than single-variable segmentation.8 Indeed, technological advances means that it is
now technically feasible to capture information about, and respond to, the needs and wants of
smaller and smaller segments.9 Many companies now further sub-divide their market segments
into micro-segments. Previously, the required insights to achieve this would have been too costly
and marketers subsequently would have struggled to address the emerging micro-segments.
Digital marketing, as explained in Chapter 19, permits much more focused marketing than ever
before. Taken to its extreme, this means that instead of dealing at the mass-market or
one-to-one marketing segment level, it is even possible to develop relationships with individual customers. This
Customized marketing principle has been variously referred to as ‘customer-centric marketing’10 or ‘one-to-one
engaging individual marketing’.11 One-to-one marketing involves developing long-term relationships with
customers for the devel-
opment of longer-term
individual customers in order to understand and satisfy their needs.12 However, despite
relationships. the attention these new ideas have attracted, it is widely recognized that one-to-one
involves a substantial injection of resources, raising concerns about whether the returns
are sufficiently high to justify the required investment. In many markets they are not
single variable viable. Most companies now identify the segments in the market, select which of these
segmentation are most worthwhile to address, and then within these priority segments they engage
Segmentation achieved by one-to-one with the most rewarding and important individual customers.
using only one variable,
the simplest type of Single variable segmentation Single variable segmentation, which is the simplest
segmentation to perform.
to perform, is achieved by using only one variable, for example, country. However, the
sales of one product in different countries will differ and the numbers of relevant con-
sumers in each country will vary. A single characteristic gives marketers only moderate
multivariable
segmentation
precision in designing a marketing mix to satisfy individuals in a specific segment. It is
Segmentation using more rarely used today.
than one characteristic to
divide a total market. Multivariable segmentation To achieve multivariable segmentation, more than
one characteristic is used to divide a total market (see Figure 7.4). Notice in the figure
e
Light user
ag
us
Moderate user
e
m
lu
Heavy user
Vo
Urban
Population density
Suburban
Rural
Less than £10 000– £20 000– More than

£10 000 £19 999 £40 000 £40 000
Figure 7.4
Multivariable segmentation Annual income
that the market is segmented by three variables: annual income, population density and volume
usage. The people in the highlighted segment earn more than £40 000, are urban dwellers and
heavy users. Multivariable segmentation provides more information about the individuals in each
segment, which may enable a company to develop a marketing mix that will satisfy customers
in a given segment more precisely. A recent segmentation of the mobile phone sector explored
consumers’ demographics, lifestyles, usage and attitudes to mobile phones, revenue generation
patterns, but also the role of the phone in the individual’s life. One major operator identified 15 very
contrasting sets of behaviours, recognizing that the requirements of all 15 segments contrasted
significantly.
In the last few years, so-termed big data and a step-change in analytical expertise (see
Chapter 19) have brought a wealth of information very quickly to hand to assist with multi-faceted
understanding of customers and their behaviours, assisting segmentation significantly and reducing
the cost and duration of segmentation projects.
Variables for segmenting consumer markets

Companies developing their strategy for segmentation can choose one or several variables
or bases from a wide range of choices. As Figure 7.5 shows, segmentation variables can be
grouped into four categories: demographic, geographic, psychographic and behaviouristic.
Demographic variables Geographic variables

Age Occupation Population City size
Gender Family size Region Market density
Race Family life cycle Urban, suburban, Climate
Ethnicity Religion rural
Income Social class
Education
Psychographic variables Behaviouristic variables

Personality attributes Volume usage
Motives End use
Lifestyles Benefit expectations
Brand loyalty
Figure 7.5
Segmentation Price sensitivity
variables for
consumer markets
Most marketers no longer focus on only one or two of these categories, instead preferring to
immerse themselves in all of their customers’ characteristics and behaviours. Improvements
in data capture, big data, analytics, heuristics and computing power now make this relatively
quick and easy to achieve. Segmentation projects are now much shorter and cheaper to
complete than ever before. In fact, many marketing projects undertaken for other purposes –
multi-channel strategic planning, mobile marketing, brand strategy, product development
planning, customer experience and customer relationship management – typically start with a
segmentation study incorporated as an initial building block. Previously, the cost, complexity
and time to undertake segmentation would have precluded such an approach. When perusing
the categories of variables above, please bear in mind that marketers increasingly utilize most
of these criteria and characteristics, developing very detailed understanding of customers and
their behaviours.
Targeting fashion others prefer the size, feel and pricing of

New Look.
Venture into a branch of White Stuff
Topical insight Planet, by contrast, tends to have
and the consumers tend to be between fewer visitors to its more up-market stores
30 and 50, seeking well-produced and and concessions in leading department
stylish casual clothing for home or office. stores, but once there these older and more
They will often be from the leafy suburbs and independent- m inded shoppers tend to linger, try
professional families, educated to degree level and with chil- on several outfits and are reassured by the higher price
dren. The ambience in store is quiet but visually stimulat- points and expensive fabrics, as they search for business-wear
ing; the stores packed with vibrant designs and helpful sales or a special occasion suit, coat or dress. Price points are sig-
assistants. While not retailing the latest catwalk fashions with nificantly higher than in New Look or River Island, with shop
four-figure pricing, White Stuff targets an upmarket and dis- ambience and displays more exclusive and staff trained to
cerning independent consumer. provide greater customer service.
By contrast, a New Look store will be packed to the raf- Whether White Stuff, New Look, River Island or Planet,
ters with the latest look sought by sixth formers and ladies in each company has identified a core set of consumers to tar-
their twenties. Little customer service is desired or offered. get from within the overall clothes-buying population, honing
The stores are functional and simply fitted out. Price points their merchandise, locations, store sizes and ambience, spec-
offer value for money. Although targeting many of the same ifying their customer service and pricing, and managing their
consumers, River Island offers larger and more vibrant stores, brands accordingly. Segmentation and brand positioning drive
fitted out more expensively to provide more of a buzz than the propositions and marketing for these well-known clothing
New Look. On the face of it, both New Look and River Island companies.
target many of the same consumers, but in practice some
of the consumers in the intended demographic target audi- References: New Look Leamington, Planet Leamington, River Island Leamington
ence prefer the vibrancy and energy of River Island, while and White Stuff Stratford, March 2018.
Demographic variables Demographers study aggregate population characteristics such as the

distribution of age and gender, fertility rates, migration patterns and mortality rates. Demographic
characteristics that marketers commonly use in segmenting markets include age, gender, race,
ethnicity, income, education, occupation, family size, family life cycle, religion and social class.
Marketers rely on these demographic characteristics because they are often closely linked to
customers’ needs and purchasing behaviour, and can readily be measured.
Manufacturers of tea bags, such as PG and Twinings, offer their products in packages of different
sizes to satisfy the needs of consumers ranging from singles to large families. Financial institutions
such as banks and building societies attempt to interest children in their products by offering free
gifts such as book vouchers. Meanwhile, retired customers are targeted with products designed for
a leisure-oriented lifestyle. The emphasis is on tailoring the service package to suit particular needs.
Age is a commonly-used segmentation variable. Population statistics help marketers to under-
stand and keep track of changing age profiles. As the population of western Europe continues to
increase, the numbers in the 0- to 19-year-old age band is falling, while the number of those over
60 continues to rise. This has ramifications for marketers, who must increasingly cater for an ageing
population. Given the relative affluence of this particular group, many companies (particularly those
in leisure and service industries) have benefited from this demographic change. Marketers are also
recognizing the purchasing influence of children and are targeting their marketing efforts at them
as Figure 7.6 demonstrates. Numerous products are aimed specifically at children: toys, clothing,
food, drinks, computer games and entertainment. In addition, children profoundly influence certain
purchasing decisions made by their parents.13 For example, in households with only one parent
or in which both parents work, children often take on additional responsibilities such as cooking,
cleaning and food shopping, and thus influence the products and brands that are purchased.
Figure 7.6
Many brands such as Disney develop specific
marketing programmes targeting children
Gender is another demographic variable commonly used to segment markets, including

the markets for clothing, alcoholic drinks, books, magazines, non-prescription drugs and even
cigarettes. Lego traditionally sold its bricks to boys, but its hugely successful Friends range has
attracted many girls to this top-selling toy brand, exactly as intended by Lego’s marketers. Efforts
by manufacturers of skincare products to develop lines specifically aimed at men have been highly
successful in recent years, significantly expanding the category and resulting revenues.
The way in which marketers treat ethnicity varies in different parts of the world. For instance, in
the USA, where a quarter of the population is made up of ethnic minorities, ethnicity is widely used
as a means of segmenting markets for goods and services of all kinds. The US Hispanic population,
comprising people of Mexican, Cuban, Puerto Rican, and Central and South American heritage, is
growing five times faster than the general population. Consequently, it is being targeted by more
and more companies. However, targeting Hispanic customers is not an easy task. For example,
although marketers have long believed that Hispanic consumers are exceptionally brand loyal
and prefer Spanish language media, research does not support these assumptions. Not only do
advertisers disagree about the merits of using Spanish language media, they also question whether
it is appropriate to advertise to Mexicans, Puerto Ricans and Cubans using a common Spanish
language.14 In the UK, where ethnic groups have expanded significantly, brands ranging from
Tesco to Lloyds have developed propositions tailored to specific ethnic groups’ buying behaviours,
languages and cultural needs.
Product and service needs also vary according to marital status, and the number and age of
children. These factors are collectively taken into consideration by the ‘family life cycle’ concept.
Some of the more obvious markets in which the impact of different life cycles is seen are tourism,
housing and financial services. The family life cycle has been broken down in several different ways.
Table 7.1 illustrates one such scheme.
Table 7.1 The Wells and Gubar life cycle stages
Bachelor stage (young single people not living with parents)

Newly married couples without children
Full nest I (youngest child under 6)
Full nest II (youngest child 6 or over)
Full nest III (older married couple with dependent children)
Empty nest I (no children living at home, family head working)
Empty nest II (family head retired)
Solitary survivor (working)
Solitary survivor (retired)
Source: Copyright © ESOMAR® 2000. Permission for using this material has been granted by ESOMAR®, Amsterdam, the Netherlands.
The scheme presented in Table 7.1 assumes that individuals at different life cycle stages have
varying product needs. Marketers can respond to this by targeting such groups with marketing
mixes designed to capitalize on these differences. For example, parents whose children have
grown up and left home (‘empty nesters’) tend to have more disposable income than those with
young children, and tend to spend more on the home, holidays and new cars. Banks and financial
institutions in particular are getting better at gearing their marketing efforts to life cycle changes.
Critics of the life cycle concept point out that it can be difficult to decide to which categories families
belong. Some households, such as single-parent families and older married couples who have
never had children, do not appear to fit in at all.
Obviously, this discussion of demographic variables is not exhaustive. However, the variables
described above probably represent the most widely-used demographics.
Socio-economic variables include income, occupation, education and social class. Some mar-
keting academics and practitioners include these variables under the ‘demographics’ label. Income
can be a very useful way of dividing markets because it strongly influences people’s product needs.
It affects their ability to buy (as discussed in Chapter 2) and their aspirations for a certain style of
living. Obvious products in this category include housing, furniture, clothing, cars, food, certain
kinds of sporting goods and leisure activities.
The occupations of the members of the household are known to have an impact on the types
of products and services that are purchased. The type of housing individuals and families own or
rent is strongly linked to this variable. It is obvious, for example, that sales of products for refur-
bishment and decoration, such as paints, fabrics and wallpapers, will occur predominantly among
those professions that have owner-occupier status. Occupation is also known to affect the types of
sporting and leisure activities people prefer. For example, professionals may be active with walking,
swimming, cycling and jogging, but not so involved with darts or football. Intermediate managers
enjoy walking, swimming and keep fit/yoga. Unskilled manual workers are not particularly active
in sports and physical activities. Other socio-economic variables that may be used to segment
markets include education level and social class. Obviously these are generalizations.
Geographic variables The needs of consumers in different geographic locations may be affected
by their local climate, terrain, natural resources and population density. Markets may be divided
into regions because one or more geographic variable(s) may cause customers’ needs to differ
from one region to another. A company that sells products throughout the EU will, for example,
need to take the different languages spoken into account when labelling its goods, and regional
preferences when specifying its channel strategy.
City size can be an important segmentation variable. For example, one franchised restaurant
organization will not locate in cities of fewer than 100 000 people because experience shows that
a smaller population base could make the operation unprofitable. The same company may add a
second, or even a third, restaurant once the city reaches a certain size. Other businesses, however,
seek out opportunities in smaller towns. The major petroleum retailers, such as Esso and Shell,
have traffic density thresholds, below which they perceive a local market as unviable. It is, there-
fore, quite common, particularly in villages and small towns in rural areas, for petroleum retailing
to be dominated by independent garage owners and the smaller petroleum companies.
Market density refers to the number of potential customers within a unit of land area,
market density
The number of potential such as a square kilometre. Although market density is generally related to population
customers within a unit density, the correlation is not exact. For example, in two different geographic markets
of land area. of approximately equal size and population, the market density for office supplies might
be much higher in the first than in the second if the first contains a significantly greater
proportion of business customers. Market density may be a useful segmentation variable
because low-density markets often require different sales, advertising and distribution activities
from high-density markets.
Climate can be used as a geographic segmentation variable. Companies entering
new markets increasingly need to consider the impact of climate on their customer base.
For example, washing machines sold in Italy do not require such fast spin speeds as those sold in
Germany because the Italian climate is much sunnier. Other markets affected by climate include
air conditioning and heating equipment, clothing, gardening equipment, recreational products
and building materials.
Marketers are increasingly using geodemographic segmentation. Geodemographic
geodemographic
segmentation segmentation clusters people according to postcode areas. For example, ACORN
Clustering people (A Classification of Residential Neighbourhoods) uses information taken from the popu-
according to postcode lation census and many other sources, so that people may be grouped according to a
areas and census data. number of factors, including demographic data, social factors, population and consumer
behaviour. Mosaic from Experian is another popular proprietary geodemographic sys-
tem. CACI’s ACORN provides valuable consumer insight, helping with targeting, acqui-
sition and developing customer relationships (acorn.caci.co.uk/downloads/Acorn-User-guide.pdf).
All 1.9 million UK postcodes have been described using hundreds of demographic statistics and
lifestyle variables. The underlying concept is that customers living in different residential neighbour-
hoods have different profiles in respect of these variables. Their product needs in terms of styling
and features, therefore, also vary. Consumers can be classified under ACORN on the basis of the
postcode of their home address and then allocated to one of the groups in Table 7.2. These cat-
egories further sub-divide to give a total of 18 groups and 62 neighbourhood types. For example,
the 18 groups include Executive Wealth, Career Climbers, Comfortable Seniors, Modest Means,
Young Hardship and Difficult Circumstances. The Comfortable Seniors group then sub-divides
into two types, older people, neat and tidy neighbourhoods and elderly singles in purpose-built
accommodation. Table 7.2 describes ACORN in more detail.
Psychographic variables Marketers sometimes use psychographic variables, such as person-

ality characteristics, motives and lifestyles to segment markets. A psychographic dimension can
be used by itself or combined with other types of segmentation variables.
Table 7.2 The ACORN categorization of UK consumers
Lavish Lifestyle 1 Exclusive enclaves

2 Metropolitan money
3 Large house luxury
Executive Wealth 4 Asset-rich families

5 Wealthy countryside commuters
6 Financially comfortable families
Category 1:
7 Affluent professionals
Affluent Achievers
8 Prosperous suburban families
9 Well-off edge of towners
Mature Money 10 Better-off villagers

11 Settled suburbia, older people
12 Retired and empty nesters
13 Upmarket downsizers
City Sophisticates 14 Townhouse cosmopolitans
15 Younger professionals in smaller flats
16 Metropolitan professionals
Category 2: 17 Socializing young renters
Rising Prosperity
Career Climbers 18 Career driven young families
19 First time buyers in small, modern homes
20 Mixed metropolitan areas
(Continued )
TABLE 7.2 Continued
Countryside Communities 21 Farms and cottages

22 Larger families in rural areas
23 Owner occupiers in small towns and villages
Successful Suburbs 24 Comfortably-off families in modern housing

25 Larger family homes, multi-ethnic areas
26 Semi-professional families, owner occupied neighbourhoods
Category 3: Comfortable
Steady Neighbourhoods 27 Suburban semis, conventional attitudes
Communities
28 Owner occupied terraces, average income
29 Established suburbs, older families
Comfortable Seniors 30 Older people, neat and tidy neighbourhoods

31 Elderly singles in purpose-built accommodation
Starting Out 32 Educated families in terraces, young children

33 Smaller houses and starter homes
Student Life 34 Student flats and halls of residence
35 Term-time terraces
36 Educated young people in flats and tenements
Modest Means 37 Low cost flats in suburban areas

38 Semi-skilled workers in traditional neighbourhoods
39 Fading owner occupied terraces
40 High occupancy terraces, many Asian families
Category 4:
Financially Stretched Striving Families 41 Labouring semi-rural estates
42 Struggling young families in post-war terraces
43 Families in right-to-buy estates
44 Post-war estates, limited means
Poorer Pensioners 45 Pensioners in social housing, semis and terraces

46 Elderly people in social rented flats
47 Low income older people in smaller semis
48 Pensioners and singles in social rented flats
Young Hardship 49 Young families in low cost private flats
50 Struggling younger people in mixed tenure
51 Young people in small, low cost terraces
Struggling Estates 52 Poorer families, many children, terraced housing

53 Low income terraces
Category 5:
54 Multi-ethnic, purpose-built estates
Urban Adversity
55 Deprived and ethnically diverse in flats
56 Low income large families in social rented semis
Difficult Circumstances 57 Social rented flats, families and single parents

58 Singles and young families, some receiving benefits
59 Deprived areas and high-rise flats
Not Private Households 60 Active communal population
Category 6:
61 Inactive communal population
Not Private Households
62 Business addresses without resident population
Source: ‘The Acorn Categorization of UK Consumers’, ACORN categories by CACI, reproduced by permission of CACI; CACI, March 2018.
Personality characteristics are useful when a product is similar to many competing products and
when consumers’ needs are not significantly affected by other segmentation variables. However,
segmenting a market according to personality characteristics can be problematic. Although market-
ing practitioners have long believed that consumer choice and product use should vary with person-
ality and lifestyle, marketing research has shown only weak relationships. However, the weakness of
such relationships may be due to the difficulty of accurately measuring personality traits, because
most existing personality tests were developed for clinical use, not for segmentation purposes. As
the reliability of more recent measurement instruments increases, a greater association between
personality and consumer behaviour has been demonstrated.15 For example, it has been shown
that personality sometimes influences the clothes, make-up and hairstyles that individuals adopt.
When motives are used to segment a market, it is divided on the basis of consumers’ reasons for
making a purchase. Product durability, value for money, concern for the environment, convenience
and status are all motives affecting the types of product purchased and the choice of stores in
which they are bought. For example, one consumer may be motivated to purchase recycled kitchen
paper out of concern for the environment. Another may travel to a large supermarket in order to buy
the most absorbent, high-quality brand of kitchen towel. Some consumers are driven by nothing
more than perceived self-image and purchasing choices are steered by such views of ‘self’.
Individuals are grouped by lifestyle segmentation according to how they live and spend their
time, the importance of items in their surroundings (their homes or their jobs, for example), their
beliefs about themselves and broad issues, and some socio-economic characteristics, such as
income and education.16 Lifestyle analysis provides a broad view of buyers because it encompasses
numerous characteristics related to people’s activities, interests and opinions (see Table 7.3). It can
be thought of as going beyond a simple understanding of personality.
Table 7.3 Characteristics related to activities, interests and opinions
Activities Interests Opinions

Work Family Themselves
Hobbies Home Social issues
Social events Job Politics
Holidays Community Business
Entertainment Recreation Economics
Club membership Fashion Education
Community Food Products
Shopping Media Future
Sports Achievements Culture
Source: Reprinted, adapted from Joseph Plummer, ‘The concept and application of life style segmentation’, Journal of Marketing, January
1974, p. 34. Reprinted by permission of the American Marketing Association.
The use of lifestyle as a segmentation variable is commonplace, but not without challenges
because it is so difficult to measure accurately compared with other types of segmentation vari-
ables. In addition, the relationships between psychographic variables and consumers’ needs are
sometimes obscure and unproven, and the segments that result from psychographic segmentation
may not be reachable.17 For example, a marketer may determine that highly compulsive individuals
want a certain type of clothing. However, no specific stores or particular media appeal precisely to
this group and this group alone.
One of the more popular programmes studying lifestyles is conducted by the Stanford Research
Institute’s Value and Lifestyle Programme (VALS). This programme surveys consumers to select
groups with identifiable values and lifestyles. Initially, VALS identified three broad consumer groups:
Outer-directed, Inner-directed and Need-driven consumers. The current VALS classification cate-
gorizes consumers into eight basic lifestyle groups: Innovators, Thinkers, Achievers, Experiencers,
Believers, Strivers, Makers and Survivors (www.strategicbusinessinsights.com/vals/ustypes.shtml).
The VALS studies have been used to create products as well as to segment markets.
Profiling and targeting ● company medical insurance
customers with ACORN Building customer ● classical music/opera

relationships ● private pension
Along with Experian’s Mosaic system, ● weekly food spend
ACORN from CACI is a leading geodemo-
● car insurance
graphic tool used by marketing practitioners
to identify and understand the UK population ● eating out
and the demand for products and services. ACORN is ● child savings plan
a geodemographic segmentation of the UK’s population which ● family income
segments small neighbourhoods, postcodes or consumer house-
●● guaranteed income bonds
holds into six categories, 18 groups and 62 types, as detailed
in Table 7.2. Clients of CACI use this information to improve ●● house price
their understanding of customers and target markets, and to ●● National Savings
determine where to locate operations. The geodemographic and ●● ‘new player’ credit cards
lifestyle data provided by ACORN’s detailed analysis of the offi-
●● stocks and shares
cial census statistics, supplemented with financial, purchasing
and behaviour information, are an invaluable input to the market ●● own a DVD player
segmentation analyses of many consumer marketers. ●● unit trusts
As CACI explains, informed decisions can be made on
●● have cable TV/phone
where direct marketing and advertising campaigns will be
●● buy new car
most effective; where branches should be opened or closed; or
where sites are located, including retail outlets, leisure facilities ●● have satellite TV
and public services. Acorn provides valuable consumer insight ●● buy car over £20 000
to help with targeting, acquiring and developing profitable
●● own a laptop computer
customer relationships, and improving service delivery. Acorn
●● can choose company car
helps clients to understand the attributes of households and
postcodes, and for specialist requirements CACI has developed ●● use PC for finance
classifications covering health, retail and leisure activities. ●● car kept in garage
ACORN categorizes all 1.9 million UK postcodes, which
●● use PC for education
have been described using over 300 demographic statistics.
●● European holidays
The basic principle is that people in similar areas – postcode
zones – have the same needs, behaviours and lifestyles. CACI ●● use email
claims the new ACORN is more accurate for targeting than ●● USA holidays.
previous versions, across all sectors, from finance, auto-
motive, eCommerce, holidays, food shopping and electrical Marketers may purchase reports about specific products
goods. As detailed on CACI’s website, just some of the con- or ACORN’s consumer classifications. A popular application
sumer profiling and targeting information available includes: is to capture the postcodes of customers of a company, so
as to analyze the ACORN profile of these customers. Armed
●● mortgages with such a profile, the client company’s marketers are able
●● winter snow holidays to locate similar consumers to target with their marketing
●● time left on mortgage communications.
●● weekend breaks Sources: CACI, 2004, 2007, 2011, 2015; www.caci.co.uk, March, 2018.
Behaviouristic variables Marketers can also segment markets on the basis of an aspect of
consumers’ behaviour towards the product. This might relate to the way the particular product is
used or purchased, or perhaps to the benefits consumers require. Purchase behaviour can be a
useful way of distinguishing between groups of customers, giving marketers insight into the most
appropriate marketing mix. For example, brand-loyal customers may require a different kind of
treatment from those who switch between brands. On-pack sales promotions are often geared
towards building loyalty in brand switchers.
The occasion on which customers buy a particular product may impact upon product choice
because in different sets of circumstances different product selection criteria may be applied. For
instance, a customer who replaces a car tyre in an emergency will probably be less
benefit segmentation
concerned about price than one who is routinely maintaining his or her car. Benefit
The division of a market segmentation is the division of a market according to the benefits consumers want
according to the benefits from the product.18 Although most types of market segmentation are based on the
consumers want from assumption that there is a relationship between the variable and customers’ needs,
the product. benefit segmentation is different in that the benefits the customers seek are their product
needs. By determining the benefits desired, marketers may be able to divide people into
groups seeking certain sets of benefits.
The effectiveness of benefit segmentation depends on several conditions. First, the benefits
people seek must be identifiable. Second, using these benefits, marketers must be able to divide
people into recognizable segments. Finally, one or more of the resulting segments must be acces-
sible to the companies’ marketing efforts.
Product usage is another method marketers sometimes use to segment their customers. Indi-
viduals can be divided into users and non-users of a particular product. Users can then be classified
further as heavy, moderate or light. To satisfy a specific user group, marketers sometimes create a
distinctive product, set special prices or initiate special promotion and distribution activities. Thus,
airlines such as British Airways and KLM offer frequent-flier programmes to reward their regular cus-
tomers with free trips and discounts for car hire and hotel accommodation. Light users or non-users of
products often receive little attention from companies. There is a tendency sometimes to dismiss these
groups when developing a marketing programme. For example, research in the holiday industry tends
to focus on feedback from current customers, often forgetting to question why non-users failed to buy.
How customers apply the product may also determine segmentation. To satisfy customers who
use a product in a certain way, some feature – packaging, size, texture or colour – may have to be
designed with special care to make the product easier to use, more convenient or more environ-
mentally friendly. For instance, Unilever and Procter & Gamble are focusing more and more on the
development of refill packs of detergents and other household products, to cater for increasing
consumer concerns about the environment.
The varying attitude of customers towards products constitutes another set of variables that
can be used to segment markets. Clothing retailers like River Island and Fat Face are particularly
conscious of this. While one customer seeks outfits that are practical and comfortable, another is
concerned with achieving a highly fashionable image.
As this brief discussion shows, consumer markets can be divided according to numerous char-
acteristics. Ultimately, the choices marketers make will depend on a host of market and company
factors. As a generalization, most segmentation embraces a diversity of variables cutting across
the categories detailed above, made easier, quicker and cheaper by today’s data, analytics and
computer power.
Variables for segmenting business markets

Like consumer markets, business or organizational markets are often segmented. Here the mar-
keter’s aim is to satisfy the needs of businesses for products. Marketers may segment business
markets according to company demographics, operating variables, purchasing approach, situa-
tional factors or the personal characteristics of buyers.19
Marketers attempting to segment business markets may face various problems.20 The particular
characteristics of the market or the distribution structure in place may restrict the types of segment
bases that can be used. For example, many European car manufacturers are dependent upon the
fleet car market. This market tends to be structured on the basis of car engine and vehicle size,
with companies providing their more senior managers with more powerful, larger and expensive
vehicles. It is likely that customers would resist a move away from this accepted structure by the
car manufacturers, who are therefore not in a position to use possibly contradictory segmentation
approaches. Various segmentation approaches have been developed to try to make it easier for
companies to deal with these kinds of constraints.21
Whatever the approach adopted, just as in consumer markets, some segment bases are easier
to measure and apply than others.22 For example, it is much more straightforward to segment on
the basis of company size or its sector of activity, which are measurable and visible characteristics,
than on the basis of buying centre structure (see Chapter 6), which may be much more difficult
to appraise but arguably is far more useful as a means for grouping together ‘similar’ client orga-
nizations. Table 7.4 provides an overview of the variables for segmenting business markets and
illustrates the relative ease with which they can be measured.
Table 7.4 Variables for segmenting business markets
Personal characteristics of buyers

Just as in consumer markets, the demographics, experience, personality and lifestyle of those individuals in the buying centre impact upon
purchasing decisions, practices, attitudes towards risk and loyalty to suppliers
Situational factors
The urgency of purchase, perceived risk, size of order or product application can play an important role in the choices that are made
Purchasing approach
Buying centre structure (centralized/decentralized), buying policies (sealed bidding, service contracts, leasing), nature of existing relationships
(focus on new or existing customers), balance of power among decision-makers and buying criteria (quality, delivery, service, price, product
range, innovation) may shape an organization’s purchase decisions
Operating variables
The technologies applied by an organization, the manner in which products are used or customer capabilities can fundamentally affect purchase choice
Demographics
Company age, location, industry (SIC code) and size are likely to alter product requirements
Company demographics or firmographics Variables relating to the type of business or indus-

try, geographic location, company age and size are probably the most widely used segmentation
variables in business markets.
A company sometimes segments a market by the types of business within that market, perhaps
on the basis of industry area or SIC code (see Chapter 6). Different types of organization often
require different product features, distribution systems, price structures and selling strategies.
Given these variables, a company may either concentrate on a single segment with one marketing
mix (concentration strategy) or focus on several groups with multiple mixes (multi-segment strat-
egy). A paint manufacturer such as Dulux could segment customers into several groups, such
as paint wholesalers, do-it-yourself retail outlets, vehicle manufacturers, decorators and housing
developers.
The demand for some consumer products can vary considerably by geographic area because
of differences in climate, terrain, customer preference or similar factors. Demand for business-to-
business products also varies according to geographic location. For example, the producers of
certain types of timber divide their markets geographically because their customers’ needs vary
regionally. Geographic segmentation may be especially appropriate for reaching industries that are
concentrated in certain locations; for example, textiles in West Yorkshire, information technology
along the M4 corridor in England or financial services in London.
Operating variables Customer requirements can be affected in a range of ways by different

operating variables, such as the technology applied by the buying organization or the product
types used. Certain products, especially raw materials such as steel, petrol, plastics and timber,
are used in numerous ways. Sometimes the technology used by a company will play an important
role. How a company uses products affects the types and amounts it purchases, as well as the
method of making the purchase.23 For example, computers are used for engineering purposes,
design, scientific research, business operations such as word processing and book-keeping,
as well as internet access and games in the home. A computer manufacturer may segment the
computer market by types of use because organizations’ needs for computer hardware and
software depend on the purpose for which the products are purchased, as Dell has done in the
previous chapter.
Purchasing approach Although it may be difficult for a company to appraise the buying approach
of its customers, this is nonetheless sometimes an appropriate way for business markets to be
segmented. The characteristics of the buying centre or decision-making unit, including its structure
and where the balance of buying power lies, and the nature of any buying policies, can all affect
the product requirements of customers. For example, suppliers of building materials must organize
their sales efforts to satisfy a wide array of customer types who organize their buying activities in
vastly different ways. While dealing with large buyers, such as Galliford, Kier or Lang O’Rourke,
will require an understanding of a relatively complex buying structure, small local builders may be
perfectly satisfied with a much simpler supply arrangement.
Situational factors Sometimes it is appropriate to segment a business market on the basis

of situational factors, such as the urgency or size of an order. How urgently the order is required
may have an impact on the importance a customer attaches to particular product features. For
example, if a robot on a car production line has broken down, bringing the entire production
process to a standstill, the price of replacement parts to fix it may be less important than their
availability. However, if the same part is being replaced as part of a routine service, price may be
the most important factor. The size and frequency of different orders can be effective segmenta-
tion variables because they have ramifications concerning the way the customer relationship is
handled. For example, a university that regularly orders vast amounts of stationery would expect
a different level of service to that of a small business that only infrequently buys small quantities
of paper and envelopes.
Personal characteristics Although individuals involved in business buying may not have as
much control over the products and services selected as when they are making purchases for
personal or family use, their individual characteristics still play a role in the preferences they demon-
strate. For this reason, it is sometimes appropriate to segment business markets on the basis of
the characteristics of individuals within the buying centre. For example, the demographics, per-
sonality, motives and lifestyle of managers tasked with buying a selection of new office furniture will
influence the preferred designs. If power in the buying centre rests with one senior manager who
strongly dislikes modern designs, this will influence the final selection of products. Understanding
how managers perceive risk and how this may alter their decision-making is a useful aspect to
include in business segmentation.
Increasingly, business-to-business marketers recognize that business segmentation is as much
about understanding the needs, characteristics and behaviours of the managers in their target cus-
tomers, as analyzing the characteristics and commercial activities of these client businesses. One
IT company has identified a group of client organizations which are all risk-averse and ill-disposed
to innovation, so grouping these businesses together – irrespective of their sectors of operation –
has helped in creating appropriate marketing programmes. A separate market segment contains
the innovators prepared to trial new technology and solutions.
Profiling market segments

profiling Whatever the variable, or combination of variables, used to group customers, a more
The task of building up a comprehensive understanding of the characteristics of individuals is likely to be required.
fuller picture of the target For example, a company that segments the market for energy drinks on the basis of
segments. age, focusing on customers in their late teens, would do well to understand as much
as possible about its particular target group in other respects. What reference groups
influence them? Where do they live? Where and when do they socialize? What social
descriptors background are they from? What motivates them? How do they spend their time? The
Variables used to profile
or build a fuller picture of
more comprehensive the image developed, the better the opportunity to develop an
target segments brands’ effective marketing mix with maximum appeal.
desired stature. Profiling is the task of building up a fuller picture of target segments, and the vari-
ables being used in the description are termed descriptors. The profiles in Figure 7.7
Talk ‘n’ Texters – ‘I just have a mobile phone because it is practical’.

●● The conservative consumer, not immersed in technology but with a few practical needs that can be fulfilled by technical appliances. S/he relies
on mobile phones for practical reasons only.
●● Interested in basic functions, especially SMS, but not attracted at all by more sophisticated or fun services, be it via mobile phone or the internet.
●● No interest in social media, Skype, smartphone mobile shopping or extensive web browsing.
Talkative Trendies – ‘Talk around the clock’.
●● The modern fun/fashion-oriented socializer. This customer needs a mobile phone to keep in constant touch with the social scene and fulfil a
strong need for communication.
●● Interested in all applications and services, particularly social media.
Aspiring to be Accepted – ‘Would like to have it but is not really up to it’.
●● Wants to be part of the ‘in-crowd’, but is not there yet, and possibly never will be! These customers have a mobile phone because they just
want to show it off: they seek to have the same trendy handsets they believe are adopted by peer sets which they aspire to join.
●● Show a special affinity towards social media, photo, video and mp3 applications.
Laggards – ‘Torn between conservative values and the modern world’.
●● Traditionalist views, low level communication needs and basic technical usage.
●● The ‘don’t need’ or those late into the market!
●● S/he holds specific aversions to mobile phones (SMS) but also views them as a practical-only device (e.g. for emergency calls only).
Gaming Youths – ‘Game-oriented mobile world addict’.
●● Young and very technology-oriented people, belonging to the mobile generation, who need a mobile phone in order to maintain a fast-living fun life.
●● Games, games, games! Plus music and social media.
●● These customers search for images and brands that help them keep track with the modern world.
Sophisticated Careerists – ‘Be successful with mobile technology’.
●● Career-oriented individualists with lots of contacts. Highly immersed in technology and very mobile.
●● Demanding value for money, but customer care and respect are very important to these customers.
●● They need a mobile phone to organize their life and business, but they are not emotionally attached.
●● Self-choosers for work mobiles are included here.
Organization Paid – ‘No choice - the corporation decides’.
●● Demanding value for money and customer care.
●● Network coverage, reliability and volume tariff discounts are the focus, along with data security.
●● Users have little influence on selection, so not particularly fashion or technology-led.
International Business Users – ‘Frequent connected business travellers’.
●● Easy global roaming and smooth data transfer.
●● Some similarities with Sophisticated Careerists but with much greater emphasis on functionality and flexibility of at-destination services.
●● Influenced by corporate choice of network and tariff plans.
The first five are consumer segments. The last two are business user segments. The Sophisticated Careerists are mainly business users who have
a self-select mobile network, handset and tariff option and behave as consumers rather than business users.
These were the ‘macro’ segments. Deep-dive analysis further divided these into micro segments for acquisition and retention marketing.
Figure 7.7
Illustration of market segmentation in the mobile phone market
help bring to life the different mobile phone segments identified in a recent segmentation study for
mobile phones. The types of descriptors available to marketers are broadly the same as the variables
used to segment markets in the first place; that is, demographics, socio-economics and so on. This
is sometimes a cause of confusion for students, who struggle to remember whether they are deal-
ing with base or descriptor variables. It helps to note that while base variables should discriminate
between customer needs, descriptors are simply used to enrich the picture, to help summarize what
else can be gleaned about the customers in a particular segment. This gives added inspiration to the
creative team developing the product and promotional material, and helps to fine-tune decisions on
price and distribution. Overall, profiling segments in this way ensures that the impact of the marketing
mix on the customer is maximized. If segments are not properly profiled, it is unlikely sales person-
nel, advertising agency staff or senior managers will fully comprehend the proposed segmentation
scheme. Therefore, its effective implementation may be jeopardized. Today’s big data-fuelled envi-
ronment provides a wealth of customer information to assist in profiling and bringing to life segments.
Segmentation effectiveness
As Table 7.5 illustrates, segmentation analysis invariably involves several stages. Marketers must
be aware that whatever the approach followed and whichever base variables are used, haphazard
implementation can lead to ineffective market segmentation, missed opportunities and inappropri-
ate investment. To avoid such difficulties marketers should take note of the following criteria. The
first is that there must be real differences in the needs of consumers for the product or service.
Table 7.5 Stages in segmentation analysis
Objectives
Marketers must know the purpose of the exercise and have clear objectives
Data
Required information must be specified and collected. This may encompass a qualitative phase to develop a robust view of consumer or customer
attitudes, motives, behaviour and perceptions, and a quantitative phase involving larger samples, big data mining and statistical analysis of ques-
tionnaire responses (see Chapter 9)
Analysis
Various statistical packages, such as SPSS, can be used. Factor analysis, conjoint analysis and cluster analysis are commonly used techniques for
analyzing the collected data. Multidimensional scaling (MDS) is widely used in product positioning studies. Such techniques should not be applied
by those without the necessary statistical skills, if inappropriate solutions are to be avoided24
Interpretation
Marketers must interpret the proposed solutions to ensure any adopted segmentation scheme is statistically valid (complies with the relevant
statistical significance tests) and managerially or intuitively valid, and that it presents market segments that are effective. Ultimately, the analysis
should comply with statistical validity tests. Any recommendations must also be sensible in the view of managers25
Recommendation
The final proposed solution must first be presented internally to senior and line managers expected to approve the segments, and then actioned
for the external audience of distributors and customers
Sources26–28
There is no value in segmenting a homogeneous market. Equally, dissimilar consumers in terms of

their needs and purchasing behaviour must not be grouped together in the same market segment.
In addition, the segments revealed must be:
●● measurable—easy to identify and measure; some basis must be found for effectively separating
individuals into groups or segments with relatively homogeneous product or service needs
●● substantial—large enough to be sufficiently profitable to justify developing and maintaining a
specific marketing mix
●● accessible—easy to reach with the marketing mix developed; for example, the promotional effort
should target the relevant consumers
●● stable—the question of segment stability over time is not often addressed; if companies are to
make strategic decisions on the basis of revealed segments, they need to be reasonably certain
that those segments will be around long enough for action to be taken
●● useful—the selected segments must be meaningful to the managers tasked with operationaliz-
ing them and be likely to enable the company to better satisfy its target market.
Using market segmentation also requires a good deal of common sense. It is often difficult for
companies to implement totally new segmentation schemes because they would be at odds with
the existing marketing structures and ways of doing things. In such cases companies sometimes
choose to make minor changes to what is already in place.
Customer relationship management (crm) and

retention
Having divided a market into segments, a company must decide which segments should be pur-
sued as priorities in terms of its marketing programmes and budget allocation, as explored in the
next chapter. Once a company has determined its target markets, it should strive to exploit relation-
ships with its customers in these segments. Customer relationship management enables certain
customers in the key segments to be handled more closely, so as to create a bond and loyalty.29
Customer relationship management (CRM) is the term used to describe the processes for
managing such relationships, with the aim of maintaining the interest and support of the most
worthwhile and valuable customers within the most important segments. Technology enables such
approaches and today most companies operate some form of a CRM system.30 Even smaller busi-
nesses can afford off-the-shelf systems for handling customer data, building profiles of purchasing
and behaviours, and regularly communicating with selected customers.
Customer relationship management (CRM) aims to increase profitability by iden-
customer relationship
management (CRM) tifying the best customers within targeted segments, developing ongoing relationships
The identification of the and satisfying their needs in order to encourage these customers to remain loyal and to
most worthwhile and keep returning.31 The aim is to enhance the lifetime value to a company of a particular
valuable customers customer.32 CRM provides a framework for achieving coordination between marketing,
within targeted segments
customer service and quality programmes.33
and the development of
ongoing relationships to CRM hinges on the notion that pursuing long-term relationships with customers, instead
foster loyalty and repeat of a one-off transaction-oriented approach, is more profitable for marketers. The idea that
purchasing. detecting and collecting data about customers could help them acquire and retain profit-
able customers through learning-based and evolving relationships is key to CRM. Through
interaction and ongoing dialogues with customers, marketers are able to monitor and learn
about their customers’ needs, enabling them to make changes both internal to the organization as
well as in external communications to suit the needs of the customers. Digital marketing, notably
the increased two-way interaction a brand increasingly has with individual customers, has made
CRM even more important.34 Amazon was a forerunner, building up a profile of customers’ reading
habits and preferences, tailoring subsequent offers and suggested reading lists accordingly. Florists
and gift companies remember birthdays of relatives or friends for which a customer has previously
purchased a gift, so as to be able to prompt the customer in advance of such a date next year. This
‘reminder service’ will be deemed helpful by the customer and may well lead to a new order and sale.
Personalized and customized marketing messages to separate customers are a result of CRM.35
CRM assists in tailoring customer service, in order to build strong bonds with highly valued
customers. CRM also helps to ensure that a company does not waste a disproportionate amount
of time, energy and budget on managing poor or non-viable individual customers or corporate
business accounts.
There are two broad areas of CRM:36 operational CRM that focuses on the IT-related processing
which affects day-to-day operations and an analytical CRM that focuses on the strategic planning
of how a company may build customer relationships and enhance their value base. Emphasis must
learning relationships
be put on learning relationships - a key factor for success in CRM. Developing learning
Understanding better a relationships (understanding better a customer’s needs and behaviours) has many
customer’s needs and benefits for marketers, including repeat purchases, increased purchases, cross-selling
behaviours. opportunities, up-selling, reduced costs, free word-of-mouth communications between
customers, added customer life-time value and possibly less attention to price.
Technology is essential, as without adequate data capture and analysis, CRM is not
possible. Digital is increasingly integral to CRM systems, which is partly to blame for the growth of
spyware monitoring customers’ online behaviours and purchasing records. How often does your
web browser apparently spontaneously show adverts for brands and products you happen to fre-
quently use or view online? This is not accidental. With recent advancement in CRM applications,
the communication directed towards potential buyers can now be customized at an individual
level through emails and social media, such as Facebook pages and Twitter, and web fora and
blogs. Such interactions between buyer and seller should be stored in a CRM database system.
The marketer must track and store customer information, in order to customize and personalize
offerings to suit individual customer needs and desires. Knowledge management is a key tool
here. Learning-based relationships are a way for companies to evolve and modify their behaviour.
Essential requirements for effective CRM include:37
●● a focus on customer needs
●● interaction, ongoing dialogue and transparent communication
●● learning relationships and customer involvement/integration
●● customization, personalization, individualization, one-to-one
●● adoption of technological advancements and applications
●● monitoring, tracking and use of data and ability to make sense of information
●● use of customer databases and CRM tools
●● ability to create value added through positive experiences
●● understanding buyer – seller relationships which involve the psychology of trust, commitment,
satisfaction, symmetry, dependence, fairness and morality.
Effective CRM requires a growth of value so that both buyer and seller are better off. How-
ever, marketers must recognize consumers’ and the public’s concerns linked to monitoring and
managing customer data. Privacy and data security are big worries for many consumers and
regulatory bodies. Inappropriate and incomplete use of CRM may jeopardize the reputation of a
brand, damage trust and alienate intended customers. Marketers increasingly must be aware of
alienating some of their customers, particularly if they treat customers differently and customers
become aware of such differential treatment, which apparently advantages some customers but
not others. Social media enables consumer-to-consumer sharing of information about brands and
their varying offerings across consumers, many of whom now share instantly with large numbers on
social media their displeasure. CRM enables marketers to identify their most desirable customers
and to give them preferential attention, more frequent communications, tailored propositions, deals
and so forth, but inevitably this is at the expense of certain other customers who are not deemed
quite so valuable or desirable. When these disadvantaged customers find out, they may be less
than happy. Research has shown that such favouritism and differential treatment of customers may
cause perceptions of unfairness.38
One of the real advantages of CRM is that marketers obtain other measures and information
that are of strategic value, including information about customers’ lifetime value or acquisition and
retention costs, all of which can contribute to the value creation process. Recent developments in
CRM are increasingly sophisticated, with methods to understand consumer behaviours and needs
through brain scanning, the ability for machines to have ‘eyes’ so they can recognize customers
individually and monitor their shopping patterns, targeted advertising on Facebook, intelligent bill-
boards capable of recognizing customers, and even customized adverts based on an individual
customer’s appearance (e.g. age, gender, hair, style, etc.).
Summary
A market is defined as a group of people who, as consumers or as part of organizations, need and have the ability, willing-
ness and authority to purchase products in a product class. A consumer market consists of purchasers and/or those in their
households who intend to consume or benefit from the purchased products and who do not buy products for the main pur-
pose of making a profit. A business market consists of people and groups who purchase a product for resale, direct use in
producing other products or for general day-to-day operations. Although products are classified according to use, the same
product may be classified as both a consumer product and an industrial product.
At the heart of marketing strategy are the decisions about which opportunities to pursue and which market segments to
target. The varying characteristics, needs, wants and interests of customers mean that there are few markets where a sin-
gle product or service is satisfactory for all.
Markets made up of individuals with different needs are called heterogeneous markets. The market segmentation
approach divides the total market into smaller groups of customers who have similar product needs and buying character-
istics. A market segment is a group of individuals, groups or organizations sharing one or more similar characteristics that
cause them to have relatively similar product needs.
Segmentation and the customer understanding underlying it can make it easier for companies to identify and exploit differ-
ent market opportunities. The approach offers businesses a number of advantages at the customer level, in relation to the
competition or in terms of the effectiveness of resource allocation and strategic planning.
There are three stages to carrying out market segmentation: segmentation, targeting and positioning. Segmentation uses
one or more base variables to group similar customers into segments. Targeting involves decisions about which and how
many customer groups – segments – to target. Positioning involves deciding precisely how and where within the targeted
segments to aim a product or products, brand or brands.
Marketers must decide how many segmentation variables to use. Single variable segmentation involves only one variable,
but in the more commonplace multivariable segmentation, more than one characteristic is used to divide a total market.
The latter is often more meaningful. One-to-one marketing involves developing long-term relationships with individual cus-
tomers in order to understand and satisfy their needs. Although technological advances are making it easier for companies
to achieve this goal, this approach involves considerable investment. One-to-one typically is focused within priority market
segments.
Segmentation variables or bases are the dimensions or characteristics of individuals, groups or businesses that are used
for dividing a total market into segments. The segmentation variable should be related to customers’ needs for, uses of,
or behaviour towards the product. Consumer segmentation variables can be grouped into four categories: demographics
(age, gender, race, ethnicity, income, education, occupation, family size, family life cycle, religion and social class), geo-
graphic (population, market density, climate), psychographic (personality traits, motives, lifestyles) and behaviouristic (vol-
ume usage, end use, expected benefits, brand loyalty, price sensitivity). Geodemographic segmentation, which combines
geographic and demographic factors, involves clustering people according to postcode areas. Variables for segmenting
business markets include demographic factors or firmographics, operating variables, purchasing approach, situational fac-
tors and the personal characteristics of buyers. Benefit segmentation is the division of a market according to the benefits
consumers want from the product.
Certain conditions must exist for market segmentation to be effective. First, consumers’ needs for the product should be
heterogeneous. Second, the segments of the market should be measurable so that the segments can be compared with
respect to estimated sales potential, costs and profits. Third, at least one segment must be substantial enough to have the
profit potential to justify developing and maintaining a special marketing mix for that segment. Fourth, the company must
be able to access the chosen segment with a particular marketing mix. Fifth, the segment should be reasonably stable over
time. Sixth, the resulting segmentation scheme must be managerially useful. Customers with dissimilar needs and buying
behaviour must not be grouped together in the same market segment.
Profiling segments using descriptor variables can help the marketer build up a fuller picture and design a marketing mix (or
mixes) that more precisely matches the needs of people in a selected market segment (or segments).
Once a company has determined its target markets, it should strive to exploit relationships with its customers in these seg-
ments. Customer relationship management (CRM) is the term used to describe the processes for managing such relation-
ships, with the aim of maintaining the ongoing interest and support of the most worthwhile and valuable customers in the
priority market segments. CRM builds up knowledge of individual customers’ characteristics, purchasing and interactions,
using these insights to tailor propositions and marketing to the most important customers, in order to develop loyalty and
extract maximum spending from separate customers within the prioritized targeted segments.

Key links 1. What is a market? What are the requirements for a market?
This chapter has explained a core aspect of marketing 2. In the area where you live, is there a group of people with
strategy: market segmentation. It should be read in con- unsatisfied product needs who represent a market? Could
junction with: this market be reached by an organization? Why or why not?
●● Chapter 2’s overview of marketing strategy. 3. Identify and describe the two major types of market. Give
●● Chapter 8’s examination of targeting and positioning.
examples of each.
●● The requirement to understand consumers and busi- 4. What is the total market approach? Under what conditions
ness customers, as described in Chapters 5 and 6. is it most useful? Describe a current situation in which a
company is using a total market approach. Is the business
●● Chapter 11’s explanation of effective branding.
successful? Why or why not?
●● The analytical tools, notably the directional policy
5. What is the market segmentation approach? Describe
matrix used for choosing priority target markets, as
the basic conditions required for effective segmentation.
presented in Chapter 12.
Identify several companies that use the segmentation
approach.
Important terms 6. Why might social marketers find market segmentation par-
ticularly helpful?
Benefit segmentation
7. Describe the basic conditions required for effective
Business market
segmentation.
Consumer market
Customer relationship management 8. List the differences between concentration and differen-
Descriptors tiated strategies. Describe the advantages and disadvan-
Geodemographic segmentation tages of each strategy.
Heterogeneous markets 9. Identify and describe four major categories of base vari-
Learning relationships ables that can be used to segment consumer markets. Give
Market examples of product markets that are segmented by vari-
Market density ables in each category.
Market segment 10. Explain how geodemographic approaches such as ACORN
Market segmentation or MOSAIC support marketers.
Multivariable segmentation
11. What dimensions are used to segment business markets?
One-to-one marketing
Profiling 12. How do marketers decide whether to use single variable or
Segmentation variables or bases multivariable segmentation?
Single variable segmentation 13. Give examples of product markets that are divided using
Undifferentiated or total market approach multivariable segmentation.
14. What is customer relationship management? Hutt, M.D. and Speh, T.W., Business Marketing Management: B2B
(Cengage, 2013).
15. In what ways does customer relationship management ben-
McDonald, M. and Dunbar, I., Market Segmentation
efit an organization?
(John Wiley, 2012).
16. How does customer relationship management benefit from Nguyen B., Simkin, L. and Canhoto, A., The Dark Side of CRM
market segmentation? (Routledge, 2015).
Peppers, D., Rogers, M. and Kotler, P., Managing Customer Experience
and Relationships: A Strategic Framework (John Wiley, 2016).
Recommended readings Ries, A. and Trout, J., Positioning: The Battle for Your Mind
(McGraw-Hill, 2001).
Baran, R.J. and Glaka, R., Principles of Customer Relationship
Tsiptsis, K. and Chorianopoulos, A., Data Mining Techniques in CRM:
Management (Routledge, 2012).
Inside Customer Segmentation (Wiley-Blackwell, 2010).
Buttle, F. and Maklan, S., Customer Relationship Management: Concepts
Webber, H., Divide and Conquer: Target your Customer through Market
and Technologies (Routledge, 2015).
Segmentation (Wiley, 1998).
Dibb, S. and Simkin, L., Market Segmentation Success: Making It
Weinstein, A., Handbook of Market Segmentation: Strategic Targeting
Happen! (The Haworth Press/Routledge, 2008).
for Business and Technology Firms (The Haworth Press/Routledge,
Hooley, G., Piercy, N.F., Nicoulaud, B. and Rudd, J., Marketing Strategy
2004).
and Competitive Positioning (Pearson, 2016).

Adventure Travel Abroad, part of Most readers of Marketing: Con-
the Natural Travel Collection, is an cepts and Strategies will have a
internet company that offers a variety of travel and adven- Facebook account and be used to
ture products: Dive, The Travelling Naturalist, Walks, Wildlife social media networking. Business executives and profes-
and Schools. Learn more about its goods, services and travel sionals often are on LinkedIn, which has 546 million users
advice through its website at: www.adventureworldwide. in 200 countries, 17 million of whom are in the UK. It is the
co.uk. largest network for professionals on the web, now owned by
Microsoft. LinkedIn explains:
1. Based on the information provided on the website, what
are some of Adventure Travel Abroad’s basic products? The mission of LinkedIn is simple: connect the world’s profession-
als to make them more productive and successful.
2. Which market segments does Adventure Travel Abroad
When you join LinkedIn, you get access to people, jobs, news,
appear to be targeting with its website? updates and insights that help you be great at what you do.
3. What segmentation variables is the company likely to be ●● Build your professional identity online and stay in touch with
using to segment these markets? colleagues and classmates.
●● Discover professional opportunities, business deals and new
ventures.
●● Get the latest news, inspiration and insights you need to be
Group tasks great at what you do.
Source: www.linkedin.com, March 2015 and 2018.
1. Which customer groups do car producers Kia, BMW and
Porsche target? What segmentation variables have you
used in order to create these segments or customer Question
groups? What is the brand positioning proposition at the heart of
2. Consider the different target segments your business LinkedIn’s proposition? Explain how this relates to the appar-
school pursues. How do the needs and expectations ent target market strategy for LinkedIn.
of these various market segments differ? What are the
implications for your school’s marketing strategy?
Marriott: getting down to Marriott brand,’ says the vice president

business with business Case study of marketing strategy. With this research
in hand, marketers for the Marriott hotel
travellers brand targeted a segment they call ‘achiev-
ers’; business travellers who feel driven to
Imagine marketing more than 6500 hotels
get a lot done in a short time. They created
and resorts, operating under 30 brands in 127
an advertising campaign to communicate that
countries. This is the challenge facing Marriott, a multinational
Marriott is about productivity and performance. The
marketer that provides lodging services to millions of custom-
print and online adverts featured interviews with six real cus-
ers every day. The company, founded by J. Willard Marriott
tomers, who discussed their drive to accomplish personal and
in 1927, started with a single root-beer stand and the ‘spirit
professional goals.
to serve’. Today, it achieves $22 billion in global sales from
When Marriott looked at visitors who prefer SpringHill
guest room revenue, meals, meeting and special events and
Suites, one of its suite hotel brands, it found a slightly differ-
other services.
ent profile. These are business people who travel often and
Each of Marriott’s hotel brands has its own positioning. See
see a suite hotel as a place to spread out, feel refreshed, and
www.marriott.co.uk/hotel-brands.mi for a current summary.
take a break from the stress of being on the road. These cus-
The flagship Marriott brand stands for full service: properties
tomers are also heavy users of technology, especially mobile
have restaurants, meeting rooms, fitness centres and other
communication devices such as smartphones. In reaching out
facilities. The JW Marriott brand is more up-market and the
to this target market, Marriott uses mobile marketing as well
Ritz-Carlton brand is known for top quality service. BVLGARI
as traditional media to get its message across. It invites busi-
hotels and resorts is pitched as the leading luxury hospitality
ness travellers to download its iPhone app and runs adverts
collection in the world. Marriott’s newest hotel brand is Edi-
designed especially for viewing on smartphone screens. Cus-
tion, a chain of stylish, luxury, highly contemporary hotels,
tomers can click on the mobile advert to check room avail-
starting in Istanbul and London. TownePlace Suites are mid-
ability online or to speak with the reservations department.
priced suite hotels for customers who plan an extended stay
The Marriott app enables check-in-free access to rooms and
away from home. Fairfield Inn & Suites are for businesspeople
no-queue payment at check-out.
and vacationers seeking value-priced accommodation.
Marriott also targets companies that need hotel space
Sluggish economic conditions have only intensified rivalry
to hold meetings and seminars. In most cases, these com-
within the hyper-competitive hotel industry. Major hotel com-
panies bring in attendees from outside the immediate loca-
panies such as Accor, Hilton, Hyatt, InterContinental and
tion, which means Marriott can fill more guest rooms during
Starwood all offer a wide range of hotel and resort brands
meetings. Meetings usually involve additional purchases,
for different customers’ needs and tastes. In addition, local
such as snacks or meals, another profitable reason to tar-
hotels and regional chains compete on the basis of location,
get businesses. Sales reps at major Marriott properties are
ambience, price, amenities and other elements. To compete
ready to help companies plan employee workshops, supplier
effectively in this pressured environment, Marriott is relying
and distributor events and other meetings, for a handful to a
on extensive marketing research, expert segmentation and
ballroom full of people.
careful targeting.
Studying the needs and buying patterns of companies that
Marriott uses a variety of research techniques to find out
hold business meetings, Marriott’s marketers have found that
about customer needs and behaviour, including focus groups,
a growing number are interested in videoconferencing and
online surveys, and in-room questionnaires. For example,
other high-tech extras. To appeal to this segment, Marriott
when it conducted focus groups with customers who had
has equipped many of its meeting rooms with the latest in
stayed at its Marriott and Renaissance properties, it discov-
recording and communications technology. It has also part-
ered some interesting differences. Renaissance customers
nered with AT&T and Cisco to offer ‘virtual meeting’ capabili-
said they like to open the curtains and look out of the win-
ties in its Marriott, JW Marriott, and Renaissance Hotels. This
dow when they first enter their rooms. In contrast, Marriott
teleconferencing technology allows a group gathered in one of
guests said they get unpacked quickly and get right to work
Marriott’s hotel meeting rooms to collaborate with colleagues,
in their rooms. ‘That’s when we started making connections
clients or others anywhere in the world.
about the individual personalities that gravitate toward the
275 of its hotels already qualify for the US Environmental

Protection Agency’s Energy Star designation. Marriott is
also going green by working with suppliers that operate in
environmentally friendly ways. It provides pads made from
recycled paper for attendees of business meetings held at its
properties and buys key cards made from recycled plastic.
Even the pillows in the guest rooms are made from recycled
plastic bottles.
Marriott set up a central database to capture details such
as how long customers stay, what they purchase and when
they stay at any of its hotels or resorts. It also stores demo-
graphic data and tracks individual preferences so it can better
serve customers. By analyzing the information in this huge
database, Marriott discovered that many of its customers visit
more than one of its brands. Therefore, the company created
sophisticated statistical models to target customers for future
marketing offers based on their history with Marriott. In one
campaign, Marriott sent out three million email messages cus-
tomized according to each recipient’s unique history with the
company. Due to its database capabilities, Marriott was able
to track whether recipients returned to one of its properties
after this campaign, and actual sales results exceeded cor-
porate expectations. This database technology has paid for
itself many times over with improved targeting efficiency and
higher response rates.
The segment of consumers and business travellers who Questions for discussion
care about the environment is sizeable these days, and
1. How is Marriott segmenting the market for hotel
Marriott wants its share of this growing market. The com-
services?
pany has developed prototype green hotels for several of its
brands, designing the public space and guest rooms with 2. Which of the targeting strategies is Marriott using?
an eye toward conserving both water and energy. Marriott Explain your answer.
will build hundreds of these green hotels during the next 3. What specific types of data should Marriott have in its
decade. Thanks to the company’s emphasis on saving power, customer database for segmentation purposes?
Chapter 8
Targeting and positioning
Strategy requires trade-offs . . . informed compromises
and clearly agreed priorities
Introduction
Objectives As explained in Chapter 2, marketing strategy revolves around
the choice of which opportunities should be pursued, the speci-
To understand targeting decisions
fication of an associated target market strategy and the creation
for the emerging opportunities now
of a basis for competing. Limited resources generally result in
worth pursuing.
organizations being unable to serve all of the needs and all of
To consider various segmentation the different customers in an overall market or commercial sec-
targeting strategies. tor, so marketers must make trade-off choices when creating a
targeting strategy based on the relative merits of various oppor-
To discover how marketers prioritize
tunities and target markets.
target markets and select between
Having made the necessary trade-off choices, the consum-
market segments.
ers or business customers in markets and segments deemed
To appreciate the importance of to be a company’s priorities must be communicated with in a
assessing sales potential, market manner which emphasizes their importance to the company,
share and value share in creating a reflects these customers’ expectations and which differentiates
target market strategy. the company’s proposition from its competitors; which is the
positioning task. Positioning is particularly effective when strong
To learn about strategies for
customer value propositions underpin the adopted positioning.
positioning.
This chapter focuses on the second and third stages of the
To complete coverage of the mar- market segmentation process – targeting and positioning –
ket segmentation process of seg- as well as presenting a framework for selecting both oppor-
menting a market, selecting which tunities and target markets to pursue with an appropriate
segments to target and positioning positioning strategy.
a proposition in those chosen target
market segments.
To explore customer value proposi-
tions and their linkage with effective
positioning strategy.
233
Targeting strategies for

W arwick Business
School has a clear
vision of what it should be
business schools
cultivates and the character
to understand the difference
between being self-interested
doing as a leading business and self-centred. It goes far
beyond knowing that it’s not right
school:
to lie, cheat, or steal. It involves rec-
Our vision is: ognizing that you are a true leader only
To be Europe’s leading University-based Business School, devel- when you have earned the trust of others,
oping transformational ideas and people that shape how we do and when others, whether in your organizations or your communi-
business. ties, recognize you as such.
Our vision is supported by our three-fold mission statement: “MAKE A DIFFERENCE”

• To develop cutting-edge research that leads debate and deepens Making a difference means people who create real value for society,
our understanding of the practice of business and management. and who create value before claiming value. I’ve not found anyone
• To provide a transformational learning experience, enabling who begrudges a leader for claiming value after creating value.
our stakeholders to realise their full potential. Rather, the recent economic crisis showed us too many examples
• To work in partnership with policy and practice, both in terms of leaders who claimed value without creating any. It is worth noting
of our research and teaching activities, to catalyse the impact here that there are many ways of making a positive difference: as an
of our work. investor, as a general manager, as an entrepreneur, as an active citi-
zen of your community. Indeed, what distinguishes Harvard Business
Our vision statement captures where we aim to be. Our mission
School is that our graduates provide leadership in all walks of life.
statement captures who we are and the essence of what we do.
To produce world-class, socially responsible, creative leaders “IN THE WORLD”
and managers who think on a global scale, regardless of the size In the world reflects our understanding of a rapidly changing,
of their organisation. dynamic environment, and the fact that many of the world’s most
challenging issues will require a global perspective. Moreover, it
In the UK, Warwick Business School was one of the first involves embracing the view that the world desperately needs
major players to mark out a very clear positioning . . . its more leaders to address its most urgent and challenging prob-
research-led brand proposition proved popular with aspira- lems, and that virtually none of these problems can be addressed
tional MBA students desiring topical and thought-provoking without business leaders playing a vital role.
thinking, while many more cerebral and less vocationally- And, of course, the first component of the mission is educating,
inclined undergraduates were also attracted to this pitch. which we do in many ways – through our educational programs,
Leading MBA competitor Cranfield, meanwhile, played to its through the ideas our faculty produce and disseminate, and through
extensive links with corporate clients and its large network the influence we achieve by being close to leaders of all types, and
of former students now senior practitioners in industry, by of organizations all across the world. Here, I would encourage us
to recognize that the impact of what we do extends far beyond the
stressing its practitioner links and the commercial relevance
people who come to our campus. Although we can touch only a few
of its degrees. Meanwhile, Aston emphasized employability
thousand directly each year, we can indirectly influence many more by
and the practical relevance of its degree programmes. Most remaining the most trusted and admired leader in business education.
business schools strive to communicate a clear positioning.
Two major global business schools also promote very clear
positionings. Harvard is not shy at explaining its reach and
heritage for over a century of producing high-achieving grad-
uates and research:
We educate leaders who make a difference in the world.
Each element of the School’s mission – to educate leaders who

make a difference in the world – is infused with meaning.
“LEADERS”
When we talk about leaders, we mean people who embody a cer-
tain type of competence and character – both the competence
that comes from the general manager’s perspective the School
Chapter 8 Targeting and positioning 235
France-based INSEAD has a long-standing reputation for and teaching. Similarly, Harvard recognizes some will view
attracting a multi-cultural and diverse set of aspirational stu- it as arrogant and too hard-nosed, while many aspirational
dents from across the globe, as a business school designed CEOs and strategy consultants will be hooked by its brand
from its birth to be international in its operations: positioning. INSEAD evidently also seeks the leaders of the
future, but with a strong set of values around responsibility,
As a global educational institution with a pioneering multi-campus community and diversity. Some students, potential faculty and
model, our mission is to create an open-minded learning environ- corporate clients will be alienated by these very stark position-
ment that brings together people, cultures and ideas from around
ings, but there will be segments finding great appeal in these
the world, in order to transform individuals and organisations
propositions. Each of these reputable business schools has
through business education. Through teaching, we develop respon-
sible, thoughtful leaders and entrepreneurs who create value for
determined to which segments to appeal, developing clear
their organisations and their communities. Through research, we positioning strategies and marketing communications per-
expand the frontiers of knowledge and influence business practice. tinent to their audiences. Differentiation and reputation are
essential in this market and that requires clarity of purpose in
Many of Warwick’s students find little empathy with Cran- terms of targeting and positioning.
field’s positioning, and vice-versa. This worries neither busi-
ness school, as each has made conscious decisions about Sources: Warwick Business School www.wbs.ac.uk/; Harvard Business School
which audiences to target in their core markets of research www.hbs.edu/Pages/default.aspx; INSEAD www.insead.edu/
M
arketers have a responsibility to act as the eyes and ears for their organizations, identifying
opportunities and emerging target markets. This is a core component of strategic marketing.
Well-crafted propositions reflecting target market expectations and requirements should be
developed which are intended to stand out from competitors. Whether Mini, Skoda or Mercedes in the
car market; CapGemini or McKinsey in the consulting sector; Veetee, Uncle Ben’s or Tilda in the rice
market; or competing business schools, organizations must select their target markets and develop
positioning strategies which are appropriate to such audiences’ expectations and perceptions.
Building on the previous chapter’s exploration of market segments, this chapter begins by con-
sidering the nature and options for segmentation targeting strategies. The review of targeting con-
siders the strategies used to select and prioritize target markets. The associated tools are also often
deployed to make the necessary trade-off decisions for identifying opportunities to pursue, as also
described within this chapter. The chapter also looks at the importance of assessing sales potential
in creating a target market strategy. The full segmentation process involves creating the segmenta-
tion, selecting which segments to pursue and determining a positioning strategy appropriate for the
selected target market segments. Therefore, having explored the targeting stage of this segmentation
process, this chapter examines the positioning phase and approaches for developing a positioning
plan. The chapter concludes by looking at the concept of customer value propositions, which under-
pin positioning to create compelling propositions for targeted consumers and business customers.
Segmentation targeting strategies

Segmentation targeting involves marketers in decisions about which market seg-
segmentation
targeting ment(s) an organization should prioritize for its sales and marketing efforts. As Figure 8.1
The decision about which shows, the three basic targeting strategies are undifferentiated, concentrated and differ-
market segment(s) an entiated. The decision made regarding the targeting strategy to follow must be based on
organization decides to a clear understanding of a company’s capabilities and resources, financial performance,
prioritize for its sales and
the nature of the competition, the product or service in question, the characteristics of
marketing efforts.
the market, as well as emerging threats and opportunities. Without the understanding
of a market and its customers as explained in Parts I and II of Marketing: Concepts and
Strategies, these decisions cannot safely be made.
Undifferentiated strategy
A B C A B
Product /
C A B C A
people
B C A B C
A B C A B
Price Distribution C A B C A
B C A B C
A B C A B
Promotion C A B C A
B C A B C
Organization Single marketing mix Target market
Concentrated strategy
A A A A A
Product /
A A A A A
people
A A A A A
B B B B B
Price Distribution B B B B B
B B B B B
C C C C C
Promotion C C C C C
C C C C C
Organization Single marketing mix Target market
Differentiated strategy
Product /
people
Price Distribution
A A A A A
Promotion A A A A A
A A A A A
Figure 8.1 B B B B B
Targeting strate- Marketing mix I B B B B B
gies. The letters in B B B B B
each target market C C C C C
Product / C C C C C
represent potential C C C C C
people
customers. Cus-
tomers with the
Organization Price Distribution Target markets
same letters have
similar character-
istics and similar
product needs, so Promotion
can be grouped
together for mar-
Marketing mix II
keting purposes
Undifferentiated strategy
An organization sometimes defines an entire market of a particular product as its target mar-
ket. When a company designs a single marketing mix and directs it at the entire market for a
particular product, it is using an undifferentiated targeting strategy. For example,
undifferentiated
targeting strategy
a one-product soft drink business targeting all consumers in the overall market for
When a company targets soft drinks. This is a strategy in which an organization defines an entire market for a
an entire market for a particular product as its target market, designs a single marketing mix, and directs
product with a single it at that market. The strategy assumes that all customers in the target market for
marketing mix. a specific kind of product have similar needs, and thus the organization can satisfy
most customers with a single marketing mix. This mix consists of one type of product
with little or no variation, one price, one promotional programme aimed at everybody
and one distribution system to reach most customers in the total market. However, there are
relatively few companies opting to follow this targeting approach, because of the risk that better
honed or tailored propositions from rivals appeal much more strongly to specific sub-groups of
consumers in the market . . . which they undoubtedly will. There are few situations where such
an approach is viable. Although customers may have similar needs for a few products, for most
products their needs are quite different. In such instances, a company should use a concen-
trated or a differentiated strategy.
Concentrated strategy
When an organization directs its marketing efforts towards a single market segment
by creating and maintaining one marketing mix, it is employing a concentration
concentration strategy
A process by which an strategy. The fashion house Chanel targets the exclusive fashion segment, directing
organization directs its marketing effort towards high-income customers who want to own the most chic
its marketing effort apparel (see Figure 8.2). The Cross Pen Company aims its products at the upmarket
towards a single market gift segment of the pen market and does not compete with Bic, which focuses on
segment through one
the inexpensive disposable pen segment. The chief advantage of the concentration
marketing mix.
strategy is that it allows a company to specialize. The company can analyze the char-
acteristics and needs of a distinct customer group and then focus all of its energies
on satisfying that group’s needs.
Figure 8.2
Chanel targets the exclusive fashion
segment, directing its marketing effort
towards high-income customers who
want to own the most chic clothing
A company may be able to generate a large sales volume by reaching a single segment. In some
cases, concentrating on a single segment permits a company with limited resources to compete
with much larger organizations, which may have overlooked some smaller segments.
Concentrating on one segment also means that a company puts ‘all its eggs in one basket’,
which is clearly a disadvantage. If a company’s sales depend on a single segment and the
segment’s demand for the product declines, the company’s financial strength declines as well.
When the North American sports coupé market declined in the late 1980s, Porsche found itself
in severe trouble as it had no exposure to other parts of the car market. Several mobile phone
producers failed to spot the emergence of smart phones, led by the iPhone and Samsung.
Motorola, Nokia and Blackberry were big losers, focusing on a product category from which
consumers switched user behaviours and opted for the alternative smartphones. Moreover,
when a company penetrates one segment and becomes well entrenched, its popularity may
keep it from moving into other segments. For example, it is hard to imagine that Rolex would
start producing low-cost watches, or that Swatch might compete at the high end of the luxury
watch segment. This might have been true for Motorola and Nokia initially, because Motorola
and Nokia still had high-selling ranges of existing mobile phones when smartphones, mobile web
browsing and messaging/social media took off, and may have been reluctant to switch over to
the competing smartphones.
Differentiated strategy
With a differentiated strategy (see Figure 8.1), an organization directs its mar-
differentiated strategy keting efforts at two or more market segments by developing a separate marketing
A strategy by which
mix for each segment selected. Sometimes this is a natural progression from the
an organization directs
its marketing efforts successful application of a concentration strategy in one market segment. For exam-
towards two or more ple, Jockey underwear has traditionally been aimed at one segment, men. However,
market segments by the company has expanded its efforts and now markets underwear for women and
developing a marketing children. Porsche and Jaguar have moved into the SUV segment in addition to
mix for each.
sports coupés. The marketing mixes used for a differentiated strategy may vary relat-
ing to product/service differences, place/distribution methods, promotion methods,
prices and customer service. The majority of users of Gatwick Airport near London
are package holiday travellers. A significant minority, however, are business users, so the
airport now has various marketing programmes targeting different segments. Most brand-led
mainstream businesses today adopt a differentiated multi-segment targeting strategy, with
a portfolio of propositions and marketing programmes targeting a set of separate segments
in order to pursue a selection of opportunities, grow market share and satisfy shareholders’
desires for growth.
An organization can usually increase its sales in the aggregate market through a differentiated
strategy because its marketing mixes are aimed at more people. For example, Gap – which estab-
lished its retail clothes reputation by targeting people under 25 – now targets several age groups,
from infants to people over 60. A company with excess production capacity may find a differenti-
ated strategy advantageous because the sale of products to additional segments may absorb this
excess capacity. On the other hand, a differentiated strategy often demands a greater number of
production processes, materials, programmes and people. Thus production and marketing costs
may be higher than with a concentration strategy.
One-to-one marketing fits with either a concentrated or differentiated strategy.
one-to-one marketing The growth of customer insight and enhanced customer relationship management
Customized marketing systems enables identification of individual customers who might warrant special
engaging individual attention and customized marketing in order to develop longer-term relationships
customers for the devel-
and secure their spending. One-to-one marketing, enabled through CRM and digital
opment of longer-term
relationships. marketing, has grown considerably within recent years. As illustrated in Figure 8.3,
one-to-one is focused primarily on target customers within the prescribed priority
target market segments.
Undifferentiated marketing
(very rare)
Differentiated marketing
(certain segments are targeted)
Concentrated marketing
(a few businesses opt to niche)
Customized one-to-one marketing

(often in conjunction with a segment
Figure 8.3
Targeting strategies strategy)
Factors affecting choice of a segmentation targeting strategy

Irrespective of the type of targeting strategy an organization chooses to adopt, when faced with
the decision about whether or not to enter a new segment, it must consider a number of issues.
These issues include:
1. the nature of the needs and wants of end users
2. the size, structure and future potential of the segment
3. the availability of company resources
4. the intensity and strategic direction of the competition
5. the size of the company’s existing market share, and
6. the possibility of any production/marketing scale economies with existing activities within the
company’s portfolio and operations.
Figure 8.4 sums up the core factors affecting the choice of targeting strategy.
Product market
Needs, wants and size, structure Nature and
loyalty of end user and growth rate intensity of
customers competition
Bargaining power Brand fit and

of buyers and applicability of
intermediaries Target existing activities
market
Figure 8.4 Company/brand strategy Production/
Factors affecting market share marketing
choice of target expectations scale economies
market strategy
Source: Adapted from Profitability/return Strategic fit with
David W. Cravens, on investment long-term
Resources and
Strategic Marketing expectations objectives
capability fit of
(Homewood, IL.: Irwin,
the company
1982)
A company may recognize that a fit between its products or capabilities and target customer
needs is stronger and more ‘marketable’ in one market segment than in another. However, in some
cases a decision may be made to expand into a new area, market or territory where the fit between
customer needs and the product and marketing proposition is poor, with the intention of rectifying
such shortcomings. Certain markets’ size or value makes them attractive, as does a company’s
existing or potential sizeable market share. There may be economies of scale available in targeting
a particular market segment alongside related ones, so that certain aspects of the company’s
production, sales and marketing activity may be shared. Of course, if truly homogeneous market
segments have been identified, then each segment will require certain unique aspects of sales
and marketing activity. If two segments really can be treated identically in terms of marketing mix
programmes, then they are probably really one segment! Highly intensive and well-established
competition may to some companies be something of a ‘turn-off’, whereas others may take such
competitor activity to be indicative of extensive market growth and business opportunity. It is worth
noting that even a company the size of Ford or GM does not have the time, capacity, people or
financial resources to develop a marketing mix for every single segment in the vehicle market. Avail-
able resources play a significant role in management’s target market decisions. All organizations
ultimately make trade-off choices and are unable to pursue all the opportunities they have identified
or address all of the segments analyzed in a market.1
There are many factors considered by companies determining which markets to target and
which target market strategy to deploy. Figure 8.4 is nevertheless a useful summary of the core
factors. Marketing planning expert, Malcolm McDonald, suggests2 a variety of issues to consider
when determining which and how many target market segments to prioritize. These include mar-
ket, competition, financial and economic, technological, socio-political and regulatory factors – the
forces of the marketing environment (see Chapter 3) – and core market trends, as outlined below:
●● Market factors: size (money, units or both); growth rate per annum; diversity of the market; sen-
sitivity to price, service features and external factors; cyclicality; seasonality; bargaining power
of upstream and downstream suppliers.
●● Competition: types of competitor; degree of concentration; changes in type and mix; entries
and exits; changes in market share; substitution by new technology; degrees and types of
integration.
●● Financial and economic: contribution margins; leveraging factors such as economies of scale
and experience; barriers to entry or exit; capacity utilization.
●● Technology: maturity and volatility; complexity; differentiation; patents and copyrights; manu-
facturing process technology required.
●● Socio-political and regulatory: social attitudes and trends; influence with pressure groups, gov-
ernment and regulatory bodies; laws, government and EU regulations; human factors such as
unionization and community acceptance.
Target market attractiveness and opportunity

selection
In practice, every organization has its own preferences for which variables to consider when assess-
ing the relative attractiveness of markets or opportunities to serve. Unfortunately, some corporate
leaders only assess profitability as their measure of attractiveness, which is too short-term and fails
to reflect the evolving dynamics of a market. A survey3 of marketing practices in the largest UK
companies revealed an interesting set of variables utilized in determining target market attractive-
ness (see Table 8.1). This study revealed the extent to which UK businesses are overly restricted by
the City analysts’ short-termism, and the emphasis placed by financial journalists and pundits on
Innocent goes mumsy provided by Mumsnet’s panel of expert

Building customer mothers and also from the millions of
users of the website. Innocent’s nutrition-
Innocent Smoothies transformed the relationships ists hold online Q&As with Mumsnet parents,
category of fruit-based smoothie drinks
into big business for retail stockists and supporting the brand but also learning about
Innocent alike. What started as a small consumers’ views, concerns and desires.
venture by three friends has become a brand, Immediately there were benefits for Inno-
now part-owned by Coca-Cola. Innocent promotes cent’s team, as they explained to Mumsnet users
the health and nutritional values of its fruit smoothie major on the website:
drinks, but in a fun and ‘huggy’ style which proves very pop- When we decided to make a recipe book all about healthy, tasty,
ular with its users. The company has diversified into Veg Pots, no-fuss food that the whole family could enjoy (and that didn’t
a children’s range, and to other areas of the market. The brand take ages to make), we thought it’d be a good idea to get as
has wide appeal, largely to health- and taste-conscious con- many mums, dads and kids as possible to test the recipes first.
sumers. Few readers will be unfamiliar with its range. The So, thanks to a group of Mumsnetters, who very kindly took
launch of its Kids range was supported with advertising and the time to test, taste and tell us what they thought of a selection
sales promotions targeting children and their parents, so a link of the recipes, the result is a book that’s got the thumbs up from
parents and kids alike.
with Mumsnet is not too surprising.
Filled with over 100 delicious, simple, healthy recipes (from
Mumsnet is now the UK’s biggest network for parents,
two-minute breakfasts to proper Sunday lunches) and with 85 per
generating over 120 million page views and over 12 million
cent of recipes containing at least one of your five-a-day, there
unique visitors per month. Politicians and brands, including are also loads of tips, distractions and ways of getting everyone
Ford and Asda, have turned regularly to the site in order to involved in cooking, making and eating.
convey their messages but also to learn about their targeted We couldn’t have done it without you. So thank you very much.
audiences. According to Mumsnet, ‘The idea was to create
www.mumsnet.com
a website where parents could swap advice about holidays,
pushchairs and last night’s TV. Our aim is to make parents’ Innocent still targets adult users and households without
lives easier by pooling knowledge, advice and support. We any children, adopting different campaigns for its ‘grown up’
try, as far as possible to let the conversation flow and not to audiences. In this instance, however, the company is explicitly
over-moderate. Mumsnet is a site for grown-ups.’ developing products and marketing programmes targeted at
Mumsnet offers product reviews and advice, but has cre- children and their parents.
ated a panel of mums which brands may use in order to glean Sources: ‘Innocent to Fine-Tune Range with Mumsnet’, Russell Parsons,
insights into the behaviours and attitudes of parents and their Marketing Week, February 3 2011, p. 4; Innocent, 2011 and March 2015;
www.Mumsnet.com, June 2011; www.mumsnet.com/Talk/food/a1299506-Q-A-
children. Innocent plans to improve the appeal of its brand to with-Innocent-Company-Nutritionist-and-Dietitian-Vanessa-Hattersley-ANS,
children and their parents by benefiting from the feedback 17 March 2015.
performance only in terms of profitability in the most recent few months. US, German and South-
east Asian financial markets tend not to be quite so short-termist in their thinking.4 Outside the UK,
organizations worry about market share and profitability, not just for today and tomorrow, but for
a few years to come. Profits do matter, but it is desirable to adopt a balanced set of variables or
criteria with which to judge the relative merits of possible opportunities and target markets.
A market may well be targeted because of its future potential, not just because of current sales.
For-profit businesses inevitably will be driven by likely financial rewards, but often these result from
other factors, such as competitor intensity, customer salience and the ability to achieve differentia-
tion. Success should be construed in terms of both today’s performance and longer-term potential.
The UK survey had some good news: it is reassuring to see the ability to deliver customer satis-
faction, sustainable differential/competitive advantage and likely product differentiation well up the
list of factors considered in the UK. Chapter 1 explained the importance in marketing of satisfying
customers, outpacing competitors and developing differentiation. It is not so good to note that the
Table 8.1 Market attractiveness factors adopted by UK companies
Companies’ market attractiveness criteria

First tier: ●● Market share
●● Profitability ●● Relative strength/key functions
●● Customers’ price sensitivity
Second tier:
●● Customer image of company
●● Market growth
Fourth tier:
●● Market size
●● Likely customer satisfaction ●● Technological factors
●● Sales volume ●● Fit with business strategy
●● Stability of market
Third tier:
●● Environmental factors
●● Likelihood of a sustainable differential advantage over ●● Threat of substitutes
rivals
●● Barriers to entry
●● Ease of access for the business
●● Negotiating power of buyers
●● Opportunities in the industry
●● Ease of profiling customers
●● Product differentiation
●● Supplier power
●● Competitive rivalry
Source: Sally Dibb and Lyndon Simkin.
marketing environment and issues relating to non-direct competitor activity are so low down the
list. Organizations really should adopt a balanced list of criteria, mixing short-term and longer-term
issues and internal and external factors such as financial considerations and market characteristics.
Understanding what is worthwhile or attractive is not restricted to the selection of target markets
and which segments to pursue. Marketers must also identify worthwhile opportunities for their
organizations to follow. Often, the same criteria used to select between segments are used to pri-
oritize opportunities to go after. Therefore, this section of Marketing: Concepts and Strategies con-
siders the selection of opportunities, before the chapter returns to examine target market selection.
Identifying and selecting opportunities

Most businesses have a set of corporate objectives guiding their strategic thinking (see Chapter 2).
Some companies may have a strategy of consolidation or survival, but even they will face trade-offs
between resourcing and supporting viable or growing markets against markets facing declining
fortunes. Driven by shareholders’ and investors’ financial desires, most leadership teams seek
growth in sales. Accordingly, a marketing strategy is expected to identify parts of the market likely
to generate growing sales or where the company’s brand and capabilities will generate commercial
opportunities. Two very frequently posed questions by senior executives are:
1. Where is big growth likely?
2. Have we assessed all possible opportunities?
Rarely posed but strategically important, a third question should be What do we stop doing?
Armed with topical insights from the market, knowledge of customers’ expectations and aware-
ness of competitors’ developments, marketers should be well placed to answer such questions
and assist in their organizations’ strategy creation. They should also address these questions in
their annual marketing planning activity, as described later in Chapter 22 of Marketing: Concepts
and Strategies.
Companies adopt different approaches for identifying such growth or new opportunity
options. Away days for executives or so-termed ‘off-sites’ away from day-to-day disturbances,
meetings and conferences are used for managerial brainstorming. Sometimes, these sessions are
encouraged to reflect on emerging opportunities by either staging a ‘PESTLE workshop’ or an
‘Ansoff Day’. By examining the forces of the marketing environment (see Chapter 3),
Ansoff
Assessment of com- executives will, under each element of the popularly named PEST or PESTLE analysis,
petitive strategies and identify opportunities and threats. They will explore whether external drivers in terms of
growth opportunities politics, legal and regulatory issues, technology, societal and environmental concerns
based on new/current and economic forces present any opportunities. Such factors should also be taken into
products and new/cur-
account when considering which market segments to target. In an Ansoff workshop –
rent markets, providing
market penetration, so called because it is based on the strategic planning framework created by Ansoff –
market development, executives look to populate the four cells of his matrix (see Chapter 2), as depicted in
product development and Figure 8.5. They will base such thoughts on intuition, experience, knowledge of their
diversification. markets and products, feedback from distributors, customers and suppliers, as well as
research findings. Having identified possible options in the brainstorming session, indi-
vidual executives or teams typically would subsequently spend some weeks researching
in more detail the apparently most important issues, so that informed decisions about whether to
proceed can be made.
Product
Present New
Market penetration Product development

Present Higher depot density Protection from ‘XYZ’ for
Figure 8.5 More sales of product X outdoor customers
Market
Ansoff’s matrix. For

a particular energy
company considering
growth opportuni- Market development Diversification
ties, adopting the New range of product Y Branded clothing range
Ansoff framework New
using current Environmental
(see Chapter 2) technology to deliver ‘ABC’ consulting
these were leading
contenders
SWOT analyses, explained in Chapter 2, competitor analyses and research into

SWOT analyses
The examination of an customer satisfaction and expectations, will all additionally reveal possible commercial
organization’s strengths opportunities. All of these analyses also feature in marketers’ annual marketing planning,
and weaknesses, oppor- but they occur ad hoc and routinely within the calendar of corporate activities. The result
tunities and threats, is that an organization and its marketers generate many ideas for new business oppor-
usually depicted in a
tunities or emerging target markets. Unfortunately, in practice, there are never enough
four-cell chart.
time, people, focus, budget, skills or management bandwidth to be able to pursue all of
the interesting opportunities that emerge . . . trade-offs are necessary.
Sometimes such trade-offs and prioritization are achieved by rather dictatorial direction from a
senior manager. It is not unknown for a senior director or company owner to instruct colleagues
to pursue a particular opportunity or market with little apparent prior analysis, which is not highly
desirable behaviour. However, generally there is discussion between business functions and senior
managers. There is still a danger that ‘who shouts loudest for longest’ wins the management argu-
ment and the budget in such meetings. It is preferable to adopt a set of criteria or variables with
which to judge the relative attractiveness of emerging opportunities. This same approach can be
used very effectively to identify the most attractive segments to pursue with dedicated marketing
programmes. For example, one telecoms company’s segmentation study identified six consumer
segments, but its leadership only chose to devote marketing resources to capturing more custom-
ers in three of these, based on a set of pre-agreed criteria which included financial performance
variables but also many market-led criteria.
When organizations recognize the undesirability of only judging attractiveness in terms of short-
term profitability, they tend to identify a more balanced set of criteria. These factors rarely are of
equal importance, so they are weighted in terms of their relative importance or power. In such sit-
uations, the directional policy matrix (DPM) – or market attractiveness business strength matrix – is
often adopted by leadership teams and marketers to help with the selection of opportunities,
market segments and target markets to pursue. This technique is explained in detail in Chapter 12
under the section ‘Market attractiveness - business position model’. A real-life step-by-step illus-
tration is provided in the Marketing Tools and Techniques box in that chapter.
As explored in Chapter 12, the DPM assessment of attractiveness may be applied to selecting
which brands or product groups to support, which opportunities to pursue, or which markets to
target: it increasingly is used within the targeting phase of market segmentation to decide which
segments to pursue. The telecoms company just referred to, selecting between its six consumer
segments, adopted this technique, specifying the following variables and their weightings to sum
up the views of its directors in terms of what constituted a worthwhile or attractive pursuit and
target segment:
●● disposable income in the segment (8)
●● willingness to spend on mobiles in the segment (6)
●● interest in value-added services in the segment (10)
●● ARPU/revenue/profitability – the financial worth of the segment (8)
●● share in prospects in the segment (10)
●● loyalty level in the segment (10)
●● size of the segment (16)
●● barriers to entering the segment (8)
●● competitive intensity and degree of competition in the segment (6)
●● potential growth of the segment (12)
●● our market share in the segment (6).
The figures in brackets after each variable in the list indicate the relative importance of
these variables, as voted by the directors in this company’s senior leadership team. They total to
100 per cent.
As explored in Chapter 12, when using the directional policy matrix to select between oppor-
tunities or market segments, there are essential steps:
1. Select a ‘balanced’ set of attractiveness variables, not only expected profitability. These should
include financial criteria, but also market-facing criteria, such as the ability to satisfy the cus-
tomers in question, the likelihood of achieving differentiation versus competitors, the longevity
and growth prospects and so forth.
2. Select a set of business strength or capability variables, pertinent to the industry in question,
with which it is possible to compare strengths against the strongest competitor. Each industry
tends to have certain unique capabilities, appropriate for comparisons between competitors
in terms of their strengths and weaknesses for achieving success with consumers or business
customers in opposition to their strongest rivals.
3. For both sets of variables – market attractiveness and business strengths – the selected
variables should be weighted, because some matter more than others. Typically, this involves
allocating 100 points across the market attractiveness variables (as in the above list for the
telecoms business) and 100 points across the business strength variables.
4. These two sets of variables and their respective weightings should be held constant over time,
so that progress – quarter by quarter or year by year – of the opportunities or market segments
may be observed.
5. Each opportunity or individual market segment, depending on the unit of analysis for the study,
should then be judged variable by variable. If the specific opportunity or segment performs
well against a selected variable it should be scored ‘1’; if it performs only ‘so-so’ it should be
scored ‘0.5’; while if it performs poorly it should be scored ‘0’.
6. For each variable, the weighting (out of 100) multiplied by the score (‘1’, ‘0.5’ or ‘0’) will result
in a value for the variable.
7. In both lists separately – market attractiveness and business strengths – the summation of
these values will provide total values between 0 and 100: one total for the market attractiveness
dimension and one total for business strengths.
directional policy matrix 8. These total values enable the relative position of each opportunity being assessed
A market attractiveness or each market segment under examination to be plotted on the directional policy
and business strength/ matrix. The value – between 0 and 100 – indicates the position on the axis.
capability assessment
tool ideal for trade-off
9. Those opportunities or market segments plotted upper left (NW) on the DPM are
analyses for identifying more desirable than anything plotted towards the lower right (SE). Arguably anything
resourcing priorities plotted to the bottom right should not be pursued or resourced. See Figure 8.6 for
an illustration. The DPM is explained again in Chapter 12.
DPM: Consumer segments in country ‘X’ High

100
The DPM was calibrated and
used to identify which segments
‘S’
‘T’ to target in each country.
83
Segment Attractiveness
67
‘R’
‘B’
‘W’ 50
‘L’
Agreed on 11 Here, the ‘T’ and 33

Circle size relates to ‘S’ segments
attractiveness
proportion of the company’s were targeted in
criteria.
revenue from each segment. country ‘X’.
Agreed on 9 16
Figure 8.6 capability or
Illustration of the business strength
directional policy criteria.
0
matrix’s assessment
100 83 66 50 33
of market segment
prioritization High Business strengths (capabilities) Low
10. This analysis should feature in the annual marketing plan, but some businesses
repeat it quarterly in order to assess progress and judge the performance of their
marketing activity. Any opportunity or segment migrating from the NW to the SE on
the matrix is not performing well. Reasons need exploring. Disinvestment or with-
drawal might be necessary, or a revised marketing strategy and customer engage-
ment plan specifying.
In the telecoms example, each identified market segment was judged against these variables
in order to agree which segments should be the focus of the company’s resources. The same
approach could trade-off identified opportunities to determine which are the most attractive to
pursue. While there is an element of subjectivity in this approach, the mix of variables, the balance
between financial factors and external characteristics of the market, and the cross-section of exec-
utives involved in the assessment, generally lead to a much better decision about where to spend
the product development and marketing budgets than under the ‘who shouts loudest’ approach
or if simply taking current profitability levels as the measure of desirability.
Whether assessing opportunities, market segments or target markets to prioritize, marketers
must be able to determine the best ones to pursue because they will never have permission or
resources to go after them all. Life is about trade-off choices, and this is very much the case when
creating a target market strategy or business opportunity pursuit list. The tools originally designed
to assist in resourcing decisions for brands and products, as explored in Chapter 12 – such as the
market attractiveness – business capability directional policy matrix – are very useful in the targeting
stage of creating a marketing strategy or market segmentation strategy. The main lesson is to adopt
a balanced set of attractiveness criteria, which includes financial worth but additionally looks to
more market-facing criteria. More is stated about this in Chapter 12 of Marketing: Concepts and
Strategies. Underpinning any such assessment about investment, budget allocations and strategy
priorities must be a robust set of marketing analyses. Analyses of current performance, market
trends and the forces of the marketing environment, capabilities, competitors and consumer/
business customer behaviour must provide a robust and topical foundation for selecting priorities
and developing the marketing strategy.
Evaluating markets and forecasting sales

Whatever segmentation choices organizations make, measuring the sales potential of the chosen tar-
get market or markets is crucial. Moreover, a marketing manager must determine the portion or share
of the selected market that the company can capture relative to its objectives, resources and man-
agerial skills, as well as to those of its competitors. Unless this is assessed, financial returns cannot
be calculated and no judgement is possible about the desirability of the necessary marketing spend.
Sales potential is the amount of sales possible for a particular brand or product in the
sales potential
The amount of sales context of market conditions in a specific period of time. This assessment should reflect
possible for a particular the attributes of the brand or product, likely customer interest, the nature of competitors’
brand or product in the propositions and market trends. For example, in the current depressed economic climate,
context of market condi- the sales potential for some upmarket lines has decreased. Following the terrible 2011
tions in a specific period
Japanese nuclear power station incidents, the potential for more nuclear installations
of time.
globally declined but sales potential for competing energy generating technologies rose,
reflecting consumer, regulator and government concerns about civil nuclear safety. Med-
ical pandemics are good news for producers of testing kits and medical supplies, while periods of
political inter-government tension provide opportunities for manufacturers of weapons.
Market share is a long-standing measure of marketing success: if market share
market share
The company’s brand rises in a particular time period, the view would be that a marketing strategy is achieving
or product share of total some of its goals. Market share is the company’s brand or product share of total sales
sales in a particular in a particular target market or market segment, versus competing brands. Arguably,
target market or market were more organizations equally focused on driving up market share and profitability, as
segment, versus compet-
opposed to only profitability, they would be more successful and secure in the longer
ing brands.
term. The pursuit of increased market share in priority target markets should be a key
success metric for marketers, as explored in Chapter 23.
Some businesses, particularly those producing fast moving consumer goods (FMCG),
such as those products retailed in supermarkets, examine value share as a perfor-
value share
The proportion of total mance metric. Value share is the proportion of total market monetary sales attracted
market monetary sales by an individual brand or product within a particular market. Market share may be six
attracted by an individual per cent while value share is nine per cent for a premium-priced brand. For longer-term
brand or product within a security, it is important that market share rises as well as value share: it is possible for a
particular market.
short-term rise in value share to satisfy directors and improve necessary cash flow, but
only market share will safeguard future fortunes.
Developing and maintaining a marketing mix consumes a considerable amount of a compa-

ny’s resources. Thus, the target market or markets selected must have enough sales potential
to justify the costs of developing and maintaining one or more marketing mixes. Arguably, to be
an attractive target market, there must be the propensity for growing market share and value
share. As part of developing an effective target market strategy, it is necessary for marketers to
calculate and assess market size and sales potential, along with achievable market share and
value share. Some or all of these variables often feature in companies’ directional policy matrix
trade-off assessments.
The potential for sales can be measured along several dimensions, including product, geo-
graphic area, time and level of competition.5 With respect to product, potential sales can be esti-
mated for a specific product item (for example Diet Coke) or an entire product line (for example
Coca-Cola, Coca-Cola Classic, Diet Coke, Coke Zero, Coca-Cola Life, Diet Caffeine-Free Coke,
Coca-Cola Vanilla and Cherry Coca-Cola are one product line). A manager must also determine
the geographic area to be included in the estimate. In relation to time, sales potential estimates
can be: short range, one year or under; medium range, one to five years; or long range, longer
than five years. The competitive level specifies whether sales are being estimated for a single
company or for an entire industry. Marketers measure sales potential both for the entire market
and for their own companies, and then develop a sales forecast. A target market strategy is
incomplete without an appraisal of the likely sales potential and expected levels of sales within
the prioritized target market segments, with assessment of the implications for market share
and value share.
The final stage of the marketing process is the execution of marketing programmes utilizing the
ingredients of the marketing mix. These product, people, place, pricing and promotion decisions
are in effect the final phase of the creation and operationalization of a target market strategy.
These aspects of an effective marketing programme are covered at length in the following Part of
Marketing: Concepts and Strategies. Before they are specified and executed, marketing analyses
must have identified the opportunities to pursue, market segments to target and a compelling
proposition to take to market. This analysis phase will have included customers, competitors, mar-
ket trends and the forces of the marketing environment, along with internal capabilities, resources
and performance.
For the selected opportunities and target markets, marketers must decide a positioning strat-
egy. The desired positioning should be agreed before marketing programmes and their marketing
mixes are created. The adopted positioning must reflect the expectations of targeted consumers or
business customers, the nature of competitors’ propositions and the characteristics of the product
or service in question. Positioning is the final component of the so-termed STP process of market
segmentation: segmentation, targeting and positioning. Effective positioning is fundamental to the
success of a marketing strategy and guides the direction of the subsequent marketing mix.
Positioning
Figure 7.3 illustrated the link between market segmentation, targeting and positioning. Having
identified the segments in a market and decided on which segment (or segments) to target, a
company must position its product, service or idea. A product’s positioning has been described as
the psychological place occupied in a particular market, as perceived by the customer segment at
which that product is targeted.6 Another definition suggests that the positioning of a product is the
sum of those attributes normally ascribed to it by the consumers: its standing, its quality, the type
of people who use it, its strengths, its weaknesses, any other unusual or memorable characteristics
it may possess, its price and the value it represents.7
Positioning starts with a product, a piece of merchandise, a service, a company, an

institution or even a person. Positioning is not what is done to the product, it is what
positioning
The process of creating image is created in the minds of the targeted consumers or business customers. The
an image for a product product is positioned in the minds of these customers and is given an image.8 There
in the minds of target may be a few cosmetic changes to the product, to its name, price, packaging, styling or
customers. channel of distribution, but these are to facilitate the successful promotion of the image
desired by the target customers. Targeted consumers or business customers must
perceive the product to have a distinct and desirable image and positioning vis-à-vis
its competitors. Product differentiation is widely viewed as the key to successful marketing; the
product must stand out and have a clearly defined positioning.
Determining a positioning
Positioning is based on customers’ perceptions and is therefore only partly within the control of
marketers. Positionings are essentially selected by customers, based on variables and within
parameters that are important to them. Word-of-mouth and social media consumer-to-consumer
communication are increasingly able to shape a company’s brand positioning. Brand managers
no longer fully control communications about their products and brands, so consumers also help
shape a brand positioning, with both positive and negative observations.
Price may be the key in grocery shopping, service level and trust in selecting a bank, quality
and reliability in buying computer hardware, value for money and speed of access in choos-
ing which theme park to visit. In-depth qualitative marketing research (commonly using depth
interviews or focus group discussions and possibly experimentation) is required if customer
motivations and expectations in a particular market are to be fully understood. Management’s
intuition is not always sufficient. For example, research for a major furniture retailer revealed
that consumers often have to decide between replacement living room or dining room furniture
and a family holiday abroad. Managers at most leading furniture retailers perceived other fur-
niture retailers to be their competitors, when in reality they were competing for a consumer’s
disposable income and attention against other product areas, such as holidays or the timing of
replacing the family car. In the budget-conscious sector of the furniture buying market, retailers
believed only price to be important. In-depth research proved that value for money, a concept
that includes product quality and durability in addition to price, was perceived to be the main
purchase consideration.
Consumers generally assign positionings to a company or a product that is the market leader
and probably has the highest profile or greatest familiarity, and the limited number of competi-
tors they can recollect are oriented to this market leader. For example, in the market for tomato
ketchup, perceptions of brands are oriented towards market leader Heinz. Other smartphones
are compared with the iPhone. Occasionally the brand consumers regard as the market leader
may not be the genuine market leader in terms of market share, but simply the one most visible
at that time, possibly because of heavy promotional exposure and branding. Customers respond
to the attributes of a product and to its promotional imagery, but the product’s positioning as
perceived by its target customers is affected by the reputation and image of the company, cou-
pled with its other products, and by the activities of its competitors. For example, bad publicity
such as that experienced by British Airways (BA) following the opening of Terminal 5
perceptual mapping at Heathrow damaged BA’s image, transitory iPhone quality issues impacted briefly
A tool used by marketers on Apple, and running out of chicken in its supply chain negatively impacted on KFC
and marketing research-
in the UK.
ers to visually depict
consumer perceptions In-depth marketing research leads to an understanding of how consumers per-
and prioritizing of brands ceive different brands and companies, which marketing variables they believe to be
and their perceived most important and by what magnitude. Perceptual mapping is a tool commonly
attributes. adopted by marketers and marketing researchers to visually depict such consumer
perceptions and prioritizing of brands and their perceived attributes.9 Figure 8.7
illustrates an example in which consumers thought product range width and price mattered
most, so the two axes were these key characteristics of the market. On the chart, a cross
marks the ideal positioning, with high product range width and above average price. Brands
A and C are perceived as being relatively close to the ideal – their pricing policy does not
fully match the image required – but brand B is viewed as being too cheap, with inadequate
product range width.
Low
B
Distance
Price
Figure 8.7
A
Positioning map of High Low
hypothetical con- Product range width
sumer preferences C
Source: D. Knee and
D. Walters, Strategy in
Retailing (St Albans, X
UK: Philip Allan, 1985), Ideal
p. 27. Reproduced
by permission of
Philip Allan, a divi-
sion of Prentice Hall
International High
Although customers’ perceptions play an important role in positioning, the role of marketers
is also crucial. A simple step-by-step approach can be used for establishing a clear positioning
plan for a product. This process commences with the identification of target market priorities, as
outlined below:
1. Define the segments in a particular market.
2. Decide which segment(s) to target.
3. Understand what the target segment’s consumers or business customers expect and believe
to be the most important considerations when deciding on the purchase, particularly their most
important wants and needs.
4. Develop a product – or products – catering specifically for these needs and expectations.
5. Evaluate the positioning and images, as perceived by the target customers, of competing
products in the selected market segment or segments.
6. Select an image that sets the product – or products – apart from the competing products, thus
ensuring that the chosen image matches the aspirations of the target customers.
7. Inform target consumers about the product. Although this is primarily a task for marketing
communications, it is also vital that the product is made readily available at the right price,
through the development of the full marketing mix.
The selected positioning and imagery must be credible: consumers would not believe Kia or
Skoda if they promoted their cars in the same manner as Porsche or Aston Martin.
The Marketing Tools and Techniques box ‘Practitioners’ use of brand positioning theory’ illus-
trates how Ford developed the positioning of the Focus to broaden its appeal to female drivers.
Practitioners’ use of brand Marketing ●● subsequent targeted interac-
positioning theory tools and tive promotional campaigns,

such as at Handbag.com or
techniques TotallyJewish.com
There are essential stages in devel-
oping a brand positioning, assuming Subscribers to Elle magazine
target segments have already been received bespoke brochures, linking Ford,
decided: Elle magazine and the Ford Focus Elle special edition:
1. Identify the positionings of the competitive set. Ford Focus Elle

The place to be seen this season
2. Determine the desired positioning for the brand in
question. In colours such as Ebony, Moondust Silver and Chic, this
3. Develop a set of actions in order to achieve the desired model offered a 1.6i three-door Zetec, with alloy wheels,
positioning, as it will not happen by itself! chrome tailpipe, remote-control CD/radio, air conditioning,
ABS, side airbags and leather trim. The brochures featured
4. Decide on an appropriate brand positioning statement to
a fashion shoot and the Focus Elle car, with captions such as:
communicate the positioning.
Pink sheer ‘Butterfly’ dress, Rodeo Drive
5. Produce a marketing communications plan to promote
Two-tone V-neck contoured vest, Milan
the brand positioning to the target audience: the target
Ford Focus, the perfect accessory
market segment and key stakeholders inside the busi-
ness and within the marketing channel. Visitors to Elle’s website were greeted with information
about the Focus Elle, plus a pop-up link directly into Ford’s
Ford benchmarks itself against many competitors, but website. If they wanted further information, or to arrange
particularly VW. The Ford Focus is either market leader in its a test drive, the Ford system seamlessly dealt with such
category or a leading challenger in most countries. In order requests, not Elle’s.
to build on this success, the company had to attract greater This strategy proved to be highly effective for Ford. Every
numbers of customers, but also to stretch the brand so that two months, a new special edition was offered, in limited
not only middle-aged males purchased the Focus. A few years numbers to maintain exclusivity. All editions sold out quickly.
ago, the company wanted to attract more female purchasers, This success for Ford resulted from researching the target
to emulate VW’s Golf customer profile. This resulted from pro- market’s requirements, thinking carefully about the required
duction of a perceptual map of the competing brands, featur- brand positioning, and being smart in terms of executing the
ing the age and sex of the drivers. associated promotional activity.
‘Life’s Better When You Take Control’ was one of several At the heart of this marketing activity was the use of the
working brand positioning statements developed, aimed to brand positioning perceptual map, the development of a brand
appeal to younger, aspirational female car buyers. positioning statement deemed relevant by the target audience –
The action plan included: aspirational young female drivers – and the specification of
●● no TV campaign targeted at independent, confident a detailed action plan. However, without the clearly thought
females; the company could not confuse the market- through action plan, the desired brand positioning would never
place and risk alienating the existing customer base, have been achieved. Marketers must plan their brand posi-
which included at the time mostly males tioning strategy and manage its implementation and roll-out.
●● special edition models of the Focus; research with women © Dibb/Simkin
identified the required product features and colours Sources: Ford; Elle magazine; ‘Ford Focus Elle the place to be seen this season’
(brochure), Ford GB; automotive sources.
●● brand liaison with relevant magazines, such as Elle; led
to the Ford Focus Elle special edition Note: the information above, and the interpretation placed upon it, is not the
official Ford view and is based on a variety of industry sources. A more extensive
●● a direct mail dialogue campaign, with 48-hour at-home explanation of these brand positioning techniques is offered in either The Market
test drive on offer, through Elle’s website and to its readers Segmentation Workbook (Dibb and Simkin) or The Marketing Planning Work-
book (Dibb, Simkin and Bradley), both originally published in 1996 by Thomson,
●● interactive micro sites, such as public relations at the Elle London, or in Market Segmentation Success: Making It Happen! (The Haworth
Style Awards and associated branding, including key rings. Press, 2008) and Marketing Planning (Cengage Learning, 2008).
There are various options when determining a positioning strategy:
1. The approach most plausible in terms of the consumer and the most defensible against com-
petitors’ marketing ploys is to identify product attributes or features that are superior to com-
petitors, but which also are desirable to targeted customers. Better still if these features are
matched by few or no rivals. This is at the heart of the positioning deployed by Bang & Olufsen,
BMW and John Lewis, which all emphasize product features, attributes and service providing
superiority over rivals.
2. The next best option is to identify key benefits encountered as a result of consumption, as illus-
trated by Anadin’s painkiller advertising or Andrews’ Salts saving the day from that hangover.
If a product has no such distinctions or is lagging behind major rivals, there are other approaches,
such as:
3. Emphasizing specific usage occasions, such as Campbell’s soups as a cooking ingredient.
4. Depicting user groups, as with the Pepsi Generation.
5. Deliberately adopting a head-to-head positioning against a rival – ‘Avis is No. 2, but we try
harder’ ran for over two decades.
Or, if all else fails:
6. Dissociating from direct rivals in order to develop a clear image and differentiation – Dr Pepper
and 7 Up both try to persuade the marketplace they are fizzy and refreshing drinks, but not
sickly colas. Blackberry pitched itself as an email tool and for transferring business data, rather
than a mobile phone.
The final stage in developing a positioning in many instances is the determination of

a suitable positioning statement, a plausible, memorable, image-enhancing written
positioning statement
A plausible, memorable, summation of a product’s or brand’s desired stature. This should strike a chord with
image-enhancing written the targeted consumers or business customers, reflect the nature of the product, its
summation of a prod- branding and attributes, and demonstrate to targeted consumers the company’s under-
uct’s or brand’s desired standing of customer needs similar to a strapline in advertising. Everest double glazing’s
stature.
positioning statement is decades old, yet instantly recognizable: ‘Fit the best, fit Everest’.
‘The ultimate driving machine’ can only be BMW; ‘Because I’m worth it’ is L’Oréal; and
‘We try harder’ is still used by car rental company Avis. Ultimately, a product or brand
positioning must be memorable, plausible and relevant to the target market’s perceptions. The
intention is to develop a distinctive image for the product or service and, through a well-honed
positioning statement, to establish a platform for its effective communication.
Customer perceived value

There are two related concepts which should be considered when developing a brand positioning
strategy. The brand itself first should have been clearly articulated and managers must know for
what it stands. Brand positioning focuses on ensuring that in each market segment targeted, the
brand’s positioning vis-à-vis competitors and consumers’ expectations is appropriate. However,
a brand cannot have very different meanings across various markets or market segments, as this
would cause confusion for consumers, executives within the company and for suppliers. Brand
positioning is more concerned with nuancing and the subtle focusing on particular market seg-
ment requirements, but within the brand’s overarching architecture and messaging. As explained
in Chapter 11 of Marketing: Concepts and Strategies, marketers should have a clear view of their
brand and its constituent components. This identification of the bigger picture brand strategy
should be in place before marketers develop brand positionings for each target market. Brand
positioning is the subsequent skill of positioning this brand for maximum impact within each target
market segment to create differentiation versus competitors and to assist in persuading consumers
that the brand is the one for them to adopt.
Figure 8.8
Apple have branched out with a
suite of products including the Apple
Watch
The second related concept builds on this theme, to ensure that marketers have a truly compel-
ling and attractive proposition to underpin the brand positioning plan. This involves understanding
what consumers or business customers10 value and ensuring there are strong components of the
offered proposition so as to attract and satisfy those targeted customers. As Figure 8.8 shows,
Apple has capitalized on how strongly its brand is perceived by launching a suite of Apple products.
Customer perceived value relates to the needs and wants of customers and their perception of the
benefits they will receive from a product, service or brand. Some of these benefits will be tangible
or actual, while others will be more emotional and relate to their self-image. Customers make an
assessment of these benefits vis-à-vis the outlay they must make in order to acquire the product.11
Often the customer is faced with an array of options from competing suppliers, so their trade-
off value assessment is undertaken against this set of competing propositions.12 This rating of
competing propositions determines which brand is purchased, so it is important that marketers
understand how customers will rate their product against competitors and on what criteria. Sev-
eral frameworks have been developed to assist in this analysis and to guide marketers to specify
compelling propositions which will appeal to customers and compete successfully.13
customer value
proposition The customer value proposition, or perceived customer value as it is sometimes
Based on understanding known, is a concept promoted by the likes of Hollensen, Kotler and Keller. It is important
the perceived customer not to confuse the connotations of value intended here . . . this is not suggesting the
values and psychological, notion of value in terms of low-price or being cheap. These researchers mean value in
functional and economic
the context of those aspects of the marketing mix which targeted customers will rate
factors traded-off when
customers select a par- highly or value as they trade-off anticipated tangible and emotional benefits against the
ticular product or brand cost to acquire a product or service. Such value drivers include product differentiation,
to purchase, this is the product quality, innovation, service, packaging, branding, price differentiation and cre-
compelling proposition ating customer relationships14; all of which vary between those competitors seeking a
intended to appeal to
customer’s share of wallet. Consumers or business customers trade-off a set of desired
targeted customers.
attributes as they make their choice between competing brands.15
Kotler and Keller16 simplify this construct, explaining that, ‘The buyer chooses
between different offerings on the basis of which is perceived to deliver the most value. Value
reflects the perceived tangible and intangible benefits and costs to the customer. Value can be seen
as primarily a combination of quality, service and price’. More recently, a fourth element is added,
that of a brand’s reputation. When making purchasing choices, customers trade-off quality, service,
price and reputation across those brands or suppliers identified as potentially being of interest.
Inevitably, there are many ways for depicting these relationships and for mapping a brand’s
response. One technique popular amongst marketers and which provides clarity of the compelling
nature of the proposition offered to customers, is the customer value proposition triangle. This
explores functional, economic and psychological elements which consumers or business cus-
tomers use when trading-off their views of quality, service, price and reputation, in order to rate
alternative options to purchase.
It is necessary for marketers to develop a clear strategic positioning, based on a smart value
proposition, which satisfies and excites customers, and which strives to remain relevant and
attractive to these customers. The customer value proposition triangle helps marketers clarify
what is the essence of the customer value proposition, or in some instances reveals how little they
currently have to offer. It is not necessary to have all three vertices of the value triangle covered, but
at least one must be addressed strongly in order to a have a viable message. If all three elements
of the customer value triangle are addressed, as in the B2C and B2B examples in Figure 8.9, there
is an even stronger and more highly competitive proposition. A strong value proposition should
underpin the positioning strategy developed in each segment targeted.
In these examples, it becomes clear why Pringles and JCB have been so successful. Pringles,
developed by P&G but now owned by Kellogg’s, innovated in the form of its distinctively shaped
product and its tube. Re-sealable, this tube allows consumers to ‘pop and share’, keep some for
another day and transport these crisps without breakages. For retailers, the tubes enable high
margin, fast-turnaround products to be displayed on the fixture’s top-shelf – normally a slow and
poor margin part of the supermarket fixture – with very high visibility and few breakages in the stock
room. For both consumers and retail stockists, there is a very strong value proposition. JCB’s con-
struction equipment has always been known for innovation, quality engineering and the longevity
of its machines. These attributes present a value proposition, but JCB has gone beyond these in
providing extensive customer service and financing aspects of its customer value proposition, as
well as emotional foundations to its very strong branding. As Pringles and JCB develop positioning
plans in each market segment being targeted, their marketers seek to embrace the ingredients of
their value propositions.
Functional:
Pringles JCB 100% satisfaction targets
Functional: Superior customer care
Pop and store Product quality
Pop and share Design + technology innovation
No brokens (unlike with bags of crisps) Global reach
Great on-fixture display (upright
Psychological blocks) not possible for packets Psychological Product life-time
Sustainability-driven
Easy stockroom storage/less wastage
Quick re-stocking Psychological:
Distinctive stand-out packaging Customer focused
Family business
Psychological: British success story
Pop and store ... provides a healthier Global brand
option Can-do/will-do
Easy on the move Sense of urgency
Great tastes ... they do taste nice Never content
Viewed as being ‘different’ Always raising the stakes
Functional Economic Economic:
Functional Economic Community player
Education-led
Good value ... no brokens/pop and
store Economic:
Attractive margins to trade versus Superior residual values
other crisps Sure price service
Full cover insurance
Full financing option
Figure 8.9
The customer value propositions of Pringles and JCB
Many organizations struggle to have much to say about a single element of the triangle, let
alone populate all three as in the cases of Pringles and JCB, which is why they fail to compete
effectively. Once understood, these elements of the customer value proposition should underpin
the separate brand positioning plans for individual targeted market segments. Brand positioning
may focus on additional issues, but at the very least should not contradict or deflect from the
overarching customer value proposition designed to be compelling to targeted consumers or
business customers.
Marketers need to develop a statement of the total set of benefits that the brand/company
promises to deliver. The customer value proposition triangles assist in mapping these ingredients
against the economic, functional and psychological criteria that consumers or business customers
use when selecting a brand or supplier to adopt. The value proposition statement also indicates the
expected customer experience that will result from interacting with the brand/company. Matching
these expectations with the reality of the subsequent customer experience is achieved via the
organization’s value delivery when its marketers execute their marketing programmes and customer
management plans.
All three inter-linked concepts – brand, customer value proposition and positioning – are
designed to develop strong, differentiated and appealing messages for those customers or mar-
ket segments identified as important targets, whether marketers are attracting new customers or
retaining those they already have. The brand’s overall standing, the customer value proposition
underpinning a marketing programme, and the positioning developed as part of a market seg-
mentation strategy are important assessments and decisions for marketers, forming an essential
part of their marketing strategy.
Summary
No organization has the resources or will to pursue all possible opportunities or target markets: there must be trade-off
choices. These need to be informed by topical and robust market analyses. Targeting is the task of prioritizing which
markets and market segment(s) to address. When a company designs a single marketing mix and directs it at the entire
market for a particular product, it is using an undifferentiated (or total market ) approach as its targeting strategy. Although
customers may have similar needs for a few products, for most products their needs are very different. In such instances,
a company should use a concentrated or a differentiated strategy. In the concentration strategy, an organization directs its
marketing efforts towards a single market segment through one marketing mix. In the differentiated strategy, an organiza-
tion develops different marketing mixes for two or more separate market segments. The decisions about which segment or
segments to enter are linked to considerations about company resources, performance, expertise, market trends and the
nature of customers and competitors.
Marketers have a responsibility to identify opportunities and target markets which provide growth potential for their
companies. Marketers routinely achieve this during their annual marketing planning activity, but many companies have
intervening strategy requirements which benefit from insights into marketing environment trends, SWOT analyses,
Ansoff-inspired assessments of new opportunities, customer-led developments and knowledge of competitors’ intentions.
Inevitably, companies are faced with many more opportunities, market segments or target market options than they have
the resources, desire or aptitude to pursue. There must be informed trade-off choices which take into account more than
only short-term profitability levels. Many approaches prove useful, but none more than the directional policy matrix or
market attractiveness–business strength model. This approach identifies and weights two sets of criteria: variables with
which to judge the relative attractiveness of whatever is under consideration and variables with which to evaluate business
strengths against the capabilities of strong competitors. The desire is to avoid the ‘who shouts loudest’ solution to execu-
tive decision-making in terms of selecting priorities and budget allocation.
Measuring the sales potential of the chosen target market or markets is crucial, as a target market strategy is incomplete
without an appraisal of the likely sales potential and expected levels of sales within the prioritized target market segments.
This can be measured along several dimensions, including product, geographic area, time and level of competition, as well
as at segment level.
Sales potential is the amount of sales possible for a particular brand or product in the context of market conditions in a
specific period of time. Market share is a long-standing measure of marketing success. Market share is the company’s
brand or product share of total sales in a particular target market or market segment, versus competing brands. Value
share is the proportion of total market income attracted by an individual brand or product within a particular market.
Developing and maintaining a marketing mix consumes a considerable amount of a company’s resources. The target mar-
ket or markets selected must have enough sales potential to justify the costs of developing and maintaining one or more
marketing mix(es). As part of developing an effective target market strategy, it is necessary for marketers to calculate and
assess market size and sales potential, along with achievable market share and value share.
Having decided which segment or segments to target, the marketer must position the product in order to create a clearly
defined image in the minds of its target consumers, which is the positioning aspect of marketing strategy and market seg-
mentation. The product’s positioning must be perceived by its consumers to be different from the positionings of competing
products. Perceptual maps assist marketers in graphically depicting the relative positionings of the products in a particular
market. Although a product’s attributes and styling, along with its pricing, service levels and channel of distribution, con-
tribute to how consumers perceive the product, a marketer uses mainly marketing communications to establish a product’s
positioning. The final stage in developing a positioning is the positioning statement, a plausible and memorable written
summation of a product’s or brand’s desired stature.
Before creating a positioning strategy, the brand itself should be clearly articulated and managers must know for what
it stands. Brand positioning focuses on ensuring that in each market segment targeted, the brand’s positioning vis-à-vis
competitors and consumers’ expectations is appropriate. However, a brand cannot have very different meanings across
various markets or market segments, as this would cause confusion for consumers. Positioning strategy must reflect brand
strategy decisions.
To support the brand positioning plan, marketers need a strong customer value proposition. Customer value reflects the
perceived tangible and intangible benefits and costs to the customer, and primarily is a combination of perceived quality,
service, price and reputation. A positioning strategy should reflect customers’ priorities and how, in a particular segment,
they trade-off these dimensions of perceived value. The customer value proposition should underpin the positioning plan
and certainly cannot be contradicted by the adopted positioning.
Directional policy matrix

Key links Market share
One-to-one marketing
This chapter has explained a core aspect of marketing Perceptual mapping
strategy: target market selection and the choice of oppor- Positioning
tunities to pursue. It should be read in conjunction with: Positioning statement
●● Chapter 2’s overview of marketing strategy. Sales potential
Segmentation targeting
●● The requirement to understand consumers and busi-
SWOT analysis
ness customers, as described in Chapters 5 and 6.
Undifferentiated targeting strategy
●● Chapter 11’s explanation of effective branding. Value share
●● The analytical tools, notably the directional policy
matrix used for choosing priority target markets, as
presented in Chapter 12. Discussion and review questions
●● Chapter 7’s examination of market segmentation. 1. What are the general segmentation targeting options?
2. What are the essential ingredients for ensuring a balanced
discussion about worthwhile opportunities and segments
Important terms to target?
Ansoff 3. What criteria should be considered when selecting between
Concentration strategy opportunities or market segments to prioritize?
Customer value proposition 4. Outline an approach to assessing the relative merits of
Differentiated strategy emerging opportunities or market segments.
5. Summarize the stages for producing a directional policy 13. For a product of your choice, explain which stage of the
matrix (DPM)-led assessment of the relative attractiveness market segmentation process matters the most.
of possible target market segments. 14. When might it not be necessary to segment a market?
6. Why must marketers evaluate the sales potential of possi-
ble priority target market segments?
7. Why is it important to decide on the desired positioning for Recommended readings
a product, service or brand? Batey, M., Brand Meaning: Meaning, Myth and Mystique in Today’s
8. Choose a product and discuss how it could best be posi- Brands (Routledge, 2015).
tioned in the market. Determine a suitable positioning Dibb, S. and Simkin, L., Market Segmentation Success: Making It Hap-
statement. pen! (The Haworth Press/Routledge, 2008).
Hooley, G., Piercy, N.F., Nicoulaud, B. and Rudd, J., Marketing Strategy
9. What are the essential stages in developing a positioning?
and Competitive Positioning (Pearson, 2016).
10. What is a customer value proposition? Hutt, M.D. and Speh, T.W., Business Marketing Management: B2B
11. How do the concepts of customer value propositions and (Cengage, 2013).
McDonald, M. and Dunbar, I., Market Segmentation (John Wiley, 2012).
positioning relate?
Ries, A. and Trout, J., Positioning: The Battle for Your Mind (McGraw-Hill,
12. For a new hotel chain just launching, explain how 2001).
the three stages – segmentation, targeting and Weinstein, A., Handbook of Market Segmentation: Strategic Targeting for
positioning – of the market segmentation process are Business and Technology Firms (The Haworth Press/Routledge, 2004).
important. Weinstein, A., Superior Customer Value (Routledge, 2017).
Web task Classroom tools who best to target and how would
you go about creating an appropri-
Hotel Chocolat operates shops, ate customer value proposition?
mail order and an eCommerce site,
all with one thing at the heart of the proposition: luxurious,
adventurous and delicious, mouth-watering chocolate! Learn Applied mini-case
more about its products and services by viewing the compa- Banking is not generally perceived as innovative or creative.
ny’s website at: www.hotelchocolat.co.uk. HSBC’s telephone and online bank first direct broke the mould
1. Based on the information provided at the website, what when it was launched in the 1980s, and it still strives to be
are Hotel Chocolat’s core products and for what occa- different, as explained on its website:
sions are these intended? We’re the people-powered bank
2. What market segments does Hotel Chocolat appear to be The bank that does things differently. The bank that never closes.
targeting with its website? The bank with real people answering the phone 24 hours a day,
7 days a week. We’re the bank that changed what being a bank
3. How would you describe the company’s brand
means – we’re not over there, on the high street, we’re right here,
positioning? on your mobile or laptop. We’re first direct. We love what we do.
We love coming to work every day – even Christmas Days and
Group tasks New Year’s Days. Even Mondays – oh yes . . . And it’s all for you.
1. Review the extensive brand portfolio of Accor Hotels We’re always – always – here for you
(www.accorhotels.group/en/group/our-brands-and-ser- When the clock struck midnight on 1 October 1989, we received
vices/our-portfolio). Describe the different positioning our first ever call. Our lines have been open ever since, mak-
adopted for Sofitel, Pullman, Mercure, Novotel, Ibis and ing us the first UK bank to offer an always-open service to our
Hotel F1 and how the targeting strategy for each chain customers. And the people you’ll talk to are famously brilliant at
what they do. You’ll never talk to a robot – no ‘press 1 for . . . ’
varies.
nonsense here, thank you very much. We’re also available online
2. Your group has been tasked with launching an interven- and on your mobile and tablet, so it doesn’t matter where you are
tion designed to combat obesity. How would you decide or what you’re doing: we’re here for you.
We’re the pioneers of easy banking many of them are voted for by the people that matter – our cus-
While we’re famous for our phone service, there’s much more tomers. This makes us very happy indeed. It means we’re mostly
to first direct than that. We launched our PC Banking service in getting things right.
1997, we were Text Message Banking in 1999, and Internet Bank- www1.firstdirect.com/1/2/uncovered/who-we-are, 28 March 2018
ing in 2000. We were the first UK bank with a Twitter account. See
that curve? We try to stay ahead of it . . . Because we know that
our love for banking is quite unusual – you guys just want easy, Question
seamless, intuitive control over your money, wherever, whenever. What is the brand positioning proposition at the heart of
So that’s what you get. first direct’s marketing strategy? To what extent does this
Our customers love us differentiate first direct from the other principal banking
(And we love them too . . .) We win more awards for our service groups?
than any other UK bank. But what makes them special is that so
Iams understands people At one time, IAMS focused primarily

who love pets Case study on pet nutrition. Now the company has
expanded to products aimed at making pet
Any company that wants to retain current owners happy, by fulfilling their requests for
customers and attract new ones must be pet treats and other items that allow them to
aware of trends and be able to adapt to the spoil their pets. The company has made this
changing needs of its customers, but it must first decide shift as a result of surveying its customers. For
exactly who those customers are out of all those available in example, certain customers were concerned about
a particular market. Spectrum Brands owns IAMS in the UK. feeding cats in multi-cat households in which one cat might be
The successful producer of IAMS and Eukanuba pet prod-
ucts is a good example of a company making the most of
understanding consumer behaviour to successfully grow its
business. IAMS recognizes the importance of psychological
and social influences in pet food purchasing and has used
these insights to steer its target market strategy.
I am more than just a pet. I am an IAMS pet.
Many pet owners treat their pets as family members and

want to provide them with high-quality products. IAMS mar-
kets premium pet products mirroring products purchased and
used by humans. For example, IAMS ProActive HealthTM for-
mulas include PreBiotics, good bacteria that promote healthy
digestion. The company also has the IAMS NaturallyTM line
that includes ingredients such as Atlantic salmon and contains
no artificial colours, flavours or preservatives. The popularity
of these products indicates that consumers are developing a
higher level of involvement when shopping for pet food. Not
all pet owners agree, but some consumers believe that as an
additional member of the family, pets are entitled to the same
quality and nutrition as other family members. These are the
consumers targeted by IAMS.
overweight while another was not. As a result, different prod- attention to the needs of certain pet owners and making it
ucts were created. Premium products like these reflect the possible for them to create healthy lifestyles for their pets.
changes in some consumers’ attitudes towards their pets and
their pets’ food, and these are the consumers targeted by IAMS. Questions for discussion
Realizing the importance of consumers’ relationships with
1. What are some of the psychological influences that are
their pets, IAMS in the US (owned by Mars) is now expanding
most important to IAMS in understanding their buyers?
its business into the veterinary industry. The company works
with insurers to provide pet health insurance. In the US, IAMS 2. Which segments has IAMS targeted with its product
is also branching out into MRI (magnetic resonance imaging) range?
machines, in partnership with ProScan. IAMS Pet Imaging Cen- 3. Outline the positioning strategy being pursued by IAMS.
tres in selected cities allow vets to investigate health problems
Sources: Bill Pride and O.C. Ferrell, Marketing, Cengage South-Western, 2012;
in pets without resorting to exploratory surgery. By offering www.iams.co.uk, March 2015; www.pg.com, March 2015; www.iams.co.uk/,
a wide variety of healthy products, IAMS is clearly paying March 2018.
Chapter 9
Marketing research
Marketers have a responsibility to understand and
to find out . . . research
INTRODUCTION
Objectives As the preceding chapters have explained, effective marketing
is contingent upon marketers having a clear understanding of
customers, competitors, market trends and aspects of the mar-
marketing research in marketing
keting environment.
decision-making.
Marketing research is the sys-
marketing research
To distinguish between research The process of gathering, tematic design, collection, interpre-
and intuition in solving marketing interpreting and report- tation and reporting of information to
problems. ing information to help help marketers solve particular prob-
marketers solve specific lems or take advantage of marketing
To learn the five basic steps of the marketing problems
opportunities. As the word ‘research’
marketing research process. or take advantage of
marketing opportunities. implies, it is the process of gathering
To understand the fundamental information not currently available to
methods of gathering data for decision-makers.
marketing research. The purpose of marketing research is to inform an organiza-
tion about customers’ needs and desires, marketing opportu-
To gain a sense of the relative
nities for particular goods and services, and changing attitudes
advantages and disadvantages
and purchase patterns. Detecting shifts in buyers’ behaviour and
of marketing research tools.
attitudes helps companies stay in touch with the ever-changing
To understand how tools such marketplace, which often necessitates marketing research.
as databases, decision support Marketers also need to understand the dynamics of their
systems and the internet facilitate markets and the challenges posed by competitors. Marketing
marketing research. research also addresses these issues. Without evidence, poor
decisions will be made. For marketers to fulfill their obligation as
To identify key ethical considerations
the ‘eyes and ears’ or early warning system for their organiza-
in marketing research.
tions, they require market insights, which emerge from research
and understanding the emerging implications.
259
Mobile devices generate

M obile and wear-
able technologies
are providing new ways
rich consumer insights
the impact of each on
Sara’s daily calorie con-
sumption. Although Sara
to gather consumer data. decides to skip dessert for
These data-gathering devices now, the data will be available
are linked to the idea of the ‘quan- for her to peruse on her tablet
tified self’, which involves individuals using technology to when she gets home and she can
improve aspects of their behaviour. Some of this data gath- always have the pudding then.
ering involves a ‘life-logging’ approach, in which technologies Individuals can benefit from these profiles because they
such as smartphones, GPS monitoring, wearable sensors and help them to change their behaviour in positive ways. They
social media activity build a detailed picture of the carrier’s also provide opportunities for marketers, who can benefit if
behaviour. A number of benefits arise because these devices their marketing activities rely on a detailed understanding of
are involved in ‘. . . measuring cognitive, behavioural and certain behaviours, or if it is advantageous for them to interact
affective phenomena as they occur in natural settings and in, with consumers while these behaviours are taking place. Com-
or near real-time’ (Cohn et al., 2011: 1). First, the gathered mercial behaviour change apps have been developed which
data relate to actual rather than reported consumer behaviour; take advantage of these features. Some, such as RunKeeper,
second, they can be captured automatically and continuously; measure and contribute to improving fitness by enabling users
and, third, they give invaluable insights into the sequence in to monitor their performance and progress over time. The app
which events occur. The description below illustrates the kind keeps track of activities including running, cycling and hiking,
of profile that is possible using these technologies. and sets customized goals based on the user’s fitness objec-
After walking to the bus stop on Monday morning, once tives. Tracking progress towards these goals provides users
onboard the bus, Sara uses her smartphone to compare her with positive reinforcement which motivates them to continue
activity levels with other women in the area of a similar age, with their activities. For consumers watching their weight, a
socio-economic group and family status. Sara discovers range of slimming apps has also hit the market. Diet Assistant,
that her activity levels are within the top 10 per cent for her which offers diet plans according to users’ weight loss targets,
group and is pleased that her efforts over recent weeks have tastes and lifestyles, is one example.
improved her fitness. Spurred on by this positive feedback These examples are just the start; hinting at the poten-
she has received, upon arriving at work in the centre of town, tial for mobile, interactive technologies – apps on tablets and
Sara decides to take the stairs instead of the lift and even smartphones – to generate high quality consumer insights,
contemplates cycling to work tomorrow. At lunchtime, she and to shape the products and services of the future. However,
uses her smartphone to scan the quick response (QR) code on consumers are becoming increasingly wary of which organi-
her sandwich pack and juice bottle, capturing their nutritional zations retain their data and how this information is subse-
and calorific values. The app instantly offers several healthy quently used or shared. There are huge ethical considerations
dessert options from a well-known slimming brand, showing for marketers. The poor practices of a few companies may
harm the data capture possibilities for many.
Sources: Cohn, A.M., Hunter-Reel, D., Hagman, B.T. and Mitchell, J. (2011),
‘Promoting behaviour change from alcohol use through mobile technology:
The future of ecological momentary assessment’ Alcoholism, clinical and
experimental research, 35(12), 2209–15; Sellen, A. and Whittaker, S. (2010),
‘Beyond total capture: A constructive critique of lifelogging’, Communications
of the ACM, 53(5), 70–7; Dibb, S. (2013), ‘The emergence of new domains for
segmentation – the rapid rise of non-commercial applications’, In L. Simkin, To
Boardrooms and Sustainability: The Changing Nature of Segmentation, Henley
White Paper, Henley Business School, p. 37. When Segmentation and Behaviour
Change Collide; BBC Business News (2 August 2013), ‘Weight watchers shares
fall 19% on profit warning’, accessed 8 August 2013 www.bbc.co.uk/news/
business-23556277; RunKeeper and Diet Assistant, March, 2018; www.bbc.
co.uk/news/world-us-canada-43476594, March 2018; www.pwc.co.uk/assets/
pdf/business-of-evidence-report.pdf, March 2018.
Chapter 9 Marketing research 261
M
arketing research of all kinds, whether collected from mobile devices or using other
approaches, provides much needed insights into the characteristics, needs and desires
of consumers and business customers. When used effectively, such information facili-
tates the relationship with these customers, by helping organizations focus on meeting, and even
anticipating their needs.
This chapter begins by defining marketing research and examining its importance. It then ana-
lyzes the five basic steps of the marketing research process, including various methods of collecting
data. This is followed by a review of how technology aids in collecting, organizing and interpreting
marketing research data. Finally, the ethical aspects of marketing research are considered.
The importance of marketing research

Building an understanding of customers, competitors, market trends and the marketing environ-
ment requires that marketers have access to information and marketing intelligence.1 Sometimes
the available information will be judged as inadequate to tackle a specific decision or marketing
task, in which case marketing research may provide the additional insights required. Such research
is generally conducted on a project-by-project basis, with research methods being adapted to the
context and problems being studied.
Marketing research involves collecting and analyzing data concerning the characteristics, attitudes,
behaviour of individuals, customers or organizations. As the Market Research Society explains:
Research, insight and analytics stand at the heart of all well-informed commercial, social
and political decisions. Insight into what makes a product, business initiative or govern-
ment policy work is often the hidden – yet defining – factor between success and failure.
It is our sector that provides the deeper intelligence needed for our world today.
www.mrs.org.uk/about (accessed 27 March 2018)
marketing intelligence
The composite of all
data and ideas available
The purpose of marketing research is to provide information about customers’ needs
within an organiza- and desires, marketing opportunities for particular goods and services, and the changing
tion, which assists in attitudes and purchase patterns of customers. Marketing research facilitates the process
decision-making. of marketing planning by helping a company to better understand market opportunities,
ascertain the potential for success of new products and determine the feasibility of a
particular marketing strategy. Pizza Hut, for example, conducted research to learn more
quantitative research
about its most profitable group of customers: school and college students. The research
Research aimed at
producing data that can involved asking a carefully chosen group of 350 students to refrain from eating pizza
be statistically analyzed products for 30 days and record their cravings for pizza and feelings about ‘going with-
and the results of which out’ during the study period. One objective was to help better understand the effects of
can be expressed ‘pizza deprivation’, food cravings and food desires among this attractive market, which
numerically.
may lead to modifications in its marketing strategy.2
Marketing intelligence is the composite of all data and ideas available within
qualitative research
an organization – for example, a company or a marketing department that assists in
Research that deals with decision-making. Often the available information is deemed inadequate, which may
information too difficult lead to the commissioning of marketing research. There are, broadly, two types of mar-
or expensive to quantify, keting research: quantitative and qualitative.3 Quantitative research uses techniques
such as subjective and sample sizes leading to the collection of data that can be statistically analyzed
opinions and value judge-
ments, typically unearthed
and whose results can be expressed numerically. These data tend to come from large
during interviews or surveys, sales data or market forecasts (see Figure 9.1).
discussion groups. Qualitative research deals with information that is too difficult or expensive to
quantify: subjective opinions and value judgements that are not amenable to statistical
Figure 9.1
Questionnaires are an integral part of marketing research, often but not exclusively for quantitative studies
analysis and quantification,4 typically unearthed during in-depth interviews or discussion groups,
but also now increasingly collected in online forums.
While some organizations continue to handle their own information needs, others buy in help
from outside agencies that specialize in marketing research. According to Statista’s figures, by
2018 the total worldwide market for marketing research had reached a massive US$45 billion.
North America is responsible for 44 per cent of this figure, with Europe accounting for 36 per cent.5
Recent growth in the industry highlights marketing research’s status as a management tool. Some
experts suggest that this is also because the marketing research agencies have worked hard to
quantify the effects of their work on business performance.6
Certainly, firms using marketing research need to be convinced of its benefits. For example,
global business P&G used direct observation methods to gain a better understanding of how
customers really use its products because these insights helped its marketers to design more
suitable marketing.
All kinds of organizations use marketing research to help them develop marketing programmes
that match the needs of customers or to find out more about their stakeholders’ views. For
example, as the following Marketing Tools and Techniques box explains, the European Commis-
sion recently supported a project using Citizen Summits to investigate how European citizens feel
about different security technologies.
The CEO of a large marketing research business categorized the kinds of requests his company
received for research help. For quantitative studies, these included customer satisfaction surveys,
advertising tracking analyses, evaluations of new or modified products, brand awareness studies
and customer attitude surveys. For qualitative research, the main categories were customer atti-
tude and satisfaction studies, followed by concept testing (new products or new brand identities).
After these came the testing of advertisements, packaging concepts and promotional offers.
Citizen summits give Marketing A recent series of citizen summits

people a voice tools and carried out in nine European countries,
examined citizens’ views about three
techniques surveillance-oriented security technol-
The citizen summit method first
appeared at the end of the 1990s. It ogies that are being used in some coun-
was inspired by Anthony Williams, the tries to maintain national security:
incoming mayor of Washington DC, as a means for encour- ●● Smart closed-circuit television (CCTV) uses digital cam-
aging the public’s involvement in local strategic planning. The eras in a linked system that can identify individuals and
first summit, which took place over a day, was attended by identify suspicious behaviour.
3000 people, who sat in table groups of 10 and participated ●● Smartphone location tracking enables the movement of
in a discussion about priorities for the city. Each table included
individuals to be tracked on the basis of the location of
a trained facilitator, whose role was to encourage discussion
their mobile phones.
and provide light touch guidance to participants. Wireless
●● Deep packet inspection (DPI) is a surveillance approach
polling keypads were available on each table, enabling the
citizens to vote on questions that were posed at various points that keeps track of messages that are communicated
in the event. A strong feature of the method is that the results over the internet.
of these votes were instantly shown to participants via large Citizens were sent an information booklet about the tech-
projection screens. nologies before attending the event. They were also shown
The citizen summit method has subsequently been devel- information films at the summits, which introduced them to
oped beyond a simple polling tool and can be used to assess a range of views about the security and privacy issues asso-
people’s views on a range of topics. The method has a number ciated with the technologies. The aim was to understand the
of positive features: acceptability of these technologies from the viewpoint of
citizens, and also to explore the extent to which people in
●● Increases citizen awareness and engagement with
different countries are prepared to sacrifice their privacy in
important issues.
exchange for the use of security technologies. Citizens attend-
●● Provides a forum for democratic participation. ing the summits were encouraged to discuss the issues aris-
●● Enables an open debate, in which citizens can reflect on ing with others in their table groups; after which they used
the views of others. hand-held electronic voting devices to respond to a series of
●● Uses electronic voting technology, which can instantly questions displayed on a big screen. The views emerging from
display the results to citizens. the summits were subsequently shared with the European
Commission and made publicly available.
●● Allows for the provision of neutral information material in
a variety of formats. References: Moynihan, Donald P. (2003). ‘Normative and instrumental perspec-
tives on public participation: Citizen summits in Washington, DC’, The American
●● Provision can be made to gather qualitative insights from Review of Public Administration, 33 (2): 164–88; surprise-project.eu/events/
the discussions taking place at the tables. citizen-summits/
As managers have recognized the benefits of marketing research, they have assigned
intuition
The personal knowledge it a much greater role in decision-making. For example, Japanese managers, who tra-
and past experience on ditionally put greater faith in information from wholesalers and retailers, now grasp the
which marketing manag- importance of consumer surveys and scientific methods of marketing research as they
ers may base decisions. seek ways to diversify their companies.7
The increase in marketing research activities represents a transition from intuitive to
scientific problem-solving.8 In relying on intuition, marketing managers base decisions
scientific on personal knowledge and past experience. However, in scientific decision-making,
decision-making
An orderly and logical
managers take an orderly and logical approach to gathering information. They seek
approach to gathering facts on a systematic basis, and they apply methods other than trial and error or gen-
information. eralization from experience. This does not mean that intuition has no value in marketing
decision-making; successful decisions blend both research and intuition. Consider an
extreme example. A marketing research study conducted for Xerox Corporation in the
late 1950s indicated a very limited market for an automatic photocopier. Xerox management judged
that the researchers had drawn the wrong conclusions from the study, and they decided to launch
the product anyway. That product, the Xerox 914 copier, was an instant success. An immediate
backlog of orders developed, and the rest is history. Although the Xerox example is certainly an
extreme one, by and large a proper blend of research and intuition offers the best formula for a cor-
rect decision. Table 9.1 distinguishes between the roles of research and intuition in decision-making.
Table 9.1 Distinctions between research and intuition in marketing decision-making
Research Intuition
Nature Formal planning, predicting based on a scientific Preference based on personal feelings or ‘gut instinct’
approach
Methods Logic, systematic methods, statistical inference Experience and demonstration
Contributions General hypotheses for making predictions, classifying Minor problems solved quickly through consideration of
relevant variables, carrying out systematic description experience, practical consequences
and classification
Situation High-risk decision-making involving high costs, Low-risk problem solving and decision-making
investment, strategic change or long-term effects
Despite the obvious value of formal research, marketing decisions are often made without it.
Certainly, minor low-risk problems that must be dealt with at once can and should be handled
on the basis of personal judgement and common sense. If good decisions can be made with the
help of currently available information, costly formal research may be superfluous. However, as
the financial, social or ethical risks increase or the possible courses of action multiply, full-scale
research as a prerequisite for marketing decision-making becomes both desirable and rewarding.
Not surprisingly, as Figure 9.3 shows, many businesses have been set up to provide other orga-
nizations with marketing research and data analysis services.
Marketing research improves a marketer’s ability to make decisions. Marketers should treat
information in the same manner as other resources utilized by the company, and they must weigh
the costs of obtaining information against the benefits derived. Information is worthwhile if it results
in marketing activities that better satisfy the needs of the company’s target markets, leads to
increased sales and profits, or helps the company achieve some other goal.
The marketing research process

To maintain the control needed for obtaining accurate information, marketers approach marketing
research in logical steps, as follows (see Figure 9.2):
1. locating and defining problems or research issues
2. designing the research
3. collecting data
4. analyzing and interpreting research findings
5. reporting research findings.
Locating and Interpreting Reporting

1 defining issues 2 Designing
the research
3 Collecting
data
4 research 5 research
or problems findings findings
Figure 9.2
The five steps of the marketing research process
These five steps should be viewed as an overall approach to conducting research rather than
a rigid set of rules to be followed in each project. In planning research projects, marketers must
think about each of the steps and how they can best be adjusted for each particular problem.
Step 1: locating and defining problems or

research issues
The first step in launching a research study is problem definition, which focuses on
problem definition
The process of uncov- uncovering the nature and boundaries of a situation or question related to marketing
ering the nature and strategy or implementation. The first sign of a problem is usually a departure from some
boundaries of a situation normal function, such as failures to attain objectives. If a company’s objective is a 12 per
or question. cent return on investment and the current return is 6 per cent, this discrepancy should
be analyzed to help guide future marketing strategies. Decreasing sales, increasing
expenses or decreasing profits also signal problems. Conversely, when an organization
experiences a dramatic rise in sales, or some other positive event, it may conduct marketing
research to discover the reasons and maximize the opportunities stemming from them. Sometimes
the question that needs to be addressed relates to a change the organization is anticipating in
the marketing environment. For example, new EU ecodesign and labelling regulations designed to
improve energy efficiency, are limiting the power of electrical items such as hairdryers and vacuum
cleaners. This regulatory change is having implications for manufacturers of these items, some of
which will use marketing research to help them understand the implications.9
Figure 9.3
Many marketing research agencies, data
analysis houses and marketing services
businesses support marketers
Source: Ipsos MORI
To pin down the specific boundaries of a problem through research, marketers must define its
nature and scope in a way that requires probing beneath the superficial symptoms. The interaction
between the marketing manager and the marketing researcher should yield a clear definition of the
problem. Researchers and decision-makers should remain in the problem definition stage until they
have determined precisely what they want from the research and how they will use it. Deciding
how to refine a broad, indefinite problem into a clearly defined and researchable statement is a
prerequisite for the next step in planning the research . . . the design phase.
Step 2: designing the research

research design
An overall plan for
obtaining the information
Once the problem or issue has been defined, the next step is research design, an
needed to address a overall plan for obtaining the information needed to address it. This step requires detailed
research problem or issue. research objectives or hypotheses to be formulated, and the most appropriate type of
research to be designed to ensure that the results are reliable and valid.
Developing research objectives and hypotheses

A clear statement of research objectives plays an important part in guiding a research
project. A research objective is the desired outcome from the marketing research
research objective
The desired outcome project being undertaken. Sometimes researchers develop hypotheses that may be
from the marketing drawn both from previous research and expected research findings. A hypothesis is
research project being an informed guess or assumption about a certain problem or set of circumstances. It
undertaken. is based on all the insight and knowledge available about the problem from previous
research studies and other sources. As information is gathered, a researcher can test
the hypothesis. For example, toy manufacturer Lego might propose the hypothesis that
hypothesis children today are more interested in product lines relating to characters featured in
An informed guess or
assumption about a
their favourite movies or television programmes than previous generations. A marketing
certain problem or set researcher would then gather data, perhaps through surveys of children and their par-
of circumstances. ents, and draw conclusions as to whether or not the hypothesis was correct.
Supermarkets worried about shoplifting would be interested in the findings of research
showing that 40 per cent of supermarket managers surveyed reported cigarettes and
alcohol as their most frequently shoplifted items. If a supermarket manager had hypothesized
that other products, such as confectionery, were more susceptible to shoplifting, the research
would lead this individual to reject that hypothesis. Sometimes several hypotheses are developed
during the actual study; the hypotheses that are accepted or rejected become the study’s chief
conclusions.
Types of research
The research objectives and any hypotheses being tested determine the approach to be used for
gathering data. When marketers need more information about a problem or want to
exploratory research make a tentative hypothesis more specific, they may conduct exploratory research.
Deliberately flexible data Exploratory studies discover the general nature of a problem and the factors that relate
gathering used to dis-
to it. The design is deliberately flexible.10 For instance, this kind of research may involve
cover the general nature
of a problem and the reviewing the information in the company’s own records or examining publicly available
factors that relate to it. data. Questioning knowledgeable people inside and outside the organization may also
yield new insights into the problem. Information available on the internet about industry
trends or demographics may also be an excellent source for exploratory research. For
example, information on the buying power of different ethnic groups is readily available
through this source.
If marketers need to understand the characteristics of certain phenomena to solve
descriptive research a particular problem, descriptive research can aid them. Descriptive studies focus
Data collection that on providing an accurate description of the variables in a situation. Such studies may
focuses on providing
range from general surveys of consumers’ education, occupation or age to specifics
an accurate description
of the variables in a on how many pairs of sports shoes individuals purchase each year. For example, if
situation. Nike and Reebok wanted to target more young women, they might ask 15–34-year-old
females how often they work out, how often they buy sports footwear and whether they
wear them for casual use. Descriptive studies generally demand much prior knowledge
and assume that the problem is clearly defined. The marketers’ major task is to choose adequate
methods of collecting and measuring data.
Hypotheses about causal relationships call for a more complex approach than a descrip-
tive study. In causal research, it is assumed that a particular variable X causes a variable
causal research Y. Marketers must plan the research so that the data collected prove or disprove that X
Data collection that
assumes that a partic-
causes Y. To do so, marketers must try to hold constant all variables except X and Y. For
ular variable X causes a example, to find out whether new carpeting, curtains and ceiling fans increase the rental
variable Y. rate in a block of flats, marketers need to keep all variables constant except the new furnish-
ings and the rental rate. Table 9.2 compares the features of these types of research study.
Table 9.2 Comparison of data-gathering approaches
Project component Exploratory studies Descriptive or causal studies

Purpose Provide general insights Confirm insights, verify hypotheses
Data sources Ill-defined Well-defined
Collection form Open-ended Structured
Sample Small Large
Collection procedure Flexible Rigid
Data analysis Informal Formal
Recommendations Tentative Conclusive
Source: from Marketing Research, p. 122, © 1986. Reprinted by permission by Professor A. Parsu Parasraman.
reliability Research reliability and validity

The quality of producing
In designing research, marketing researchers must ensure that their research tech-
almost identical results
in successive repeated niques are both reliable and valid. A research technique has reliability if it produces
trials. almost identical results in successive repeated trials. However, a reliable technique is
not necessarily valid. To have validity, the method must measure what it is supposed to
measure, not something else. A valid research method provides data that can be used
validity to test the hypothesis being investigated. For example, although a group of customers
A condition that exists
may express the same level of satisfaction based on a rating scale, the individuals may
when an instrument
measures what it is not exhibit the same repurchase behaviour because of different personal characteristics.
supposed to measure. This result might cause the researcher to question the validity of the satisfaction scale if
the purpose of rating satisfaction was to estimate repurchase behaviour.11
Step 3: collecting data

The next step in the marketing research process is collecting data to satisfy research objectives
and to help prove (or disprove) research hypotheses. The research design must specify what types
of data to collect and how they will be collected.
Types of data
Marketing researchers have two types of data at their disposal. Primary data are
primary data observed and recorded or collected directly from respondents. This type of data must
Information gathered by
observing phenomena or
be gathered by observing phenomena or surveying respondents. Secondary data are
surveying respondents. compiled inside or outside the organization for some purpose other than the current
investigation. Secondary data include general reports supplied to an enterprise by
various data services. Such reports might concern market share, retail inventory levels
secondary data and consumer buying behaviour. Figure 9.4 illustrates how primary and secondary
Information compiled sources differ.
inside or outside the Secondary data are generally already available in private or public reports, or have
organization for some been collected and stored by the organization itself. As secondary data is already avail-
purpose other than the
current investigation.
able – ‘second hand’ – to save time and money they should be examined prior to the
collection of any primary data. Clearly, primary data collection is bespoke and therefore
both time-consuming and costly. For relatively straightforward problems, secondary data
may prove adequate. More complex or risky situations may require specific primary data collection.
Figure 9.5 reveals how marketing research companies promote their data analysis services.
Personal
Observation Mechanical
Digital
Mail
Email/internet
Surveys
Telephone/mobile
Personal
Primary data collection
Secondary data collection

Accounting
Internal records
sources Marketing
databank
Periodicals
External Census reports
sources Government publications
World Wide Web
Unpublished sources
Figure 9.4
Approaches to collecting data
Figure 9.5
A business-to-business advertisement for Aquila’s services
Source: Aquila Insight
In the wake of huge recent growth in the availability and volume of information, there is a radically
increased capacity for using data to inform commercial decisions. This trend has led to a rethink of
how the marketing research industry is conceptualized. The UK’s Market Research Society (MRS)
now describes all firms contributing to this market – including traditional research firms, opinion
researchers, data analytics experts, government, education institutes and think tanks – as being
in the business of evidence. Figure 9.6 provides an overview of this market.12
Market is 50%
larger than
previously thought
Helps makes sense

Some estimates put
of ‘big data’ so
the value of UK
that its value can
market at £3 billion
be realized
Business of evidence market

‘A dynamic market; initiating research for
specific purposes while responding to
industry and client demands’ (PWC, 2012)
Facilitated by Comprises a more

customer loyalty extensive mix of
schemes, growing providers than the
use of the internet traditional market
and online shopping research industry
Employs up to
60 000 people
Figure 9.6 in the UK
The business of evidence
market
Source: Derived from PWC,
Providers
The Business of Evidence:
A report prepared for the Traditional marketing research providers, data analytics firms, think tanks,
Market Research Society, government, charities, higher education, other public sector bodies
October 2012.
Sources of secondary data

Marketers often begin the marketing research process by gathering secondary data. They may
use available reports and other information from both internal and external sources to study a
marketing problem.
Internal sources of secondary data can contribute tremendously to research, particularly given
recent improvements in the customer databases that many organizations now hold. Improvements
in technology coupled with changes in how customers are shopping, have contributed to better
systems for recording customer data. An organization’s own databases may contain information
about past marketing activities, such as sales records and research reports, that can be used to
test hypotheses and pinpoint problems. From sales reports, for example, a company may be able
to determine not only which product sold best at certain times of the year, but also which colours
and sizes were preferred and by which customers. Such information may have been gathered for
management or financial purposes.13 Table 9.3 reveals some commonly available internal company
information that may be useful for marketing research purposes.
Table 9.3 Internal sources of secondary data
Sales data taken from periodic The frequency with which this information is updated will vary for different organizations and industry
sales reports sectors. However, the increasing use of technology to monitor sales is leading to improvements in the
quality and availability of such data
Customer feedback gathered In addition to sales information, the salesforce is in a position to provide other data on customer views and
by the salesforce, marketers or preferences. The service functions of many organizations also have access to a range of customer feedback.
services functions Marketers capture customer views. Organizations with systems in place for capturing and managing these
data are more likely to be able to take advantage of such insights
Accounting information This can include detailed data on sales, expenses and profit levels in different product categories
Competitive information collected Through contact with customers and by attending sales-related events, such as trade shows, the salesforce
by the salesforce or marketers is often in a position to accumulate information about competitors, their product portfolios and strategies
An organization’s accounting records and feedback available from any service function are
excellent sources of data that are often overlooked. This is partly because the volumes of data that
these departments collect may not automatically flow to the marketing area. As a result, detailed
information about costs, sales, customer accounts or profits by product category may not be part
of the marketing information system (MIS). This situation occurs particularly in organizations that
do not store marketing information on a systematic basis.
External sources of secondary data include periodicals, census reports, government publica-
tions, the internet and unpublished sources. Periodicals available online and in hard copy, such as
Investors’ Chronicle, Campaign, Marketing Week, The Wall Street Journal and Fortune print general
information that is helpful for defining problems and developing hypotheses. Business Monitor
contains sales data for major industries. Mintel and Forrester publish sector reports. Many research
companies publish reports on markets, consumers, trends and products. Table 9.4 summarizes
the major external sources of secondary data, excluding syndicated services.
Table 9.4 Guide to external sources of secondary data
Trade journals Virtually every industry or type of business has a trade journal. These journals give a feel for the industry, its size,
degree of competition, range of companies involved and problems. Details of trade journals are available through
library databases or from online services such as WebWire (www.webwire.com /industrylist.asp)
Trade associations Almost every industry, product category and profession has its own association. Many conduct research, publish
journals, conduct training sessions and hold conferences
Corporate web pages Most companies, trade bodies, government agencies and third sector organizations have established home pages
overviewing their activities on the internet and have a presence on social media for disseminating information on
their products and activities
International sources Overseas statistics are available from sources such as the United Nations (unstats.un.org/) and the International
Labour Organization (www.ilo.org/global/statistics-and-databases)
Commercial sources Market survey/report organizations produce many sector reports and analyses of companies or brands; for example,
Bloomberg, Verdict, Mintel, Kompass, The FT 1000, Key British Enterprises, Dun and Bradstreet
Governments Governments, through their various departments and agencies, collect, analyze and publish data on practically
everything. Includes Census data, population statistics, information on business sectors, data on households and
consumption. Official European statistics are available at (ec.europa.eu/eurostat); with UK statistics available at
(www.gov.uk/government/statistics)
Books in Print (BIP) BIP (www.booksinprint.com) is a several volume reference book found in most libraries and in an online searchable
format. All books issued by publishers and currently in print are listed by subject, title and author
Online periodical Libraries offer online access to articles in major periodicals. For example, JSTOR maintains an online archiving service
indices and literature for major periodicals (www.jstor.org); while ABI/INFORM Complete is a comprehensive database for business research-
retrieval services ers available on the ProQuest platform (www.proquest.com/products-services/abi_inform_complete.html).
Google Scholar (scholar.google.co.uk) enables internet users to search and locate a wide range of sources.
Syndicated data services periodically collect and collate general information, from
syndicated data
services sources including census data, the electoral roll, attitudinal and lifestyle data and con-
Organizations that collect sumption data, which they sell to clients. BARB, for example, supplies television stations
and collate general and media buyers with estimates of the number of viewers at specific times. You can
information and sell it learn more about how BARB achieves this by visiting its website.14 Globescan furnishes
to clients.
monthly information that describes market shares for specific sectors. ACNielsen pro-
vides retail tracking and other data. This information includes total sales in a product
category, sales of clients’ own brands and sales of important competing brands.
Another type of secondary data, which is available for a fee, is demographic analysis. Compa-
nies, such as CACI or Experian, that specialize in demographic databanks, have special knowledge
and sophisticated computer systems to work with the very complex census databanks. These
were explored in Chapter 7. As a result, they are able to respond to specialized requests. Such
information may be valuable in tracking demographic changes that have implications for
population consumer behaviour and the targeting of products.15
All elements, units or
individuals that are of
interest to researchers Primary data collection methods
for a specific study.
The collection of primary data is a more lengthy, expensive and complex process than the
collection of secondary data. To gather primary data, researchers use sampling proce-
sample dures, survey methods, observation and experimentation. These efforts can be handled
A limited number of units in-house by the company’s own research personnel or contracted out to private research
chosen to represent the businesses such as Taylor Nelson Sofres, DunnHumby, GfK or Kantar Millward Brown.
characteristics of a total
population.
Sampling Since the time and resources available for research are limited, it is almost
impossible to investigate all the members of a target market or other population. A
population, or ‘universe’, comprises all elements, units or individuals that are of interest
sampling
The selection of repre- to researchers for a specific study. A sample is a limited number of units chosen to rep-
sentative units from a resent the characteristics of a total population. For example, if a Gallup poll is designed to
total population. predict the results of an election, all the registered voters in the country would constitute the
population. A representative national sample of several thousand registered voters would
be selected in the Gallup poll to project the probable voting outcome. The projection would
probability sampling be based on the assumption that no major political events would occur before the election.
Every element in the The objective of sampling in marketing research, therefore, is to select representative units
population has a known
from a total population. Sampling procedures allow marketers to predict buyer behaviour
chance of being selected
for study. fairly accurately on the basis of responses from the representative portion of the population
of interest. Most types of marketing research employ sampling techniques.
There are two basic types of sampling: probability sampling and non-probability sam-
random sampling pling. With probability sampling, every element in the population being studied has a
A sampling method in known chance of being selected for study. Random sampling is basic probability sam-
which all the units in a pling. When marketers employ random sampling, all the units in a population have an
population have an equal equal chance of appearing in the sample. The various events that can occur have an
chance of appearing in
the sample.
equal or known chance of taking place. For example, a specific playing card in a pack
has a 1/52 probability of being drawn at any one time. Sample units are ordinarily chosen
by selecting from a table of random numbers which have been statistically generated so
stratified sampling
that each digit, from zero to nine, will have an equal probability of occurring in each posi-
A sampling method in tion in the sequence. The sequentially numbered elements of a population are sampled
which the population randomly by selecting the units whose numbers appear in the table of random numbers.
of interest is divided Another kind of probability sampling is stratified sampling, in which the population
according to a common of interest is divided into groups according to a common characteristic or attribute, and a
characteristic or attri-
bute; a probability sam-
probability sampling is then conducted within each group. Employing a stratified sample
pling is then conducted may reduce some of the error that could occur as a result of using a simple random
within each group. sample. By ensuring that each major group or segment of the population receives its
proportionate share of sample units, investigators avoid including too many or too few
sample units from each stratum. Usually, samples are stratified when researchers believe that there
may be variations among different types of respondent. For example, many political opinion surveys
are stratified by sex, race and age.
Area sampling, a variation of stratified sampling, involves two stages:
area sampling
A sampling method 1. selecting a probability sample of geographic areas, such as streets, census tracts or
that involves selecting
census enumeration districts
a probability sample of
geographic areas and 2. selecting units or individuals within the selected geographic areas for the sample.
selecting units or individ-
uals within the selected To select the units or individuals within the geographic areas, researchers may choose
areas for the sample. every nth house or unit, or they may adopt random selection procedures to pick out a
given number of units or individuals from a total listing within the selected geographic
areas. Area sampling may be used when a complete list of the population is not available.
quota sampling In quota sampling, researchers divide the population into groups and then arbitrarily
A sampling method in choose participants from each group. A study of consumers who are diabetic for an
which the final choice of
organization seeking to market snacks to this group, for example, may be conducted by
respondents is left to the
interviewers, who base interviewing any person who has diabetes. In quota sampling, there are some controls
their choices on two or – usually limited to two or three variables such as age, sex and education – over the
three variables (such as selection of respondents. The controls attempt to ensure that representative categories
age, sex and education). of respondents are interviewed. As quota samples are not probability samples, not
everyone has an equal chance of being selected and sampling error therefore cannot
be measured statistically. Quota samples are used most often in exploratory studies, in
which hypotheses are being developed. Often a small quota sample will not be projected to the
total population, although the findings may provide valuable insights into a problem. A probability
sample used to study people allergic to cats would be highly inefficient.
Survey methods Marketing researchers often employ sampling to collect primary data
survey method
Interviews by mail,
through mail, telephone, online or personal interview surveys. Selection of a survey method
telephone, web and depends on the nature of the problem, the data needed to satisfy the research objectives and
personal interviews. any hypotheses, and the resources, such as funding and personnel, that are available to the
researcher. Table 9.5 illustrates the current breakdown of UK research spend across sectors.
Table 9.5 Share of spend on market research by client sector
Sector % of total Type of Research % of total

Consumer (fmcg, food and beverages, consumer goods and services): 30% Online quantitative work: 56%
Government, public sector and not for profit: 15% Online qualitative work: 18%
IT and consumer technology: 10% Face-to-face field work: 11%
Media: 10% Telephone field work: 10%
Source: www.research-live.com/industry-report?MKTG=RLINDREPORT2018
Gathering information through surveys is increasingly difficult because respondent

mail survey
Questionnaires sent by rates are declining. Many people believe that responding to surveys takes too long and
mail to respondents, who have become fatigued by the frequency with which they are asked to become involved
are encouraged to com- in such studies. The unethical use of ‘sugging’ (‘selling under the guise of marketing
plete and return them. research’, i.e. sales techniques disguised as market surveys) has also contributed to
decreased respondent cooperation, while internet surveys have been affected by con-
cerns about spam (junk emails).
In a mail survey, questionnaires are sent by mail to respondents, who are encouraged to com-
plete and return them. Mail surveys are used most often when respondents are spread over a wide
area, funds for the survey are limited and instant responses are not essential. A mail survey can
be relatively inexpensive as long as the response rate is high enough to produce reliable results.
The main disadvantages of mail surveys are the possibility of a low response rate or of misleading
results, if respondents are significantly different from the population being sampled. The drop and
collect method, a variation of the mail survey, involves researchers distributing ques-
drop and collect
Questionnaires distrib- tionnaires by hand to households and then returning to collect the completed version
uted by hand to house- at a later date. This relatively low-cost method can work well when the data gathering
holds or offices and then is confined to a relatively restricted geographical area. It has the advantage that the
collected at a later date. researcher can encourage respondents to complete the questionnaire.16
Researchers can boost response rates in mail surveys by offering respondents an
incentive to return the questionnaire. Incentives and follow-ups have consistently been
found to increase response rates. On the other hand, promises of anonymity, special appeals for
cooperation and questionnaire length have no apparent impact on the response rate. Other tech-
niques for increasing the response rate, such as advance notification, personalization of survey
materials, type of postage, corporate or university sponsorship of the research have had mixed
results.17 Although such techniques may help increase the response rates, they can introduce
sample composition bias, or non-response bias, which results when those responding to a sur-
vey differ in some important respect from those not responding to the survey. In other words,
response-enhancing techniques may alienate some people in the sample and appeal to others,
making the results non-representative of the population of interest.
Premiums or incentives encouraging respondents to return questionnaires have been effective
in developing panels of respondents who are interviewed by mail or online on a regular basis.
Consumer panels of respondents selected to represent a market or market segment
consumer panels
Groups of consumers
are especially useful for evaluating new products, providing general information about
selected to represent a consumers and providing records of consumers’ purchases. Web panels are now
market or market seg- very popular. A variant of consumer panels are consumer purchase diaries. These
ment, who agree to be surveys are similar, but consumers keep track of purchases only. Consumer panels
interviewed regularly by and consumer purchase diaries are widely used, but they do have shortcomings.
mail or online.
Research indicates that the people who take the time to fill out a consumer purchase
diary have a higher income and are better educated than the general population. If
researchers include less well-educated consumers in the panel, they must risk poorer
consumer purchase
diaries
response rates.
A marketing research Telephone surveys, where respondents’ answers to a questionnaire are recorded
tool in which consumers by interviewers on the phone, are widely used by businesses. A telephone survey has
record their purchases. some advantages over a mail survey. The rate of response can be higher because it
takes less effort to answer the telephone and talk than to fill out a questionnaire and
return it. Telephone surveys can be conducted very quickly. Thus they can be used by
telephone surveys political candidates or organizations seeking an immediate reaction to an event. This
Surveys in which
survey technique also permits interviewers to develop a rapport with respondents and
respondents’ answers
to a questionnaire are ask some probing questions, although public mistrust about ‘cold-calling’ is negatively
recorded by interviewers affecting consumers’ reaction to this type of data gathering.18
on the phone. Telephone interviews also have drawbacks, especially as a large proportion of the
population is becoming increasingly unwilling to become involved. Furthermore, these
interviews are limited to oral communication; visual aids or observation cannot be
included. Interpreters of results must make adjustments for subjects who are not at home or who
do not have telephones. Many households are excluded from the telephone directory. Others
use answering machines, voicemail or caller ID to screen or block calls. Contacting people via
mobiles is helping, but when people are on the move they are reluctant to participate and often are
distracted by their surroundings. Researchers seeking business respondents can also face non-
response problems, particularly as secretaries frequently ‘gatekeep’ calls, preventing researchers
from talking to their targets.
Overall, reliance on panels of various kinds is increasing. Telephone surveys, like mail and
personal interview surveys, are sometimes used to develop panels of respondents who can be
interviewed repeatedly to measure changes in attitudes or behaviour. Increasingly, such panels
are also run through digital media, including in the online environment. An advantage
of the online setting is that it enables an ongoing and instant dialogue with panel
members to be achieved.
computer-assisted Computer-assisted telephone interviewing integrates questionnaire, data collec-
telephone interviewing tion and tabulations, and provides data to aid decision-makers in the shortest time possi-
A survey method that ble. Questionnaire responses are entered on a terminal keyboard, or the interviewer can
integrates questionnaire, use a light-pen (a pen-shaped torch) to record a response on a light-sensitive screen. On
data collection and tabu-
the most advanced devices, the interviewer merely points to the appropriate response
lations, and provides data
to aid decision-makers in on a touch-sensitive screen with his or her finger. Open-ended responses can be typed
the shortest time possible. on the keyboard or recorded with paper and pencil. This kind of interviewing saves time
and facilitates monitoring the progress of interviews. Because data are available as soon
as they are entered into the system, interim results can be retrieved quickly. With some
systems, a tablet may be taken to off-site locations for use in data analysis. Some researchers
believe that computer-assisted telephone interviewing is less expensive than conventional paper
and pencil methods.19
Online surveys have evolved as an alternative to telephone surveys. Indeed, telephone-based
market research has halved in the past five years, as has face-to-face field work. Web-based
market research now accounts for 60% of marketing research. In an online survey,
online survey
questionnaires can be transmitted to respondents who have agreed to be contacted
Questionnaires that are
sent to an individual’s and have provided their email addresses. Alternatively, links to surveys can be made
email or SMS account or available to consumers via social media or on corporate websites. In such cases, it is
are available over a web- not necessary to have an email address in advance, although it is more difficult to con-
site via a smart device. trol the sample because respondents are self-selecting. Because completing a survey
this way is semi-interactive, recipients can ask for clarification of specific questions or
pose questions of their own. The fact that the data are instantly available in electronic
format also eases the process of data entry. The potential advantages of online surveys are quick
response and lower costs than traditional mail and telephone surveys. The opportunities for using
the internet to collect data are increasing significantly, especially as companies are pooling their
e-contact lists and some are selling their e-lists to third parties. There has also been a growth
in surveying by SMS and social media via people’s mobile phones. Most websites now gather
information and most purchases are followed-up online. Online communities and social
personal interview media are the fastest growing platforms for marketing research.
survey
In a personal interview survey, participants respond to questions face-to-face.20
A face-to-face situation
in which the researcher Various audio-visual aids – pictures, products, diagrams, YouTube clips or pre-recorded
meets the consumer and advertising copy – can be incorporated into a personal interview. Rapport gained through
questions him or her direct interaction usually permits more in-depth interviewing, including probes, follow-up
about a specific topic. questions or psychological tests. In addition, because personal interviews can be longer,
they can yield more information. Finally, respondents can be selected more carefully, and
reasons for non-response can be explored. A depth interview is a lengthy, one-to-one
depth interview structured interview examining a consumer’s views about a product in detail. Face-to-
A lengthy, one-to-one
structured interview,
face research has many advantages, but it is costly and time-consuming. It is quickly
examining in detail a being replaced with online studies and data collection.
consumer’s views about The object of a focus group interview is to observe group interaction when mem-
a product or any subject. bers are exposed to an idea or concept. Focus groups are frequently held in viewing
facilities, as illustrated in Figure 9.7. Often these interviews are conducted informally,
without a structured questionnaire, in small groups of eight to 12 people. Consumer atti-
focus group interview tudes, behaviour, lifestyles, needs and desires can be explored in a flexible and creative
A survey method that manner through this widely used technique (see Chapter 5). Questions are open-ended
aims to observe group
interaction when mem-
and stimulate consumers to answer in their own words. Researchers can ask probing
bers are exposed to an questions to clarify something they do not fully understand, or something unexpected
idea or concept. and interesting that may help to explain consumer behaviour. Online fora can now be
used in a similar way.
Figure 9.7
Viewing facilities are often used
for experiments or for conducting
focus group interviews
When Cadbury used information obtained from focus groups to change its advertising and to
test product concepts, the new advertisements and product launches pushed up sales.21 The case
study at the end of this chapter describes focus group research. Focus group discussions usually
start with a general chat, which will be led by a researcher or moderator. The conversation is then
narrowed during the course of the session, enabling the moderator to home in on a specific brand,
product or advertisement – hence the term ‘focus’ group.
Quali-depth interviews are 25- to 30-minute intercept interviews that incorporate
some of the in-depth advantages of focus group interviews with the speed and flexi-
quali-depth interviews
25- to 30-minute bility of shopping mall/pavement intercept interviews (see below). Typically, intercepted
intercept interviews that consumers are taken to a nearby hall or café and asked more probing and searching
incorporate some of the questions than is possible in a three- to four-minute shopping mall/pavement intercept
in-depth advantages of interview. They can also be shown a greater variety of stimulus material. This is a useful
focus group interviews
approach for sensitive issues that people might not wish to discuss in a group – gam-
with the speed and
flexibility of shopping bling and drugs, for example.
mall/pavement intercept Another research technique is the in-home interview. As it may be desirable to
interviews. eliminate group influence, the in-home interview offers a clear advantage when thor-
oughness of self-disclosure is important. In an in-depth interview of 45 to 90 minutes,
respondents can be probed to reveal their real motivations, feelings, behaviours and
in-home interview aspirations. In-depth interviews permit the discovery of emotional ‘hot buttons’ that
45- to 90-minute provide psychological insights.22 Door-to-door interviews last only a few minutes and
interview in which the
researcher visits the
are similar to pavement intercepts.
respondent in his or The nature of personal interviews has changed. In the past, most personal interviews,
her home. which were based on random sampling or pre-arranged appointments, were conducted
in the respondent’s home. Today, many personal interviews are conducted in shop-
ping centres or malls, or on pavements or by Skype, if contact addresses are known.
Shopping mall/pavement intercept interviews involve interviewing a percentage of
shopping mall/
pavement intercept people who pass by certain ‘intercept’ points in a shopping centre or pavement. Like
interviews any face-to-face interviewing method, shopping mall/pavement intercept interviewing has
Personal interviewing of many advantages. The interviewer is in a position to recognize and react to respondents’
a percentage of individ- non-verbal indications of confusion. Respondents can be shown product prototypes,
uals who pass by certain
videos of advertisements and the like, and reactions can be sought. The environment
‘intercept’ points in a
shopping centre or on a lets the researcher deal with complex situations. For example, in taste tests, researchers
pavement. know that all the respondents are reacting to the same product, which can be prepared
and monitored from the shopping centre’s test kitchen or some other facility. In addition,
lower cost, greater control and the ability to conduct tests requiring bulky equipment
make shopping mall/pavement intercept interviews popular.
Research indicates that given a comparable sample of respondents, shopping mall/pavement

intercept interviewing is a suitable substitute for telephone interviewing.23 In addition, there seem
to be no significant differences in the completeness of consumer responses between telephone
interviewing and shopping mall/pavement intercept interviewing. In fact, for questions dealing with
socially desirable behaviour, shopping mall/pavement intercept respondents appear to be more
honest about their past behaviour.24
In on-site computer interviewing, a variation of the shopping mall/pavement inter-
on-site computer
interviewing cept interview, respondents complete a self-administered questionnaire displayed on a
A survey method that computer monitor or handheld tablet. A computer software package can be used to
requires respondents to conduct such interviews in shopping centres or transport termini. After a brief lesson
complete a self-admin- on how to operate the software, respondents can go through the survey at their own
istered questionnaire
pace. Questionnaires can be adapted so that respondents see only those items that
displayed on a tablet.
may provide useful information about their attitudes.25
Questionnaire construction A carefully constructed questionnaire is essential to the

success of any survey. A questionnaire is a base document for research purposes
questionnaire
Base document for that provides the questions and the structure for an interview or self-completion and
research purposes, has provision for respondents’ answers.26 Questions must be designed to elicit infor-
providing the questions mation that meets the study’s data requirements. These questions must be clear, easy
and structure for an to understand and directed towards a specific objective. Researchers need to define
interview or self-
the objective before trying to develop a questionnaire because the objective determines
completion and providing
space for respondents’ the substance of the questions and the amount of detail. A common mistake in con-
answers. structing questionnaires is to ask questions that interest the researchers but do not yield
information useful in deciding whether to accept or reject a hypothesis. Finally, the most
important rule in composing questions is to maintain impartiality.
The questions are usually of four kinds:
1. open-ended
2. dichotomous
3. multiple choice
4. Likert scale.
Here are some examples.
1. OPEN-ENDED QUESTION
What is your general opinion of broadband internet access for your computer?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
2. DICHOTOMOUS QUESTION
Do you presently have broadband access at home?
Yes ______ Provider’s identity ______
No ______
3. MULTIPLE-CHOICE QUESTION
What age group are you in?
Under 20 ______
20–29 ______
30–39 ______
40–49 ______
50–59 ______
60 and over ______
4. LIKERT SCALE QUESTION

To what extent do you expect to use the internet for buying travel products (flights, hotel
accommodation) in the near future?
Not at A great
all 1 2 3 4 5 deal
The design of questionnaires is extremely important because it affects the validity and useful-
ness of the results. Testing a questionnaire on a few respondents before conducting a full survey
helps to eliminate such difficulties. There are also certain guidelines that should be followed when
undertaking questionnaire design. The questions must relate to the research objectives. The layout
of the questionnaire must not be off-putting to respondents or to the researchers conducting the
work. This is particularly pertinent given that the layout of a questionnaire affects how quickly data
from it can be analyzed by computers. This can save researchers a great deal of time. Question
type is also an important factor. Open-ended questions can be the most revealing, but are time
consuming – and therefore off-putting – for respondents, as well as difficult to analyze. Dichoto-
mous questions are straightforward but not very revealing. Multiple-choice questions are popular,
but care must be exercised in the choice of categories. Likert scale questions are very popular
and can enable batches or strings of questions to be listed together in a space-saving style that
can be time-saving for the respondent. They allow respondents to express degrees of a positive
or negative response, rather than give an absolute yes or no. There is also the option to give a
‘neutral’ (‘3’) answer. Most questionnaires include a mix of question styles.
Sometimes respondent fatigue can affect the quality of questionnaire responses. This may result
in answers being rushed, or the questionnaire being abandoned altogether. For example, some-
times when faced with a long list of Likert scale questions, respondents move through the questions
ticking the same point in the scale, rather than taking time to reflect on their answers. The wording
of questions is also critical. Researchers must ensure that personal questions, such as those about
income or educational attainment, are worded in as inoffensive a manner as possible. These types
of question are often placed towards the end of the questionnaire, because it is believed that they
are more likely to be answered once the respondent has invested time in the research instrument.
observation methods
Observation methods
In using observation methods, researchers record respon-
Methods by which dents’ overt behaviour, taking note of physical conditions and events. Direct contact with
researchers record respondents is avoided; instead, their actions are examined and noted systematically.
respondents’ overt For example, researchers might use observation methods to answer the question, ‘How
behaviour and take note long do shoppers in computer game stores such as Game, typically spend browsing?’
of physical conditions
As the opener to this chapter and the marketing insight early on demonstrate, obser-
and events.
vation methods can make use of new technologies to record behaviour and also use
ethnographic techniques, such as watching customers interact with a product in a
real-world environment. Ethnography is increasingly being used by many marketing
ethnography research agencies to gain greater insights into consumer lifestyles. Indeed, in a recent
observing consumers’ survey of the marketing research industry, 27 per cent of respondents giving an opinion
real-world behaviours
and product usage.
about the most exciting developments mentioned ethnographic research.27
Observation may also be combined with interviews. For example, during a personal
interview, the condition of a respondent’s home or other possessions may be observed
and recorded, and demographic information such as ethnic origin, approximate age and sex can
be confirmed. Some forms of ‘observation’ are now common on e-shopping sites, with businesses
monitoring the amount of time consumers spend browsing and even whether they complete the
purchase process once they have started. Observation is also not confined to consumers; shops
and service establishments can also be observed, through ‘mystery shopper’ research, as the
Marketing Tools and Techniques box below explains.
Data gathered through observation can sometimes be biased if the respondent is aware of
the observation process. An observer can be placed in a natural market environment, such as
a grocery store, without biasing or influencing shoppers’ actions. However, if the presence of a
human observer is likely to bias the outcome or if human sensory abilities are inade-
quate, mechanical means may be used to record behaviour. Mechanical observation
mechanical observa-
tion devices devices include cameras, recorders, sensors, GPS trackers, counting machines and
Cameras, recorders, other equipment that records physiological changes in individuals. For instance, a special
counting machines and camera can be used to record the eye movements of respondents looking at an adver-
other equipment that tisement, and to detect the sequence of reading and the parts of the advertisement that
records physiological
receive greatest attention. Electronic scanners in supermarkets can provide accurate
changes in individuals.
data on sales and consumers’ purchase patterns, and marketing researchers may buy
such data from the supermarket company. Observation is straightforward and avoids a
central problem of survey methods: motivating respondents to state their true feelings or opinions.
Technological advances, such as the growth in wearable technologies like smart watches, are also
increasing the opportunities to gather data in this way.
However, observation tends to be descriptive and may not provide insights into causal relation-
ships. Another drawback is that analyses based on observation are subject to the biases of the
observer or the limitations of the mechanical device.
The intrigues of ‘mystery Marketing to company policies. Dealers did not

shopper’ research tools and know who the bogus buyers were,
or when they were to visit. Service
programmes techniques reception staff were similarly targeted.
A favourite ploy by the researchers was
Retailers and providers of services
to book a car service by telephone and then
depend increasingly not only on the
phone again to cancel, judging the receptionist’s response to
products they sell or deliver but also on the ability, attitude and
the lost business. As a result of these frequent but anonymous
quality of their personnel and the internal environment of their
visits, the car producer was able to improve the standards of its
branch outlets. The regional directors and head office man-
dealers, the attitude of its personnel and ultimately the quality
agers who check such standards all too often enter through
of its service and customer satisfaction.
the staff door at the rear of the branch, focusing primarily on
This form of marketing research – ‘mystery shopper’ – is
operations and not on customer concerns. The branch’s cus-
one of the fastest-growing areas in the industry. It is defined
tomers enter from the front, having first seen the exterior of
by MSPA (the Mystery Shoppers Providers’ Association), as
the branch. They deal with all levels of personnel, not just the
valuable because:
manager or manageress to whom the visiting director talks.
These customers are not wrapped up in the company’s prod- ●● Most customers who have unsatisfactory experiences
ucts and operations; they seek help and advice. They expect will not complain . . . they will just never come back.
courtesy and professionalism. ●● Dissatisfied customers are likely to tell many others
Customers buy a company’s products, but quite often the about their experience, who in turn probably will avoid
company’s management never does, instead requesting items doing business with the offending merchant.
direct from storage at staff discount rates without ever visit-
●● The use of mystery shopping to provide independent and
ing shops or showrooms. Car manufacturers give their senior
impartial feedback reduces any perception of favouritism
management vehicles and offer all employees highly attrac-
in incentive programmes.
tive deals. The result is that few senior managers ever visit a
●● Mystery shopping helps determine whether customers’
showroom or dealer – even their servicing is taken care of – so
actual experiences are as intended.
they never see the ‘sharp end’, their dealers, as customers do.
One car producer instigated a programme of ‘mystery ●● Mystery shopping programmes can identify areas of
shopper’ surveys. This programme involved visits by bogus training which need improvement and can identify areas
potential car buyers to dealers to rate the upkeep and appear- of training that are working particularly well.
ance of showrooms, technical knowledge and attitude of per- (Source: www.mspa-global.org/en, accessed 24 April 2015.)
sonnel, quality of displays, negotiating criteria and adherence
Even so, market research companies such as GfK, which difficult for the research findings not to identify the personnel
offers mystery shopping services, must take care that staff in question.
are trained to a high standard and must also ensure that they Some marketing research firms that use mystery shopping
behave in an ethical manner. Employees must be trained to are trying to address these concerns by ensuring that they
evaluate how customers are greeted, how stores that they visit comply with the guidelines laid down by organizations such as
look and whether shop assistants understand the products on ESOMAR and the Market Research Society. Others have joined
sale. They are also expected to be able to blend in inconspic- the MSPA, an association of organizations providing mystery
uously in the settings they visit. shopping services. MSPA is a membership organization which
Recently concerns have been expressed about the use of aims to ‘improve the acceptance, performance, reputation and
mystery shopper research by organizations such as the Euro- use of mystery shopping services’. Its members must be able
pean Society for Opinion and Marketing Research (ESOMAR), to demonstrate that they have at least two years’ experience,
over worries that employees might be tricked into handling have a reputation for excellence, and agree to abide by the
awkward customers in an inappropriate way and that this Association’s codes of professional ethics and standards
might have future consequences for those individuals’ jobs. (www.mspa-ea.org/ethics-and-standards.html, accessed 27
In other forms of research, those involved have the oppor- March 2018).
tunity to withdraw from the process, but this opportunity is
not provided to those being inspected by mystery shoppers. References: Mystery Shopping Professionals Association, March 2018; M
arketing
Another concern is that in most forms of ethical marketing Guides: Market Research, 13 June 1996; www.gfk.com/solutions/mystery-
research, the respondent is guaranteed anonymity, but if shopping/Pages/default.aspx, April 2015; www.mrs.org.uk/pdf/2014-09-
01%20Mystery%20Shopping%20Research%20Guidelines.pdf. March 2018;
mystery shopper research is deployed to check up on staff www.mystery-shoppers.co.uk/about/a-guide-to-mystery-s hopping/,
or to develop ‘league tables’ of branch performance, it is March 2018.
experimentation Experimentation Experimentation can be used to determine which variable or vari-

Data collection that ables caused an event to occur. It involves keeping certain variables constant so that the
involves maintaining effects of the experimental variables can be measured. For instance, if an online fashion
certain variables as con- retailer wishes to examine the effect of a price reduction on sales, all other marketing
stant so that the effects
variables should be held constant except the change in price.
of the experimental vari-
ables can be measured. In experimentation, an independent variable (a variable not influenced by or
dependent on other variables) is manipulated and the resulting changes measured in
a dependent variable (a variable contingent on, or restricted to, one value or a set
independent variable of values assumed by the independent variable). Figure 9.8 illustrates the relationship
A variable not influenced between these variables. For example, when Coca-Cola introduces a new variant of its
by or dependent on other carbonated soft drink, it may want to estimate the number of each variant that could
variables in experiments. be sold at various levels of advertising expenditure and price. The dependent variable
would be sales, the independent variables would be advertising expenditure and price.
Researchers would design the experiment to control other independent variables that
dependent variable might influence sales, such as distribution and variations of the product.
A variable that is con-
tingent on, or restricted
to, one value or a set of Independent
values assumed by the variable X1
independent variable.
(Advertising expenditures)
Dependent
variable Y
(Sales)
Independent
variable X2 Y = f(X1 X2 ). (Dependent
Figure 9.8 (Price)
Relationship between independent variable Y is a function
and dependent variables of X1 and X2.)
Experiments may be conducted in the laboratory or in the field; each research setting
laboratory settings
has advantages and disadvantages. In laboratory settings, participants or respon-
Central locations at dents are invited to a central location to react or respond to experimental stimuli. In such
which participants or an isolated setting it is possible to control independent variables that might influence
respondents are invited the outcome of an experiment. The features of laboratory settings might include a taste
to react or respond to kitchen, video equipment, projection facilities, digital recorders, internet hook-ups, one-
experimental stimuli.
way mirrors, central telephone banks and interview rooms. In an experiment to determine
the influence of price (independent variable) on sales of a new line of microwave ready
meals (dependent variable), respondents would be invited to a laboratory – a room with
table, chairs and sample ready meals – before the product was available in stores. The
field settings ready meal would be placed on a table with competing products. Analysts would then
‘Real world’ environ-
ments in which experi-
question respondents about their reactions to the ready meal at various prices. One
ments take place. problem with a laboratory setting is its isolation from the real world, making it difficult, or
impossible, to duplicate all the conditions that affect choices in the marketplace.
The experimental approach can also be used in field settings, which are ‘real world’
home placements environments. A taste test of regional cheeses conducted in a supermarket is one exam-
Experiments in which ple of an experiment in a field setting. Field settings can allow a more direct test of
a product is used in a marketing decisions than laboratory settings. However, these experiments also have
home setting. their drawbacks. It may be difficult to encourage respondents to cooperate with the
experiment, or the findings may be influenced or biased by unexpected events, such
as the weather or major economic news. Sometimes the experiment itself can cause
diary tests bias. For example, in home placements (when a product is used in the home in a real
Experiments in which
households log their
setting) or diary tests (when households log their weekly purchases and consumption
weekly purchases and patterns), people may become artificially involved with the product. They might sniff
consumption patterns. items they would not normally sniff or ask for their children’s opinions about a food item
when, normally, they would just give their children the meal and expect them to eat it.28
Step 4: analyzing and interpreting research

findings
After collecting data to test their hypotheses, marketers analyze and interpret the research find-
ings. Interpretation is easier if marketers plan their data analysis methods carefully and early in the
research process. All too often, when data collection has been completed, it is discovered that
different wording of questions or ordering of the sections in a questionnaire could have simplified
the analysis. Marketers should also allow for continual evaluation of the data during the entire
collection period. They can then gain valuable insight into areas that ought to be probed during
the formal interpretation.
The first step in drawing conclusions from most research is displaying the data in table format. If
marketers intend to apply the results to individual categories of the things or people being studied,
cross-tabulation may be quite useful, especially in tabulating joint occurrences. For example, a
cross-tabulation of data using the two variables ‘gender’ and ‘purchase rates of car tyres’ would
show differences in how men and women purchase this product.
After the data are tabulated, they must be analyzed. Statistical interpretation
statistical
interpretation focuses on what is typical or what deviates from the average. It indicates how widely
An analysis of data responses vary and how they are distributed in relation to the variable being measured.
that focuses on what is This interpretation is another facet of marketing research that relies on marketers’ judge-
typical or what deviates ment or intuition. Moreover, when they interpret statistics, marketers must take into
from the average.
account estimates of expected error or deviation from the true values of the population.
The analysis of data helps researchers to achieve their research objectives and may lead
to the hypothesis being studied being accepted or rejected.29
Data require careful interpretation by the marketer. If the results of a study are valid, the
ecision-maker should take action; however, if it is discovered that a question has been worded
d
incorrectly, the results should be ignored. For example, if a study by a dental practice reveals that
50 per cent of its customers believe that its dentists are caring, is that finding good, bad or indif-
ferent? Two important benchmarks help interpret the result: how the 50 per cent figure compares
with that for other dental practices and how it compares with a previous time period. To make the
best use of this data, it is important to understand what the research results mean and to relate
them to a context that permits effective decision-making.30
Step 5: reporting research findings

The final step in the marketing research process is reporting the research findings. Before prepar-
ing the report, the marketer must take a clear, objective look at the findings to see how well the
gathered facts answer the research question, or support or negate the hypotheses posed in the
beginning. In most cases, it is extremely doubtful that the study can provide everything needed to
answer the research question. Thus the report must highlight the deficiencies and the reasons for
them, perhaps suggesting areas that require further investigation.
The report presenting the results is usually a formal written document. Researchers must allow
time for the writing task when they plan and schedule the project. Since the report is a means of
communicating with the decision-makers who will use the research findings, researchers need to
determine beforehand how much detail and supporting data to include. They should keep in mind
that corporate executives prefer reports that are short, clear and simply expressed. Often research-
ers will give their summary and recommendations first, especially if decision-makers do not have
time to study how the results were obtained. Such summary findings tend to be presented via a
face-to-face audio-visual presentation or possibly via a virtual webinar. A technical report allows its
users to analyze data and interpret recommendations because it describes the research methods/
procedures and the most important data gathered. Thus researchers must recognize the needs
and expectations of the report user and adapt to them.
When marketing decision-makers have a firm grasp of research methods and procedures, they
are better able to integrate reported findings and personal experience. If marketers can spot limita-
tions in research from reading a report, their personal experience assumes additional importance in
the decision-making process. Marketers who cannot understand basic statistical assumptions and
data gathering procedures may misuse research findings. Consequently, report writers should be
aware of the backgrounds and research abilities of those who will rely on the report in making deci-
sions. Clear explanations presented in plain language make it easier for decision-makers to apply the
findings and less likely that a report will be misused or ignored. Talking to potential research users
before writing a report can help researchers supply information that will improve decision-making.
Care must be taken when writing the report to avoid bias and distortion. Marketing researchers
want to find out about behaviour and opinions, and they need accurate data for making decisions.
Reliable marketing research and marketing information systems provide a clearer understanding
of dynamics in the marketplace and are more likely to be used by managers in decision-making.
marketing information Using technology to improve marketing

system (MIS)
The framework for the
information gathering and analysis
day-to-day management
and structuring of infor- Marketing information systems
mation gathered from
sources both inside and A marketing information system (MIS) is a framework for the day-to-day manage-
outside an organization. ment and structuring of information gathered regularly from sources both inside and
outside an organization. As such, an MIS provides a continuous flow of information
about prices, advertising expenditure, sales, competition and distribution expenses.31 The Kraft
Heinz Company, for example, operates one of the largest marketing information systems in the
food industry, maintaining, using and sharing information with others to increase the value of what
the company offers customers.
The main focus of the marketing information system is on data storage and retrieval. Regular
reports of sales by product or market category, data on inventory levels and records of salespeo-
ple’s activities are all examples of information that is useful in making marketing decisions. In the
MIS, the means of gathering data receive less attention than do the procedures for expediting
the flow of information. The inputs into a marketing information system include the information
sources inside and outside the organization assumed to be useful for future decision-making. An
effective marketing information system starts by determining the objective of the information – that
is, by identifying decision needs that require certain information. The business can then specify an
information system for continuous monitoring to provide regular, pertinent information on both the
external and internal environment.
Databases
Most marketing information systems include internal databases. A database is a collection of
information arranged for easy access and retrieval. Databases allow marketers to tap into an
abundance of information useful in making marketing decisions: internal sales reports, newspa-
per articles, company press releases, government economic reports, bibliographies and more.
Information technology has made it possible to develop databases to guide strategic planning
and help improve customer services. Walmart, for example, maintains one of the largest company
databases, with data on sales and inventory levels, as well as data mined from customer receipts
in its stores. These data help Walmart pinpoint purchasing patterns, which helps the company
manage inventory levels and determine effective product placement. Frequent flier programmes
permit airlines to ask loyal customers to participate in surveys about their needs and desires,
allowing the airlines to track their best customers’ flight patterns by time of day, week, month and
year. Supermarkets, such as Tesco and Sainsbury’s, gain a substantial amount of data
single-source data through checkout scanners tied to loyalty cards.
Information provided
by a single marketing
Marketing researchers can also use commercial databases developed by information
research company. research organizations to obtain useful information for marketing decisions. Many of
these commercial databases are accessible online for a fee. In most commercial data-
bases, the user typically does a computer search by key word, topic or company, and
big data the database service generates abstracts, articles or reports that can be printed out.
Data that are too large, Accessing multiple reports or a complete article may cost extra. Information provided
numerous, complex and by a single company – for example, on household demographics, purchases, television
frequent for conventional viewing behaviour and responses to promotions such as coupons or loyalty schemes –
data tools to capture,
store, manage and
is called single-source data.32 For example, CACI provides demographic and lifestyle
analyze. Open source information on people living in different UK neighbourhoods; see Figure 9.9.
platforms enable orga-
nizations to extract real Data gathering in a digitally-enabled world
time value from the huge
volumes of data being The internet has evolved as a powerful communication medium, linking customers and
produced. companies around the world via computer networks with email, forums, social media,
web pages and more. In this digitally-enabled world, the availability of data and the
opportunities to gather market and consumer insight have dramatically increased. These
market insight trends have been fuelled by big data, which is data that are too large, numerous, com-
Learning about consum- plex and frequent for conventional data tools to capture, store, manage and analyze.
ers, competitors and
market trends to identify
Open source platforms are enabling organizations to extract real time value from the
strategic direction and huge volumes of data being produced.33
improve returns. Many companies now employ market insight managers or have set up customer
insight teams. Market insight is the process by which firms learn about consumers,
Figure 9.9
CACI markets itself as
an unrivalled range of
marketing solutions and
information systems, to
a number of businesses
from all industry sectors
Source: Screenshot courtesy
of CACI.
competitors and market trends to identify strategic direction and improve returns. Market insight
managers embrace all of the techniques that have already been discussed in this chapter, but in
addition they use an array of web-enabled and social media-based techniques. These approaches
offer instant and interactive means of gathering information and are much faster than distributing
surveys or staging focus groups. Some brands have set up their own discussion forums or use
existing ones such as Mumsnet to gauge opinion about their products (see Innocent goes mumsy
in Chapter 8). Brand managers also often use Twitter to tweet about their product, perhaps to com-
ment on a new design, promote a pricing event, or test out a new service idea. These managers
can monitor the reaction of other Twitter users; insight which can then be used to shape aspects of
the brand’s marketing. This kind of approach has been likened to throwing a stone into a pond and
then monitoring the ripples as they move across the water.34 Content analysis of Twitter feeds and
YouTube enables researchers to access a wealth of live data and to interact with consumers about
any topic about which an opinion might be expressed. Social media has provided researchers with
cheap, immediate and easily accessible data.
Companies can also mine their own websites for useful information. Amazon, for example, has
built a relationship with its customers by tracking the types of books and music they purchase.
Each time a customer logs on to its website, Amazon can offer recommendations based on the
customer’s previous purchases. Such a marketing CRM system helps the company track the
changing desires and buying habits of its most valued customers.
Growth of the internet has launched an entire industry that is working to make market informa-
tion easily accessible both to marketing organizations and customers. Marketing researchers can
use a range of internet sites set up to support their data collection activities. Some sites, such as
SurveyMonkey (www.surveymonkey.com), provide the means to design research instruments and
collect data in a format that can be readily analyzed. With millions of customers around the world,
organizations ranging from charities such as the National Multiple Sclerosis Society (NMSS) to cor-
porates such as Samsung have used this service to acquire the insights they need. Other organi-
zations, such as Lightspeed and Populus, have created online market research panels, providing
their clients with ready access to consumers around the world who can answer questions about
the products and services they prefer, their purchase behaviour and lifestyles, or even their views
about global events. Marketers can also subscribe to ‘mailing lists’ that periodically deliver elec-
tronic newsletters to their computer screens and they can participate in on-screen discussions with
thousands of network users. This enhanced communication with a business’s customers, suppliers
and employees provides a high-speed link that boosts the capabilities of the business’s marketing
information system.
While most web pages are open to anyone with internet access, big organizations like Cisco
Systems also maintain internal ‘intranets’, that allow employees to access such internal data as
customer profiles and product inventory information once hidden in databases only technicians
could unlock. Such sensitive company information can be protected from outside users of the
internet by special security firewalls.
The importance of ethical marketing research

The increasing availability of digital data is helping to fuel the increasing use by organizations of
marketing research. Marketing managers and other professionals are relying more and more on
marketing insights, marketing information systems and new technologies to make better decisions.
It is therefore essential that professional standards are established by which to judge the reliability
of this research. Such standards are necessary because of the ethical and legal issues that develop
in gathering marketing research data. The research industry is increasingly regulated to protect
consumers’ privacy. In addition, the relationships between research suppliers, such as market-
ing research agencies, and the marketing managers who make strategy decisions, require ethical
behaviour. Without such clear standards, ethical conflict can lead to mistrust and questionable
research results.35 Attempts to stamp out shoddy practices and establish generally accepted pro-
cedures for conducting research are important developments in marketing research. Other issues
of great concern relate to researchers’ honesty, manipulation of research techniques, data manip-
ulation, invasion of privacy and failure to disclose the purpose or sponsorship of a study in some
situations. Too often, respondents are unfairly manipulated and research clients are not told about
flaws in data. For example, one dubious practice that damages the image of marketing research is
nuisance phone calls, including abandoned or silent cold calls. An abandoned call happens when a
consumer answers the phone but receives a recorded information message rather than being able to
talk to the caller. A silent call is when a call is received, but the line is silent. These calls arise because
call centres use automated calling systems to maximize the productivity of their agents, but may
not always have enough operators on hand to take the calls automatically dialled. These calls have
become such a problem that Ofcom, the independent regulator and competition authority for the UK
communications industries, has developed a range of resources to help consumers tackle them.36
All kinds of organizations involved in research have developed codes of conduct and guide-
lines to promote ethical marketing research.37 These include professional associations, academic
research funders, as well as government bodies, commercial organizations and universities. To
be effective, such guidelines must instruct those who participate in marketing research on how to
avoid misconduct. For example, the Market Research Society’s Delphi Group published a report
on consumer privacy and its implications for marketing research. Table 9.6 compares the princi-
ples driving the ethics codes of professional association38 (www.mrs.org.uk/article/item/1918), the
Market Research Society (MRS), and academic research funding body, the Economic and Social
Science Research Council (ESRC).
GDPR In 2018 the regulatory environment was significantly tightened up, with the introduction
General Data Protection of General Data Protection Regulation (GDPR). This has implications for anyone acquiring,
Regulation governing
storing and sharing data, including everything within the domain of marketing research
data collection, storage,
retrieval and commu- (www.mrs.org.uk/standards/gdprsupport). There are hefty fines for non-compliance.
nication protocols and Marketing research is essential in planning and developing marketing strategies. Infor-
practices. mation about target markets provides vital input in planning the marketing mix and in
controlling marketing activities. It is no secret that companies can use information tech-
nology as a key to gaining an advantage over the competition.39 In short, the marketing
concept – the marketing philosophy of customer orientation – can be implemented better when
adequate information about customers, competition and trends is available.
Table 9.6 The Principles of the MRS and ESRC Codes of Conduct
MRS principles ESRC principles

Researchers shall ensure that participation in their activities Research participants should take part voluntarily, free from any coercion or
is based on voluntary informed consent. undue influence, and their rights, dignity and (when possible) autonomy should
be respected and appropriately protected.
Researchers shall be straightforward and honest in all Research should be worthwhile and provide value that outweighs any risk or
their professional and business relationships. harm. Researchers should aim to maximize the benefit of the research and
minimize potential risk of harm to participants and researchers. All potential
risk and harm should be mitigated by robust precautions.
Researchers shall be transparent as to the subject and Research staff and participants should be given appropriate information about
purpose of data collection. the purpose, methods and intended uses of the research, what their participation
in the research entails and what risks and benefits, if any, are involved.
Researchers shall respect the confidentiality of information Individual research participant and group preferences regarding anonymity
collected in their professional activities. should be respected and participant requirements concerning the confidential
nature of information and personal data should be respected.
Researchers shall respect the rights and well-being of all Research should be designed, reviewed and undertaken to ensure recognized
individuals. standards of integrity are met, and quality and transparency are assured.
Researchers shall ensure that respondents are not harmed The independence of research should be clear, and any conflicts of interest or
or adversely affected by their professional activities. partiality should be explicit.
Researchers shall balance the needs of individuals, clients
and their professional activities.
Researchers shall exercise independent professional
judgement in the design, conduct and reporting of their
professional activities.
Researchers shall ensure that their professional activities
are conducted by persons with appropriate training,
qualifications and experience.
Researchers shall protect the reputation and integrity of the
profession.
Source: from the MRS Code of Conduct (September 2014) Annual Survey of the UK Market Research Industry, MRS: London.
Summary
Effective marketing is contingent on marketers having information about the characteristics, needs and wants of their
target markets. Marketing research and information systems that furnish practical, unbiased information help companies
avoid the assumptions and misunderstandings that could lead to poor marketing performance.
Marketing research is the systematic design, collection, interpretation and reporting of information to help marketers solve
specific marketing problems or take advantage of marketing opportunities. Marketing research projects are adapted to the
context and problems under study.
All organizations have some marketing intelligence, which is the composite of all data and ideas available within the
organization. Often the information is inadequate, leading to the commissioning of marketing research.
Quantitative marketing research leads to findings that can be quantified and statistically analyzed. Qualitative research
examines subjective opinions and value judgements.
The increase in marketing research activities represents a transition from intuitive to scientific problem-solving. Intuitive
decisions are made on the basis of personal knowledge and past experience. Scientific decision-making is an orderly,
logical and systematic approach to gathering information. Minor, non-recurring low-risk problems can be handled success-
fully by intuition. As the amount of risk and alternative solutions increases, the use of research becomes more desirable
and rewarding.
The five basic steps of planning marketing research are: (1) locating and defining problems or research issues; (2) design-
ing the research; (3) collecting data; (4) analyzing and interpreting research findings; (5) reporting research findings.
The first step towards finding a solution or launching a research study means uncovering the nature and boundaries of a
negative, or positive, situation or question. Researchers and decision-makers should remain in the problem definition stage
until they have determined precisely what they want from the research and how they will use it.
Careful research design is of vital importance as a clear statement of research objectives guides a research project. Some-
times hypotheses – or informed guesses or assumptions about a certain problem or set of circumstances – are formulated.
The research objectives and any hypotheses determine the approach for gathering data: exploratory research, descriptive
research or causal research. Researchers need to be concerned about issues of reliability and validity: techniques are
reliable if they produce almost identical results in successive repeated trials; they have validity if they measure what they
are supposed to measure and not something else.
Collecting data is the third step of the research process. Secondary data are compiled inside or outside the organization for
some purpose other than the current investigation. Secondary data may be collected from an organization’s databank and
other internal sources; from periodicals, census reports, government publications, the internet and unpublished sources;
and from syndicated data services, which collect and collate general information and sell it to clients. Secondary data
‘pre-exist’ and should be examined prior to the collection of any primary data.
To gather primary data, researchers use sampling procedures, survey methods, observation and experimentation. Sampling
involves selecting a limited number of representative units, or a sample, from a total population. There are two basic types of
sampling: probability and non-probability. In probability sampling, every element of the population has a known chance of being
selected. In random sampling, all the units in a population have an equal chance of appearing in the sample. In stratified sam-
pling, the population of interest is divided into groups according to a common characteristic or attribute, and then a probability
sampling is conducted within each group. Area sampling involves selecting a probability sample of g eographic areas such as
streets, census tracts or census enumeration districts, and selecting units or individuals within the selected geographic areas
for the sample. Quota sampling differs from other forms of sampling in that it is judgemental (or non-probability).
Survey methods include mail surveys and mail and online panels, email and internet surveys (online surveys), consumer
purchase diaries, telephone surveys, computer assisted telephone interviewing and personal interview surveys, such as
depth interviews, shopping mall/pavement intercept interviews, on-site computer interviewing, focus group interviews,
quali-depth interviews and in-home interviews. Questionnaires are instruments used to obtain information from respon-
dents and to record observations; they should be unbiased and objective. Observation methods including ethnographic
techniques that involve researchers recording respondents’ overt behaviour and taking note of physical conditions and
events. Observation may be facilitated by mechanical observation devices.
Experimentation involves maintaining as constants those factors that are related to or may affect the variables under
investigation, so that the effects of the experimental variables can be measured. Marketing experimentation is a set of rules
and procedures according to which the task of data gathering is organized so as to expedite analysis and interpretation. In
experimentation, an independent variable is manipulated and the resulting changes are measured in a dependent variable.
Experiments may take place in laboratory settings, which provide maximum control over influential factors, or in field
settings, which are preferred when marketers want experimentation to take place in ‘real world’ environments, such as
with home placements and diary tests.
To apply research findings to decision-making, marketers must tabulate, analyze and interpret their findings properly.
Statistical interpretation is analysis of data that focuses on what is typical or what deviates from the average. After
interpreting their research findings, researchers must prepare a report of the findings that the decision-makers can use
and understand. Information provided by a single firm is called single-source data.
The marketing information system (MIS) is a framework for the day-to-day managing and structuring of information
regularly gathered from sources both inside and outside an organization. The inputs into a marketing information system
include the information sources inside and outside the organization considered useful for future decision-making. They
may include internal databases. Processing information involves classifying it and developing categories for meaningful
storage and retrieval. Marketing decision-makers then determine which information – the output – is useful for making
marketing decisions. Feedback enables those who are responsible for gathering internal and external data to adjust the
information inputs systematically.
Growth of the internet has launched an entire industry that is working to make market information easily accessible to both
organizations and customers. The use of social media has transformed marketing research. The digital era has brought with
it big data, enhanced analytics and a significant improvement in market insight. Companies can also mine their own web-
sites for useful information, subscribe to online services, and join ‘mailing lists’ that periodically deliver electronic newslet-
ters to their computer screens, so that they can participate in on-screen discussions with thousands of network users.
Marketing managers and other professionals are relying more and more on marketing research, marketing information
systems and new technologies to make better decisions. Professional standards and regulation are needed to judge the
reliability of such research. These enable ethical and legal issues associated with data gathering to be handled.
GDPR
Key links Home placements
Hypothesis
This chapter has concentrated on the marketing research Independent variable
tools available to capture information about markets and In-home interviews
customers. It should be read in conjunction with: Intuition
●● Chapter 2’s examination of the nature of opportunity Laboratory settings
analysis and the importance of analyzing competitors. Mail surveys
Market insight
●● Chapters 5 and 6, reviewing the required insights into
Marketing information system (MIS)
buying behaviour.
Marketing intelligence
●● Chapters 7 and 8, discussing how to create market Marketing research Mechanical observation devices
segments from an understanding of customers, and Observation methods
how best to develop a brand positioning strategy. Online survey
On-site computer interviewing
Personal interview survey
Important terms Population
Area sampling Primary data
Big data Probability sampling
Causal research Problem definition
Computer-assisted telephone interviewing Quali-depth interviews
Consumer panels Qualitative research
Consumer purchase diaries Quantitative research
Dependent variable Questionnaire
Depth interview Quota sampling
Descriptive research Random sampling
Diary tests Reliability
Drop and collect surveys Research design
Ethnography Research objective
Experimentation Sample
Exploratory research Sampling
Field settings Scientific decision-making
Focus group interview Secondary data
Shopping mall/pavement intercept interviews brands of beer. How would these problems differ from those
Single-source data of a field study of beer taste preferences?
Statistical interpretation 8. In what situation would it be best to use random sampling?
Stratified sampling Quota sampling? Stratified or area sampling?
Survey methods 9. Suggest some ways to encourage respondents to cooperate
Syndicated data services in mail surveys.
Telephone surveys
10. What are the benefits of the focus group technique?
Validity
11. How has the growth of the internet increased the opportuni-
ties for collecting information?
Discussion and review questions 12. Give some examples of marketing problems that could be
1. What is the marketing information system (MIS) of a small solved through information gained from observation.
organization likely to include? 13. Why is questionnaire design important? Why should ques-
2. What are the differences between quantitative and qualita- tionnaires be tested?
tive marketing research? 14. What is ‘sugging’? Why is it damaging to the marketing
3. How do the benefits of decisions guided by marketing research industry?
research compare with those of intuitive decision-making? 15. Why are ethics so important in conducting marketing research?
How do marketing decision-makers know when it will be
worthwhile to conduct research?
4. Give specific examples of situations in which intuitive
Aaker, D., Kumar, V., Leone, R. and Day, G., Marketing Research (John
decision-making would probably be more appropriate than
Wiley & Sons, 2012).
marketing research.
Bradley, N., Marketing Research: Tools and Techniques (Oxford University
5. What are the differences between exploratory, descriptive Press, 2013).
and causal research? Hague, P., Market Research in Practice: How to Get Greater Insight From
Your Market (Kogan Page, 2013).
6. What are the major limitations of using secondary data to
McQuarrie, E.F., The Market Research Toolbox: A Concise Guide for
solve marketing problems?
Beginners (Sage, 2016).
7. List some of the problems of conducting a laboratory exper- Malhotra, N.K., Nunan, D. and Birks, D.F., Marketing Research: An
iment on respondents’ reactions to the taste of different Applied Approach (Pearson, 2017).
Web task Classroom tools 3. ESOMAR introduced the first

professional code of conduct
The World Association of Opinion for marketing research profes-
and Marketing Research Profession- sionals in 1948. The association
als (ESOMAR, founded as the European Society for Opinion continues to update this document to address new tech-
and Marketing Research in 1948) is a non-profit association nology and other changes in the marketing environment.
for marketing research professionals. ESOMAR – the global According to ESOMAR’s code, what are the specific
insights community – promotes the use of opinion and mar- professional responsibilities of marketing researchers?
keting research to improve marketing decisions in compa-
nies worldwide and works to protect personal privacy in the
research process. Visit the association’s website at: www. Group tasks
esomar.org/
1. Your group has been asked to examine people’s opinions
1. How can ESOMAR help marketing professionals conduct of sugar and salt in food and drinks and their impact on
research to guide marketing strategy? health. What research process would you recommend
2. How can ESOMAR help marketers protect the privacy of and why?
research subjects when conducting marketing research 2. Two brand managers wish to update their insights into
in other countries? customer preferences. One is the brand manager for a
well-known cola while the other is a marketer for a lead- and their needs. Data mining employs computer technology
ing laptop brand. What would you recommend to each in to extract data from internal and external sources; translate
terms of marketing research? and format the data; analyze, substantiate and assign mean-
ing to data; organize databases; and build and implement
Applied mini-case support systems to make data mining results accessible to
decision-makers.
Advances in information technology, especially in terms of
data storage and processing capacity, have made available
Question
an ever-growing quantity of data about customer buying
behaviour. To extract from this mound of data potentially use- Adopt the role of a retail analyst who is helping a large retail
ful information to guide marketing decisions, marketers are group to organize its databases. You have been asked to help
developing methods of mining data. Data mining refers to the guide the process by providing a list of the kinds of information
discovery of patterns hidden in databases that have the poten- helpful to a company when making decisions about marketing
tial to contribute to marketers’ understanding of customers strategy.
Focus group interviewing: Another new development in focus

in-depth views from group Case study group interviewing is the use of electron-
ics to offer three-way capabilities. Com-
discussions puterized decision-making software can
supplement research findings and consoli-
Focus group interviews, which are generally
date opinions from three different audiences.
informal group discussions about marketing ideas
For example, in healthcare research in a hospital
or concepts conducted by a marketer or marketing research
setting, the three audiences would be former patients,
company, are used by most major organizations in develop-
medics and employees. The advantages of using electronics
ing marketing or business plans. In the 1980s, focus group
include easier scheduling of participating groups and more
interviewing became one of the most widely practiced types
interaction among the three audiences.
of marketing research, expanding from the packaged goods
A major UK service retailer was faced with declining sales
industry into financial services and industrial applications.
and two new competitors. In order to re-establish itself as the
However, the function of focus group interviewing is
dominant force in its market, it decided to undertake some
expected to change. Traditionally, companies have relied on
in-depth qualitative marketing research using focus groups.
focus group interviews to define the input going into quantitative
The retailer’s new competitors were opening stores at the
studies, but a new trend is to conduct focus group interviews
rate of six per month, and the company realized it had to act
after tabulating research results, to provide insight into why the
quickly to defend its position. However, it had not conducted
results were achieved. The trend is also towards higher costs
any consumer research for many years and was uncertain
(the average today is £2500 for 90 minutes and £3000 for an
why its customers preferred its stores, how competitors were
extended, video-recorded group lasting two and a half hours).
perceived and what types of people constituted its customer
Other changes pertain to moderator guides and their
profile. Before modifying its marketing mix and launching
reports. The moderator guides will be expected to involve
an advertising campaign to combat its new competitors, the
clients in the development process. Their reports will con-
company had to gain a better understanding of its target mar-
centrate on providing conclusions that interpret the findings
ket. For approximately £14 000, using a specialist consumer
and on making recommendations for action by the client. The
qualitative agency, in just three weeks the company managed
reports will also contain fewer actual quotations from individ-
to get a good ‘feel’ for its standing in its core trading area, as
ual focus group participants. The post-focus group debriefing
perceived by customers. The table shows that the information
techniques are also being altered. The shift is towards disci-
resulted from a fairly ‘standard’ programme of focus groups.
plined debriefing that asks participants their reactions to the
Each group had eight consumers, four of whom were shop-
group session. Such debriefing can provide the link between
pers in the retailer’s stores and four of whom shopped in com-
concept development and application, and can serve as a
petitors’ stores. Each group session lasted three hours and a
rough check on validity and reliability.
free merchandise voucher and buffet meal was provided for par-
ticipants. The same moderator ran all eight groups to maintain
consistency. Each session was recorded, the tapes being tran-
scribed later into a report and presentation to the retailer’s board
of directors. Two sessions were video recorded, and several were
‘secretly viewed’ by the company’s marketing executives.
Group composition Social class Location
Male 25–39, white-collar A, B Eastcheap

commuters†
Male 40–55, white-collar A, B Hitchin
commuters
Female 25–44, A, B, C1 Bristol
Questions for discussion
executives/PAs
1. What are the strengths and benefits of focus group mar-
Female 25–44, C2 Woking
keting research?
semi-skilled
2. This retailer chose to commission a programme of focus
Female 35–40 A, B Leamington
groups. Given the aims of the company’s research, what
‘housewives’† other research tools might the company have used?
Female 25–34, C1, C2 Sheffield Explain your selection.
‘housewives’
Sources: Lynne Cunningham, ‘Electronic focus groups offer 3-way capability’,
Male 18–29, young C1, C2 Ealing Marketing News, 8 January 1990, pp. 22, 39; Thomas L. Greenbaum, ‘Focus
earners† group spurt predicted for the ’90s’, Marketing News, 8 January 1990, pp. 21, 22;
Nino DeNicola, ‘Debriefing sessions: the missing link in focus groups’, Marketing
Female 18–29, young C1, C2 Telford News, 8 January 1990, pp. 20, 22; Peter Jackson, Adsearch, Richmond, 1989,
2007, 2011; www.focusgroupsuk.com/qualitative, April 2015.
earners
Note: †Held in branches after hours
Part two Understanding and targeting customers 291
Part two postscript ●● Appreciate the growing role of consumer-to-

consumer communication and the digital environ-
Academics and practitioners define marketing as ment on buying behaviour.
involving the understanding and satisfying of custom-
ers. It is not possible to accomplish these requirements Describe business-to-business buying behaviour
without a sound understanding of buying behaviour,
●● Become familiar with the various types of
the processes involved and the associated influ-
business market.
encing factors. Accordingly, Part Two of Marketing:
Concepts and Strategies has presented a compre- ●● Identify the major characteristics of business
hensive examination of the nature of consumer buy- buyers and transactions.
ing behaviour and then business-to-business buying ●● Understand several attributes of business
behaviour. demand.
Part Two has built on understanding customers’ ●● Become familiar with the major components of a
buying behaviour by examining one of the principal buying centre.
elements of marketing strategy: target market selec-
●● Understand relationship marketing and exchanges
tion. The concept of market segmentation is of par-
between business buyers and sellers.
amount importance to effective marketing and for
many organizations guides their target market strat- ●● Understand the stages of the business buying
egy. Part Two has explored target market selection decision process and the factors that affect this
and the creation of a brand positioning strategy. Over process.
time, marketers develop knowledge of their markets. ●● Learn how to select and analyze business target
Many marketing decisions are based on this experi- markets.
ence and on the intuition of the managers concerned. ●● Appreciate some of the nuances of marketing
However, marketers often recognize that they do business products.
not fully understand their customers, competitors
or aspects of the marketing environment forces. In
such instances, they conduct marketing research.
Adopt the concept of market segmentation
The nature and use of marketing research has also ●● Understand the definition of a market.
been discussed in Part Two of Marketing: Concepts ●● Recognize different types of market.
and Strategies. ●● Appreciate what is meant by market segmentation.
Before progressing, readers should be confident
●● Know the most commonly adopted bases for
that they are now able to address the following:
segmenting markets.
●● Learn how companies go about segmentation.
Describe consumer buying behaviour
●● Understand the role and nature of customer
●● Understand the different types of consumer
relationship management (CRM).
buying behaviour.
●● Recognize the stages of the consumer buying
Explain the process of target market selection
decision process and understand how this
process relates to different types of buying ●● Distinguish between the different segmentation
decisions. targeting strategies.
●● Explore how personal factors may affect the ●● Understand targeting decisions for emerging
consumer buying decision process. opportunities.
●● Learn about the psychological factors that may ●● Discover how marketers prioritize target markets
affect the consumer buying decision process. and select between market segments.
●● Examine the social factors that influence the ●● Appreciate the importance of assessing sales
consumer buying decision process. potential, market share and value share in creat-
ing a target market strategy.
●● Understand why it is important for marketers
to attempt to understand consumer buying ●● Learn about strategies for positioning.
behaviour and the role of this behaviour in ●● Understand the role of customer value proposi-
marketing strategy. tions in positioning.
Outline the core aspects of marketing research ●● Gain a sense of the relative advantages and dis-
●● Understand the importance of marketing research advantages of marketing research tools.

in marketing decision-making. ●● Understand how tools such as databases, deci-
●● Distinguish between research and intuition in sion support systems and the internet facilitate
solving marketing problems. marketing research.
●● Learn about how digital trends, such as social
●● Learn the five basic steps of the marketing
research process. media and big data, are creating opportunities for
marketing research.
●● Understand the fundamental methods of gather-
●● Identify key ethical considerations in marketing
ing data for marketing research.
research.
Part two Understanding and targeting customers 293
Youngsters spend more teenagers and smaller children to their

time online than viewing Strategic case rooms and away from the lounge or
kitchen, and of course it is unusual to find a
television family gathered around the same television
watching a broadcast in real-time together,
For a child in the 1970s, three things brought
unless apparently it is an episode of X-Factor!
families together in the same room: family meal
There is now evidence that this change in
times, the visits of relatives/family friends, and favourite
behaviour is advancing. Research by Childwise has
television shows . . . such as William Shatner’s Star Trek on
observed changing attitudes and behaviours since the mid-
Monday nights or the weekly episodes of popular soap operas.
1990s, with its latest sample of 2000 children revealing a
Families huddled around a favourite television show at the
step-change in behaviour (www.bbc.co.uk/news/educa-
time it was broadcast, dreading an interfering phone call or
tion-35399658). For the first time, youngsters are spending
knock at the door. Until Betamax and VHS videotape appeared,
more time online than watching television, coinciding with a
viewers were destined to await long-off repeats if they missed
50% surge in tablet ownership for children.
a programme when it first was aired. The television dominated
families’ existence.
There was just the one television set and only three chan-
More time online than viewing television
nels to fight over for possession. School absences caused by Youngsters now spend on average three hours per day online
illness were tedious times, with little broadcast in the day of and 2.1 hours watching television. For sixteen-year-olds, the
interest to children, and no computer games, web browsing, time online is nearly five hours daily. Even television viewing
social media or streaming. Books, comics and toys were the is changing, with less than a quarter of teenagers viewing a
only distraction. programme when it is actually broadcast, instead opting to
The choice and ease of recording programmes provided use catch-up or on-demand services so that viewing fits in
by Sky or Fox, computer games, videos/DVDs, the internet and with their needs and time pressures. A third of teenagers no
arrival of multiple televisions/PCs/tablets/smartphones in each longer claim to have a favourite television programme, which
household revolutionized the situation. School absence was is also a rising trend.
no longer dreaded . . . so much choice of distraction or ‘enter- Clearly there are consequences resulting from such dra-
tainment’ . . . anywhere in the house or garden at any time. matic changes and seemingly growing dependency on mobile
devices and digital. Commercially, these changing consumer
Family breakdown dynamics provide significant challenges for many organiza-
tions and opportunities for others.
With such choice and the increasingly highly pressured life-
styles of many parents, came the breakdown of the family ●● What are the consequences for broadcasters and their
as known to previous generations. Family meals in many thousands of employees faced with such substitute
households now are rare, the advances in technology take competition and switching behaviour? As the BBC seeks
to defend the licence fee state-subsidy, more members
of the public – particularly teenagers and young adults
– are non-users of the broadcaster’s services, creating
greater negotiating hurdles with Government.
●● For manufacturers dependent on large volumes of ever-
more technology-laden televisions and set-top boxes,
switching to viewing by laptop, tablet or smartphone – or
not viewing at all – poses a threat. Perhaps Sony chose
the wrong time to pull out of computing?
●● For the programme production companies responsible
for the delights of X-Factor and so forth, is there a sus-
tainable market or must they diversify their content pro-
vision to focus on mobile platforms and viewing?
●● For the advertisers for so long dependent on television as changing behaviours are significant and challenging, offering
a media channel for selling their wares, understanding opportunities and threats.
and following youngsters and reflecting their diverse
behaviours in media choices become increasingly crucial. Questions for discussion
●● Is the surge of Apple towards global domination
1. What is the significance to marketers of such changing
unstoppable? consumer behaviours?
●● More propositions will emerge to add to the online prod-
2. How might a marketing team instigate marketing
ucts and services now grabbing the attention of today’s research in order to better understand the behaviours
youngsters. There will be many. For example, the antici- and product needs of teenagers?
pated explosion of virtual reality (VR) is likely to immerse
3. How might such social, behavioural and consumption
them more in a digital world far removed from broadcast
changes impact on the creation of a target market
TV programmes targeted at families huddled together in
strategy?
a lounge.
4. For television broadcast companies, what customer value
Marketers must consider all of these market dynamics to proposition(s) and positioning(s) are likely to appeal to
chart a course by which to develop their businesses. These teenagers?
Part Three
Marketing programmes –
products and services,
brands, place and channels,
promotion and marketing
communications, digital
and pricing
Legal
forces
Customer
value
proposition
engagement
Buyer/
Place/
Price/ consumer
distribution/
value satisfaction
channel
logical green
forces forces
edge
Desired
customer
experience
Economic and
competitive forces
295
296 Part Three Marketing programmes
I
n Chapter 1, marketing was said to involve mar- and emphasize any differential advantage held by a
keting opportunity analysis, target market selec- business and its products over rivals. As explained in
tion and the development of a marketing mix for Chapters 1 and 2, marketers should first analyze the
each target market. The marketing mix is the set of forces of the marketing environment, customer buying
activities deployed by marketing managers in order behaviour, competitors’ strategies and their own orga-
to implement a company’s agreed marketing strategy. nizational capabilities and performance before devel-
The marketing mix centres on the ‘5Ps’ of product, oping their marketing strategies. The marketing mix for
people, place/distribution, promotion and pricing deci- a specific target market segment should only be spec-
sions. It must endeavour to match the identified needs ified once the marketing strategy has been formulated
of target consumers or business customers in order and agreed by senior management . . . analyses first,
to satisfy these customers’ requirements. It must also followed by strategy, and only then should the mar-
communicate the desired brand or product position- keting programmes featured in this Part of Marketing:
ing, support the agreed customer value proposition Concepts and Strategies be specified and executed.
Part Three of Marketing: Concepts and Strategies examines the marketing mix, commenc-
ing with the product and people ingredients of the marketing mix, the integral issues of branding,
packaging and customer service, as well as the important concepts of the product life cycle and
the management of product portfolios. Next, Part Three addresses the nature of marketing chan-
nels, wholesalers and distributors, the physical distribution of products and services, plus some
aspects of retail marketing. A thorough overview follows of the elements of promotion – market-
ing communications – and how the promotional mix fits into marketing strategy. The concept of
integrated marketing communications (IMC) is also explored. The impact of digital marketing is
assessed next, exploring the implications for channel selection and marketing communications,
attaining customer and market insight, as well as the growth of consumer-to-consumer commu-
nications and social media. This is followed by an explanation of the principal concepts of pricing
and the setting of prices. The final chapter in Part Three explores the manipulation of the marketing
mix to cater for business markets, the marketing of services and marketing in international mar-
kets, building on the content of Chapters 4, 6 and 13.
Chapter 10, ‘Product decisions’, introduces the concepts of how marketers define and classify
products; examines the differences between product item, product line and product mix; and
explores the important concept of the product life cycle. The chapter then discusses the organi-
zational structures available to manage products, and concludes by examining the importance of
the levels of a product in determining a competitive edge over rivals’ products.
Chapter 11, ‘Branding and packaging’, recognizes the fundamental importance of brands and
brand equity in marketing, and looks at different types of brand, their benefits, selection, naming,
protection and licencing. In most organizations, marketers are the champions of the brand. The
chapter presents the key concepts for creating strong and effective brands, then explores brand
attributes, brand values and brand personality. Changes in the digital era are examined. The role
of branding at the corporate level and in reputation management is introduced. The chapter goes
on to discuss the functions of packaging, design considerations and the role of packaging in
marketing strategy. Finally, it explores the functions of labelling and the associated legal issues.
Chapter 12, ‘Developing products and managing product portfolios’, outlines the organi-
zational alternatives for managing products, explains how a business develops a product idea
into a commercial product and analyzes the role of product development in the marketing mix.
The chapter includes a discussion of how products should be managed during the various stages
Part Three Marketing programmes 297
of a product’s life cycle. It discusses how existing products can be modified and how product
deletion can sometimes benefit a marketing mix. The chapter concludes with a look at some of
the related analytical tools associated with the planning of a product portfolio: the BCG product
portfolio analysis, the market attractiveness-business position model or directional policy matrix
(DPM) and the ABC sales:contribution analysis.
Chapter 13, ‘The marketing of services’, explores how services differ from tangible goods
and considers the implications for marketers. The chapter begins by explaining the nature and
characteristics of services, classifying services and the development of marketing strategies for
services. It goes on to discuss the significant problems encountered in developing a differential
advantage for a service and also addresses the crucial concept of service quality. The chapter then
explores the concept of marketing in non-business or not-for-profit situations, the development
of marketing strategies in non-business organizations and methods for controlling non-business
marketing activities. The ways in which marketers handling services manipulate the ingredients of
the marketing mix are explored further in Chapter 21.
Chapter 14, ‘Marketing channels’, explains the marketing channel concept, the role of supply
chain management, the functions and different types of marketing channel. The chapter consid-
ers channel integration and the levels of market coverage, and then examines the selection of
distribution channels, including the increasingly popular options of direct marketing and online.
The impact of multi-channel management on marketing is considered. Behavioural aspects of
channels, particularly the concepts of cooperation and relationship building, conflict and leader-
ship, are then explored. The chapter concludes by examining legal issues in channel management.
Chapter 15, ‘Channel players and physical distribution’, presents a description of the nature
of wholesaling in its broadest forms in the marketing channel, explains channel players’ activi-
ties and their classification, examines agencies which facilitate wholesaling and explores some
changing patterns in wholesaling and distribution. Next the nature of retailing within marketing
channels is examined. The chapter then moves on to discuss physical distribution management
and objectives. It explains order processing, materials handling, and different types of warehous-
ing and their objectives. The chapter then examines inventory management. The chapter also
highlights transport options for marketers.
Chapter 16, ‘An overview of marketing communications’, discusses the role of promotion in
the marketing mix, the process of communication per se, the nature of marketing communications
and the way in which the concept of the product adoption process relates to promotional activity.
The chapter goes on to explain the aims of promotion and the elements of the promotional mix. The
chapter concludes by examining the factors that influence the selection of promotional mix ingredi-
ents. Throughout the chapter, the notion of integrated marketing communications (IMC) is discussed.
Chapter 17, ‘Advertising, public relations and sponsorship’, takes these three aspects of
the promotional mix and explores their use in more detail. The chapter commences by describ-
ing the nature and uses of advertising, and then examines the steps and personnel involved in
developing an advertising campaign. The emphasis then switches to the nature of publicity and
public relations. Finally, the chapter explores the rapidly evolving specialist area of sponsorship.
Chapter 18, ‘Sales management, sales promotion, direct mail, the internet, digital and
direct marketing’, begins by examining the nature and major purposes of personal selling, along
with the basic steps in the personal selling process. It identifies the types of salesforce personnel
298 Part Three Marketing programmes
and goes on to explore the nature of sales management. Key account management is also exam-
ined. The chapter explains the uses of sales promotion and the wide range of related activities,
and then focuses on the role of direct mail in the promotional mix. The expanding role of the web
and digital applications are explored. The chapter concludes with an overview of direct marketing.
Chapter 19, ‘Digital marketing’, builds on the previous chapter to explore how digital has
impacted on consumer behaviour and decision-making; the new requirements of understanding
search engine management and content marketing, types of digital media and multi-screen mar-
keting; the all-important issue of social media strategy; the exciting options provided by mobile
marketing; email marketing and online public relations; the way in which digital is driving innovation
like never before; turning big data into meaningful insights; and, the challenges for organizations
in deciding on a channel-to-market strategy, addressing multiple channels and restructuring their
operations to manage these choices.
Chapter 20, ‘Pricing’, explains the characteristics and role of price in marketing, outlines the dif-
ferences between price and non-price competition, explores the factors affecting pricing decisions
and examines different pricing objectives. The chapter then discusses perceived value for money
before turning to the complex aspect of pricing in business markets. The chapter analyzes the
concept of economic value to the customer. It explores the eight major stages in the process used
to establish prices. In doing so, the chapter considers various activities that must be addressed:
selecting pricing objectives; assessing the target market’s evaluation of price and ability to buy;
determining the demand for a product; and analyzing the relationships between demand, costs
and profits.
Chapter 21, ‘Modifying the marketing mix for business markets, services and in interna-
tional marketing’, recognizes the reality of formulating the marketing mix in a variety of complex
business environments. The chapter commences by explaining why in many situations the basic
marketing mix requires modification. It examines the nature of the marketing mix for business
and organizational markets, and presents the complex and extended marketing mix required for
services. To conclude, the chapter highlights the many additional issues considered by marketers
involved with global markets and relates them to the development of the marketing mix.
By the conclusion of Part Three of Marketing: Concepts and Strategies, readers should under-
stand the core product decisions that must be made in determining a marketing mix, including
branding, packaging, people and service issues, as well as the management of product life cycles
and portfolios of products. Readers should understand decisions concerning marketing channels
and distribution in the marketing mix and they should appreciate the essential decisions concern-
ing marketing communications, the nature of integrated marketing communications and the com-
position of the promotional mix within the marketing mix. The step-change brought about by the
digital era should be apparent. Readers should understand the core pricing decisions required in
the formulation of the marketing mix. In addition, readers should understand why in certain circum-
stances – notably for business-to-business markets, the marketing of services and when involved
with international marketing – the standard marketing mix requires modification and manipulation.
Chapter 10
Product decisions
Marketers must have appropriate and desirable products in order to sat-
isfy customers and fend off competitors, with a steady pipeline of new
products to bring to market
Introduction
Objectives The product is defined as everything that is received by a
customer in an exchange or transaction. It is a complexity of
To learn how marketers define
tangible and intangible attributes, including functional, social,
products.
economic and psychological utilities or benefits.1 A product can
To define product levels. be a physical good, a service, an idea, or any combination of
these three. This definition also covers supporting services that
To understand how to classify
go with goods, such as installation, guarantees, product infor-
products.
mation and promises of repair or maintenance. In other words,
To become familiar with the con- the product is everything the consumer or business customer
cepts of product item, product line receives.
and product mix. The product is a key element of the marketing mix and is
central to a company’s marketing proposition. Without the ‘right’
To understand the concept of prod-
product, it is unlikely that marketers will be able to satisfy their
uct life cycle.
customers and persuade them to become repeat buyers. As will
To understand the types of organi- be explored in this chapter, there is much more to the product
zational structure used to manage component of the marketing mix than the actual tangible prod-
products. uct or the service supplied to a customer.
A successful product will not remain so indefinitely. Marketers
To grasp the importance of the
must judge when to modify their products, launch new ones
levels of a product in determining a
and delete existing perhaps once highly successful products.
competitive edge.
While identifying a new product that will prove successful is
challenging for marketers, knowing when to cut a product from
the portfolio and walk away from it is often harder.
299
300 Part three MARKETING PROGRAMMES
Hello, we’re Innocent Innocent product success. The Innocent Kids

. . . and we’re here to range now includes juice,
make it easy for people development fruity water, fruit tubes –
to do themselves some good a sneaky way for encourag-
(whilst making it taste nice, too).
ing children claiming to dislike
We started Innocent in 1999
fruit to eat more healthily – and, of
after selling our smoothies at a music
festival. We put up a big sign asking people if they thought we
course, smoothies. Veg Pots brought
should give up our jobs to make smoothies, and put a bin saying Innocent out of the drinks section in supermarkets and diver-
‘Yes’ and a bin saying ‘No” in front of the stall. Then we got people to sified into food and vegetables. Noodle Pots have followed
vote with their empties. At the end of the weekend, the ‘Yes’ bin was this success.
full, so we resigned from our jobs the next day and got cracking. Juicy Water became so successful that its profits out-
Since then we’ve started making veg pots, juices and kids’ stripped those of the Innocent brand. Innocent Bubbles was
drinks in our quest to make natural, delicious, healthy foods that another innovation, bringing to consumers a lightly sparkling
help people live well and die old. blend of fruit juice and spring water in cans. There is also a
N ow largely owned by Coca-Cola, Innocent has not lost line of Innocent 100 per cent Coconut Water. Perhaps one of
its zany humour and health-conscious ethos, despite the company’s most daring moves was to take on head-to-
growing to be a £200 million business and the number one head PepsiCo’s Tropicana in the juice market, with the 2011
smoothie maker in Europe. Available in 15 countries, there launch of Innocent Juices, now firmly established on the fix-
are offices in Copenhagen, Hamburg and Salzburg as well as tures of leading supermarkets.
in the UK. Innocent was the official provider of smoothies and Some ideas have been tested and dropped. Innocent’s ice
juices at the London Olympics. Now Innocent is the number cream came out well in consumer trials, but was not brought
one chilled juice brand in Germany, Austria and Denmark, as to market because of production and channel complexities
well as the UK. and a fear by the founders that ice cream would distract them
First came its smoothies and then variations for children. from the core business’s growth. A complete departure was
Product development has been at the heart of Innocent’s the opening of the Innocent café concept. The first outlet in
Shoreditch (London) on day one served 5000 customers their
five-a-day in great style.
So what next for Innocent? More drinks? An extension to
the Kids range? Perhaps more foods? Maybe ice cream will
appear in Innocent’s quirky packaging and with its whacky
humour? Or, as indicated by the departure into cafes, will the
Innocent brand pop up somewhere very unexpected? No mat-
ter the eventual outcome, product development and a growing
portfolio will be part of this marketing success story’s onwards
strategy.
Sources: www.innocentdrinks.co.uk/us/our-story, April 2015; Waitrose

Kenilworth, April 2018; www.innocentdrinks.co.uk/us/our-story, March, 2018.
P
roducts, such as the smoothies and veg pots devised by Innocent, are among a
product company’s most crucial and visible contacts with buyers. If a company’s products
Everything, both favour- do not meet its customers’ desires, the company will have to adjust its offering in
able and unfavourable,
tangible and intangible,
order to survive. Developing a successful product requires knowledge of fundamental
received in an exchange of marketing and product concepts. This chapter starts by introducing and defining the
an idea, service or good. concepts that help clarify what a product is and looks at how buyers view products. The
next section examines the concepts of product mix and product line as an introduction
Chapter 10 Product decisions 301
to product planning. The chapter then explores the stages of the product life cycle. Each life-
cycle stage generally requires a specific marketing strategy, operates within a certain competitive
environment and has its own sales and profit pattern. The final section discusses the constituent
elements that make up a product.
What is a product?
A good is a tangible physical entity, such as a bottle of Pantene shampoo, a loaf of
good
A tangible physical entity. Hovis bread, a Little Mix CD or an iPad. A service, by contrast, is intangible; it is the
result of the application of human and mechanical efforts to people or objects. Exam-
ples of services include hairdressing, tennis tuition and medical treatment. Chapter 13
service provides a detailed discussion of marketing for services. Ideas are concepts, philoso-
The application of human phies, images or issues. They provide the psychological stimulus to solve problems. For
and mechanical efforts to example, Oxfam provides famine relief and attempts to improve the long-term prospects
people or objects in order of people in hunger-stricken countries by raising awareness of these issues. Politicians
to provide intangible
benefits to customers.
turn to marketing when canvassing voters.
When buyers purchase a product, they are really buying the benefits and satisfac-
tion they think the product will provide. A pair of Adidas football boots, for example, is
ideas
purchased for status and image, not just to protect the feet. Services, in particular, are
Concepts, philosophies, bought on the basis of anticipated satisfaction. Promises, with the images and appear-
images or issues that ances of symbols, help consumers make judgements about tangible and intangible
provide the psycholog- products.2 Symbols and cues are often used to make intangible products more tangible
ical stimulus to solve to the consumer. Intel’s famous Blue Men imagery personalized computer chips and
problems or adjust to the
environment.
differentiated Intel very effectively from rival chip producers.
Classifying products
consumer products Products fall into one of two general categories. Consumer products are purchased
Items purchased to
to satisfy personal and family needs. Industrial or business products are bought for
satisfy personal or family
needs. use in a company’s operations or to make other products. The same item can be both
a consumer product and an industrial product. For example, when consumers purchase
lightbulbs for their homes, they are classified as consumer products. However, when a
industrial or business large company purchases lightbulbs to provide lighting in a factory or office the same
products goods are considered business products. Thus the buyer’s intent, or the ultimate use
Items bought for use in a of the product, determines whether an item is classified as a consumer or a business
company’s operations or product. It is common for more people to be involved in buying a business product
to make other products.
than in a consumer purchase. Chapters 5 and 6 explained the differences in buying and
decision-making for consumer and business-to-business products.
It is important to know about product classifications because different classes of product
are aimed at particular target markets, and classification affects distribution, promotion and pricing deci-
sions. Furthermore, the types of marketing activity and effort needed differ according to how a product
is classified. This section examines the characteristics of consumer and business products and explores
the marketing activities associated with some of them.
Consumer products
The most widely accepted approach to classifying consumer products relies on the common
characteristics of consumer buying behaviour. It divides products into four categories: conve-
nience, shopping, speciality and unsought products. However, not all buyers behave in the same
way when purchasing a specific type of product. Thus a single product can fit into more than
one category. To minimize this problem, marketers think in terms of how buyers generally behave
when purchasing a specific item. In addition, they recognize that the ‘correct’ classification can
be determined only by considering a particular company’s intended target market and the needs
of customers within targeted market segments.
Convenience products
Relatively inexpensive, frequently purchased and rap-
idly consumed items on which buyers exert only minimal purchasing effort are called
convenience products. They range from chocolate, magazines and chewing gum to
convenience products
Inexpensive, frequently petrol and soft drinks. The buyer spends little time planning the purchase or comparing
purchased and rapidly available brands or sellers. Even a buyer who prefers a specific brand will readily choose
consumed items that a substitute if the preferred brand is not conveniently available. They are low-risk fre-
demand only minimal quently bought items.
purchasing effort.
Classifying a product as a convenience product has several implications for a compa-
ny’s marketing strategy. A convenience product is normally marketed through many retail
outlets. As sellers experience high inventory turnover, the per unit gross margins can
be relatively low. Producers of convenience products such as PG Tips tea and Domestos bleach
expect little promotional effort at the retail level and so must provide their own through advertising,
sales promotion and the item’s packaging. The package may have an especially important role
to play, because many convenience items are available only on a self-service basis at the retail
level. On-pack sales promotion and point-of-sale displays are ways to maximize the impact of the
package (see Figure 10.1). Such products are known as low-involvement products because, as
explored in Chapter 5, consumers spend very little time considering their purchase and there is
little opportunity for marketers to persuade consumers to examine alternatives . . . except for price
discounting and prominent point-of-sale offers.
Figure 10.1
Confectionery brands are convenience
products
shopping products Shopping products Items that are chosen more carefully than convenience products
Items chosen more care- are called shopping products. They are purchased infrequently and are expected to
fully than convenience last a long time. Buyers are willing to expend effort in planning and purchasing these
products; consumers will items. They allocate time for comparing stores and brands with respect to prices, credit,
expend effort in planning
product features, qualities, services and perhaps guarantees. Appliances, furniture, bicy-
and purchasing these
items. cles, mp3 players, jewellery and cameras are examples of shopping products. Even
though shopping products are more expensive than convenience products, few buyers
of shopping products are particularly brand loyal. If they were, they would be unwilling
to shop around and compare brands.
Marketers seeking to market shopping products effectively must consider that they require fewer
retail outlets than convenience products. As they are purchased less frequently, inventory (stock)
turnover is lower and middlemen (retailers) expect to receive higher gross margins. Although large
sums of money may be required to advertise shopping products, an even larger proportion of
resources is likely to be used for personal selling. Indeed, the quality of the service may be a factor
in the consumer’s choice of outlet. Thus, a couple that buys a new dishwasher might expect sales
personnel in the chosen retail outlet to explain the advantages and features of competing brands.
In many cases, the producer and the middlemen also expect some cooperation from one another
with respect to providing parts and repair services, and performing promotional activities.
Speciality products Products that possess one or more unique characteristics and
which a significant group of buyers is willing to expend considerable effort to obtain are
called speciality products. Buyers plan the purchase of a speciality product carefully;
speciality products
Items that possess one they know exactly what they want and will not accept a substitute. An example of a spe-
or more unique charac- ciality product is a particular painting or a Cartier watch. When searching for speciality
teristics; consumers of products, buyers do not compare alternatives; they are concerned primarily with finding
speciality products plan an outlet that has a pre-selected product available.
their purchases and will
The marketing of a speciality product is very distinctive. The exclusivity of the
expend considerable
effort to obtain them. product is accentuated by the fact that speciality products are often distributed
through a limited number of retail outlets. Some companies go to considerable
lengths to control this aspect of their distribution. Like shopping goods, speciality
products are purchased infrequently, causing lower inventory turnover and thus requiring rel-
atively high gross margins.
Unsought products Products that are purchased when a sudden problem arises, or
when aggressive selling obtains a sale that otherwise would not take place, are called
unsought products unsought products.3 The consumer does not usually expect to buy these products
Items that are purchased regularly. Emergency windscreen replacement services and graveyard headstones are
when a sudden examples of unsought products. Life insurance and pension schemes are examples
problem arises or when of unsought products that often need aggressive personal selling before consumers
aggressive selling is
acknowledge a need for them.
used to obtain a sale that
would not otherwise take
place. Business products
Business products are usually purchased on the basis of a company’s goals and objec-
tives. The functional aspects of these products are usually more important than the
psychological rewards sometimes associated with consumer products. Business products can be
classified into seven categories according to their characteristics and intended uses:
1. raw materials
2. major equipment
3. accessory equipment
4. component parts
5. process materials
6. consumable supplies
7. industrial/business services.4
Raw materials The basic materials that become part of physical products are
raw materials. These include minerals, chemicals, agricultural products and materials
raw materials
The basic materials that from forests and oceans. They are usually bought and sold in relatively large quantities
become part of physical according to grades and specifications.
products.
Major equipment Large tools and machines used for production purposes, such as
cranes and spray painting machinery, are types of major equipment. Major equipment
major equipment
Large tools and
is often expensive, may be used in a production process for a considerable length of time
machines used for pro- and is often custom-made to perform specific functions. For example, Alsthom man-
duction purposes. ufactures purpose-built large gears and turbines. Other items are more standardized,
performing similar tasks for many types of company. Due to major equipment being so
expensive, purchase decisions are often long and complex and may be made by senior
accessory equipment
Tools and equipment management. Marketers of major equipment are frequently called upon to provide a
used in production or variety of services, including installation, training, repair, maintenance assistance and
office activities that financing. This may lead to long-term relationships being developed between suppliers
do not become part of major equipment and their customers.
of the final physical
product.
Accessory equipment Equipment that does not become a part of the final physi-
cal product, but is used in production or office activities is referred to as accessory
equipment. Examples include telephone systems, stationery supplies, fractional horse-
component parts
power motors and tools. Compared with major equipment, accessory items are usually
Parts that become a part
of the physical product much cheaper, are purchased routinely with less negotiation and are treated as expen-
and are either finished diture items rather than capital items because they are not expected to last long. More
items ready for assembly outlets are required for distributing accessory equipment than for major equipment, but
or products that need sellers do not have to provide the multitude of services expected of major equipment
little processing before
marketers.
assembly.
Component parts Parts that become part of the physical product and are either fin-
ished items ready for assembly or products that need little processing before assem-
process materials bly are called component parts. Although they become part of a larger product,
Materials used directly in
the production of other
component parts can often be easily identified and distinguished. Tyres, spark plugs,
products, but not readily gears, lighting units, screws and wires are all component parts of a delivery van.
identifiable. Buyers purchase such items according to their own specifications or industry stan-
dards. They expect the parts to be of specified quality and delivered on time so that
production is not slowed or stopped. Producers that are primarily assemblers, such
consumable supplies as most washing machine or lawnmower manufacturers, depend heavily on suppliers
Supplies that facilitate of component parts.
production and opera-
tions but do not become Process materials Materials that are used directly in the production of other products
part of the finished
are called process materials. Unlike component parts, process materials are not readily
product.
identifiable. For example, Reichhold Chemicals markets a treated fibre product: a phe-
nolic resin, sheet-moulding compound used in the production of flight deck instrument
panels and aircraft cabin interiors. Although the material is not identifiable in the finished
MRO items aircraft, it retards burning, smoke and formation of toxic gas when subjected to fire or
Consumable supplies
in the sub-categories of
high temperatures.
maintenance, repair and
operating (or overhaul) Consumable supplies Supplies that facilitate production and operations, but do not
supplies. become part of the finished product, are referred to as consumable supplies. Paper,
print cartridges, pencils, oils, cleaning agents and paints are in this category. They are
purchased by many different types of business. Consumable supplies are purchased
industrial/business routinely and sold through numerous outlets. To ensure that supplies are available when
services needed, buyers often deal with more than one seller. Consumable supplies can be
The intangible products divided into three subcategories and are sometimes called MRO items: maintenance,
that many organizations
repair and operating (or overhaul) supplies.
use in their operations,
including financial, legal,
marketing research, Industrial/business services Industrial/business services are the intangible prod-
computer programming/ ucts that many organizations use in their operations. They include financial, human
IT, logistics and resource, legal, marketing research, computer programming and IT, logistics and oper-
operations, facilities
ations, facilities management and real estate, printing and publicity services for business.
management and real
estate, printing and Some companies decide to provide their own services internally, while others outsource
publicity services. them. This decision depends largely on the costs associated with each alternative and
the frequency with which the services are needed.
The three levels of product

core product The product may appear obvious – a carton of fresh orange juice or a designer handbag
The level of a product – but generally the purchaser is buying much more than a drink or a means of carrying
that provides the per- personal items. To be motivated to make the purchase, the product must have a per-
ceived or real core bene-
ceived or real core benefit or service. This level of product, termed the core product,
fit or service.
is illustrated in Figure 10.2. The actual product is a composite of several factors: the
features and capabilities offered, quality and durability, design and product styling, pack-
actual product aging and – often of great importance – the brand name.
A composite of the In order to make the purchase, the consumer often needs the assistance of sales per-
features and capabilities sonnel; there may be delivery and payment credit requirements and, for bulky or very tech-
offered in a product: nical products, advice regarding installation. The level of warranty back-up and after-sales
quality and durability,
design and product styl-
support, particularly for innovative, highly technical or high value goods, will be of concern
ing, packaging and brand to most consumers. Increasingly, the overall level of customer service constitutes part of
name. the purchase criteria, and in many markets it is deemed integral to the product on offer.
These ‘support’ issues form what is termed the augmented product (see Figure 10.2).
Core product
Customer Actual product
service
Augmented product
After-sales Brand
Warranty
support name
Capabilities Core Features

benefit
or
Packaging service Quality/
durability
Design/ Delivery
Installation
styling and credit
Figure 10.2
The three levels of Personnel
product: core, actual
and augmented
When a £40 000 BMW 3 Series executive car is purchased, the vehicle’s perfor-
augmented product
Support aspects of a mance, specification and design may have encouraged the sale. Speed of delivery and
product, including cus- credit payment terms may have been essential to the conclusion of the deal. The brand’s
tomer service, warranty, image, particularly in the case of a car costing £40 000, will also have influenced the sale.
delivery and credit, per- Once behind the wheel of the BMW, its new owner will expect reliability and efficient,
sonnel, installation and
friendly, convenient service in the course of maintenance being required. The purchase
after-sales support.
might have been lost at the outset had the salesperson mishandled the initial enquiry.
Repeat servicing business and the subsequent sale of another new car may be ruled
out if the owner encounters incompetent, unhelpful service engineers. The core benefit may have
been a car to facilitate journeys to work, transport for the family or the acquisition of a recognized
status symbol. Customer satisfaction will depend on the product’s actual performance and also
on service aspects of the augmented product. This example is not unusual. For most consumer or
business products and services, the consumer is influenced by the three levels of the product: core,
actual and augmented. Marketers need to take this into consideration when developing product
offers. Careful consideration of all levels of the product can provide the basis for a competitive
edge. Indeed, often it is aspects of the augmented product which make or break the relationship
with the customer and can create differentiation vis-à-vis competing propositions.
Many marketers now recognize the important role that personnel play in product exchanges.
People are responsible for the design, production, marketing, sale and distribution of products.
As will be explained in Chapter 13, personnel are especially important in the sale and delivery of
services. Thus a financial services adviser must have considerable expertise in the sector to give
good advice. Similarly, a good-quality haircut can only be delivered by a skilled hairdresser. As
consumers, people make decisions and ultimately adopt products for use and consumption. When
deciding which products to adopt and use, people now pay considerable attention to the skills,
attitudes and motivations of personnel involved in the marketing channel. As explained
product item in Chapter 1, personnel also constitute an essential ingredient of the marketing mix for
A specific version of consumer and business goods.
a product that can be
designated as a distinct
offering among a busi-
Product line and product mix
ness’s mix of products. Marketers must understand the relationships between all their organization’s products if
they are to coordinate their marketing.5 The following concepts describe the relationships
between an organization’s products. A product item is a specific version of a product
product line that can be designated as a distinct offering among a business’s products – for exam-
A group of closely-
related product items
ple, Procter & Gamble’s Pantene shampoo. A product line includes a group of closely
that are considered a unit related product items that are considered a unit because of marketing, technical or
because of marketing, end-use considerations. All the shampoos manufactured by Procter & Gamble constitute
technical or end-use one of its product lines. Figure 10.3 illustrates a product line for Tilda. The Topical Insight
considerations. box that follows in this chapter entitled Great things can happen when you sacrifice a
cigarette explains how manufacturers of nicotine replacement products are expanding
their product line to allow them to capitalize on the opportunities this market provides.
product mix
To come up with the optimum product line, marketers must understand buyers’ goals.6
The composite group of
products that a company Specific items in a product line reflect the desires of different target markets or the dif-
makes available to ferent needs of consumers.
customers. A product mix is the composite, or total, group of products that a company makes
available to customers. For example, all the personal care products, laundry detergent
Figure 10.3
This advertisement for leading rice
brand Tilda makes clear that the
Tilda microwaveable line includes a
wide range of rice types
products and other products that Procter & Gamble manufactures constitute its product
depth
The number of different mix. The depth of a product mix is measured by the number of different products offered
products offered in each in each product line. The width of a product mix is measured by the number of product
product line. lines a company offers. Figure 10.4 shows the width of the product mix and the depth of
each product line for selected Procter & Gamble products in the USA. Procter & Gamble
is known for using distinctive technology, branding, packaging and consumer advertising
width
to promote individual items in its detergent product line. Bold, Ariel, Daz and Dreft – all
The number of product Procter & Gamble detergents – share similar distribution channels and manufacturing
lines a company offers. facilities. Yet due to variations in product formula and attributes, each is promoted as
being distinct, adding depth to the product line.
Laundry Toothpastes/
Bar soaps Deodorants Shampoos Tissue/towel
detergents dental
Product line depth
Ivory Snow 1930 Gleem 1952 Ivory 1879 Old Spice 1948 Head & Shoulders Charmin 1928
Dreft 1933 Crest 1955 Camay 1926 Secret 1956 1961 Puffs 1960
Tide 1946 Oral-B 2005 Zest 1952 Sure 1972 Pantene Pro 1965 Bounty 1965
Cheer 1950 Safeguard 1963 Vidal Sassoon 1974 Royale 1996
Bold 1965 Olay 1993 Pert Plus 1979
Gain 1966 Ivory 1983
Era 1972
Febreze 1998
Product mix width

Figure 10.4
The concepts of width of product mix and depth of product line applied to selected Procter & Gamble products
Source: Reproduced with permission from the Procter & Gamble Company.
Product life cycles

Just as biological cycles progress through growth and decline from birth to death, so too
product life cycles do product life cycles. A new product is introduced into the marketplace; it grows, it
The four major stages matures; and when it loses appeal and sales decline, it is terminated.7 As explained in
through which products Chapter 12, different marketing strategies are appropriate at different stages in the product
move: introduction, growth,
maturity and decline.
life cycle. Thus packaging, branding and labelling techniques, price promotions and mar-
keting communications can be used to help create or modify products that have reached
different points in their life. Understanding a product’s current position in its life cycle and
modifying its strategy accordingly is a fundamental part of product management.
As Figure 10.5 shows, a product life cycle has four major stages:
1. introduction
2. growth
3. maturity
4. decline.
When a product moves through its cycle, the strategies relating to competition, promotion,
place/distribution, pricing and market information must be evaluated periodically and possibly
changed. Astute marketing managers use the life-cycle concept to make sure that the introduc-
tion, alteration and termination of a product are timed and executed properly. By understanding
the typical life-cycle pattern, marketers are better able to maintain profitable products and drop
unprofitable ones within their overall product portfolio.
Introduction
The introduction stage of the life cycle begins at a product’s first appearance in
introduction stage the marketplace, when sales are zero and profits are negative. Profits are below zero
A product’s first appear-
ance in the marketplace,
because a new product incurs development costs, initial revenues are low, and at the
before any sales or prof- same time a company must generally incur the significant expenses incurred during
its have been made. promotion and distribution. As time passes, sales should move upwards from zero and
profits should build up from the negative position (see Figure 10.5).8
Introduction Growth Maturity Decline

stage stage stage stage
Industry
sales
Industry
profits
Revenue
0
Figure 10.5
The four stages of
the product life cycle Time
As a result of cost, very few product introductions represent major inventions. Developing and
introducing a new product can mean an outlay of many millions of pounds. The failure rate for new
products is quite high, ranging from 60 to 90 per cent depending on the industry and on how product
failure is defined. For example, in the food and drinks industry, 80 per cent of all new products fail.
Typically, product introductions involve a new style of deodorant, a new type of vacuum cleaner or
a new leisure concept rather than a major product innovation. The very first tablets or online gaming
services were major disruptive innovations. Driverless cars and in-home 3D printing will soon be. In
general, the more marketing-oriented the company, the more likely it will be to launch innovative prod-
ucts that are new to the market, such as Apple’s never-ending stream of launches or Samsung’s.9
New product ideas are more likely to be successful when senior management is involved in
product development and launch. In addition, research shows that a clear, stable vision, flexibility
and improvisation, information exchange and collaboration are also key ingredients in new product
success.10 Increasingly, consumers and supply chain partners are consulted in the co-creation of
new products, rather than only internally-led product development teams subsequently
co-creation
hoping consumers will be interested in their creations.
The involvement of, or
consultation with, con- Potential buyers must be made aware of the new product’s features, uses and advan-
sumers and supply chain tages. Two difficulties may arise at this point. Only a few sellers may have the resources,
partners in the collabora- technological knowledge and marketing know-how to launch the product successfully;
tive development of new and the initial product price may have to be high in order to recoup expensive marketing
products.
research or development costs. Given these difficulties, it is not surprising that many
products never get beyond the introduction stage; indeed, many are never launched
commercially at all.
growth stage
The stage at which a Growth
product’s sales rise
rapidly and profits move During the growth stage, sales rise rapidly and profits move towards their peak (see
towards their peak. Figure 10.5). The growth stage is critical to a product’s survival because competitive
reactions to its success during this period will affect the product’s life expectancy. For
Great things can happen CQ (CQ stands for ‘committed quitters’).

when you sacrifice a SKB claimed this to have been the largest
Topical insight ever over-the-counter launch in the UK.
cigarette Clearly, the company expected the brand,
already the best-seller in the USA, to claim
Patch, lozenge or gum, Nicotinell ‘can double
a large slice of the UK market. Company repre-
your chances of quitting compared to willpower
sentatives suggested that this was achieved by the
alone’, claims Novartis. Nicotine replacement therapy
unique ‘personalized literature pack’ included with the
(NRT) fights nicotine dependence and relieves the symptoms of
NiQuitin CQ product. This pack featured a questionnaire for
withdrawal in smokers who are trying to give up the habit. Lead-
smokers to fill in, detailing the circumstances in which they
ing brands include Nicotinell, NiQuitin CQ and Nicorette. Novar-
are most vulnerable to lighting up. Advice was then offered
tis, the company behind Nicotinell nicotine replacement patches
tailored to match the answers provided in the questionnaire.
has also launched food products designed to help smokers quit
In such a volatile market, future trends are difficult to
the habit. Many consumers are already familiar with patches,
predict. When NRT products were first launched in the UK
but as smoking becomes increasingly socially unacceptable, the
in 1993, they were met with considerable consumer excite-
company believes there are a variety of new product develop-
ment. However, following an initial growth in sales, consumer
ment opportunities for its brand. Novartis launched a nicotine
confidence in the capabilities of the products declined. Today,
replacement lozenge that, when sucked, provides a continual
with the products widely available in supermarkets as well as
low-level boost of nicotine for relatively light smokers. Nicotinell
pharmacies, and governments throughout the EU launching
Support Icemint Gum helps fight cravings as well as the weight
further anti-smoking measures, the key players are looking for
gain endured by many quitting smokers. Supportive counselling
innovative ways to ensure that their products play a major role
services are viewed as a key part of the therapy and most of the
in the continued fight against smoking, faced as they are with
leading players have examined how to offer services alongside
a new option for smokers seeking to cut-down . . . vaping. New
their patches, gums, pills and lozenges.
product development is likely to be just part of the solution,
It is not difficult to understand the attractions of the nic-
with manufacturers also seeking a fresh and more realistic
otine replacement therapy market and to appreciate why
promotional stance. For Novartis, this involves repositioning
Novartis is seeking to extend its product offerings. As mil-
the brand to stress its role in harm reduction and Nicotinell’s
lions seek to leave their smoking habit behind, the market
role in supporting the quitter’s willpower and resolve to stop
for nicotine replacement products is growing rapidly. Indica-
smoking, while also making the Nicotinell product desirable.
tions also show that one in 20 of those attempting to ‘kick the
The biggest threat to these products has not come from
habit’ will use some form of nicotine replacement therapy.
smokers’ intransigence and a lack of interest in quitting. The last
Not surprisingly, Novartis is not alone in seeking to develop its
few years has seen the emergence of substitute competition in
product range. Since NRT products were first launched in the
the form of e-cigarettes and vaping, with brands such as Aspire,
UK more than two decades ago, several companies have dom-
Frenchy Fog, Sigelei, Halo and Smok-e Mountain becoming
inated the market: Novartis, with its Nicotinell patch and gum;
increasingly familiar to smokers trying to quit or those combatting
Pharmacia & Upjohn (P&U), with its Nicorette gum, inhalator
the ban on smoking indoors in bars and restaurants. Time will tell
and patches; and Boots, with its own-label patches and gum.
whether Novartis and the other players continue to meet the chal-
Developments include Boots’ inhalator and competing brand
lenge from this alternative to their nicotine replacement products.
Nicorette’s launch of its micro-tab, a kind of nicotine pill that,
when placed under the tongue, takes half an hour to dissolve. Sources: Novartis Consumer Healthcare, 2004–18; Boots, November 2007,
Perhaps the most aggressive challenge to the market March 2011 and April 2015; www.cloud9vaping.co.uk, April 2015; www.
nicotinell.co.uk/help-and-advice, April 2015; www.niquitin.co.uk/Products/
has come from pharmaceutical giant SmithKline Beecham Quit-Smoking, March 2018; www.nicorette.co.uk/, March 2018; www.quit.org.
(SKB), which spent £12 million on the UK launch of NiQuitin uk/stop-smoking-products, March 2018.
example, Mars successfully launched Ice Cream Mars, the first ice-cream version of an established
confectionery product. Today the product competes with more than a dozen other brands. Some
of the competing brands failed quickly and others followed. Profits decline late in the growth
stage as more competitors enter the market, driving prices down and creating the need for heavy
promotional expenses. At this point a typical marketing strategy encourages strong brand loyalty,
perhaps using sales promotion, and competes with aggressive emulators of the product. During
the growth stage, a company tries to strengthen its market share and develop a competitive
position by emphasizing the product’s benefits. This is what the various smartphone providers are
currently striving to achieve.
Aggressive promotional pricing, including price cuts, is typical during the growth stage. The
smartphone industry is now well into its growth stage, and many competitors have entered the
market. Companies like Samsung, HTC and Apple must battle hard to maintain their existing
positions in this competitive arena, while the likes of Eriksson and Sony have gone and Blackberry
and Moto struggle to maintain a foothold.
Maturity
During the maturity stage, the sales curve peaks and starts to decline, and profits
maturity stage
The stage during which continue to decline (see Figure 10.5). This stage is characterized by severe competition,
a product’s sales curve with many brands in the market. Competitors emphasize improvements and differences
peaks and starts to in their versions of the product. Inevitably, during the maturity stage, some weaker com-
decline, and profits con- petitors are squeezed out or switch their attention to other products. For example, some
tinue to decline.
broadband and mobile phone service providers are perishing or being acquired by rivals,
now that these products are entering the maturity stage.
During the maturity stage, the producers who remain in the market must make fresh
promotional and distribution efforts. These efforts must focus on dealers as much as on consumers to
ensure that brand visibility is maintained at the point-of-sale. Advertising and dealer-oriented promo-
tions are typical during this stage of the product life cycle. The promoters must also take into account
the fact that, as the product reaches maturity, buyers’ knowledge of it attains a high level. Consumers
of the product are no longer inexperienced generalists, but rather experienced specialists.
Decline
During the decline stage, sales fall rapidly (see Figure 10.5). New technology or a new
decline stage
The last stage of a prod- social trend may cause product sales to take a sharp downturn. For example, first mp3
uct’s life cycle, during players and now downloads have reduced CD sales, while smartphones have reduced
which sales fall rapidly. sales of both mp3 players and cameras. When this happens, the marketer must consider
pruning items from the product line to eliminate those not earning a profit. Sony surprised
the market by announcing it would be pulling out of selling its well-regarded Vaio laptops
and PCs. The decision came because Sony believed that technology changes are signalling a move
away from these devices towards multifunctional smartphones and tablets.11 At this time, the mar-
keter may cut promotion efforts, eliminate marginal distributors and plan to phase out the product.
As most businesses have a product mix consisting of multiple products, a company’s destiny
is rarely tied to one product. A composite of life-cycle patterns is formed when various products in
the mix are at different stages in the cycle. As one product is declining, other products are in the
introduction, growth or maturity stage. Marketers must deal with the dual problems of prolonging
the life of existing products and introducing new products to meet sales goals. Sales from existing
products must fund the development and introduction of new ones. More details of this kind of
portfolio management activity are given in Chapter 12, which also explores the development of new
products and considers how they can be managed in their various life-cycle stages.
Why some products fail and others succeed

Thousands of new products are introduced each year and most of them fail.12, 13 Some estimates put the
product failure rate as high as 60 to 90 per cent. Failure and success rates vary in different industries and
from company to company. Figures suggest that consumer products are more likely to fail than those
directed at business markets. Being one of the first brands launched in a product category is no guar-
antee of success. One study found that in 50 product categories, only half of the pioneers survived.14
Products fail for many reasons. One of the most common is the company’s failure to match
product offerings to customer needs. When products do not offer value and lack the features cus-
tomers want, they fail in the marketplace. That is why it is important to identify what the customer
value proposition will be at the heart of a product’s marketing strategy, as explained in Chapter 8.
Ineffective or inconsistent branding has also been blamed for product failures. Other reasons often
given for new product failure include technical or design problems, poor timing, over-estimation of
market size, poor understanding of the competitive landscape, ineffective promotion and inefficient
distribution. The problems leading to the downfall of Coca-Cola’s UK launch of bottled water Dasani
were widely debated in the press. Technical difficulties led to bromide contamination at the com-
pany’s plant. At a time when consumers were already concerned about the purity of tap water, the
withdrawal of the product was inevitable.15 A common reason for failure is a poor understanding of
competitors, the merits of their products and how consumers view these rivals’ offerings.
Degrees of product failure

It is important to distinguish between degrees of product failure. Absolute failure occurs when a com-
pany loses money on a new product because it is unable to recover development, production and
marketing costs. Such a product is usually deleted from the product mix. Restaurant chains Prezzo
and Jamie’s Italian had to close their Chimichanga Tex-Mex chain and Barbecoa start-up in order to
keep their core brands trading. Relative product failure occurs when a product returns a profit but
does not meet a company’s profit or market share objectives. If a relative product failure is repositioned
or improved, it may become a successful member of the product line. Some products experience rel-
ative product failure after years of success. Baby and children’s retailer Mothercare is in this situation.
The ingredients for success

Despite this gloomy picture of product failure, some new products are very successful. Perhaps
the most important ingredient for success is the product’s ability to provide a significant and per-
ceivable benefit to a sizeable number of customers. New products with an observable advantage
over similar available products such as more features, ease of operation or improved technology
have a greater chance of success, such as the iPhone or iPad.
Tangible and intangible product characteristics

When developing products, marketers make many decisions. Some of these involve the tangible,
or physical, characteristics of the product; others focus on less tangible support services that are
very much a part of the total product.
Physical characteristics and product quality

The question of how much quality to build into the product is crucial for marketers. In
quality
The core product’s ability the core product, quality constitutes the product’s ability to achieve the basic functional
to achieve the basic requirements expected of it. A major dimension of quality is durability. Higher quality often
functional requirements demands better materials and more expensive processing, which increases production
expected of it. costs and ultimately the product’s price. How much the target market is prepared to
pay will affect the level of quality specified. The concepts of quality and value are related.
Consumers may be happy to pay a premium for a hard-wearing paint, because they
perceive it as better value than competing offerings. In general, a company should set consistent
quality levels for all products with a similar brand. The quality of competing brands is also an
important consideration. As explained in Chapter 9, marketing research plays an important role in
determining the optimum physical features such as quality of a product.
Upgrading service for ●● And superior Tech support – 24 hours
competitive advantage Building customer a day, 7 days a week – ensuring that

customers have constant access when-
relationships ever, or wherever, they need it.
Many consumers of hi-tech products,
●● Importantly, Team Knowhow will be
such as computers and home entertain-
able to aid customers irrespective of
ment systems, will have visited retailers where their technology was originally
only to find little more product information or purchased.
advice available than is already printed in the manu-
facturers’ brochures or in online product reviews. It is a frus- For Dixons Stores Group, the stated aim is to remove the
trating experience to encounter a salesperson with no more ‘wheel of uncertainty’ for consumers purchasing technology
insight into the products on display than the naïve customer products, often for large sums of money and which will be in
already has. A worse experience often befalls the user of a the home for many years. Such high involvement purchases
high-tech product which has failed and requires aftermar- are often perceived as risky by consumers. This strategy also
ket support. Those days may be drawing to a close if retailer enables the company to fight back against online retailers by
Dixons Carphone has its way. Trading as PC World, Currys, providing enhanced customer service.
Dixons and Carphone Warehouse, the company has a large CONNECT IT – From getting your kit home to setting it up, we
share of the market for electrical goods, appliances and high- can help.
tech products. FIX IT – When something goes wrong with your kit, we can pick
Under its Team Knowhow programme, Dixons Carphone up the pieces.
wants to be recognized by consumers for knowledge and ser- PROTECT IT – Whatever life throws at you, we’ll protect your most
vice, rather than only the brands it stocks. Team Knowhow valuable kit.
has the largest central repair centre in Europe, experts in over
IMPROVE IT – From upgrades to trade-ins, we can save you time
1000 Currys PC World and Carphone Warehouse stores, four and money.
contact centres and 16 customer service centres.
Dixons Carphone’s Team Knowhow brings much after-
Team Knowhow is a national network of local experts which helps care in-house and away from erratic subcontractors, consoli-
install, support, upgrade or fix customer’s kit. dates the practices of the company’s call centres, and boosts
Putting customer satisfaction at the very heart of the delivery and installation provision, as well as even recycling
business, Team Knowhow aims to transform the way custom-
old products no longer wanted by customers. The company
ers receive support across the whole lifecycle of a product.
has invested heavily in upgrading these service aspects of
Offering a refreshed range of expert services, customers can
its operation so that consumers may purchase well-known
now enjoy a super helpful service, including same day mobile
repair. brands with more certainty and confidence. The likes of Sony,
HP or Whirlpool may well design and produce very attractive
●● Over 7000 trained experts across the UK, all ready to and reliable products, but for Dixons Carphone the expecta-
deliver, install and repair everything from white goods tion is that the wrap-around service component of its product
through to mobiles and laptops. offering will provide an edge over rivals and bolster consumer
●● A brand-new fleet of over 700 branded vehicles, with satisfaction, encouraging shoppers through its stores and to
everything from 7.5 tonne trucks to smaller transit vans its website.
travelling the UK’s roads to offer a super-helpful, in-home
Sources: ‘Dixons upgrades service levels with a little Knowhow’, Rosie Baker,
service and deliveries to customers.
Marketing Week, 25 November 2010, p. 11; ‘Dixons sets up new technical sup-
●● A local network of experts, with any customer only a port service Knowhow’, Andrew Clark, The Observer, 21 November 2010; www.
20-minute drive away from a Team Knowhow expert or dixons.co.uk, March 2011; www.currys.com, April 2015; www.knowhow.com,
April 2015; www.teamknowhow.com, March 2018; www.dixonscarphone.com/
service.
news-and-media/press-releases/2017/27-07-2017, March 2018.
Supportive product-related services

All products possess intangible features. When prospective customers are unable to experience
the product in advance, they are making decisions based on promises of satisfaction.16 A woman
buying lingerie online hopes that when the garments she ordered arrive, they will meet her expec-
tations of quality, look and fit. Should she be disappointed, she will expect to be able to return the
items. Arrangements for product returns are just one of many product-related services. Others
include product guarantees, credit and repair facilities. Although these product features may be
less tangible than the product itself, they are often a strong influence on the choices that customers
make. Can you imagine buying an expensive watch with no guarantee, or a technology product
that cannot be repaired? As the Building customer relationships box explains, Currys and PC
World have turned to aspects of the augmented product in order to gain competitive advantage.
The type of guarantee a company provides can be critical for buyers, especially when
expensive, technically complex goods such as appliances are involved. A guarantee
guarantee
An agreement specifying specifies what the producer or supplier will do if the product malfunctions. Some photo-
what the producer or graphic processors offer free processing on prints not ready within 24 hours. A leading
supplier will do if the hotel group will not charge for room service meals if there is a long delay on the order
product malfunctions. being delivered to the hotel guest. Guarantors are legally required to state more simply
and specifically the terms and conditions under which the company will take action. For
example, changes in EU law now require electrical items to carry a two-year guarantee.
Marketers are using guarantees more aggressively as tools to give their brands a competitive
advantage, as illustrated with Kia’s category-leading seven-year warranties.
An effective guarantee should be unconditional, easy to understand and communicate, mean-
ingful, easy to invoke and quick and easy to act on. The customer should be able to return a prod-
uct and get a replacement, a refund or credit for the returned item. Such guarantees are beneficial
because they generate feedback from customers and help build customer loyalty and sales. 17
Although it is more difficult to provide guarantees for services than for goods, some service mar-
keters do guarantee customer satisfaction. For example, some opticians offering a one-hour turn-
around for new lenses or frames do not charge customers who have to wait longer than this time.
Establishing a system to provide replacement parts and repair services is an essential support
service for complex and expensive consumer or business products. For example, builders expect
construction machinery manufacturers like Caterpillar to be able to provide replacement parts
quickly and without fuss. Sometimes these services are provided directly to buyers, in other cases
regional service centres or third-party distributors are used.
Finally, a company must sometimes provide credit services to customers. Even though credit services
place a financial burden on a business, they can be beneficial. For instance, a company may acquire
and maintain a stable market share. Many major petroleum companies, for example, have competed
effectively against independent petrol discounters by providing credit services to distributors. The cus-
tomer value proposition described for JCB in Chapter 8 reveals the importance of financing within JCB’s
proposition. For marketers of relatively expensive items, such as cars or soft furnishings, offering credit
services enables a larger number of people to buy the product, thus enlarging the market for the item.
Summary
A product is everything that is received in an exchange. It is a complex set of tangible and intangible attributes, including
functional, social, economic and psychological utilities or benefits. A product can be a good, a service, an idea or any com-
bination of these three. Customers buy the benefits and satisfaction they think the product will provide.
Products can be classified on the basis of the buyer’s intentions. Consumer products are purchased to satisfy personal and
family needs. Industrial or business products are purchased for use in a company’s operations or to make other products.
The same product may be classified as both a consumer product and a business product. Consumer products can be sub-
divided into convenience, shopping, speciality and unsought products. Business products can be divided into raw materials,
major equipment, accessory equipment, component parts, process materials, consumable supplies (MRO items) and busi-
ness services.
It is important to remember that a product has three levels: core, actual and augmented. The purchaser buys a core
benefit or service (the core product) in addition to the product’s brand name, features, capabilities, quality, packag-
ing and design (the actual product). Increasingly, aspects of the augmented product are important considerations for
purchasers of consumer goods, services and business goods. Warranties, delivery and credit, personnel, installation,
after-sales support and customer service are integral to the actual product’s appeal and perceived benefits. The role of
personnel in particular is of fundamental concern to marketers; people and customer service now form a central part of
the marketing mix.
A product item is a specific version of a product that can be designated as a distinct offering among a business’s prod-
ucts. A product line is a group of closely related product items that are a unit because of marketing, technical or end-use
considerations. A company’s total group of products is called the product mix. The depth of a product mix is measured by
the number of different products offered in each product line. The width of the product mix is measured by the number of
product lines a company offers.
The product life cycle describes how product items in an industry move through four major stages: (1) introduction
stage, (2) growth stage, (3) maturity stage and (4) decline stage. The life-cycle concept is used to make sure that the
introduction, alteration and termination of a product are timed and executed properly. Co-creation is increasingly used
in the development and introduction of new products. The sales curve is at zero on introduction, rises at an increasing
rate during growth, peaks at maturity and then declines. Profits peak towards the end of the growth stage of the product
life cycle. The life expectancy of a product is based on buyers’ wants, the availability of competing products and other
environmental conditions. Most businesses have a composite of life-cycle patterns for various products in their overall
portfolio. It is important to manage existing products and develop new ones to keep the overall sales performance at the
desired level.
Thousands of new products are introduced each year and many of them fail. Some estimates put the product failure rate
as high as 60 to 90 per cent. Failure and success rates vary in different industries and from company to company. Products
fail for many reasons: because of a failure to match product offerings to customer needs, ineffective or inconsistent brand-
ing, technical or design problems, poor timing, over-estimation of market size, ineffective promotion, inefficient distribution
and a poor understanding of competing products’ merits.
It is important to distinguish between degrees of product failure. Absolute failure occurs when a company loses money on a
new product because it is unable to recover development, production and marketing costs. Relative product failure occurs
when a product returns a profit but does not meet a company’s profit or market share objectives.
Despite this gloomy picture of new product failure, some new products are very successful. Perhaps the most important
ingredient for success is the product’s ability to provide a significant and perceivable benefit to a sizeable number of
customers.
When creating products, marketers must take into account other product-related considerations, such as physical charac-
teristics and less tangible support services. Specific physical product characteristics that require attention are the level of
quality and product features, such as textures, colours and sizes. Support services that may be viewed as part of the total
product include guarantees, repairs/replacements and credit.

Key links 1. List the tangible and intangible attributes of a tablet such as
This chapter has given an overview of the product element an iPad. Compare the benefits of the tablet with those of an
of the marketing mix. intangible product such as life insurance.
●● It must be read in conjunction with Chapter 12, 2. A product has been referred to as a ‘psychological bundle of
which examines how marketers manage portfolios of satisfaction’. Is this a good definition of a product?
products. 3. Is a roll of carpet in a shop a consumer product or a busi-
●● For those involved in marketing services, there are ness product? Defend your answer.
additional considerations, as discussed in Chapter 13. 4. How do convenience products and shopping products dif-
fer? What are the distinguishing characteristics of each type
of product?
5. Would a music system that sells for £750 be a convenience,
Important terms shopping or speciality product?
Accessory equipment 6. In the category of business products, how do component
Actual product parts differ from process materials?
Augmented product
7. How does a company’s product mix relate to its develop-
Co-creation
ment of a product line?
Component parts
Consumable supplies 8. When should a company add depth to its product lines
Consumer products rather than width to its product mix?
Convenience products 9. How do industry profits change as a product moves through
Core product the four stages of its life cycle?
Decline stage 10. What is the relationship between the concepts of product
Depth (of product mix) mix and product life cycle?
Good
11. What factors must marketers consider when deciding what
Growth stage
quality level to build in to a product? What support services
Guarantee
can be offered to back up product quality?
Ideas
Industrial/business products 12. What are aspects of the augmented product for a new car?
Industrial/business services 13. Why is the augmented product increasingly important when
Introduction stage determining a differential advantage?
Major equipment
Maturity stage
MRO items Recommended readings
Process materials Baker, M. and Hart, S., Product Strategy and Management (Pearson/FT, 2007).
Product Busuttil, J., The Practitioner’s Guide to Product Management (Piatkus, 2015).
Product item Crawford, C.M. and Di Benedetto, C.A., New Products Management
Product life cycle (McGraw-Hill, 2014).
Product line Haines, S., The Product Manager’s Desk Reference (McGraw-Hill, 2014).
Lehmann, D. and Winer,R., Product Management (McGraw-Hill, 2004).
Product mix
Loch, C. and Kavadias, S., Handbook of Product Management
Quality
(Butterworth-Heinemann, 2008).
Raw materials Pichler, R., Strategize: Product Strategy and Product Roadmap Practices
Service for the Digital Age (Pichler Consulting, 2016).
Shopping products Trott, P., Innovation Management and New Product Development
Speciality products (FT/Pearson, 2016).
Unsought products Wind, Y.J., Product Policy: Concepts, Methods and Strategy (Addi-
Width (of product mix) son-Wesley, 1982).

Goodyear tyres ‘Just when you thought our leg-
endary hatchback couldn’t get any
In addition to providing information about the company’s prod-
better, along comes the stunning
ucts, Goodyear’s website helps customers to find the exact
new Golf’, stated the VW website. The Volkswagen Golf is
products they want and will even direct them to the nearest
over 40! Yet VW is celebrating the launch of the latest gen-
Goodyear retailer. Visit the Goodyear site at: www.goodyear.eu/
eration of the model, which seems to have defied middle
en_gb/consumer.html#/.
age and maintained its status as a trendy brand. The motor-
1. How does Goodyear use its website to communicate
ing magazines commented about its advantages ‘brushing
information about the quality of its tyres?
the others aside’ (What Car? ) and ‘quieter, plusher and
2. How does Goodyear’s website demonstrate product completely redecorated’ (Car Magazine). These plaudits
design and features? and sales figures vindicate VW’s decision to continually
3. Based on what you learned at the website, describe upgrade the Golf, rather than replace it with a different
what Goodyear has done to position its tyres. model.
Source: www.volkswagen.co.uk/#/new/golf-vi
Group tasks
1. Your team is made up of managers working for a well-
Question
known travel brand. Your new CEO wants lots of ideas
for new products to launch. What is the best way to gen- Several years from now you have secured a job as brand
erate these ideas and how would you determine which manager for the Golf. Assume that VW is about to make
ideas are preferable? a decision about whether to launch a new generation of
2. Consider a leading hotel brand such as Hilton, Marriott or the Golf or replace it with a new model with a new name.
Holiday Inn. To this brand’s guests, what is the product? Prepare a report arguing in support of one of these options.
For their marketers, which facets of the product permit You should explore the arguments for and against each
differentiation? option.
Heineken’s portfolio of brands such as Amstel and Desperados,

brands Case study alongside numerous local ‘champion’ or
regional brands. Heineken brews and sells
Heineken is Europe’s largest brewer, having more than 300 international premium,
acquired part of the UK’s Scottish & Newcas- regional, local and speciality beers and
tle. While 50 per cent of its sales are European, ciders, including Primus, Birra Moretti, Sagres,
worldwide Heineken the company is one of the biggest beer Cruzcampo, Foster’s, Strongbow, Bulmers, New-
and cider businesses. Heineken beer is recognized around the castle Brown Ale, Zywiec, Ochota, Kingfisher, Tiger, Red
globe. With a presence in more than 178 countries and more Stripe, Stassen, Blind Pig, Equis, Tecate and Sol (www.heinek-
than 90 per cent of sales originating outside the d omestic eninternational.com/aboutheineken.aspx).
Dutch market, Heineken has been described as the most Many acquisitions over the past decade have cemented
international beer brand. However, there is more to the the company’s number one status in Europe. One of the latest
company than the single Heineken brand. While some rivals was Slovenia’s Pivovarna Lasko. In Europe, despite the mass
have tackled the global market with a strategy of focusing appeal of the Heineken brand, to stay ahead of the competition
only on international premium beer brands, Heineken has the company has to adjust its product mix to suit the needs
adopted a tiered approach, with strong international premium of different countries, fitting in with local cultures and tastes.
This strategy has been adopted globally. Heineken offers a

portfolio of three core brands in each country:
1. A local brand, aimed at the standard and largest market

segment. In Italy this is Dreher, in France ‘33’ and in
Spain Aguila Pilsener.
2. A brand targeted at the ‘upper’ end of the market; some-
times this is a locally produced brand, such as the Span-
ish Aguila Master, in other cases Amstel is preferred.
3. The eponymous Heineken brand itself, aimed at the
premium market segment; the beer offered may be man-
ufactured locally or it may be exported from the Nether-
lands; either way, the Dutch head office works hard to
maintain product quality and brand image. zero alcohol brands 0.0% MAXX and Radler 0.0% also have
As the company explains, been making inroads. More recently, significant sales growth
‘The consistent growth of our brands requires solid creative brand
has come from its cider business, built on UK brands Strong-
management, which we coordinate centrally. By carefully balanc- bow and Bulmers as well as Old Mout from New Zealand.
ing our brand portfolios and achieving optimal distribution and
Sources: www.Heineken.com, 2004–2018; www.heinekeninternational.com/
coverage, we aim to build and sustain strong positions in local
aboutheineken.aspx, 26 November, 2007; www.heinekeninternational.com,
markets. For the Heineken and Amstel brands, we develop and 5 March 2011 and March 2018; www.heineken.co.uk, 2010/11; www.
maintain central guidelines and standards for brand style, brand theheinekencompany.com /investors/performance-highlights-2014 and
value and brand development.’ March 2018.
Sales of Heineken in the premium segment are rising at

around 3.4 per cent per annum. No other brewer has secured Questions for discussion
strong market positions in as many countries and no indi- 1. Why does Heineken opt for a mix of internationally
vidual beer brand is as successful in as many countries as known brands marketed alongside local beers?
the Heineken brand. Heineken is market leader in Austria,
2. In what ways is Heineken continuously updating its prod-
Romania, Hungary, Poland, Slovakia, Bulgaria and Macedonia,
uct portfolio and its marketing mix?
illustrating the company’s identification some time ago of the
growing commercial opportunities in eastern Europe, where 3. What problems are likely for Heineken from trading such
there have been many acquisitions of local brewers. Low and a large portfolio of beer and cider brands?
Chapter 11
Branding and packaging
Marketers must create and manage powerful, compelling
and stand-out brands
INTRODUCTION
Objectives Effective marketing requires product or service differentiation.
Such differentiation entails product design, features and attri-
To recognize the importance of
butes, customer service, branding and the other ingredients of
brands and brand equity.
the marketing mix, linked to a strong customer value proposi-
To understand the types and ben- tion. These need to appeal to targeted consumers or business
efits of brands and how to select, customers more than competing brands do. Branding is seen
name, protect and licence them. as a core activity of a company’s marketing function. Inside
most organizations there is little disagreement . . . marketers
To explore the concepts of brand
are responsible for brand strategy and brands.
loyalty, brand advocacy and brand
Brands enable customers to readily identify their favoured
communities.
products and marketers to more easily communicate their
To appreciate the best practice advantages. Marketers invest vast sums in persuading tar-
guidelines for creating strong geted customers to prefer their products over and above those
brands. supplied by competitors, as they strive to create brand loyalty
or brand preference. Effectively creating a well-differentiated
To examine the roles of brand
and memorable image for the brand is a core requirement for a
attributes, brand values and brand
marketing-oriented organization.
personality in brand development.
Brand equity is increasingly important in many boardrooms
To explore the changing nature of and results from the financial and marketing value that can be
branding in the digital era. placed on a brand owing to its market position and standing.
Brand awareness, brand loyalty, perceived brand quality and
To understand the role of branding
brand associations create brand equity. An effective brand has
at the corporate level and in reputa-
what is termed ‘brand strength’, and generally, to achieve a
tion management.
strong brand, marketers will have defined brand attributes,
To become aware of the major values and personality for their brands. These constructs are
packaging functions and packaging explored in this chapter of Marketing: Concepts and Strategies.
design considerations. Packaging and labelling are also part of the marketing pro-
cess and marketing mix. Packaging includes the immediate
To consider the ways in which
container (the primary packaging) and the shipping packaging
packaging is used in marketing
(the secondary packaging). Both need to exhibit functionality in
strategies.
order to protect and convey the product inside, and facilitate
To examine the functions of label- its easy use and storage. Additionally, packaging should sup-
ling and the legal issues associated port the product’s branding and differentiation. Many products,
with labelling. particularly those found in supermarkets, explicitly use their
pack designs to support their brand identities.
318
Chapter 11 Branding and packaging 319
Polos: are you a sucker?

A t a factory in York,
each day a mountain
of thumbnail-sized tyre-
Or are you a cruncher?
to their size. This super-
strength mint not only
appealed to traditional
shaped white mints is deemed Polo mint buyers, but also
slightly imperfect: chipped, enabled the brand to compete
broken or improperly moulded. The head-to-head with the plethora of
sight is awe-inspiring, but gives a clue as to the volume of extra-strong mints produced by rival
perfectly formed Polo mints manufactured: 20 million are manufacturers such as Trebor. The new size and extra-strong
produced each day in York, and Nestlé makes 5.2 billion each Polo would inevitably have caught the eye of confectionery
year. 150 mints are eaten every second. Nestlé’s takeover of buyers on the back of the Polo heritage and the extensive
the UK’s Rowntree – creator of the Polo – assured the world distribution network established by the mighty Nestlé.
domination of Polo, ‘the mint with the hole’. Marketers at Nestlé wanted to ensure a successful launch
Polo is the UK’s top-selling mint and has established lead- and were determined to make the new item distinctive and
ership in many other countries, too. It was not too long before appealing in its own right. The innovative packaging design
trial flavours and strengths were tested by product develop- and eye-catching styling made an immediate impact in a
ers at Nestlé. For example, in India there was a cinnamon rather crowded marketplace. The Supermints were packed
flavoured Polo to ‘spice things up, while being refreshing’. in plastic dispensers, developed by RPC Market Rasen, which
Now there are Polo Original, Polo Spearmint, Polo Sugar Free, were shaped as giant versions of the original and very familiar
Polo Extra Strong and Polo Fruits. Last year, Nestlé innovated Polo mint. The pack housed a pop-up hatch that enabled it
with Polopots; recyclable plastic pots each containing 44 to dispense individual mini-Polos and to be resealed easily.
mints and available in three varieties: Original, Sugar Free The regular user soon developed the ability to dispense
and Sugar Free Extra Strong. one-handed and in suitable quantities to appease friends
Back in 1998 saw one of the most successful spin-offs also requiring a refreshing treat. The plastic dispenser was
from the original Polo concept: the sugar-free Polo Supermint, packaged in a cool blue, square container with eye-catching
for ‘instant refreshment’. This was not only a masterful brand graphics, permitting easy stocking and shelf displays.
extension of the Polo name but also proved to be an inspired Nestlé explained that while the mini-Polos were launched
packaging execution. to celebrate the Polo brand’s 50th birthday, the new item
The Polo Supermint from Nestlé was even awarded emerged as one of the company’s greatest successes ever.
Millennium Products status by the Design Council, an acco- Nestlé believed this demonstrated that it is possible to inno-
lade reserved for just a few new designs. The new mini-mints vate with a brand now over 65 years old. The Supermints line
‘with the hole’ weighed only a tenth of the original, yet con- matched the brand values and positioning of the original Polo
tained four times the amount of peppermint oil in relation mint: an effective brand extension must have an affinity with
existing brand values. This, and other related Polo product
developments, reflected competitor moves and responded to
consumer tastes. With the Polo Supermint, the combination
of astute branding and clever packaging certainly created a
very successful product for Nestlé and a welcome alterna-
tive for Polo fans. Few products have been able to achieve
such strong branding on the basis of shape and distinctive
packaging.
References: The Museum of Brands, 2011 and 2014; Nestlé Rowntree, York,
1999; One Stop, 2011; Marketing, 4 February 1999, p.22; www.nestle.co.uk,
May 2004 and January 2008; www.nestle.in, January, 2008; www.polomint.
co.uk, 2–11 June; www.nestle.co.uk/brands/chocolate_and_confectionery,
April 2015 and March, 2018.
B
rands and packages are part of a product’s tangible features, the verbal and physical cues
that help customers identify the products they want and influence their purchase choices.
For Nestlé’s Polo mints, branding and packaging have been central to the product’s suc-
cess. A good brand is distinctive and memorable; without one, companies could not differentiate
their products and shoppers’ choices essentially may be arbitrary. A good package design is cost
effective, safe, environmentally responsible and valuable as a promotional tool.
This chapter first defines branding and explains its benefits to customers and sellers; it exam-
ines the important concept of brand loyalty, the role of digital brand communities and brand advo-
cacy; then examines the importance of brand equity, brand attributes, values and personality, strong
brands and the various types of brand. The chapter should be read in conjunction with Chapter 8
of Marketing: Concepts and Strategies, which explored brand positioning and the creation of a suit-
able image for a brand. The next section of this chapter examines how companies choose brands,
how they protect them, the various branding policies that companies employ and brand licencing.
The changing nature of branding in the digital era is explored. The chapter goes on to discuss how
organizations manage brands and how they ensure that they contribute effectively to a company’s
fortunes and reputation. Packaging is then the focus, as part of the product and how it is marketed:
the functions of packaging, issues to consider in packaging design, packaging development and
how the package can be a major element in marketing strategy. After considering criticisms of pack-
aging, the chapter concludes with a brief discussion of labelling.
Branding
Most marketers believe a key focus for their activity is the differentiation of their product proposition
vis-à-vis competing products and services. For many consumers, services or business products,
such differentiation entails a mix of product design, features and attributes, along with the creation
of a distinctive image. This generally involves creating a brand and brand identity for products
or services. Indeed, without distinctive branding, many service products, in particular,
brand would struggle to differentiate themselves against rivals (see Chapter 13).
A name, term, design,
In addition to making decisions about actual products, as described in Chapter 10,
symbol or any other fea-
ture that identifies one marketers must make many decisions associated with branding, such as brand archi-
seller’s good or service tecture, brand names, brand marks, trademarks and tradenames, as well as the over-
as distinct from those of arching guiding brand strategy. A brand is a name, term, design, symbol or any other
other sellers. feature that identifies one seller’s good or service as distinct from those of other sellers.
A brand may identify one item, a family of items or all items of that seller.1 A brand name
is that part of a brand that can be spoken and depicted – including letters, words and
brand name numbers – such as Coca-Cola or Channel Four. A brand name is often a product’s only
That part of a brand that
distinguishing characteristic. Without the brand name and how it is depicted, a company
can be spoken, includ-
ing letters, words and could not identify its products, which is one of the reasons moves to ban branded ciga-
numbers. rette packaging caused anguish for the tobacco industry. Note how many TV channels
display their channel identifier or logo throughout a programme and how much brand
building goes on with short brand inserts between programmes or either side of news
brand mark bulletins. To consumers, brand names are as fundamental as the product itself. Brand
The element of a brand names simplify shopping, guarantee a specific level of quality and allow self-expression.
that cannot be spoken, Table 11.1 details the world’s most valuable brands. For many marketers, establishing
often a symbol or design.
a distinctive brand, which is easily remembered and recognized by targeted customers,
is one of the primary activities of effective marketing management.
The element of a brand that is not made up of words but is often a symbol or design
trademark
Legal designation indi-
is called a brand mark. One example is the symbol of a baby on Procter & Gamble’s
cating that the owner has Fairy Liquid detergent. Occasionally, brand marks are modified for local markets. For
exclusive use of a brand. example, Microsoft topped its brand name with a butterfly in France, a fish in Portugal
and a sun in Spain. A trademark is a legal designation indicating that the owner has
Table 11.1 Interbrand’s most valuable brands by $m value, 2017
Brand Country of origin Brand value ($m) Brand Country of origin Brand value ($m)
Apple USA 184 154 Cisco USA 31 930
Google USA 141 703 Oracle USA 27 466
Microsoft USA 79 999 Nike USA 27 021
Coca-Cola USA 69 733 Louis Vuitton France 22 919
Amazon USA 64 796 Honda Japan 22 696
Samsung S Korea 56 249 SAP Germany 22 635
Toyota Japan 50 291 Pepsi USA 20 491
Facebook USA 48 188 H&M Sweden 20 488
Mercedes Benz Germany 47 829 Zara Spain 18 573
IBM USA 46 829 IKEA Sweden 18 472
GE USA 44 208 Gillette USA 18 200
McDonald’s USA 41 533 AmEx USA 17 787
BMW Germany 41 521 Pampers USA 16 416
Walt Disney USA 40 772 UPS USA 16 387
Intel USA 39 459 JP Morgan USA 15 749
Source: Interbrand’s Best Global Brands 2017 report is a look at financial performance of the brand, role of brand in the purchase decision process and the
brand strength. Go to www.bestglobalbrands.com for more information.
exclusive use of a brand or a part of a brand, and that others are prohibited by law from
trade name
The full and legal name using it. To protect a brand name or brand mark, a company must register it as a trade-
of an organization. mark with the appropriate patenting office. A trade name is the full and legal name of an
organization, such as Ford Motor Company, rather than the name of a specific product.
Benefits of branding
Branding provides benefits for both buyers and sellers.2 Brands help buyers identify specific
products that they do and do not like, a process that in turn facilitates the purchase of items that
satisfy their needs and reduces the time required to purchase the product. Without brands, prod-
uct selection would be quite random, because buyers could have no assurance that they were
purchasing what they preferred. Imagine the chaos in a supermarket if every shopper entered not
knowing which products and brands to purchase! Research indicates that the bulk of supermarket
shoppers are highly brand loyal or routinized in their selections.
A brand also helps buyers evaluate the quality of a product, especially when they are unable
to judge its characteristics. In other words, a purchaser for whom a brand symbolizes a certain
quality level will transfer that perception of quality to the unknown item. A brand helps to reduce a
buyer’s perceived risk of purchase. In addition, it may offer the psychological reward that comes
from owning a brand that symbolizes status. Certain brands of watches (Rolex) and cars (Rolls-
Royce) fall into this category.3
Sellers benefit from branding because each company’s brands identify its products, which
makes repeat purchasing easier for consumers. Branding helps a company introduce a new
product that carries the name of one or more of its existing products, because buyers are already
familiar with the company’s existing brands. For example, Heinz regularly introduces new prod-
ucts, and the introduction of the new BMWi range of electric cars was smoother because of the
credibility provided by BMW’s brand reputation. As consumers are used to buying the brand and
have a high regard for its quality, they are likely to try the new offerings. Branding also facilitates
promotional efforts because the promotion of each branded product indirectly promotes all other
products that are similarly branded.
brand loyalty
Branding helps sellers by fostering brand loyalty. Brand loyalty is a strongly moti-
A strongly motivated and vated and long-standing decision to purchase a particular product or service. To the
long-standing decision extent that buyers become loyal to a specific brand, the company’s market share for that
to purchase a particular product achieves a certain level of stability, allowing the company to use its resources
product or service. more efficiently.4 Loyal customers are highly desirable and much marketing activity is
aimed at reassuring existing customers and canvassing their ongoing support and
interest. Marketers include different aspects of their marketing mix designed to retain
existing customers’ interest as well as ingredients intended to woo new customers. It should be
stated that some experts argue that there is not really true brand loyalty, as many consumers
are quite prepared to try alternatives when the mood takes or promos inspire them to do so, but
there is certainly in most markets evidence of stated brand preference amongst many consumers
and many buyers have highly routinized purchasing behaviours.5 When a company succeeds in
fostering some degree of customer loyalty to a brand, it might be able to charge a premium price
for the product.6 For example, brand-loyal buyers of Anadin aspirin are willing to pay two or three
times more for Anadin than for a generic brand of aspirin with the same amount of pain-relieving
agent. Tilda rice commands a significant price premium over competing brands of rice, partly due
to its brand reputation. For a brand to foster loyalty over time it must be able to deliver a valued
and consistent experience, otherwise its customers will switch to alternatives. Consumers and
business customers must be able to have trust in ‘their’ brand, if they are to continue to prefer it
over time. Ongoing consistency in customer experience is an important necessary outcome for
effective brand management.
However, brand loyalty is argued to be declining, partly because of marketers’ increased reli-
ance on discounted sales, coupons and other short-term promotions, and partly because of the
sometimes overwhelming array of similar new products from which consumers can choose. The
emergence of increased consumer-to-consumer communication and e-word-of-mouth means
so much brand communication now stems from other consumers rather than the brand’s man-
agers. There is evidence that consumers value such opinions and can be steered away from
their once-preferred brands because of negative chatter online. The power of digital communica-
tion operates the other way, too. The growth of consumer-to-consumer communication, fostered
by social media networking, quickly creates interest in a product or brand, prompting others to
experiment or try out the much tweeted-about brand. For example, if a well-known celeb tweets
about a great experience with a brand, many followers will try it out. To stimulate loyalty to their
brands, some marketers are seeking endorsements from vloggers, stressing image advertising,
mailing personalized catalogues and magazines to regular users, and creating membership clubs
for brand users; for example, Tesco’s Clubcard or Sainsbury’s Nectar points. Many brands have
created digital or virtual brand communities in order to foster interest and some degree of loyalty
in their proposition. Sometimes consumers make repeat purchases of products for reasons other
than brand loyalty. Spurious loyalty is not stable and may result from non-availability of alternative
brands or the way in which products are displayed in retail outlets.
An interesting spin-off from increased web access and the growth of social media
brand community
has been the creation of digital brand communities.7 Designed to foster both loyalty to
A group of consumers a particular brand and interest in its products/services, a brand community is a group
and observers focused of consumers and observers focused on a particular brand, often web-based, centred
on a particular brand, on a set of social relations and interactions amongst admirers of the brand.8 The digital
often based on social Harley Davidson Owners’ Club is a typical example, and one well-adopted by fans of
media, centred on a
set of social relations
this brand. Brand communities generally are controlled and instigated by the brand’s
and interactions among owner for commercial gain, but buy-in from followers of the brand creates much of
admirers of the brand. the content, activity and dialogue. Mobile phone provider Geocell in Georgia created a
separate brand targeted at its youth consumers, based on an online community. Lai-Lai
offers its cellular network subscribers live music events, merchandise, special tariffs,
blog communities
Where spokespersons for game and music downloads and the opportunity to create their own friendship groups.
a brand share their views In this way, Geocell has created a strongly bonded set of consumers tied in to its Lai-Lai
in blogs, permitting one- brand, which is aimed at 15- to 25-year-olds.
to-one tailored communi- Blog communities, such as the Nike blog The Art of Speed – which was one of
cation with members and
the first – are an enhancement, where spokespersons for a brand share their views in
between members of the
digital brand community. blogs, permitting tailored communication with members and between members of the
digital brand community. Technology in the form of digital brand communities and blogs
enables so-termed dynamic branding, with very rapid communication and sharing
dynamic branding of brand information and almost instant take-up by the brand’s followers.9 Companies
Digital brand communi- increasingly view such digital brand community activity as core to their attempts to build
ties and blogging enable loyalty and to create brand advocacy. Brand advocacy is where consumers are encour-
dynamic branding, with
aged to share very positive feelings towards a brand with other consumers, whether
very rapid communica-
tion and sharing of brand word-of-mouth, online or in the print and broadcast media. Many people believe in the
information and almost views of others who are ‘like them’ more than they trust the statements of companies
instant take-up by the and brands. Creating a set of brand ambassadors, advocates or evangelists is on the
brand’s followers. increase, made so much easier in the digital era. This development also permits trash-
talking about a brand which is falling out of favour.
The strategy literature has suggested that the concept of brand advocacy is more
brand advocacy important than tracking customer satisfaction or even loyalty, as it is a business strategy
When consumers are
built on trust. In a digital world in which rapid communication of positives and negatives
encouraged to share very
positive feelings towards is possible, often from consumer-to-consumer outside of the brand manager’s control,
a brand with other having a set of brand ‘super fans’ who truly trust the brand and will both defend it and
consumers, whether promote it, may even be a competitive advantage. A customer brand advocate differs
word-of-mouth, online from being a supporter, influencer, loyalist or satisfied customer. A brand advocate
or in the print and
supports the brand, actively promotes the brand and is also emotionally attached to
broadcast media.
the brand. S/he will silence detractors, help build a positive customer experience and
share exemplars of the brand ‘going that extra mile’. It is likely that more and more
brand advocate
brands will develop both brand communities and a subset of super fans acting as
Supporter of a brand brand advocates. One leading food brand has created a ‘club’ of consumers who
who actively promotes adore its products, who are given inside information about new launches and invi-
the brand and is also tations to special events, such as live sessions with well-known chefs. These enthu-
emotionally attached siasts readily share their positive views of this brand with their families, friends and
to the brand. S/he will
silence detractors, help
colleagues, and online with other consumers, so becoming brand advocates or super
build a positive customer fans. While communicating one-to-one with such advocates is more costly per capita
experience and share than television advertising, many brand experts argue such consumer-to-consumer
exemplars of the brand advocacy is very cost effective in terms of its impact and for persuading others to trial
‘going that extra mile’. a brand. This theme is explored further in Chapter 16 of Marketing: Concepts and
Strategies.
For most marketing managers, two long-established performance metrics are to
brand recognition
assess the level of repeat purchasing and customer loyalty to a brand. There are three
A customer’s awareness
that a brand exists degrees of brand loyalty: recognition, preference and insistence.
and is an alternative to
purchase. Brand recognition Brand recognition exists when a customer is aware that a brand
exists and views it as an alternative to purchase if the preferred brand is unavailable or if
the other available brands are unfamiliar to the customer. This is the mildest form of brand
brand preference loyalty. The word loyalty is clearly being used very loosely here. One of the initial objectives
The degree of brand of a marketer introducing a new brand is to create widespread awareness of the brand in
loyalty in which a
customer prefers one
order to generate brand recognition. This theme is considered in Chapter 16.
brand over competitive
offerings. Brand preference Brand preference is a stronger degree of brand loyalty in which
a customer definitely prefers one brand over competitive offerings and will purchase this
brand if it is available. However, if the brand is not available, the customer will accept a substitute
brand rather than expend additional effort finding and purchasing the initially preferred brand.
A marketer is likely to be able to compete effectively in a market when a number of customers
have developed brand preference for that specific brand.
brand insistence Brand insistence Brand insistence is the degree of brand loyalty in which a cus-
The degree of brand tomer strongly prefers a specific brand, will accept no substitute and is willing to spend
loyalty in which a cus- a great deal of time and effort to acquire that brand. If a brand-insistent customer goes
tomer strongly prefers a to a store and finds the brand unavailable, rather than purchasing a substitute brand,
specific brand and will
s/he will seek the brand elsewhere. Brand insistence is the strongest degree of brand
accept no substitute.
loyalty. It is a marketer’s dream. However, it is the least common type of brand loyalty.
Customers vary considerably regarding the product categories for which they may be
brand insistent.10
brand equity Brand equity

The marketing and finan-
cial value associated A well-managed brand is an asset to an organization. The value of this asset is often
with a brand’s strength referred to as brand equity. Brand equity is the marketing and financial value associ-
in a market, which is a ated with a brand’s strength in a market. Besides the actual proprietary brand assets,
function of the goodwill such as patents and trademarks, four major elements underlie brand equity. These
and positive brand components are brand name awareness, brand loyalty, perceived brand quality and
recognition built up over
time, underpinning the
brand associations, as shown in Figure 11.1.11 Brand equity is a function of the goodwill
brand’s sales volumes and positive brand recognition built up over time, which underpin sales volumes and
and financial returns. financial returns. Strong brand equity should equate to higher sales and margins vis-à-
vis competing brands.
Brand Brand Brand Brand

+ + + = BRAND EQUITY
awareness loyalty quality associations
Figure 11.1
Major elements of brand equity
Being aware of a brand leads to brand familiarity, which in turn results in a level of comfort with
the brand. A familiar brand is more likely to be selected than an unfamiliar brand because often
the familiar brand is viewed as reliable and of acceptable quality compared to the unknown brand.
The familiar brand is likely to be in a customer’s evoked set (see Chapter 5), whereas the unfamiliar
brand is not.
Brand loyalty is a valued component of brand equity because it reduces a brand’s vulnerability
to competitors’ actions. Brand loyalty allows an organization to keep its existing customers and
avoid having to spend enormous amounts of resources gaining new ones. Loyal customers pro-
vide brand visibility and reassurance to potential new customers. Because customers expect their
brand to be available when and where they shop, retailers strive to carry the brands known for
their strong customer following.
Customers associate a certain level of perceived overall quality with a brand. A brand name
itself stands for a certain level of quality in a customer’s mind and is used as a substitute for actual
judgement of quality. In many cases, customers cannot actually judge the quality of the product for
themselves and instead must rely on the brand as a quality indicator. Perceived high brand quality
helps to support a premium price, allowing a marketer to avoid severe price competition. Favour-
able perceived brand quality can ease the introduction of brand extensions, as the high regard for
the brand is likely to translate into high regard for the related products.
The set of associations linked to a brand is another key component of brand equity. At times
a marketer works to connect a lifestyle, or in some instances a certain personality type, with a
particular brand. For example, customers associate Volvo cars with protecting family m embers;
a De Beers diamond with a loving and long-lasting relationship (a diamond is for ever); and Dram-
buie liqueur with a unique taste. These types of brand association contribute significantly to the
brand’s equity.
Although difficult to measure, brand equity represents the value of a brand to an organization.
An organization may buy a brand from another company at a premium price because outright
brand purchase may be less expensive and less risky than creating and developing a brand from
scratch. For example, Kraft acquiring Cadbury’s strong portfolio of brands. Brand equity helps to
give a brand the power to capture and maintain a consistent market share, which provides stability
to an organization’s sales volume. The top brands with the highest economic value are shown in
Table 11.1. Any company that owns a brand listed in Table 11.1, such as Nestlé with Nescafé,
would agree that the economic value of that brand is likely to be the greatest single asset in the
organization’s possession. A brand’s overall economic value rises and falls with the brand’s prof-
itability, brand awareness, brand loyalty, perceived brand quality and strength of positive brand
associations.
brand identity Brand identity

A unique set of brand
Leading brand strategists have promoted the notion of brand identity, said to be a
associations reflecting
what a brand stands for unique set of brand associations reflecting what a brand stands for and the intended
and the intended prom- promise to the customer as a relationship is forged.12 Brand identity is composed of attri-
ise to the customer as a butes of the product and its usage, the organization’s attributes, the brand’s personality
relationship is forged. and its symbols and imagery. Marketers should manage their brands’ identities, ensuring
they reflect target segment expectations and the nature of the competitive challenge.
More recently this construct has been extended13 to include:
●● Physique: tangible characteristics which can be recognized by consumers’ senses (shape,
smell, colour, sound, taste, etc.).
●● Personality: human characteristics associated with the brand (caring, arrogant, loving, bullying,
money-grabbing, sharing, etc.).
●● Culture: the underlying values and behaviours of the organization (challenging, ethical, collabo-
rative, innovative, conservative, etc.).
●● Relationship: the nature and quality of the brand-customer relationship (supportive, friendly,
aggressive, authoritative, etc.).
●● Reflection: the brand as a communication tool (a premium deluxe brand reflects status).
●● Self-image: internal reflection (rewards, benefits, exhibited image, etc.).
Brand personality and brand attributes are important to understand and to agree. They must
be aligned with the organization’s values and behaviours, to avoid customer dissatisfaction when
engaging with the brand.
Brand personality, values and attributes

brand attributes Most companies have identified specific attributes that should be linked to their brands
The bullet-point specific
benefits to the customer
and emphasized in associated brand communication. Brand attributes are the bullet-
from purchasing or using point selling-type features listed in brochures or in an advertisement: the specific bene-
the brand. fits to the customer from purchasing or using the brand. Two decades ago, it became
fashionable to also identify brand values, to help differentiate a brand and build its
appeal to target audiences, particularly those within an organization. Brand values

brand values
The emotional benefits are the emotional benefits and less tangible identifiers attached to the brand, creating
and less tangible a sense of identity and purpose within the organization, providing reassurance and
identifiers attached to credibility for employees and, indirectly, targeted consumers or business customers,
the brand inside the and supplementing the specific brand attributes in making the brand attractive to
organization, providing
current or potential purchasers. Brand values focus on those inside the organiza-
reassurance and cred-
ibility for employees tion, to help foster a collegiality around the brand that ultimately will manifest itself to
and, indirectly, targeted customers and suppliers. For example, IT services company Fujitsu has many brand
consumers or business attributes, including its ability to manage business clients’ IT infrastructure, offer the
customers. latest technology and thinking, and be cost effective and reliable. Its brand values are
defined as knowledge, dependability, technical excellence, reassurance and passion,
but to staff the message is that ‘we tell it as it is’. These values are far more emotional
than the brand attributes. It is important that the internal values and behaviours are aligned to
the brand attributes and personality relayed to external audiences, otherwise the adopted brand
strategy will falter.
Practitioners’ use of the Marketing The company had traded under dif-
brand development theory: tools and ferent names across the world and
in the UK was once familiar to busi-
the brand personality grid techniques ness clients as ICL. Fujitsu decided
to maximize its global standing under
Leading branding exponents, such as
the Fujitsu name and looked to create
Prophet (David Aaker) and Interbrand,
a leading brand. Globally, Fujitsu is the world’s number
suggest that organizations identify core values that are evi-
four IT services company. In the UK, Fujitsu handles IT out-
dent in their business capabilities and behaviours and which
sourcing and management for major banks and retailers,
are reflected in their brands’ positioning. Specific features or
central and local government, the Post Office and many
attributes that can be construed as brand benefits should be
manufacturers.
defined. However, in order to truly make a brand ‘come alive’
The old brand in the UK was somewhat staid: hardware-
and be distinctive in the marketplace a brand personality
led, overly ‘techy’, ‘grey’ and stood for ICL’s old values from
should be specified to create emotion. Such personality traits
when the company focused on producing mainframe com-
are the emotive characteristics of the brand, whereas the brand
puters rather than offering innovative IT solutions and man-
benefits are more tangible and specific attributes, as outlined
agement options to leading-edge businesses. The new-look
below. The internal brand values need to be aligned to these
Fujitsu is a dynamic, progressive, forward-thinking business,
external brand attributes and personality traits, o therwise the
partnering other leading-edge suppliers to address clients’
company’s behaviours will disappoint customers.
fast-changing IT requirements and to help clients to transform
1. Personality their business practices.
What sets the company apart/describes its character and There are many providers of IT support and many may be
personality emotionally. able to offer the brand benefits stated on the following page, in
2. Values the right-hand column. However, fewer B2B companies could
The heart of the organization’s ethos and values as per- claim to have a reputation for being caring, passionate, likeable,
ceived internally within the company. dependable and knowledgeable about clients’ business issues.
Certain rivals would struggle to be described by clients as car-
3. Brand benefits/attributes
ing, likeable or dependable. In IT services, interpersonal rela-
Detailed/specific features of benefit to the customer;
tionships between the supplier and the client are of paramount
Fujitsu’s evolving branding is a good example of this.
importance. Clients also perceive high risks in handing over
Japanese-based Fujitsu is one of the world’s biggest their IT – on which the success of their operations may depend
businesses, focusing mainly on electronics and IT services. – to a third party. The brand values and brand personality
suggested in this analysis would be highly attractive to many Fujitsu

senior executives in current or potential business clients. The Possibilities are Infinite
Having developed a brand proposition personality, values
Brand personality Brand values Brand benefits
and attributes as hypothesized in the example to the right, the
marketing challenges are then to ensure that:
Friendly people Knowledge Infrastructure
●● all promotional activity reflects this overall message Customer’s business management
Customer-focused Across sectors
●● any interface with clients and suppliers or partners Free-up resources
Dependability
conveys these sentiments, whether in print format, Confident Trusted to deliver Operational efficiency
e-communications, broadcast media or even with any 30/40-year
Customers enabled
personnel meeting and when working with clients. Dynamic track record
to focus on
Technical
their business
In addition to developing suitable marketing communi- Future-focused excellence
imperatives
cations materials, therefore, there is a core requirement to At forefront
Passionate of change Latest technology
ensure that a company’s workforce understands and utilizes
Tap into Fujitsu’s
the brand proposition developed, not only a company’s mar- Total solutions
Likeable staff huge R&D
keters. There is a requirement for internal marketing to share Passion Leading-edge
these messages. Global Staff are passionate partnerships
The brand personality grid for Fujitsu could easily look like Deliver for customers
Reliable
Collaboration
this:*
Working together Cost effective
Networking with
*The suggested brand personality grid for Fujitsu is an external partners
observer’s view and does not necessarily reflect the company’s own
analyses or intended brand strategy. © Dibb/Simkin
Many branding experts argue that in addition to brand attributes and brand values, an effective
brand strategy should identify brand personality variables, in order to facilitate greater differentia-
tion in relation to competitors’ products and to form a stronger affinity with customers.14
Brand personality traits are the psychological cues and less tangible desirable facets
brand personality
The psychological cues of a well-presented brand. They provide the emotion for the brand’s messaging. In
and less tangible desir- Fujitsu’s case, the brand personality variables include having friendly, customer-focused
able facets of a well- personnel who are confident, technically savvy and passionate about assisting clients
presented brand. to improve their organizations. In the market for IT services to large corporations these
are desirable traits. Many companies readily identify the brand attributes and, after a little
deliberation, they are able to scope out a few brand values. However, the identification
of an attractive set of brand personality traits is often more difficult. Tesco has many brand attri-
butes, but what is its brand personality? Once developed, such emotive sentiments often ‘bring
the brand to life’ and help to establish differentiation vis-à-vis rivals. Brand personality traits and
brand attributes together combine to present a compelling proposition to targeted consumers or
business customers, offering both the emotion of the brand and specific attributes deemed desir-
able to these targeted customers.
Implicit in this discussion is the need to determine a strong and relevant brand image that is
managed effectively. As explained in Chapter 8’s examination of brand positioning, a management
team must determine the desired brand proposition and manage its portfolio of brands in order
to ensure that the target market recognizes the specified brand attributes, values and personality.
Targeted customers should never be left to deduce for themselves a brand’s proposition and
messages. Marketers must debate and agree the basis for their branding. The role of the brand
manager and the management of portfolios of brands are examined in Chapter 12.
Figure 11.2
There are many examples of retailer
own-label brands, but Marks & Spencer
deliberately created a stand-alone brand
for its own, highly popular range of Per Una
clothing emulating the major manufacturer
brands.
Types of brand
There are three categories of brand: manufacturer brands, own label brands (also called private
brands, store brands or dealer brands) and generic brands.
manufacturer brands
Manufacturer brands Manufacturer brands are initiated by producers and ensure
Brands initiated by that they are identified with their products at the point of purchase; for example, Green
producers to ensure that Giant, Apple and Wall’s ice cream. A manufacturer brand usually requires a producer to
they are identified with become involved in distribution, promotion and, to some extent, pricing decisions. Brand
their products at the loyalty is encouraged by promotion, quality control and guarantees; it is a valuable asset
point of purchase.
to a manufacturer. The producer tries to stimulate demand for the product, which tends
to encourage stockists to make the product available (stock).
own label brands

Own label brands Own label brands are initiated and owned by resellers (wholesalers
Brands initiated and or retailers). The major characteristic of own-label brands is that the manufacturers are
owned by resellers not identified on the products. Retailers and wholesalers use these brands to develop
wholesalers or retailers. more efficient promotion, to generate higher gross margins and to improve store images.
Own label brands give retailers or wholesalers freedom to purchase products of a speci-
fied quality at the lowest cost without disclosing the identity of the manufacturer. Whole-
sale brands include Intersport, Family Choice, Happy Shopper and Lifestyle. Familiar retailer brand
names include Per Una (Marks & Spencer as Figure 11.2 illustrates), Yessica (C&A) and George
(Asda). Many successful own label brands are distributed nationally and are as well-known as most
manufacturer brands. Sometimes retailers with successful distributor brands start manufacturing
their own products to gain more control over product costs, quality and design in the hope of
increasing profits. While one might think that store brands appeal most strongly to lower-income
shoppers or to upmarket shoppers who compare labels, studies indicate that buyers of own label
brands have characteristics that match those of the overall population.15 Indeed, many consumers
now perceive the own label ranges from the likes of Tesco, Marks & Spencer or John Lewis to
be superior to many ‘true’ brands stocked by these retailers. One reason for the growth of store
brands is that retailers advertise manufacturer brands, bringing customers to their stores, but sell
the store brands especially to price-sensitive customers.16 Another reason is that retailers with store
labels negotiate better prices from producers of manufacturer brands.17
Generic brands Some marketers of products that have traditionally been branded
generic brand
have embarked on a policy of not branding, often called generic branding. A generic
A brand that indicates brand indicates only the product category such as aluminium foil and does not include
only the product category the company name or other identifying terms. Usually generic brands are sold at prices
and does not include the lower than those of comparable branded items. Although at one time generic brands
company name or other may have represented as much as 10 per cent of all retail grocery sales, today they
identifying terms.
account for less than 1 per cent.18 They are popular for pharmaceuticals and in some
discount grocery stores.
The battle of the brands Competition between manufacturer brands and own label brands –
sometimes called ‘the battle of the brands’ – is intensifying in several major product categories,
particularly tinned foods, breakfast cereal, sugar and soft drinks. Own label brands now account for
around 55 per cent of all supermarket sales. For manufacturers, developing multiple manufacturer
brands and distribution systems has been an effective means of combating increased competition
from own label brands. By developing a new brand name, a producer can adjust various elements
of a marketing mix to appeal to a different target market. For example, Scott®Brand has developed
lower-priced brands of paper towels; it has tailored its new products to a target market that tends
to purchase own label brands.
Manufacturers find it hard to ignore the marketing opportunities that come from producing own
label brands for resellers. If a manufacturer refuses to produce an own label brand for a reseller,
a competing manufacturer will. Moreover, the production of own label brands allows the manu-
facturer to use excess capacity during periods when its own brands are at non-peak production.
The ultimate decision whether to produce an own label or a manufacturer brand depends on a
company’s resources, production capabilities and goals.
Choosing a brand name

Marketers should consider a number of factors when they choose a brand name. The name should
be easy for customers – including foreign buyers, if the company intends to market its products in
other countries – to say, spell and recall. Short, one-syllable names such as Mars or Daz satisfy this
requirement. The brand name should indicate the product’s major benefits and, if possible, should
suggest in a positive way the product’s uses and special characteristics: negative or offensive ref-
erences should be avoided. For example, a deodorant should be branded with a name that signals
freshness, dryness or long-lasting protection, as do Sure, Right Guard and Arrid Extra Dry. The
brand should be distinctive, to set it apart from competing brands. If a marketer intends to use a
brand for an entire product line, it must be compatible with all products in the line. Finally, a brand
should be designed so that it can be used and recognized in all of the various types of media.
Finding the right brand name has become a challenging task, because many obvious product
names have already been used. The Marketing Tools and Techniques box entitled Who thought
of that name?! that follows outlines the role played by brand name consultancies in the naming
process.
How are brand names derived? Brand names can be created from single or multiple words;
for example, Bic or Apple iPad. Initials, numbers or sometimes combinations of these are used
to create brands, such as IBM or JCB. At times, words, numbers and initials are combined to
yield brand names such as Mazda MX5 or Mitsubishi 3000GT. To avoid terms that have negative
connotations, marketers sometimes use fabricated words that have absolutely no meaning at the
time they are created; for example, Kodak and Esso. Occasionally, a brand is simply brought out of
storage and used as it is or modified. Companies often maintain banks of registered brands, some
of which may have been used in the past. Cadillac, for example, has a bank of many hundreds
of registered trademarks. Possible brand names are sometimes tested in focus groups, on social
media or in other settings, to assess customers’ reactions.
Who actually creates brand names? Brand names can be created internally by the organization.
Sometimes a name is suggested by individuals who are close to the development of the product.
Some organizations have committees that participate in brand name creation and approval. Large
companies that introduce numerous new products annually are likely to have a department that
develops brand names. Increasingly, outside consultants are used in the process of developing brand
names. An organization may also hire a company that specializes in brand name development.
Even though most of the important branding considerations apply to both goods and services,
services branding has some additional dimensions. The brand of the service is usually the same
as the company name. For example, American Express, Vidal Sassoon, ProntoPrint and Sheraton
are names of companies and the services that they provide. Whereas companies that produce
tangible goods (such as Procter & Gamble) can use separate brand names for separate products
(such as Daz, Head & Shoulders, Flash and Camay), service providers (such as British Airways)
are perceived by customers as having one brand name, even though they offer multiple products
(first class, business class and economy or holiday packages). As the service brand name and
company name are so closely interrelated, a service brand name must be flexible enough to
encompass a variety of current services, as well as new ones that the company may offer in the
future. For example, British Airways (BA) has Club World or Euro Traveller (economy) services, each
separately branded, but both strongly branded as BA. Geographical references like ‘western’ and
descriptive terms like ‘trucking’ limit the scope of associations that can be made with the brand
name. Northwest Airlines became less of a good name as the company began to fly south and east
more regularly.19 Frequently, a service marketer will employ a symbol along with its brand name to
make the brand distinctive and to communicate a certain image.
Protecting a brand
Marketers need to design brands that can be protected easily through registration. Among the
most difficult to protect are generic words, such as aluminium foil, surnames and descriptive geo-
graphic or functional names.20 Research shows that, overall, consumers prefer descriptive and
suggestive brand names, and find them easier to recall than fanciful and arbitrary names.21 As a
result of their designs, some brands can be legally infringed upon more easily than others. Although
registration provides trademark protection, a company should develop a system for ensuring that
its trademarks will be renewed as needed. To protect its exclusive rights to a brand, the company
must make certain that the selected brand is not likely to be considered an infringement on any
existing brand already registered with the relevant patent office. This task may be complex because
infringement is determined by the courts, which base their decisions on whether a brand causes
consumers to be confused, mistaken or deceived about the source of the product. McDonald’s is
one company that aggressively protects its trademarks against infringement; it has brought charges
against a number of companies with ‘Mc’ names because it fears that the use of the ‘Mc’ will give
consumers the impression that these companies are associated with or owned by McDonald’s.
If possible, marketers must guard against allowing a brand name to become a generic term used
to refer to a general product category.22 Generic terms cannot be protected as exclusive brand
names. For example, names such as aspirin, escalator and shredded wheat – all brand names at
one time – were eventually declared generic terms that refer to product classes; thus they could no
longer be protected. To keep a brand name from becoming a generic term, the business should
Who thought of that Marketing have large lists of already registered

name?! tools and brand names which at some time
they may use but that are no longer
techniques available to any other company. This
Burger King, Coca-Cola, JCB, Nike,
Sony or Virgin – no matter what the is not ‘sharp practice’, merely a logi-
brand, someone, somewhere, sometime cal extension of marketers hearing good
created the names now recognized instantly by millions of loyal suggestions from colleagues, distributors and consumers and
customers. All too often clients focus on the physical proper- marking them down for possible future use.
ties of their new products – features, size, colours, quality, Another consideration for branding consultancies is how
performance, operation – at the expense of name consider- the new product’s name will work alongside the client’s
ation, which is ‘tacked on’ to the new product development umbrella brand. For example, Per Una range is given inde-
process just prior to launch. Branding consultancies believe pendence from owner Marks & Spencer and Cap Colom-
that creating the right atmosphere and having a very clear bie from Nescafé; whereas the Focus, Mondeo and Fiesta
understanding of both client culture and target market char- names are very much tied to the Ford umbrella brand, just
acteristics are fundamental to the creation of a suitable brand as Apple’s products link together. There is no right or wrong
name. Very often a creative workshop is used by a branding in this dilemma. Some companies, such as Nescafé with Cap
consultancy to probe the minds of the client personnel in order Colombie, want to create sub-brands that, in the eyes of target
to establish buzzwords or emotive trigger descriptions for the consumers, are apparently free-standing. For Ford, the logic
new product that may be incorporated into the brand name. Or of cross-promotion and economies of scale in creating brand
the consultants might drop creative pebbles into the pond of awareness, have persuaded senior marketers to always uti-
social media and monitor the ripples and reaction. lize the Ford brand and its blue oval alongside the individual
The real difficulty comes not from creating a suitable model name.
name, but in registering the preferred choice. Intellectual Most brand names are, at some point in the creation pro-
property lawyers now specialize in trademark registration cess, tested out on consumers, but such tests have to be
and searching. Qualitative research, such as focus groups or carefully constrained so as not to allow consumer sugges-
social media discussions, often throws up many brand names tions to set the process back to square one. Ultimately, a good
consumers believe might be appropriate. Marketing strategy name cannot overcome product deficiencies, poor distribution,
workshops amongst managers in a company do the same. ineffectual promotion, incorrect pricing or inferior customer
The result is that some organizations compile extensive lists of service, nor can it combat the superiority of a competitor’s
names with potential for their types of product, which are then marketing strategy. A poor, inappropriate, confusing, unmem-
registered, even though at the time there is no expectation of orable or misleading name can, though, do much harm to an
using these names. Companies such as Cadbury and Ford otherwise good product offering.
spell the name with a capital letter and use it as an adjective to modify the name of the general
product class, as in Kellogg’s Rice Krispies.23 Including the word ‘brand’ just after the brand name
is also helpful. An organization can deal with this problem directly by advertising that its brand is a
trademark and should not be used generically. The company can also indicate that the brand is a
registered trademark by using the symbol ®.
Companies that try to protect a brand in a foreign country frequently encounter problems. In
many countries, brand registration is not possible; the first company to use a brand in such a coun-
try has the rights to it. In some instances, a company has actually had to buy its own brand rights
from a company in a foreign country because the foreign company was the first user in that country.
Marketers trying to protect their brands must also contend with brand counterfeiting. In many
countries it is possible to buy fake General Motors parts, fake Rolex watches, fake Chanel perfume,
fake Microsoft software, fake Walt Disney character dolls and a host of other products illegally mar-
keted by manufacturers that do not own the brands. Many counterfeit products are manufactured
overseas in South Korea, Italy, Taiwan and China, for example, but some are counterfeited in the
countries in which they are sold. The International Anti-Counterfeiting Coalition estimates that roughly
$600 billion in annual world trade involves counterfeit merchandise. The sale of this merchandise
obviously reduces the brand owners’ revenues from marketing their own legitimate products.
Figure 11.3
Catering leader
Whitbread operates a
portfolio of brands as
stand-alone businesses
Brand counterfeiting is particularly harmful because the usually inferior counterfeit product
undermines consumers’ confidence in the brand and their loyalty to it.24 After unknowingly pur-
chasing a counterfeit product, the buyer may blame the legitimate manufacturer if the product is
of low quality or even worse if its use results in damage or injury. Since counterfeiting has become
such a serious problem, many companies are taking legal action against counterfeiters. Others
have adopted such measures as modifying the product or the packaging to make counterfeit items
easier to detect, conducting public awareness campaigns and monitoring distributors to ensure
that they stock only legitimate brands.
Branding policies
Before it establishes branding policies, a company must first decide whether to brand its products
at all. If a company’s product is homogeneous and similar to competitors’ products, it may be
difficult to brand. Raw materials such as coal, salt, sand and milk are hard to brand because of the
homogeneity of such products and their physical characteristics. Marketers must also consider the
degree to which consumers differentiate among brands of a product. For example, while brand
may be an important factor in the purchase of coffee, snacks and frozen foods, it is not usually so
important a consideration in buying lightbulbs, cheese and cling film.
If a company chooses to brand its products, it may opt for one or more of the following branding
policies: individual, overall family, line family and brand extension branding.
individual branding Individual branding Individual branding is a policy of naming each product
A policy of naming each ifferently. Procter & Gamble relies on an individual branding policy for its line of fab-
d
product differently. ric washing products, which includes Ariel, Bold, Daz, Dreft and Fairy. As Figure 11.3
shows, Whitbread has adopted a similar approach, operating a portfolio of brands.
A major advantage of individual branding is that if an organization introduces a poor
product, the negative images associated with it will not contaminate the company’s other products.
An individual branding policy may also facilitate market segmentation when a company wishes
to enter many segments of the same market. Separate, unrelated names can be used, and each
brand can be aimed at a specific segment. Such a policy also encourages internal competition for
growth and success between the different brand teams.
overall family Overall family branding In overall family branding, all of a company’s products are
branding branded with the same name, or at least part of the name, such as Kraft, Heinz, Micro-
A policy of branding all soft or Ford. In some cases, a company’s name is combined with other words to brand
of a company’s products items. Heinz uses its name on its products along with a generic description of the item,
with the same name, or
such as Heinz Salad Cream, Heinz Baked Beans, Heinz Spaghetti and Heinz Tomato
at least part of the name.
Soup. The quality image of its products increases consumer confidence in what they are
buying. This brand consistency is stressed in Heinz advertisements (see Figure 11.4).
Figure 11.4
Heinz uses its name on its products, along with a generic
description of the item
Source: Heinz
Unlike individual branding, overall family branding means that the promotion of one item with the
family brand promotes the company’s other products.
line family branding Line family branding Sometimes an organization uses family branding only for prod-
A policy of using family ucts within a single line. This policy is called line family branding. Colgate–Palmolive,
branding only for prod-
ucts within a single line.
for example, produces a line of cleaning products that includes a cleanser, a powdered
detergent and a liquid cleaner, all with the name Ajax. Colgate also produces several
brands of toothpaste, none of which carries the Ajax brand name.
brand extension
branding Brand extension branding Brand extension branding occurs when a company
A company’s use of uses one of its existing brand names as part of a brand for an improved or new product
one of its existing brand that is usually in the same product category as the existing brand.25 Unilever, the mak-
names as part of an ers of Timotei shampoo, extended the name to hair conditioner and skincare products.
improved or new prod-
uct, usually in the same
There is one major difference between line family branding and brand extension brand-
product category as the ing. With line family branding, all products in the line carry the same name, but with brand
existing brand. extension branding this is not the case. The producer of Arrid deodorant, for example,
also makes other brands of deodorant.
Choice of branding policy An organization is not limited to a single branding policy. Instead,
branding policy is influenced by the:
●● number of products and product lines the company produces
●● characteristics of its target markets
●● number and type of competing products available
●● size of its resources.
Anheuser–Busch, for example, uses both individual and brand extension branding. Most of the
brands are individual brands; however, the Michelob Light brand is an extension of the Michelob
brand. Sometimes companies must update brands so that they remain fresh and interesting.
Brand licencing
A recent trend in branding strategies involves the licencing of trademarks. By means of a licencing
agreement, a company may permit approved manufacturers to use its trademark on other products
for a licencing fee. Royalties may be as low as two per cent of wholesale revenues or higher than
10 per cent. The licensee is responsible for all manufacturing, selling and advertising functions,
and bears the costs if the licenced product fails. Not long ago, only a few companies licenced their
corporate trademarks, but today the licencing business is worth billions of pounds and is growing.
Harley-Davidson, for example, has authorized the use of its name on non-motorcycle products
such as cologne, wine coolers, gold rings and shirts. Disney also licences its brand for use on a
range of products. JCB and Coca-Cola both now licence ranges of clothing sold in high-street
stores.
The advantages of licencing range from extra revenues and low cost to free publicity, new
images and trademark protection. For example, Coca-Cola has licenced its trademark for use on
glassware, radios, trucks and clothing in the hope of protecting its trademark. However, brand
licencing is not without its drawbacks. The major disadvantages are a lack of manufacturing
control, which could hurt the company’s name, and the undesirability of bombarding consumers
with too many unrelated products bearing the same name. Licencing arrangements can also fail
because of poor timing, inappropriate distribution channels or mismatching of product and name.
Managing brands
With the need for brands to create product differentiation, assist in establishing a competitive
edge and encourage product awareness, marketers must manage their brands with care.26 This
involves understanding when a brand requires repositioning, modifying, deleting or simply being
left alone. Most companies operate with a portfolio of separate brands and products, and must
make difficult decisions in terms of which are to receive support and the bulk of an organization’s
marketing resource, and which are to be killed off or given only minimal support. Chapter 12 of
Marketing: Concepts and Strategies explores these strategic choices.
As explained in Chapter 5’s discussion of consumer buying behaviour, without an understanding
of brand loyalty and brand switching, it is difficult to manage an organization’s brands effectively.
It is essential for companies to make an effort to research brand loyalty and brand perceptions, to
help them make sensible decisions that accurately reflect consumers’ views.
Research shows that to create successful brands, a company must:
successful brands
Brands for which a ●● prioritize quality – the top brands are all high quality in their product fields (sic)
company must prioritize
quality, offer superior ●● offer superior service less easily copied by competitors than pure product attributes
service, get there first, ●● get there first (not necessarily technologically but, in the minds of targeted customers) by:
differentiate brands,
develop a unique posi- –– exploiting new technology (Apple, Samsung)
tioning concept, have a –– new positioning concepts (first direct bank)
strong communications
programme and be –– new distribution channels (Amazon, Direct Line)
consistent and reliable. –– new market segments (Lidl, Ocado)
–– using gaps resulting from environmental change (Ecover, Toyota Prius)
●● differentiate its brands so that consumers perceive the brands on offer as being different
●● develop a unique positioning concept, making the brand and its differentiating characteristics
stand out with a clear image and positioning message against rival brands
●● support the brand and its positioning with a strong communications programme so that target
consumers are aware of the brand and its positioning proposition
●● deliver consistency and reliability over time, keeping the brand’s values trustworthy as perceived
by target consumers.
Branding experts27 state that to build effective brands, it is essential for an organization to
understand that there is more to a brand than simply a catchy name and visible logo. Brand
brand strength
strength is a function of the product’s attributes and functionality, its differentiation,
A function of the plus any demonstrable added value to the purchaser or user. For example, Nike sports
product’s attributes and shoes are designed for serious running and are fit for this core purpose, but Nike has a
functionality, its differen- reputation for innovation and progression, so the brand is perceived as a ‘first mover’,
tiation, plus any demon- providing differentiation versus rival brands. For the purchaser, the reputation of the
strable added value to
the purchaser or user.
brand for being state-of-the-art and highly desirable, provides ‘street cred’, which is the
added value to the consumer.
There are, in fact, four levels of brands: the tangible product, the ‘basic’ brand, the
levels of brands
‘augmented’ brand and the ‘potential’ of the brand. Level 1, the tangible product, is
The tangible product, the degree of quality, performance, features and actual attributes evident. Level 2, the
the ‘basic’ brand, the ‘basic’ brand, is the identity, differentiation and positioning. Level 3, the ‘augmented’
‘augmented’ brand and brand, is the aggregated impact from including supplementary products and service
the ‘potential’ of the support. Level 4, the ‘potential’ of the brand, is reached when customers will not
brand.
willingly accept substitutes and are unhappy to switch to rival brands; psychological
benefits and barriers in the minds of target customers are important determinants of
brand potential.
There are three essential acid tests for determining whether a brand is successful. Although
most companies consider only the overall profit contribution to the end-of-year financial annual
report and accounts, when determining a brand’s success, they should ask the following three
fundamental questions:
1. Has the brand captured the leading share in its market segment or distribution channel?
2. Does the brand command prices sufficiently high enough to produce a large profit margin?
3. Will the brand sustain its strong share of profits when rival and generic versions of the product
enter the market?
Using these core criteria, many brands are relatively unsuccessful. For marketers, managing
brands must include knowing when a brand is succeeding, when it is faltering but may be saved,
and when a brand is a lost cause and should be deleted from the company’s range of brands.
Chapter 12 examines this difficult issue in more detail.
corporate branding
The application of Corporate branding
product branding at
the corporate level, Corporate branding involves applying the principles of product branding at the corpo-
reflected visibly through rate level. Corporate branding is reflected in visible manifestations, such as the company
the company name, logo name, logo and visual presentation, and also in the organization’s underlying and guiding
and visual presentation
values. Apple, McDonald’s, Walmart and Manchester United Football Club each has
and in the organization’s
underlying values. a corporate brand that is based around the organization itself. Sometimes the terms
corporate image and corporate identity are also used in relation to corporate brand-
ing. The concepts of corporate identity and corporate branding overlap: both referring
corporate image to what the company transmits about itself.28 Corporate image reflects the perceptions
Reflects the perceptions that external audiences hold about the organization.29
that external audiences Corporate branding plays a role in guiding all of a company’s marketing activities. The
hold about an organization. corporate brand is transmitted through tangible and intangible features. The tangible
dimensions include visual features of the corporate brand, such as corporate logo and
symbols, typography, colour, website design, buildings, staff uniforms, vehicles and
corporate identity stationery. For example, Unilever overhauled its corporate identity to fit with the compa-
Overlapping with the
corporate branding
ny’s mission: ‘creating a better future for every day’. The corporate brand was reflected
concept: branding at in a new logo and images showing the everyday contributions its products make to peo-
the corporate level. ple’s lives. Less tangible features include how the corporate brand is portrayed through
what people inside and outside the organization believe and say.
To be effective, the corporate brand should be embedded in all company actions. This
means that all aspects of the company’s communication, including internal communication with
employees and external marketing activities, ranging from the annual report through to its web
pages, advertising and PR, must convey a consistent message about the corporate brand.
Corporate branding is particularly important for services organizations, because customers look
for help in understanding and visualizing the services product. A strong corporate brand can
help buyers to overcome the intangibility of some of these products. For example, first direct
bank has worked hard to build a corporate image based on service quality and easy access,30
which reflects the company’s reliability and flexible approach to meeting customer needs. This
has helped to build a corporate image based around the notion of good service. The fact that
this image is also reflected in research examining service in the financial services sector adds
credibility to the bank’s offering.
Packaging and labelling

Packaging and labelling are also part of the marketing process and are linked to brand identity.31
They impact on the image of the product, its functionality and ultimately on the customer’s percep-
tion of satisfaction. At times, they create differentiation vis-à-vis rival products. For example, Coca-
Cola introduced limited-edition packaging for its iconic glass bottle to appeal to more upmarket
consumers. Rice company Tilda markets premium-priced rice, so ensures its packaging has a
more deluxe-looking appearance than its lower-priced rivals, befitting the superiority of its carefully
selected basmati rice grains.
Packaging involves the development of a container and label, complete with graphic
packaging
The development of a design for a product. A package can be a vital part of a product, making it more versatile,
product’s container and safer or easier to use. Like a brand name, a package can influence customers’ atti-
label, complete with tudes towards a product and thus affect their purchase decisions. For example, several
graphic design. producers of sauces, salad dressings and ketchups have packaged their products in
squeezable containers to make use and storage more convenient. Package characteris-
tics help shape buyers’ impressions of a product at the time of purchase or during use.
This section examines the main functions of packaging and considers several major packaging
decisions. The role of the package in marketing strategy is also covered.
Packaging functions
Effective packaging means more than simply putting products into containers and covering them
with wrappers. First of all, packaging materials serve the basic purpose of protecting the product
and maintaining its functional form. Fluids such as milk, orange juice and hairspray need pack-
ages that preserve and protect them; the packaging should prevent damage that could affect the
product’s usefulness and increase costs. Since product tampering has become a problem for
marketers of many types of goods, several packaging techniques have been developed to counter
this danger. Some packages are also designed to foil shoplifters.
Another function of packaging is to offer convenience for consumers. For example, small sealed
packages, individual sized boxes or plastic bags that contain liquids and do not require refriger-
ation, appeal strongly to children and young adults with active lifestyles. Putting McVitie’s Jaffa
Cakes into lunch-box-sized plastic tubs greatly boosted sales of this well-known brand by adding
a level of functionality and convenience for packed lunches and school snacks. The size or shape
of a package may relate to the product’s storage, convenience of use or replacement rate. Small,
single-serving portions of fruit, such as Del Monte’s Fruitini, may prevent waste and make storage
easier. Low, regular-shaped packets may be easier to stack and use cupboard space more effi-
ciently. The tube used by Pringles facilitates easy storage at home and in-store. A third function of
packaging is to promote a product by communicating its features, uses, benefits and image. At
times, a reusable package is developed to make a product more desirable. For example, some
ice-cream containers can be used again as food storage containers.
Major packaging considerations

Packaging must support a product’s brand image and positioning, helping develop differentia-
tion vis-à-vis rival products. When developing packages, marketers must take many factors into
account. Some of these factors relate to consumers’ needs; others relate to the requirements of
resellers. Retailers, wholesalers and distributors will be required to handle and stock the products,
and in many instances to display and deliver them. Packaging solutions must reflect the needs of
these channel members in addition to the requirements of end-user customers. Obviously, one
major consideration is cost. Although a variety of packaging materials, processes and designs are
available, some are rather expensive. In recent years buyers have shown a willingness to pay more
for improved packaging, but there are limits. Marketers should try to determine, through research,
just how much customers are willing to pay for packages.
Developing tamper-resistant packaging is very important. Although no package is totally tamper-
proof, marketers can develop packages that are difficult to tamper with and that also make any
tampering evident to resellers and consumers. As new, safer packaging technologies are being
explored, marketers should be aware of changes in packaging technology and legislation, and
be prepared to make modifications that will ensure consumer safety. One packaging innovation
includes an inner pouch that displays the word ‘open’ when air has entered the pouch after open-
ing. Marketers now also have an obligation to inform consumers of the possibilities and risks of
product tampering by educating them to recognize possible tampering and by placing warnings
on packaging.32 For example, the tops of many sauce and condiment bottles now have plastic
seals around them, so that consumers can be confident they have not been opened. Baby food
manufacturers, such as Cow & Gate and Heinz, have taken this protection method one step
further by using special metal jar tops with pop-up discs showing when a jar has been opened.
This move followed cases of tampering in which foreign bodies were introduced into baby foods.
Now the special tops expressly warn consumers to watch out for tampering. Although effective
tamper-resistant packaging may be expensive to develop, when balanced against the costs of lost
sales, loss of consumer confidence and a company’s reputation, and potentially expensive product
liability lawsuits, the costs of ensuring consumer safety are minimal.33
Marketers should consider how much consistency is desirable in a company’s package designs.
The best policy may be not to attempt consistency, especially if a company’s products are unrelated
or aimed at vastly different target markets. To promote an overall company image, a company may
decide that all packages are to be similar or include one major element of the design.
This approach is called family packaging. Sometimes it is used only for lines of prod-
family packaging
An approach in which all ucts, as with Campbell’s soups, Weight Watchers foods and Planters nuts.
of a company’s packages A package’s promotional role is an important consideration. Through verbal and
are similar or include non-verbal symbols, the package can inform potential buyers about the product’s con-
one major element of tent, features, uses, advantages and hazards. A company can create desirable images
the design.
and associations by its choice of colour, design, shape and texture. Many cosmetics
manufacturers, for example, design their packages to create impressions of richness,
luxury and exclusiveness. Many perfumes are in packs deliberately designed to suggest
sensuality and sex appeal. A package performs a promotional function when it is designed to be
safer or more convenient to use, if such characteristics help stimulate demand.
To develop a package that has a definite promotional value, a designer must consider size,
shape, texture, colour and graphics.34 Beyond the obvious limitation that the package must be
large enough to hold the product, a package can be designed to appear taller or shorter. For
instance, thin vertical lines make a package look taller; wide horizontal stripes make it look shorter.
A marketer may want a package to appear taller because many people perceive something that
is taller as being larger.
Colours on packages and in branding are often chosen to attract attention. People associate
specific colours with certain feelings and experiences, as outlined below:
Blue is soothing, it is also associated with wealth, trust and security.
Grey is associated with strength, exclusivity and success.
Orange can stand for low cost.
Red has connotations of excitement, stimulation and danger.
Yellow is associated with cheerfulness and joy.
Purple is linked with dignity and stateliness.
Black is associated with being strong and masterful.35
For example, BMW always uses the blue and grey colour palettes in its advertising and bro-
chures, while easyJet’s planes famously are adorned in orange. Uncle Ben’s rice is familiar in its
orange packaging as it emphasizes convenience and value for money, while more up-market
competitor Tilda, focusing on premium quality and superior taste, utilizes blue in its branding and
smart packaging.
When selecting packaging colours, marketers must decide whether a particular colour will evoke
positive or negative feelings when it is linked to a specific product. Rarely, for example, do processors
package meat or bread in green materials, because customers may associate green with mould.
However, recent concern about the state of the environment has, in general, led to an increase in the
use of green-coloured packaging and neutral shades/textures. Marketers must also decide whether
a specific target market will respond favourably or unfavourably to a particular colour. Cosmetics for
women are more likely to be sold in pastel-coloured packaging than are personal care products for
men. Packages designed to appeal to children often use primary colours and bold designs.
Packaging must also meet the needs of resellers. Wholesalers and retailers consider whether
a package facilitates transportation, storage and handling. Packages must allow these resellers
to make maximum use of storage space, both in transit and in the shops. Products should be
packed so that sales staff can transfer them to the shelves with ease. The shape and weight of
packaging are also important. Resellers may refuse to carry certain products if their packages are
cumbersome. Figure 11.5 shows how these factors have been taken into consideration in devel-
oping the product’s packaging.
A final consideration is whether to develop packages that are environmentally responsible. This
is a major issue for marketers, with consumer pressure to cut back on packaging waste, regulatory
Figure 11.5
Manufacturers,
particularly of children’s
toys, often use brightly
coloured packaging to
attract youngsters to
their products
changes, as well as the sustainability agendas of major retailers threatening to delist non-compliant
brands. The media has been full of reports about the problems created to the oceans of plastic
packaging, prompting many Governments and producers to take action. Plastic packaging material
does not biodegrade, and using paper requires the destruction of valuable forest lands. Conse-
quently, a number of companies are recycling more materials and exploring packaging alternatives,
helped by packaging experts such as Tetra Pak. Heinz, for example, is looking for alternatives to its
plastic squeezable ketchup bottles. Marketers must carefully balance society’s desires to preserve
the environment against consumers’ desires for convenience.
Packaging development
Packaging development requires a mix of aesthetic considerations and structural
packaging
necessities to guarantee the functionality of the design. There are cartons, bottles, tubes,
development
A mix of aesthetic cans, tubs and jars, multipacks, clamshells and blister packs, CD/DVD boxes, gift packs,
considerations and plus many innovative formats for storing, displaying and dispensing products in a manner
structural necessities to that is ahead of the competition. Material selection is an important stage in the design
guarantee the functionality process, as are the specification and application of surface graphics and typography.
of the design.
Decisions must be made concerning information layout and the hierarchy of messages,
front-of-pack versus back-of-pack detailing, choice of language and jargon, the photog-
raphy and images to be selected, illustrations and use of colour, deployment of symbols
and icons, final finishes and effects. There are often practical requirements to consider, such as
weights, measures, ingredients, nutritional information and barcoding to display. Legal requirements
for health and safety have forced changes to packaging, while legal requirements relating to the
labelling of ingredients, sourcing and health-related issues have forced producers to include more
information on-pack.
Packaging and marketing strategy

Packaging can be a major component of a marketing strategy.36 A new cap or closure, a better
box or wrapping, or a more convenient container, may give a product a competitive edge. With
increased home deliveries, the shipping packaging becomes both a functional concern and an
intrinsic facet of the product’s appeal to the receiving consumer. The right type of package for a
new product can help it gain market recognition very quickly. In the case of existing brands, mar-
keters should periodically re-evaluate packages. Particularly in the case of consumer convenience
products, marketers should view packaging as a major strategic tool. It is intrinsically linked to
innovation. Tilda developed innovative packaging to allow two-minute steaming of pre-cooked
microwavable rice, opening up a whole new category and creating significant growth of rice sales
to convenience-oriented time-pressured consumers previously unlikely to cook rice at home. This
section examines ways in which packaging can be used strategically.
Altering the package At times, a marketer changes a package because the existing design is
no longer in style, especially when compared with competitive products. A package may also be
redesigned because new product features need to be highlighted on the package, or because new
packaging materials have become available. A company may decide to change a product’s pack-
aging to make the product more convenient or safer to use, or to reposition the product. A major
redesign of a simple package costs about £50 000, and the redesign of a line of products may
cost up to £500 000. Choosing the right packaging material is an important consideration when
redesigning. Different materials vary in popularity at different times. For example, glass
secondary use
is becoming more popular, as views on the environment and the need for recyclability
package
A package that can be come to the fore.
reused for purposes
other than its initial use. Secondary use packaging A secondary use package is one that can be reused
for purposes other than its initial one. For example, a margarine container can be reused
to store leftovers, a jam jar can be used as a drinking glass and shortbread tins can be reused for
storing cakes and biscuits. Secondary use packages can be viewed by customers as adding value
to products. If customers value this type of packaging, then its use should stimulate unit sales.
category-consistent Category-consistent packaging Category-consistent packaging means that the

packaging product is packaged in line with the packaging practices associated with a particu-
The packaging of a lar product category. Some product categories – for example, mayonnaise, mustard,
product according ketchup and jam – have traditional package shapes. Other product categories are
to the packaging
characterized by recognizable colour combinations – red and white for soup or black
practices associated
with a particular and yellow for tea. When a company introduces a brand in one of these product cate-
product category. gories, marketers will often use traditional package shapes and colour combinations to
ensure that customers will recognize the new product as being in that specific product
category. Few pizza brands are not packaged in square flat boxes coloured red, yellow
and black!
Innovative packaging Sometimes, a marketer will employ a unique cap, design, applicator
or other feature to make the product competitively distinctive, as illustrated in Figure 11.6. Such
packaging can be effective when the innovation makes the product safer or easier to use, or when
the unique package provides better protection for the product. In some instances, marketers
use innovative or unique packages that are inconsistent with traditional packaging practices, to
make the brand stand out relative to its competitors. Kellogg’s, for example, uses an innovative,
crush-proof cylinder to package its Pringles potato crisps. Innovative packaging generally requires
considerable resources, not only for the package design itself but also to make customers aware
of the unique package and its benefit. Sometimes, innovative packaging can change the way in
which consumers use a product. The introduction of cardboard-boxed, single serving soft drinks
made it easier for consumers to have a drink while travelling by car, train and plane. Even cyclists
can drink with ease while on the move.37
Figure 11.6
Leading packaging supplier Tetra Pak
promotes the eco-friendly credentials
of its cartons
Source: Image courtesy of Tetra Pak (UK)
multiple packaging Multiple packaging Rather than packaging a single unit of a product, marketers
Packaging that includes sometimes use twin packs, tri-packs, six-packs or other forms of multiple packaging.
more than one unit of For certain types of product, multiple packaging is used to increase demand because it
a product, such as twin increases the amount of the product available at the point of consumption in consumers’
packs, tri-packs and
houses. However, multiple packaging does not work for all types of product. Consumers
six-packs.
would not use additional table salt simply because an extra box was in the cupboard.
Multiple packaging can make products easier to handle and store, as in the case of
six-packs for soft drinks; it can also facilitate special price offers, such as two-for-one sales. In
addition, multiple packaging may increase consumer acceptance of the product by encouraging
the buyer to try the product several times.
Handling improved packaging Packaging of a product may be changed to make it easier to

handle in the distribution channel – for example, changing the outer carton, special bundling, shrink
wrapping or palletizing. In some cases, the shape of the package may need to be changed. For
example, an ice-cream producer may switch from a cylindrical package to a rectangular one to
facilitate handling. In addition, at the retail level, the ice-cream producer may be able to get more
shelf facings with a rectangular package as opposed to a round one. Outer containers for products
are sometimes changed so that they will proceed more easily through automated warehousing
systems.
As package designs improve, it becomes harder for any one product to dominate because of
packaging. However, marketers still attempt to gain a competitive edge through packaging. Skilled
artists and package designers who have experience in marketing research, test out packaging to
see what sells well, not just what is aesthetically appealing. Since the typical large store stocks
15 000 items or more, products that stand out are more likely to be bought.
Criticisms of packaging
The last few decades have seen a number of improvements in packaging. However, some pack-
aging problems still need to be resolved. Some packages simply do not work well. The packaging
for flour and sugar is, at best, often not much better than poor. Both grocers and consumers are
very much aware that these packages leak and are easily torn. Can anyone open and close a bag
of flour without spilling at least a little bit? Certain packages, such as biscuit tins, milk cartons with
fold-out spouts and potato crisp bags, are frequently difficult to open. The traditional shapes of
packages for products such as ketchup and salad dressing make the products inconvenient to
use. Have you ever questioned, when slapping a ketchup bottle, why the producer did not put the
ketchup in a mayonnaise jar?
Certain types of packaging are being questioned with regard to their recyclability and biode-
gradability. For example, throw-away bottles take considerably more resources to produce than
do reusable glass bottles. Social concerns and regulatory pressures are bringing green issues to
the fore, with significant implications for marketers and packaging designers.
Although many steps have been taken to make packaging safer, critics still focus on health and
safety issues. Containers with sharp edges and easily broken glass bottles are sometimes viewed
as a threat to safety. Certain types of plastic packaging and aerosol containers represent possible
health hazards.
At times, packaging is viewed as being deceptive. Package shape, graphic design and certain
colours may be used to make a product appear larger than it actually is. The inconsistent use of
certain size designations such as ‘giant’, ‘economy’, ‘family’, ‘king’ and ‘super’ can certainly lead
to customer confusion. Although customers have traditionally liked attractive, effective, convenient
packaging, the cost of such packaging is high. For some products, such as cosmetics, the cost
of the package is higher than the cost of the product itself.
Labelling
Labelling is very closely related to packaging and can be used for a variety of promo-
labelling
Packaging information tional, informational and legal purposes. The label can be used to facilitate the identifi-
that can be used for a cation of a product by presenting the brand and a unique graphic design. For example,
variety of promotional, Heinz’s ketchup is easy to identify on a supermarket shelf because the brand name is
informational and legal easy to read and is coupled with a distinctive crown-like graphic design. Labels have
purposes.
a descriptive function. For certain types of product, the label indicates the grade of the
product, especially for tinned fruit. Labels can describe the source of the product, its
contents and major features, how to use the product, how to care for the product, nutri-
tional information, type and style of the product and size and number of servings. The label can
play a promotional function through the use of graphics that attract attention. The food and drug
administrations and consumer protection agencies in different countries have varying requirements
concerning warnings, instructions, certifications and manufacturers’ identifications. Increasingly the
EU is demanding similar standards in all member countries. Despite the fact that consumers have
responded favourably to the inclusion of this type of information on labels, evidence as to whether
they actually use it has been mixed. Several studies indicate that consumers do not use nutritional
information, whereas other studies indicate that the information is considered useful. Labels can
also promote a manufacturer’s other products or encourage proper use of products, resulting in
greater customer satisfaction with them.
universal product
The label for many products includes a universal product code (UPC) or barcode
code (UPC) or barcode a series of thick and thin lines that identifies the product and provides inventory and pric-
A series of thick and thin ing information that can be read by an electronic scanner. The UPC is read electronically
lines that identifies the at the retail checkout counter. This information is used by retailers and producers for
product and provides price and inventory control purposes.
inventory and pricing
information readable by
Colour and eye-catching graphics on labels overcome the jumble of words known
an electronic scanner. to designers as ‘mouse print’ that have been added to satisfy government regulations.
Because so many similar products are available, an attention-getting device or ‘silent
salesperson’ is needed to attract interest. As one of the most visible parts of a product,
the label is an important element in a marketing mix.
Labelling is an integral part of packaging that can be used effectively to convey product informa-
tion and benefits to customers, and to promote a brand’s positioning image. There are increasing
legal considerations that marketers must address, such as EU regulations in terms of food sourcing,
ingredient content, nutritional information, weights and measures, as well as cooking or application
instructions. Ethical marketing requires that consumers are not misled or ‘over-sold’ owing to the
information provided on labels. Concerns about obesity and diabetes are forcing manufacturers of
foods to include nutritional and healthy-eating information on their packaging. This provides a window
of opportunity for healthier brands to compete with many leading brands whose domination was
once viewed as impregnable. Innocent smoothies have stolen market share from the colas in most
supermarkets, and Innocent’s humorous packaging stresses its wholesome and healthy qualities.
Summary
A brand is a name, term, design, symbol or any other feature that identifies one seller’s good or service as distinct from
those of other sellers. A brand name is that part of a brand that can be spoken, including letters, words and numbers; the
element that cannot be spoken, often a symbol or design, is called a brand mark. A trademark is a legal designation indi-
cating that the owner has exclusive use of a brand or part of a brand, and that others are prohibited by law from using it.
A trade name is the legal name of an organization.
Branding helps buyers identify and evaluate products, lets sellers facilitate repeat purchasing and product introduction,
and fosters brand loyalty, a customer’s strongly motivated and long-standing decision to purchase a particular product
or service.
A recent development has been marketers’ use of online brand communities and blog communities. In a brand community
a group of consumers and observers who admire a brand are encouraged to share their positive feelings, often online
through social media. Blog communities permit one-to-one tailored communication with and between members of the
digital brand community. Such developments permit dynamic branding, with very rapid communication and sharing of
brand information. In order to nurture loyalty, brands are turning to brand advocacy and brand advocates, investing in
creating brand advocates, who will share their positive feelings and experiences of a brand in return for insider knowledge
and access to bespoke events. The digital era has shifted the balance of power from brand managers, who previously
issued most communications about their brands, to consumers who increasingly use social media to share views with
other consumers and thereby impact a brand’s standing.
The three degrees of brand loyalty are recognition, preference and insistence. Brand recognition exists when a customer is
aware that a brand exists and views it as an alternative to purchase if the preferred brand is unavailable. Brand preference
is the degree of brand loyalty in which a customer prefers one brand over competing brands and will purchase it if it is
available. Brand insistence is the degree of brand loyalty in which a customer will accept no substitute. Brand equity is
the marketing and financial value associated with a brand’s strength in a market. It represents the value of a brand to an
organization. The four major elements underlying brand equity are brand name awareness, brand loyalty, perceived brand
quality and brand associations.
Brands need to have a well-specified brand identity, reflecting target segment expectations and the brand strategies
adopted by competitors. Brand attributes and personality underpin the brand’s identity. Branding experts believe that
well-managed, strong and desirable brands should identify a set of specific tangible benefits to attach to the brand,
known as brand attributes, a set of brand values which help develop a unified sense of purpose among staff and align
with messaging to external audiences, plus a set of appealing and desirable brand personality traits to create emotion and
excitement. Implicit in this view is the importance of effectively creating a well-differentiated and memorable image for the
brand that is carefully controlled.
A manufacturer brand, initiated by the producer, makes it possible to associate the company more easily with its products
at the point of purchase. An own label brand is initiated and owned by a reseller, such as a retailer. A generic brand indi-
cates only the product category and does not include the company name or other identifying terms. Manufacturers combat
the growing competition from own label brands by developing multiple brands.
When selecting a brand name, a marketer should choose one that is easy to say, spell and recall, and that alludes to the
product’s uses, benefits or special characteristics. Brand names are created inside an organization by individuals, com-
mittees or branding departments, or by outside consultants. Brand names can be devised from words, initials, numbers,
nonsense words or a combination of these. Services as well as products are branded, often with the company name and
an accompanying symbol that makes the brand distinctive or conveys a desired image.
Producers protect ownership of their brands through patent and trademark offices. Marketers at a company must make
certain that their selected brand name does not infringe on an already-registered brand by confusing or deceiving con-
sumers about the source of the product. In many countries, brand registration is on a first-come, first-served basis, making
protection more difficult. Brand counterfeiting, increasingly common, has potential for undermining consumer confidence
in, and loyalty to, a brand.
Companies brand their products in several ways. Individual branding designates a unique name for each of a company’s
products; overall family branding identifies all of a company’s products with the same name; line family branding assigns
all products within a single line the same name; and brand extension branding applies an existing name to a new or
improved product. Trademark licencing enables producers to earn extra revenue, receive low cost or free publicity, and
protect their trademarks. Through a licencing agreement and for a licencing fee, a company may permit approved manu-
facturers to use its trademark on other products.
Successful brands tend to prioritize quality, offer superior service, get to market or the targeted segment first, be clearly
differentiated from rival brands, have a unique positioning concept supported by a strong communications programme and
be consistent over time. Brand strength is a function of the product’s attributes and functionality, its differentiation, plus
any demonstrable added value to the purchaser or user. Strong brands usually create product differentiation, help establish
a competitive edge, encourage product awareness and demand a significant amount of management and control. Four
levels of brands need to be addressed: the tangible product, the ‘basic’ brand, the ‘augmented’ brand and the ‘potential’ of
the brand. To be successful, a brand should capture the leading share in its market segment or distribution channel, com-
mand prices sufficiently high to offer high profit margins and be likely to maintain its profit position after more brands and
generic versions enter the market. Many companies should be more effective in managing their brands, many of which do
not live up to these success criteria.
Corporate branding involves applying the principles of product branding at the corporate level. Corporate branding is
reflected in visible manifestations such as the company name, logo and visual presentation and also in the organization’s
underlying and guiding values. Sometimes the terms corporate image and corporate identity are also used in relation to
corporate branding. Corporate branding plays a role in guiding all of a company’s marketing activities. Corporate branding
is transmitted through tangible and intangible features and, to be effective, should be embedded in all company actions.
Packaging involves the development of a container and label, complete with graphic design for a product. Effective pack-
aging offers protection, economy, safety and convenience. It can influence the customer’s purchase decision by promoting
a product’s features, uses, benefits and image. When developing a package, marketers must consider costs relative to how
much the target market is willing to pay. Other considerations include how to make the package tamper-resistant; whether
to use family packaging, secondary use packaging, category-consistent packaging or multiple packaging; how to design
the package as an effective promotional tool; how best to accommodate resellers; and whether to develop environmentally
responsible packaging.
Packaging development involves aesthetic and structural choices. Other considerations include: material selection, surface
graphics, typography, information layout and hierarchies, front-of-pack versus back-of-pack detailing, language and jargon,
photography and illustrations, use of colour, symbols and icons, final finishes and effects, labelling practicalities and barcoding/
tracking. There are numerous primary packaging options: cartons, bottles, tubes, cans, tubs and jars, multipacks, clamshells,
blister packs, CD/DVD boxes, gift packs and a host of innovative solutions for storing, displaying and dispensing products.
Packaging can be a major component of a marketing strategy. Companies choose particular colours, designs, shapes
and textures to create desirable images and associations. Producers alter packages to convey new features or to make
them safer or more convenient. If a package has a secondary use, the product’s value to the consumer may be increased.
Category-consistent packaging makes products more easily recognized by consumers and innovative packaging enhances
a product’s distinctiveness. Consumers may criticize packaging that does not work well, is not biodegradable or recyclable,
poses health or safety problems, or is deceptive in some way. The sustainability agenda within the supply chain is a signif-
icant issue for marketers.
Labelling is an important aspect of packaging that can be used for promotional, informational and legal purposes. Because
labels are attention-getting devices, they are significant features in the marketing mix. Various regulatory agencies can
require that products be labelled or marked with warnings, instructions, certifications, nutritional information and the man-
ufacturer’s identification. Increasingly, most products – even cars – have a universal product code (UPC) or barcode. There
are ethical considerations for marketers as customers should not be misled or mis-sold owing to the information conveyed
on a product’s packaging.
Important terms
Key links Blog communities
●● This chapter, about effective branding, should be Brand
read in conjunction with the section of Chapter 8 that Brand advocacy
addresses the linked concept of brand positioning. Brand advocate
●● The branding strategy must reflect the characteristics
Brand attributes
of the product, as explored in Chapter 10. Brand community
Brand equity
●● Many companies operate a portfolio of brands and
Brand extension branding
often must select some for priority investment and
Brand identity
marketing spend, as described in Chapter 12.
Brand insistence
●● The implications of the digital environment must be Brand loyalty
considered when managing brands, as overviewed in Brand mark
Chapter 19. Brand name
Brand personality
Brand preference 10. The brand name JCB is sometimes used generically to refer
Brand recognition to diggers or backhoe loaders. How can JCB protect this
Brand strength brand name?
Brand values 11. Identify and explain the four major branding policies and
Category-consistent packaging give examples of each. Can a company use more than one
Corporate branding policy at a time? Explain your answer.
Corporate identity
12. What are the major advantages and disadvantages of
Corporate image
licencing?
Dynamic branding
Family packaging 13. Why is there more to a brand than its name? Explain your
Generic brand response.
Individual branding 14. What are the most commonly found foundations for success-
Labelling ful brands? Illustrate your response with brand examples.
Levels of brands 15. What constitutes brand strength?
Line family branding
16. What are the differences between brand attributes, brand
Manufacturer brands
values and brand personality?
Multiple packaging
Overall family branding 17. What is brand equity and why is this notion increasingly
Own label brands important?
Packaging 18. What are the three core criteria for assessing the success
Packaging development of a brand?
Secondary use package 19. Describe the functions that a package can perform. Which
Successful brands function is most important? Why?
Trade name
20. When developing a package, what are the major issues that
Trademark
a marketer should consider?
Universal product code (UPC) or barcode
21. In what ways can packaging be used as a strategic tool?
22. What are the major criticisms of packaging?
Discussion and review questions 23. How is the sustainability drive impacting on packaging
1. What is the difference between a brand and a brand decisions?
name? Compare and contrast the terms brand mark and 24. What are the major functions of labelling?
trademark.
2. How does branding benefit customers and organizations?
3. What are the advantages associated with brand loyalty?
Aaker, D.A., Aaker On Branding: 20 Principles That Drive Success
4. In what ways have social media and the web enabled
(Morgan James Publishing, 2014).
brands to create communities of supporters?
Aaker, D.A., Building Strong Brands (Pocket Books, 2010).
5. Why are companies seeking to identify or create brand Ambrose, G. and Harris, P., Packaging The Brand: The Relationship
advocates amongst their customers? Between Packaging Design and Brand Identity (AVA Publishing, 2011).
6. In what ways have brand managers been forced to relin- Calver, G., What is Packaging Design? (RotoVision SA, 2007).
De Chernatony, L., McDonald, M. and Wallace, E., Creating Powerful
quish control over what is communicated about their
Brands (Routledge, 2017).
brands in the digital era?
Kapferer, J.-N., The New Strategic Brand Management: New Insights
7. What are the distinguishing characteristics of own label and Strategic Thinking (Kogan Page, 2012).
brands? Keller, K.L., Strategic Brand Management (FT/Prentice Hall, 2011).
8. Given the competition between own label brands and man- Kirkpatrick, J., New Packaging Design (Laurence King, 2009).
Klimchuk, M.R. and Krasovec, S.A., Packaging Design: Successful Prod-
ufacturer brands, should manufacturers be concerned about
uct Branding from Concept to Shelf (John Wiley, 2013).
the popularity of own label brands? How should manufac-
Ries, A. and Ries, L., The 22 Immutable Laws of Branding: How to Build
turers fight back in the brand battle?
any Product or Line into a World Class Brand (Profile Books, 2002).
9. Identify and explain the major considerations consumers Rowles, D., Digital Branding: A Complete Step-by-Step Guide to Strategy,
take into account when selecting a brand. Tactics, Tools and Measurement (Kogan Page, 2017).
Web task Classroom tools successful. In the highly competitive

clothing market in 2004, the George
Packaging has to reflect manufac- range in Asda grocery superstores
turers’ requirements and also evolv- overtook Debenhams to become the
ing consumer issues. Log on to: www.tetrapak.com. Consider UK’s third biggest retailer of clothing. George Davies moved
the information on this leading packaging company’s website, on and, to the surprise of many onlookers, was approached
notably the information offered about the company, its ethos, by erstwhile arch-rival Marks & Spencer to help improve
core values, vision and mission, innovation and new product the former market leader’s fortunes. The result for Marks &
development. Spencer was the highly successful range of stylish fashion,
1. To what extent and in what ways is Tetra Pak addressing branded Per Una. Now George Davies has launched his own
changing and evolving manufacturer and consumer FG4 clothing brand, retailing through stores and online in the
issues? Middle East and UK.
Both Asda with George, and Marks & Spencer with Per Una
2. What innovative packaging solutions is Tetra Pak cur-
decided to utilize freshly created brands for their new clothing
rently developing?
ranges. In the case of Marks & Spencer, this was even more
remarkable, as previously all of its merchandise retailed under
Group tasks the St Michael retailer’s own label brand, familiar to genera-
tions of shoppers. It is believed that without brand identities so
1. Each member of your team should nominate three ‘great
deliberately far removed from the host retailers’ own brands,
brands’. Select one brand that several members of the
neither George nor Per Una would have been so successful.
team have nominated. Explore why the brand in question
Both brands have themselves enabled their owners to extend
is ‘great’. Identify its brand personality.
their operations: George is available by catalogue and online,
2. Collect examples of packaging from your recent pur- and both George and Per Una have now been given fashion-
chases. Explore what purposes the packaging serves. only high-street branches.
Consider the extent to which the packaging is part of the
product’s branding.
Question
Why did Asda and Marks & Spencer both opt to launch cloth-
Applied mini-case ing ranges with new brand identities that were different to the
In the 1980s, one of Europe’s retailing success stories was host retailers’ brands?
the creation by George Davies of fashion chain Next. Leading
out-of-town grocery retailer Asda persuaded Davies to leave
Sources: George/Asda, 2004; Marks & Spencer stores, 2003/2004 and 2015;
Next and to rekindle the fortunes of its clothing range. The Rachel Barnes, ‘ASDA to highlight style in George repositioning’, Marketing,
result was the George range of men’s, women’s and children’s 25 March 2004, p. 4: www.marksandspencer.com/peruna, June 2011 and
April 2015; direct.asda.com/george/clothing, May 2011 and April 2015; www.
clothing, positioned as a low price, high style fashion brand.
fg4london.com/fg4-women, March 2018; www.drapersonline.com/george-
‘Styles straight off the catwalk’ at affordable prices, tar- davies-on-creating-some-of-uk-retails-biggest-brands/7028169.article,
geted at Asda’s value-conscious shoppers, proved incredibly March 2018; www.georgedavies.com/brand-creation, March 2018.
Rebranding Macmillan Charities are loath to devote their much-

Case study needed resources to marketing or brand-
Cancer affects many families. In the UK, most ing, but recognize that without the public’s
cancer sufferers will be aware of the Macmillan awareness of their activities and a positive
charity’s cancer specialists, nurses and coun- view of their brand, donations of money or time
sellors. A problem for the charity was that those are unlikely. Around a decade ago, Macmillan
unaffected by cancer knew little or nothing about Macmillan. decided to rebrand as Macmillan Cancer Support.
Before the new brand strategy, brand awareness was around targeting the people previously deemed the core target mar-
six per cent. Even those who knew about the brand did not ket. To date, these coffee mornings have raised £75 000 000.
appreciate how Macmillan provides much more than its highly Social media campaigns have been added alongside, intended
regarded cancer nurses. A decade later and brand awareness to attract younger donors and volunteers. A series of challenge
is now much higher, reaching 29 per cent. Macmillan’s aim is to events has mobilized these younger targets. Brave The Shave,
become known in everyday life and to gain the public’s interest Go Sober for October and A Good Night In target students and
in a wide array of its activities. The charity’s aims go beyond young adults, leading to volunteering and donations.
building awareness . . . there are fund-raising aspirations as Macmillan operates an online community for people to
well. Upwards of £200 million is required. Volunteering is an post their own hints and tips for those affected by cancer.
important need. A brave decision, to underpin these objectives Macmillan promotes the best advice posted on the discussion
was to target youngsters and young adults. forum. The charity uses a host of platforms and postings, but
The traditional coffee morning target audience has still values its traditional brand-building campaigns and adver-
remained in place, now supplemented with youngsters who tising. Nevertheless, Macmillan is also now harnessing social
are more likely to volunteer. The World’s Biggest Coffee Morn- media and messaging to appeal to its target group. Macmillan
ing – devised to create awareness, attract volunteers and integrates its activities to ensure its core target audiences do
generate cash donations – still is part of Macmillan’s plans, not feel to be ousted.

1. Why might marketers wish to use the digital environment
for brand building?
2. Highlight how marketers are not in control of their own
destiny online.
3. What are the threats and opportunities to a brand from
the growth of social media networking?
References: Sarah Bentley, Accenture; Jude Brooks, Coca-Cola; ‘Brandbuilders

look to online space for growth’, Marketing Week, November 2010, pp. 42–3;
Hilary Cross of Macmillan, March 2015. www.macmillan.org.uk, March 2018.
Chapter 12
Developing products and
managing product portfolios
Success depends on great new products but also the courage to drop
products from the portfolio when the time is right
Introduction
Objectives Companies have to create new ideas for products and turn
some of these into marketable product or service proposi-
To become aware of organizational
tions. Such a process is far from easy, with more new product
alternatives for managing products.
launches failing than succeeding. As additional products are
To understand how organizations included in a company’s portfolio, it becomes increasingly diffi-
develop a product idea into a com- cult to identify on which of them investment and sales/marketing
mercial product. resources should be focused.
A range of tools, known as product portfolio techniques,
To understand the importance and
exists to assist marketers in such decision-making. A related
role of product development in the
and important concept is that of product life-cycle manage-
marketing mix.
ment: the logic being that products are launched and if suc-
To acquire knowledge of the man- cessful they grow, then they mature, before going into decline
agement of products during the and dying.
various stages of a product’s life Marketers must be aware of the relative standings of their
cycle. respective products and brands to ensure they always have
a viable portfolio overall, with new products replacing those in
To become aware of how existing
decline. These are the themes of this chapter of Marketing: Con-
products can be modified.
cepts and Strategies.
To learn how product deletion can
be used to improve product mixes.
To examine tools for the strategic
planning of product or market
portfolios.
348
Chapter 12 Developing products and managing product portfolios 349
Virgin Money: a haven

R ichard Branson’s Vir-
gin brand is known
to consumers across a
on the high street
communities come together.
They are all part of our ambi-
tion to be a very different
range of products and ser- kind of bank – one that makes
everyone better off.
vices, from airlines to entertain-
Lounge membership is com-
ment to mobile phones. In 1995,
pletely free, and so are the refreshments,
Virgin launched its financial services arm with Virgin Direct. wi-fi and use of our iPads. You’re welcome
At a time when major retailers such as Marks & Spencer and to bring a friend or family member in with you.
Tesco were entering many sectors of financial services – from
banking to insurance – the entry of Virgin Direct made many of Virgin Money offers current accounts, credit cards, mort-
the traditional businesses in the financial services sector very gages, savings, ISAs, investments and insurance. The phi-
anxious. Branson’s reputation among consumers for ‘taking on losophy is simple. Virgin Money intends to introduce more
faceless corporations’ gave Virgin Direct a head start. interesting propositions, rather than simply churning out new
Virgin Direct, replicating the activities of Virgin in other products. The company has a focus on being customer-led,
sectors, intended to be seen as an innovator that strove to rather than product-led, explaining that by focusing on small
offer a value-for-money proposition strongly benefiting the changes the experience is so much better:
consumer. Virgin launched a tracker fund that tracked shares There’s money and there’s Virgin Money
across the entire stock market rather than across only a lim-
• We’re building a better kind of bank by doing what banks
ited selection. This innovation was subsequently copied by
should do:
many rivals. Then Virgin lobbied the government to launch
• Treating you as a person, not a number
stakeholder pensions. Virgin also led the way with off-set • Always looking for ways to make you better off
mortgages, with the original Virgin One account. The inno- • Creating no-nonsense products we’re proud of
vations have continued from the company, now branded as • Delivering service that’s about smiles, not sales
Virgin Money. There is now a growing network of branches, • Keeping things simple
but also Virgin Money Lounges: • Helping make a difference beyond banking
Haven on the high street . . . uk.virginmoney.com/virgin/about

Our Lounges are about more than money and banking – they are
Virgin-branded financial services products are innovative
designed to be places where our customers can relax and local
and place an emphasis on addressing consumer needs and
allaying typical consumer concerns about the sprawling global
financial services corporations. Value for money, simplicity,
ease of setting up and the Virgin brand have proved irresist-
ible propositions for thousands of consumers who perceive
Virgin and Branson to represent a desirable alternative to large
and faceless corporations. As a result of this approach, Virgin
Money has won countless industry awards in recent years and
a growing band of customers.
Sources: Virgin Money; uk.virginmoney.com, March 2011; uk. virginmoney.

com/virgin/about-lounges, April 2015; uk.virginmoney.com/virgin/, March
2018.
T
o compete effectively and achieve their goals, companies must develop products that reflect
consumer needs and preferences, while seeking to be different from competitors. They
also must recognize that customer expectations, competitors and market trends do not
stand still, so product portfolios must be constantly appraised and uprated. This is certainly the
approach adopted by Virgin Money. A company often has to modify existing products, introduce
new products or eliminate products that were successful perhaps only a few years ago. Some-
times, product alterations are required to keep pace with changing consumer demographics and
new technologies. Whatever the reasons for altering products, the product mix must be man-
aged and kept fresh, reflecting customer expectations, changing market trends and competitors’
products. It may be appropriate to expand a company’s product mix to take advantage of excess
marketing and production capacity.
The product portfolio approach tries to create specific marketing strategies to achieve a balanced
mix of products that will maximize a company’s longer-term profits. This chapter begins by consider-
ing how businesses are organized to develop and manage products. Next, several ways to improve a
company’s product mix, including new product development – from idea generation to commercial-
ization – are reviewed. The chapter then considers issues and decisions associated with managing a
product through the growth, maturity and declining stages of its life cycle. Different types of product
modification are also examined. The deletion of weak products from the product mix is examined,
often one of the hardest decisions for a marketer. The chapter concludes with a look at some of the
related analytical tools associated with the planning of product portfolio: the Boston Consulting Group
(BCG) product portfolio analysis, the market attractiveness – business position model or directional
policy matrix (DPM) and the ABC sales:contribution analysis.
Organizing to manage products

A company must often manage a complex set of products, markets or both. Management must
find an organizational approach that accomplishes the tasks necessary to develop and manage
products.
product manager The product or brand manager approach A product manager is responsible for a
The person responsible product, a product line or several distinct products that make up an inter-related group
for a product, a product within a multi-product organization. A brand manager, on the other hand, is respon-
line or several distinct sible for a single brand, for example Dove or the Ford Focus. A product or brand man-
products that make up
ager operates cross-functionally to coordinate the activities, information and strategies
an interrelated group
within a multi-product involved in marketing an assigned product. Product managers and brand managers plan
organization. marketing activities to achieve objectives by coordinating a mix of place/distribution,
promotion and especially sales promotion, advertising and digital, customer service
and price. They must consider packaging and branding decisions, and work closely
brand manager with research and development, engineering and production departments. The product
The person responsible manager or brand manager approach is used by many large, multi-product companies in
for a single brand.
the consumer goods sector. Increasingly it is a popular approach adopted by marketers
responsible for services brands and business-to-business markets.
marketing manager The marketing manager approach A marketing manager is responsible for man-
The person responsi- aging the marketing activities that serve a particular group or class of customers. This
ble for managing the organizational approach is particularly effective when a company engages in different
marketing activities that types of marketing activity to provide products to diverse customer groups. For example,
serve a particular group
a company may have one marketing manager for business markets and another for con-
or class of customers.
sumer markets. These broad market categories may be broken down into more limited
market responsibilities. IT services company Fujitsu has identified core target market
venture or project sectors, such as government customers, retail, financial services, utilities and so forth.
team There is a separate marketing manager responsible for each sector, all reporting to the
The group that creates central marketing director. Each Fujitsu marketing manager handles the implementation
entirely new products, of marketing programmes bespoke to his or her clients in the assigned sector, who is
perhaps aimed at new
markets, and is responsi-
also tasked with developing new products or services relevant to their category of clients.
ble for all aspects of the
products’ development. The venture or project team approach A venture or project team is designed
to create entirely new products that may be aimed at new markets. Unlike a product
or marketing manager, a venture team is responsible for all aspects of a product’s development:
research and development, production and engineering, finance and accounting, and marketing.
Venture teams work outside established divisions to create inventive approaches to new products
and markets. As a result of this flexibility, new products can be developed to take advantage of
opportunities in highly segmented markets. Fujitsu has a separate team of marketers and new
product development specialists working outside any specific client sectors, who are also striving
to develop the next generation of attractive IT services but are not focused on a particular client
sector, which is the role of the marketing managers. For example, their cloud computing offering
has relevance to most of the company’s client markets.
The members of a venture team come from different functional areas of an organization. Com-
panies are increasingly using such cross-functional teams for product development in an effort to
boost product quality. Quality may be positively related to information integration within the team,
customers’ influence on the product development process and a quality orientation within the
business.1 When the commercial potential of a new product has been demonstrated, the mem-
bers may return to their functional areas, or they may join a new or existing division to manage the
product. The new product may be turned over to an existing division, a marketing manager or a
product manager. Innovative organizational forms such as venture teams are especially important
for well-established companies operating in mature markets. These companies must take a dual
approach to marketing organization. They must accommodate the management of mature prod-
ucts and also encourage the development of new ones.2
New product development

Developing and introducing new products is frequently expensive and risky. The initial development
of Gillette’s Sensor razor took over eight years and resulted in a £150 million investment.3 Thou-
sands of new consumer products are introduced annually, and anywhere from 60 to 90 per cent
of them fail. Lack of research, technical problems in design or production, and errors in timing of
the product’s introduction are all causes of failure. Although developing new products is risky, so is
failing to introduce new products. For example, the makers of Timex watches gained a large share
of the watch market through effective marketing strategies during the 1960s and early 1970s. By
1983, Timex’s market share had slipped considerably, in part because the company had failed to
introduce new products. Timex has since regained market share by introducing a number of new
products, but in the meantime competitors such as Swatch established their brands and stole
significant market share from Timex.
Figure 12.1
Building on the popularity of
gin, Sipsmith launched a lemon
drizzle-flavoured product to add to
its range.
Source: Sipsmith
The term ‘new product’ can have more than one meaning. It may refer to a genuinely new
product, such as autonomous driverless vehicles, offering innovative benefits. However, products
that are merely different and distinctly better are also often viewed as new, such as lighter-weight
wireless laptops or 4G smartphones. The following items, listed in no particular order, are product
innovations of the last 30 or 40 years: Post-it notes, birth-control pills, felt-tip pens, anti-ulcer drugs,
deep-fat fryers, personal computers, microwave ovens, Viagra, VCRs, DVDs, mobile phones, email,
soft contact lenses, wireless data networks, Satnav, streaming, cloud computing, Skype, hybrid
cars, windfarms, mobile banking, 3D printing, virtual reality headsets, health monitoring apps and
domestic robots. A new product can be an innovative variation of an existing product, as in the
example shown in Figure 12.1.
A radically new product such as the Kindle and fellow eReaders involves a complex development
process, including an extensive business analysis to determine the possibility of success.4 It can also
be a product that a given company has not marketed previously, although similar products may be
available from other companies. The first company to introduce a DVD player was clearly launching
a new product, yet if Boeing introduced its own brand of DVD player, this would also
be viewed as a new product for Boeing, because it has not previously marketed such
Idea generation
products. Managers in companies trying something new are often highly excited by
sales prospects, yet the targeted consumers have probably been able to purchase
similar products from a variety of other suppliers for some time; so, to be successful
Screening ideas the new entrant must have a visible and desirable competitive edge.
Before a product is introduced, it goes through the seven phases of new prod-
uct development shown in Figure 12.2:
Concept testing 1. idea generation

2. screening ideas
3. concept testing
Business analysis 4. business analysis
5. product development
6. test marketing
Product development
7. commercialization.
A product may be dropped, and many are, at any of these stages of develop-
Test marketing ment. This section examines the process through which products are developed
from the inception of an idea to a product offered for sale. Table 12.1 shows how
companies can improve their new product success rate.
Commercialization
Table 12.1 How to improve new product success
1 Talk with consumers and observe them; don’t introduce a product just because you have the technology
Figure 12.2 to make it.
Phases of new product develop- 2 Set realistic sales goals. Unrealistic goals can result in potentially successful products being terminated.
ment screening ideas
3 Make all parts of the company (research, manufacturing, marketing and distribution) work together for
customer orientation.
new product
development 4 At each stage of development, the product should have consumer acceptance, the ability to be manufac-
The process a product tured at an acceptable cost and sales support.
goes through before 5 Test market a product long enough to get an accurate assessment. Some products fail because consum-
introduction, involving ers buy them early as a novelty only.
seven phases: idea gen-
6 Carefully evaluate all product failures to provide information for future product introductions.
eration, screening ideas,
concept testing, business 7 Monitor competitor developments: a new product must not merely replicate a rival.
analysis, product devel-
8 Keep internal colleagues up-to-date and explain new developments to them.
opment, test marketing
and commercialization. Source: Adapted from Christopher P. Power, Kathleen Kerwin, Ronald Grover, Keith Alexander and Robert D. Hof, ‘Flops:
too many new products fail. Here’s why – and how to do better’, from Business Week, 16 August 1993, pp. 78–9.
Idea generation Idea generation

Idea generation involves companies and other organizations
The process by which seeking product ideas that will help them achieve their objectives. This task is dif-
companies and other ficult because only a few ideas are good enough to be commercially successful.
organizations seek Although some organizations get their ideas almost by chance, companies trying to
product ideas that will
manage their product mixes effectively usually develop systematic approaches for
help them achieve their
objectives. generating new product ideas. Indeed, there is a relationship between the amount
of market information gathered and the number of ideas generated by work groups
in organizations.5 At the heart of innovation is a purposeful, focused effort to identify
new ways to serve a market. Unexpected occurrences, incongruities, new needs, industry and
market changes and demographic changes may all indicate new opportunities.6 The forces of
the marketing environment (see Chapter 3) often create new opportunities, as well as threats
to combat.
New product ideas can come from several sources. They may come from internal sources:
marketing managers, researchers, sales personnel, engineers or other organizational personnel.
Brainstorming and incentives or rewards for good ideas are typical intra-organization devices
for stimulating the development of ideas. The company 3M is well known for encouraging the
generation of new ideas. The idea for 3M’s Post-it adhesive-backed yellow notes came from
an employee. As a church choir member, he used slips of paper for marking songs in his hymn
book. As the pieces of paper fell out, he suggested developing an adhesive-backed note. Hewlett
Packard keeps its labs open to engineers 24 hours a day to help generate ideas; it also encour-
ages its researchers to devote 10 per cent of company time to exploring their own ideas for new
products.7 Company suggestion boxes for employees’ ideas provide many of the stimuli for BMW’s
automotive innovations.
New product ideas may also arise from sources outside the company, for example customers,
competitors, advertising agencies, management consultants and private research organizations.8
Johnson & Johnson, for example, acquired the technology for its clear orthodontic braces through
a joint venture with Saphikon, the developer of the technology behind the braces. Developing
new product alliances with other businesses has also been found to enhance the acquisition and
use of information helpful for creating new product ideas.9 Sometimes ideas come from poten-
tial buyers of a product. Asking weekend fishermen what they wanted in a sonar fish finder led
Techsonic to develop its liquid crystal recorder fish finder.10 In some markets, it is particularly
important for new ideas to stem from customers. For example, many defence programmes take
ten years to instigate, and the big defence equipment manufacturers are led by the stated buying
plans and budgets of government defence departments. Online brand communities and subject
fora are good sources for new product ideas. Increasingly popular is the process of
co-creation
co- creation, in which executives collaborate with their customers and possibly supply
The involvement of, or chain partners to dream up new concepts.11, 12
consultation with, con-
sumers and supply chain Screening ideas Screening ideas involves first assessing whether they match orga-
partners in the collabora- nizational objectives and resources, and then choosing the best ideas for further review.
tive development of new
Next, the company’s overall ability to produce and market the product is analyzed. Other
products.
aspects of an idea that should be weighed are the nature and wants of buyers, and
possible marketing environment changes. More new product ideas are rejected during
screening ideas the idea-screening phase than during any other phase.
The process by which Sometimes a checklist of new product requirements is used to ensure that the screen-
a company assesses ing process is as systematic as possible. If a critical factor on the checklist remains
whether product ideas
unclear, the type of formal marketing research described in Chapter 9 may be needed.
match its organizational
objectives and resources. To screen ideas properly, it may be necessary to test product concepts. A product con-
cept and its benefits can be described or shown to consumers or business customers.
Several product concepts may be tested to discover which might appeal most to a
particular target market.
concept testing Concept testing Concept testing is a phase in which a small sample of potential
Seeking potential buyers’ buyers is presented with a product idea, often in focus groups or via an online discussion
responses to a product group, through a written or oral description and perhaps a few drawings to determine
idea. their attitudes and initial buying intentions regarding the product. Online fora and digital
brand communities often are used to tease out the views of intended customers. Many
brands use Mumsnet.com for this purpose, suggesting ideas to seek reactions or pro-
viding prototypes for exploration and testing. For a single product idea, an organization can test
one or several concepts of the same product. Concept testing is a low-cost procedure that lets
a company determine customers’ initial reactions to a product idea before it invests considerable
resources in research and development. The results of concept testing can be used by prod-
uct development personnel to better understand which product attributes and benefits are most
important to potential customers.13
business analysis Business analysis During the business analysis phase, the product idea is evalu-
A company’s evaluation ated to determine its potential contribution to the company’s sales, costs and profits. In
of a product idea to the course of a business analysis, evaluators ask a variety of questions:
determine its potential
contribution to the com- ●● Does the product fit in with the company’s existing product mix? Does the company
pany’s sales, costs and have the right expertise to develop the new product?
profits.
●● Is demand strong enough to justify entering the market and will the demand endure?
●● What types of environmental and competitive changes can be expected, and how
will these changes affect the product’s future sales, costs and profits?
●● Are the organization’s research, development, engineering and production capabilities adequate?
●● If new facilities must be constructed, how quickly can they be built and how much will they cost?
●● If additional staff are required, when will they be in post?
●● Is the necessary financing for development and commercialization on hand or obtainable at
terms consistent with a favourable return on investment?
●● Will the new product or idea benefit the company’s existing portfolio of products?
●● Is there any danger that existing products or services will be cannibalized?
●● How soon will competitors catch up?
●● Will distributors be receptive?
●● How credible a supplier of this type of product is this company?
●● What partnerships might be required?
In the business analysis stage, companies seek market information. The results of consumer
surveys, along with secondary data, supply the specifics needed for estimating potential sales,
costs and profits. At this point, a research budget should explore the financial objectives and related
considerations for the new product.
product development Product development Product development is the phase in which the organization
The phase in which the determines if it is technically feasible to produce the product and if it can be produced at
organization determines costs low enough to make the final price reasonable. To test its acceptability, the idea or
if it is technically and concept is converted into a prototype or working model. Concept cars are used in the
financially feasible to
development of new vehicles. The prototype should reveal tangible and intangible attributes
produce a new product.
associated with the product in consumers’ minds. The product’s design, mechanical fea-
tures and intangible aspects must be linked to wants in the marketplace. This includes the
service aspects of the product, which are a vital component of many products. Failure to determine
how consumers feel about the product and how they would use it may lead to the product’s failure.
The development phase of a new product is frequently lengthy and expensive; thus a rela-
tively small number of product ideas are put into development. If the product appears sufficiently
successful during this phase to merit testing, then during the latter part of the development phase
marketers begin to make decisions regarding branding, packaging, labelling, pricing and promotion
for use in the test marketing phase.14
Test marketing The limited introduction of a product in geographic areas or a mar-

keting channel chosen to represent the intended market is called test marketing. Its
test marketing
The limited introduction aim is to determine the reactions of probable buyers. For example, after McDonald’s
of a product in geo- developed fried chicken products for its fast-food menu, it test marketed the idea in cer-
graphic areas or a chan- tain McDonald’s restaurants to find out how those customers felt about eating chicken
nel chosen to represent at McDonald’s. The company followed a similar strategy for test marketing its range of
the intended market.
salads and pizza. Test marketing is not an extension of the development phase. It is a
sample launching of the entire marketing mix and should be conducted only after the
product has gone through development and after initial plans regarding the other mar-
keting mix variables have been made.
Companies of all sizes use test marketing to reduce the risk of product failure. The dangers of
introducing an untested product include undercutting already profitable products and, should the
new product fail, loss of credibility with distributors and customers. Test marketing provides several
benefits. It lets marketers expose a product to a natural marketing environment to gauge its sales
performance. While the product is being marketed in a limited area, the company can seek to
identify weaknesses in the product or in other parts of the marketing mix. Corrections can be made
more cheaply than if the product had already been introduced nationwide. Test marketing also
allows marketers to experiment with variations in advertising, price and packaging in different test
areas and to measure the extent of brand awareness, brand switching and repeat purchases that
result from alterations in the marketing mix. Digital fora, such as Mumsnet.com, and a company’s
own online digital brand ambassadors are very useful for test marketing and soliciting feedback.
The accuracy of test marketing results often hinges on where the tests are conducted. The
selection of appropriate test areas is very important. The validity of test marketing results depends
heavily on selecting test sites that provide an accurate representation of the intended target market.
The criteria used for choosing test cities, television regions or online fora depend on the product’s
characteristics, the target market’s characteristics and the company’s objectives and resources.
Test marketing can be risky because it is expensive and a company’s competitors may try to
interfere. This is common in the confectionery market. A competitor may invalidate test results in
an attempt to ‘jam’ the test programme by increasing advertising or promotions, lowering prices or
offering special incentives all to combat the recognition and purchase of a new brand. Sometimes
competitors copy the product in the testing stage and rush to introduce a similar product. It is
therefore desirable to move quickly and commercialize as soon as possible after testing. When the
product introduction is delayed to the point where the public begins to doubt its existence, such
products may become known as ‘vapourware’, particularly in the computer software industry.15
To avoid these risks, companies may use alternative methods to gauge consumer preferences.
One such method is simulated test marketing. Typically, consumers at shopping centres are asked
to view an advertisement for a new product and are given a free sample to take home. These
consumers are subsequently interviewed and asked to rate the product. The major advantages
of simulated test marketing are lower costs, tighter security and, consequently, a reduction in the
flow of information to competitors, and the elimination of jamming. Scanner-based test marketing
is another, more sophisticated version of the traditional test marketing method. Some marketing
research companies, such as AC Nielsen, offer test marketing services to help provide
independent assessment of products.
commercialization
The process of refining
and settling plans for full
Commercialization During the commercialization phase, plans for full-scale manu-
scale manufacturing and facturing and marketing must be refined and settled, and budgets for the project must be
marketing. prepared. Early in the commercialization phase, marketing managers analyze the results
of test marketing to find out what changes in the marketing mix are needed before the
product is introduced. For example, the results of test marketing may tell the marketers to change
one or more of the product’s physical attributes, modify the distribution plans to include more retail
outlets, alter promotional efforts or change the product’s price, or modify the positioning platform.
During this phase, the company also has to gear up for production and may face sizeable capital
expenditure and personnel costs.
The product enters the market during the commercialization phase. One study indicates that
only eight per cent of new product projects started by major companies reach this stage.16 When
introducing a product, marketers often spend enormous sums of money on advertising, personal
selling, digital and other types of promotion. These expenses, together with capital outlays, can
make commercialization extremely costly; such expenditures may not be recovered for several
years. For example, when Ford introduced its new Focus model, the company spent millions of
pounds on advertising to communicate the new car’s attributes, with pay-back not expected that
year. Commercialization is easier when customers accept the product rapidly, which they are more
likely to do if marketers can make them aware of its benefits and desirability.
Line extensions
A line extension is the development of a product that is closely related to one or more
line extension
A product that is closely products in the existing product line but is designed specifically to meet the somewhat
related to existing different needs of customers. For example, Fairy Liquid washing-up detergent was used
products in the line but as a springboard for various detergent-based Fairy products including washing powder
meets different customer for automatic washing machines. Dove has been extended into a diversity of products,
needs.
from soap and washing, deodorant, body lotions and haircare. Many of the so-called
new products introduced each year by organizations are in fact line extensions. Line
extensions are more common than radically new products because they are a less
expensive, lower-risk alternative for increasing sales. A line extension may focus on a different
market segment or may be an attempt to increase sales within the same market segment by more
precisely satisfying the needs of people in that segment. For example, Nestlé launched an extra-
strong variant of its Polo mints, Supermints, aimed at lovers of strong peppermints. However, one
side-effect of employing a line extension is that it may result in a more negative evaluation of the
core product.17 It has been suggested that the success of line extensions is partly affected by
consumer perceptions of how well the extension fits with the core brand.18
Product adoption process

The following stages of the product adoption process are generally recognized as
product adoption
process those that buyers go through in accepting a product, from gaining awareness of it to
The stages buyers go buying the product:
through in accepting
a product: awareness, 1. Awareness – the buyer becomes aware of the product.
interest, evaluation, trial 2. Interest – the buyer seeks information and is generally receptive to learning about
and adoption. the product.
3. Evaluation – the buyer considers the product’s benefits and determines whether to
try it.
4. Trial – the buyer examines, tests or tries the product to determine its usefulness relative to his
or her needs.
5. Adoption – the buyer purchases the product and can be expected to use it when the need for
this general type of product arises again.19
In the first stage, when individuals become aware that the product exists, they have little infor-
mation about the product and are not concerned about obtaining more. Consumers enter the
interest stage when they are motivated to obtain information about the product’s features, uses,
advantages, disadvantages, price or location. During the evaluation stage, individuals consider
whether the product will satisfy certain criteria that are crucial for meeting their specific needs. In
the trial stage, they use or experience the product for the first time, possibly by purchasing a small
quantity, by taking advantage of a free sample or demonstration, or by borrowing the product from
someone. Supermarkets, for instance, frequently offer special promotions to encourage consumers
to taste products. During this stage, potential adopters determine the usefulness of the product
under the specific conditions for which they need it.
Individuals move into the adoption stage by choosing the specific product when they need a
product of that general type. However, the fact that a person enters the adoption process does not
mean that s/he will eventually adopt the new product. Rejection may occur at any stage, including
adoption. Both product adoption and product rejection can be temporary or permanent. Just
because a consumer or business customer adopts a particular product once, does not guarantee
future loyalty to the product or brand. Marketers must work hard to achieve a customer’s ongoing
loyalty and repeat purchasing.
This adoption process model has several implications for the commercialization phase. First, the
company must promote the product to create widespread awareness of its existence and its bene-
fits. Samples or simulated trials should be arranged to help buyers make initial purchase decisions.
Marketers should also emphasize quality control and provide solid guarantees to reinforce buyer
opinion during the evaluation stage. Finally, production and physical distribution must be linked
to patterns of adoption and repeat purchase. The product adoption process is also discussed in
Chapter 16, as marketing communications are not only important for achieving awareness, but also
for informing and persuading customers right through the product adoption process. When launch-
ing a new product, companies must realize that buyers differ in the speed with which they adopt
a product. Identifying buyers who are most open to new products can help expedite this process.
Consumers do not always pass through all the stages of the product adoption process as
formally as this overview may have implied. A minor upgrade to a familiar brand may not cause
consumers much concern, whereas an innovative product launched by an unknown supplier will
give rise to much more extensive consumer decision-making. Business customers making routine
re-buys or consumers making routine response purchases – see Chapters 5 and 6 – already have
awareness of a particular product and are interested. Previously, they have tried and adopted the
product, so their limited decision-making does not require them to pass through the product adop-
tion process in this manner. On the whole, marketers would do well to remember the importance
of all five stages in this important concept. Consumers and business customers must be aware of,
have interest in, and be prepared to evaluate and try out a product or service if they are to adopt it:
that is, to buy and consume it. The marketing task does not end with first-time adoption, however.
The ongoing requirement for marketers is to ensure customer loyalty and repeat purchase.
Products are not usually launched nationwide overnight but are introduced through a process
called a roll-out. In a roll-out, a product is introduced in stages, starting in a set of geographic areas
and gradually expanding into adjacent areas. Thus Cadbury’s Wispa bar appeared initially in the
north-east of England. It may take several years to market a product nationally. Sometimes the
test cities are used as initial marketing areas, and the introduction becomes a natural extension of
test marketing. Gradual product introduction reduces the risks of introducing a new product. If the
product fails, the company will experience smaller losses. Furthermore, it may take some time for
a company to develop a suitable distribution network. Also, the number of units needed to satisfy
the national demand for a successful product can be enormous, and a company cannot usually
produce the required quantities in a short time.
Despite the good reasons for introducing a product gradually, marketers realize that this
approach creates some competitive problems. A gradual introduction allows competitors to
observe what a company is doing and to monitor results, just as the company’s own marketers
are doing. If competitors see that the newly introduced product is successful, they may enter the
same target market quickly with similar products. Avoiding competition is critical when a company
introduces a brand into a market in which it already has one or more brands. Marketers usually
want to avoid cannibalizing sales of their existing brands, unless the new brand generates sub-
stantially larger profits. When KP introduces a new snack brand, it must take care to ensure that
sales of other KP brands do not suffer.
If a product has been planned properly, its attributes and brand image will give it the distinctive
appeal needed. Style, shape, construction, quality of work and colour help create the image and
the appeal. Of course, buyers are more likely to purchase the product if they can easily identify the
benefits. When the new product does not offer some preferred attributes, there is room for another
new product or for repositioning of an existing product.20 Methods of positioning are discussed in
the penultimate part of Chapter 8.
Product life cycle management

Most new products start off slowly and seldom generate enough sales to produce profits immedi-
ately. As buyers learn about the new product, marketers should be looking out for any weaknesses
and be ready to make corrections quickly, in order to prevent the product’s early demise. Computer
software companies expect to modify ‘bugs’ when launching new software products. Consumers
must be informed quickly and efficiently of any difficulties if damage to the brand image is to be
avoided. Marketing strategy should be designed to attract the segment that is most interested in,
and has the fewest objections to, the product. If any of these factors need adjustment, this action
also must be taken quickly to sustain demand. As the sales curve moves upwards and the break-
even point is reached, the growth stage begins. See Figure 10.5 in Chapter 10 for an explanation
of the product life cycle concept, which assumes a path from introduction to growth, into maturity
and then decline, mimicking the human life cycle from birth to death.21
Marketing strategy in the growth stage

As sales increase, management must support the momentum by adjusting the marketing strategy.
The goal is to establish the product’s positioning and to fortify it by encouraging brand loyalty. As
profits increase, the company must brace itself for the entrance of aggressive competitors, who
may make specialized appeals to selected market segments.
During the growth stage, product offerings may have to be expanded. To achieve
greater penetration of an overall market, segmentation may have to be used more
exclusive distribution intensely. That would require developing product variations to satisfy the needs of cus-
Market coverage in
tomers in several different market segments. Marketers should analyze the product
which only one outlet
is used in a geographic positioning regarding competing products, and correct weak or omitted attributes.
area. Further quality, functional or style modifications may be required.
Gaps in the marketing channels should be filled during the growth period. Once a
product has won acceptance, new distribution outlets may be easier to obtain. Some-
selective distribution times marketers tend to move from exclusive distribution or selective distribution
Market coverage in to a more intensive distribution of dealers to achieve greater market penetration.
which only some avail-
able outlets in an area
Marketers must also make sure that the physical distribution system is running efficiently
are chosen to distribute and delivering supplies to distributors before their inventories are exhausted. Because
a product. competition increases during the growth period, good service and an effective mecha-
nism for handling complaints are important.
Advertising expenditure may be lowered slightly from the high level of the introduc-
intensive distribution tory stage, but still needs to be quite substantial. As sales increase, promotion costs
Market coverage in
which all available outlets
should drop as a percentage of total sales. A falling ratio between promotion expenditure
are used for distributing and sales should contribute significantly to increased profits. The advertising messages
a product. should aim to stress brand benefits and emphasize the product’s positioning. Coupons
and samples may be used to increase market share.
After recovering development costs, an organization may be able to lower prices. As sales
volume increases, efficiencies in production can result in lower costs and these savings may be
passed on to buyers. If demand remains strong and there are few competitive threats, prices tend
to remain stable. If price cuts are feasible, they can improve price competition and discourage new
competitors from entering the market. For example, when compact disc players were introduced
in the early 1980s, they carried an £800 price tag. Primarily because of the price, the product
was positioned as a ‘toy for audiophiles’, a very small market segment. To generate mass-market
demand, compact disc player manufacturers dropped their prices to around £150, and the cost of
discs also dropped. The price was at a point where the margin was low but the turnover was high.
However, with most homes having a CD player, sales volumes inevitably diminished, until streaming
and downloads have further taken over. A similar pattern has emerged in the sale of smart phones
and tablets, as unit prices have plummeted. Widescreen home entertainment systems are now
following this pattern, as margins reduce but volumes increase.
Marketing strategy for mature products

As many products are in the maturity stage of their life cycles, marketers must always be ready to
improve the product and marketing mix. During maturity, the competitive situation stabilizes and some
of the weaker competitors drop out. It has been suggested that as a product matures, its customers
become more experienced and their requirements more diverse, so that market segmentation oppor-
tunities increase. As customers’ needs change, new marketing strategies for mature products may be
called for.22 Marketers may also need to modify the product. Symptoms of a mature product include
price cutting, increased competitive action and shifting from a product orientation to a non-product
orientation (price, promotion and place/distribution adaptation); in addition, market growth slows.23
Product modification means changing one or more characteristics of a company’s
product modification
The alteration of one or
product. This strategy is most likely to be used in the maturity stage of the product life
more characteristics of a cycle, to give a company’s existing brand a competitive edge. The introduction of the
company’s product. Fairy washing pod as shown in Figure 12.3 is one such example. Even well-established
brands such as Sellotape must be modified from time to time, with innovative dispensers
or versions with ‘Happy Birthday’ or suchlike printed along the tape. Altering a product
mix in this way entails less risk than developing a new product because the product is already
established in the market.
If certain conditions are met, product modification can improve a company’s product mix.
First, the product must be modifiable. Second, existing customers must be able to perceive that
a modification has been made, assuming that the modified item is still aimed at them. Third, the
modification should make the product more consistent with customers’ desires so that it provides
greater satisfaction. If these conditions are not met, it is unlikely that the product modification,
however innovative, will be successful. The Topical Insight box below describes several successful
modifications to personal banking that have been developed due to emerging technology. Product
modifications fall into three major categories: quality, functional and style modifications.
Quality modifications Changes concerning a product’s dependability and durability

are called quality modifications. Usually, they are executed by altering the materials
quality modifications
Changes that affect a or the production process. Reducing a product’s quality may allow a company to lower
product’s dependability its price and direct the item at a larger target market.
and durability. By contrast, increasing the quality of a product may give a company an advan-
tage over competing brands. During the last 30 years, marketers have been forced by
increased global competition, technological change and more demanding customers
to improve product integrity.24 Higher quality may enable a company to charge a higher price by
creating customer loyalty and by lowering customer sensitivity to price. However, higher quality
may require the use of more expensive components, less standardized production processes, and
other manufacturing and management techniques that force a company to charge higher prices.25
Telebanking, tv banking, Microsoft to provide an interactive bank-

ebanking, texting and now ing service on Microsoft’s WebTV network
Topical insight (which closed a few years ago as broad-
banking apps: what next? band took over). The service included infor-
mation about mortgages, travel insurance,
Marketers must constantly look at ways
currency rates, plus standard current account
to keep their products ‘fresh’ and up to date,
banking, based on NatWest’s PC banking package
modifying existing products as appropriate or
already established online.
bringing out new ones. Personal banking has gone through
More recently, first home-based internet banking and now
many phases. Some readers will remember the days when
mobile technology have changed the ways in which many
high street banks were the only option for interacting with
customers interact with their banks or make financial trans-
a bank, but were open only until mid-afternoon Monday to
actions. Now many customers prefer eBanking, anywhere
Friday, and there were no ATMs for easy cash withdrawals.
they happen to be at any time. Smartphone apps, 3G and 4G,
Queuing at ageing tills in austere branches was the primary
wi-fi hot spots and broadband have combined to transform
means of operating bank current accounts. Direct debits and
the way in which many customers engage with their bank
standing orders helped, but the real revolution came in the late
and manage their finances. For example, first direct now
1970s with the growth of ATMs (cash dispensers) and then in
offers mobile phone users texting access to their banking
the early 1990s as most leading banks extended their opening
details and mobile apps, no longer relying on call centres.
hours and range of services aimed at private customers.
As more people use their apps on their smartphones and
Technology has emerged as a driving force for change for
tablets, there is an increase in accessing bank accounts on
banking services, in addition to ATMs. HSBC’s first direct broke
the go: a far cry from the queues in fuddy-duddy branches.
ranks by launching as a telephone-only, 365 days-a-year,
No doubt other technological solutions will soon emerge. To
24-hour full-service personal banking provider. Rapid take-off
banking customers, such product developments are revo-
of first direct encouraged its traditional high street competitors
lutionizing their banking habits and access to financial ser-
to offer their own 24-hour telephone services such as Bar-
vices 24/7.
clays’ BarclayCall, based on heavy investment in call centres.
Another departure from the traditional high street bank
branch was the launch of TV banking. NatWest joined with References: NatWest, first direct and Barclays’ websites, 2000–18.
Functional modifications Changes that affect a product’s versatility, effectiveness,

convenience or safety are called functional modifications; they usually require the
functional
modifications product to be redesigned. Typical product categories that have undergone considerable
Changes that affect a functional modifications include home computers, audio equipment and cleaning prod-
product’s versatility, ucts. Functional modifications can make a product useful to more people, thus enlarging
effectiveness, conve- its market, or improve the product’s competitive position by providing benefits that com-
nience or safety.
peting items do not offer. Functional modifications can also help a company achieve and
maintain a progressive image. For example, washing machine manufacturers such as
Whirlpool or AEG have developed appliances that use less heat and water. In Figure 12.3
well-known brand Fairy has opted to promote additional ways of washing your clothes efficiently
and easily by using dissolvable casings and cool temperatures. At times functional modifications
are made to reduce the possibility of product liability claims.
style modifications
Style modifications Style modifications change the sensory appeal of a product by
Changes that alter altering its taste, texture, sound, smell or visual characteristics. Such modifications can
a product’s sensory be important, because when making a purchase decision, a buyer is swayed by how a
appeal taste, texture, product looks, smells, tastes, feels or sounds.
sound, smell or visual Although style modifications can be used by a company to differentiate its product
characteristics.
from competing brands, their major drawback is that their value is highly subjective. A
company may strive to improve the product’s style, but customers may actually find
Figure 12.3
Liquitabs – modification focused on
unique ‘liquitabs’ as a new laundry
method
the modified product less appealing. Some companies try to minimize these problems by altering
product style in subtle ways. For example, Mattel’s Barbie doll has gradually changed over the
years in terms of career and lifestyle to reflect changing fashions.
During the maturity stage of the cycle, marketers actively encourage dealers to support the
product, perhaps by offering promotional assistance or help in lowering their inventory costs. In
general, marketers go to great lengths to serve dealers and to provide incentives for selling the
manufacturer’s brand, partly because own label or retailer brands are a threat at this time. Own
label brands are both an opportunity and a threat to manufacturers, who may be able to sell their
products through recognized own-label or retailer brand names as well as their own. However,
own label or retailer brands frequently undermine manufacturers’ brands.
Maintaining market share during the maturity stage requires moderate and sometimes heavy
advertising expenditure. Advertising messages focus on differentiating a brand from numerous
competitors, and sales promotion efforts are aimed at both consumers and resellers.
A greater mixture of pricing strategies is used during the maturity stage. In some cases, strong
price competition occurs and price wars may break out. Sometimes marketers develop price flexi-
bility to differentiate offerings in product lines. Mark-downs and price incentives are more common,
but prices may rise if distribution and production costs increase. Marketers of mature products also
often alter packaging and even positioning strategies. For example, in the USA, Heinz repackaged
and repositioned its vinegar as an all-natural cleaning product.
Marketing strategy for declining products

As a product’s sales curve turns downwards, industry profits continue to fall. A business can justify
maintaining a product so long as it contributes to profits or enhances the overall effectiveness of a
product mix. In this stage of the product life cycle, marketers must determine whether to eliminate the
product or seek to reposition it in an attempt to extend its life. Usually, a declining product has lost its
distinctiveness because similar competing products have been introduced. Competition engenders
increased substitution and brand switching as buyers become insensitive to minor product differ-
ences. For these reasons, marketers do little to change a product’s style, design or other attributes
during its decline. New technology, product substitutes or environmental considerations may also
indicate that the time has come to delete a product. Digital broadcasting has forced producers to
drop analogue TVs, for example. Fibre optics and broadband have replaced TV satellite dishes.
During a product’s decline, outlets with strong sales volumes are maintained and unprofitable
outlets are weeded out. An entire marketing channel may be eliminated if it does not contribute
adequately to profits. Sometimes a new marketing channel, such as a factory outlet, will be used
to liquidate remaining inventory of an obsolete product. Advertising expenditure is at a minimum.

Advertising or special offers may slow the rate of decline. Sales promotions, such as coupons
and premiums, may temporarily regain buyers’ attention. Digital chatter will become less frequent
and less positive. As the product continues to decline, the sales staff shifts its emphasis to more
profitable products. The strategy pursued depends heavily on the nature of the portfolio. Apple
focused less on its iPod music players as sales of smartphones and MacBooks have rocketed.
To have a product return a profit may be more important to a company than to maintain a cer-
tain market share. To squeeze out all possible remaining profits, marketers may maintain the price
despite declining sales and competitive pressures. Prices may even be increased as costs rise if
a loyal core market still wants the product, such as those consumers still preferring turntables for
vinyl to CD or mp3 players. In other situations, the price may be cut to reduce existing inventory
so that the product can be deleted. Severe price reductions may be required if a new product is
making an existing product obsolete.
Deleting products
Product deletion is the process of eliminating a product that no longer satisfies a
product deletion
The process of eliminat- sufficient number of customers. Products cannot usually contribute to an organization’s
ing a product that no lon- goals indefinitely, and a declining product reduces a company’s profitability, draining
ger satisfies a sufficient resources that could be used to modify other products or develop new ones. A marginal
number of customers. product may require shorter production runs, which can increase per unit production
costs. Finally, when a dying product completely loses favour with customers, the nega-
tive feelings may transfer to some of the company’s other products, as both Sony and
Blackberry have found.
Most companies find it difficult to delete a product or a brand. It was probably a hard decision
for Sony to cease producing Vaio laptops or for Thomas Cook to drop the long-standing Going
Places chain of travel agents. Many observers felt Motorola’s failure to drop its hugely successful
but long-in-the-tooth Razr line of mobile phones permitted rivals to leapfrog with enhanced technol-
ogy and so steal much of Motorola’s market share. A decision to drop a product may be opposed
by management and other employees who feel that the product is necessary in the product mix,
or by sales people who still have some loyal customers. Considerable resources and effort are
sometimes spent in trying to improve the product’s marketing mix enough to increase sales and
thus avoid having to delete it.
Some companies delete products only after they have become heavy financial burdens. A better
approach is to institute some form of systematic review to evaluate each product and monitor its
impact on the overall effectiveness of the company’s product mix. Such a review should analyze a
product’s contribution to the company’s sales for a given period and should include estimates of
future sales, costs and profits associated with the product. It should also gauge the value of mak-
ing changes in the marketing strategy to improve the product’s performance. A systematic review
allows a company to improve product performance and to ascertain when to delete products.
Although many companies do systematically review their product mixes, one research study found
that few companies have formal, written policies concerning the process of deleting products. The
study also found that most companies base their decisions to delete weak products on
phase out poor sales and profit potential, low compatibility with the company’s business strategies,
An approach that lets the
product decline without
unfavourable market outlook and historical declines in profitability.26
a change in marketing There are three ways to delete a product, either (see Figure 12.4):
strategy.
1. phase it out
2. run it out
run out 3. drop it immediately.
A policy that exploits
any strengths left in the A phase out approach allows the product to decline without a change in the mar-
product. keting strategy. No attempt is made to give the product new life. A run out policy
exploits any strengths left in the product. Intensifying marketing efforts in core markets
Product portfolio
1: New products to launch
performance
assessment Desired product
portfolio 2: Existing products to support
Market analysis decisions 3a: Immediate drop
and opportunity
3: Existing products to delete 3b: Run out
assessment
3c: Phase out
Figure 12.4
The product deletion process
or eliminating some marketing expenditures, such as advertising, may cause a sudden

profit increase. This approach is commonly taken for technologically obsolete products,
immediate drop
An option that drops
such as older models of camcorders or computers, and is often accompanied by a
an unprofitable product price reduction. Some car manufacturers use a run out approach to dispose of certain
immediately. models just before a new launch. The third option, an immediate drop of an unprofit-
able product, is the best strategy when losses are too great to prolong the product’s life.
Tools for managing product portfolios

A number of tools have been developed to aid marketing managers in their planning efforts. Based
on ideas used in the management of financial portfolios, several models that classify an organiza-
tion’s product portfolio have been proposed.27 These models allow strategic business units (SBUs)
or products to be classified and visually displayed both according to the attractiveness of various
markets and a business’s relative market share within those markets. Three of these tools are the
Boston Consulting Group (BCG) product portfolio analysis, the market attractiveness – business
position model, and the ABC sales:contribution analysis. In addition, the product life cycle concept
explored in Chapter 10 is an important tool often utilized in determining future strategies for brands
and products. This assessment, based on the notion of the introduction, growth, maturity and
decline stages in the life of a product or market, is useful in recommending a marketing strategy.
As described above, the options are quite different for marketers facing growth or mature stages,
and markedly so for the introduction versus the decline stages. The BCG matrix, described next,
builds on this suggestion.
The Boston Consulting Group (bcg) product portfolio analysis

Just as financial investors have different investments with varying risks and rates of return, busi-
nesses have a portfolio of products characterized by different market growth rates and relative
market shares. Product portfolio analysis, the BCG approach, is based on the phi-
product portfolio
analysis
losophy that a product’s market growth rate and its relative market share are important
A strategic planning tool considerations in determining its marketing strategy. All the company’s products should
that takes a product’s be integrated into a single, overall matrix and evaluated to determine appropriate strate-
market growth rate and gies for individual SBUs and the overall portfolio strategies. However, a balanced product
its relative market share portfolio matrix is the end result of a number of actions, not just the analysis alone. Port-
into consideration in
determining a marketing
folio models can be created on the basis of present and projected market growth rates
strategy. and proposed market share strategies. These strategies include four options:
1. build share
2. maintain share
3. harvest share
4. divest business.
Managers can use these models to determine and classify each product’s expected future cash
contributions and future cash requirements.
Generally, managers who use a portfolio model must examine the competitive position of a
product or product line and the opportunities for improving that product’s contribution to profitability
and cash flow.28 The BCG analytical approach is more of a diagnostic tool than a guide for making
strategy prescriptions.
Figure 12.5, which is based on work by the BCG, enables the marketing manager
to classify a company’s products into four basic types: stars, cash cows, dogs and
stars
Products with a domi- problem children.29
nant share of the market ●● Stars are products with a dominant share of the market and good prospects for
and good prospects for
growth. growth. However, they use more cash than they generate to finance growth, add
capacity and increase market share.
●● Cash cows have a dominant share of the market but low prospects for growth.
cash cows Typically, they generate more cash than is required to maintain market share. Cash
Products with a dominant cows generate much needed funds to support the stars and problem children.
share of the market but
●● Dogs have a subordinate share of the market and low prospects for growth. These
low prospects for growth.
are struggling products. They are frequently found in mature markets and often
should be phased out or withdrawn immediately.
dogs ●● Problem children sometimes called ‘question marks’, have a small share of a
Products that have a growing market and generally require a large amount of cash to build share. The
subordinate share of the question is, are they capable of becoming star products or are they destined to be
market and low pros-
pects for growth.
dogs?
The product portfolio growth-share matrix in Figure 12.5 can be expanded to show
a company’s whole portfolio by providing for each product:
problem children
Products that have a ●● its cash sales volume, illustrated by the size of a circle on the matrix
small share of a growing ●● its market share relative to competition, represented by the horizontal position of the
market, generally requir-
product on the matrix
ing a large amount of
cash to build share. ●● the growth rate of the market, indicated by the position of the product in the vertical
direction.
Product market growth (per cent)
High Star Problem child
Figure 12.5 Low Cash cow Dog

Illustrative growth-share matrix
developed by the Boston Consulting
Group
Source: Figure 12.5 ‘The BCG Portfolio
Matrix’ from the Product Portfolio Matrix,
High Low
copyright © 1970, The Boston Consulting
Group Relative market share
Stars Problem children

Characteristics Characteristics
Market leaders Rapid growth areas
Fast growing Poor profit margins
Substantial profits Enormous demand for cash
Require large investment to finance growth Strategies
Strategies Invest heavily to get a disproportionate
High
Protect existing share share of new sales
Re-invest earnings in the form of price Buy existing market shares by acquiring
reductions, product improvements, competitors
Product market growth (per cent)
providing better market coverage, Divestment (see Dogs)

production efficiency and so on Harvesting (see Dogs)
Obtain a large share of the new users Abandonment (see Dogs)
Focus on a definable niche where
dominance can be achieved
Cash cows Dogs

Characteristics Characteristics
Profitable products Greatest number of products fall in this
Generate more cash than needed to maintain category
market share Operate at a cost disadvantage
Strategies Few opportunities for growth at a
Maintain market dominance reasonable cost
Invest in process improvements and Markets are not growing; therefore, little
Low technological leadership new business
Maintain price leadership Strategies
Use excess cash to support research and Focus on a specialized segment of the market
growth elsewhere in the company that can be dominated and protected from
competitive inroads
Harvesting—cut back all support costs to a
minimum level; support cash flow over the
product’s remaining life
Divestment—sale of a going concern
Abandonment—deletion from the
product line
High Low
Relative market share
Figure 12.6
Characteristics and strategies for the four basic product types in the growth-share matrix
Source: Adapted and reprinted with permission from ‘Diagnosing the product portfolio’ by George S. Day, Journal of Marketing, April 1977, pp. 30–1. Published
by the American Marketing Association.
It should be noted that relative market share is a company’s own market share relative to the
biggest competitor’s. Figure 12.6 suggests marketing strategies appropriate for cash cows, stars,
dogs and problem children. By following these guiding philosophies, an organization can make
strategic decisions based on the diagnosis of the BCG product portfolio growth-share matrix.
The long-term health of an organization depends on having some products that generate cash
and provide acceptable profits, plus others that use cash to support growth. Among the indicators
of overall health are the size and vulnerability of the cash cows, the prospects for the stars, if any,
and the number of problem children and dogs. Particular attention must be paid to those products
with large cash appetites. Unless the company has an abundant cash flow, it cannot afford to spon-
sor many such products at one time. If resources, including debt capacity, are spread too thinly,
the company will end up with too many marginal products and will be unable to finance promising
new product entries or acquisitions in the future.
Although a popular tool in the 1980s, the BCG growth-share matrix is not commonly deployed
these days. Many marketers believe that market attractiveness equates to more than simply the
growth rate of a market and a product’s or brand’s respective market share. As marketers have
sought more complex approaches, utilizing many variables, the market attractiveness – business
position model has grown in popularity.
Market attractiveness – business position model

The market attractiveness – business position model, illustrated in Figure 12.7,
market attractiveness
– business position is another 2D matrix, often known as the directional policy matrix or DPM. However,
model rather than using single measures to define the vertical and horizontal dimensions of the
A two-dimensional matrix matrix, the model employs multiple measurements and observations. It is an increasingly
that helps determine popular tool, particularly in businesses producing detailed annual marketing plans. The
which SBUs have an
vertical dimension – market attractiveness – includes all the issues that relate to the
opportunity to grow and
which should be divested. market, for example, seasonality, economies of scale, competitive intensity, industry
sales, and the overall cost and feasibility of entering the market. The horizontal axis –
business position – is a composite of factors; for example, sales, relative market share,
research and development, price competitiveness, product quality and market knowledge. These
are only examples, because each set of marketers will select variables as they relate to the product
and particular market. Each company deploying this tool selects its own criteria, but uses these
same ones over time to analyze changes. A slight variation of this matrix is called General Electric’s
Strategic Business Planning Grid because General Electric is credited with extending the product
portfolio planning tool to examine market attractiveness and business strength.
The best situation for a company is to have a strong business position in an attractive market.
The upper-left area in Figure 12.7 represents the opportunity for an invest/grow strategy, but the
matrix does not indicate how to implement this strategy. The purpose of the model is to serve as
a diagnostic tool to highlight SBUs, products, brands or market segments – the tool can be used
to assess many areas of interest – that have an opportunity to grow or that should be divested or
High
= High overall attractiveness
Market attractiveness
= Medium overall attractiveness

= Low overall attractiveness
Medium
= The area of each circle represents the
relative monetary sales on the matrix
or the proportion of the company’s
total turnover accounted for by the
product, product group or brand,
Low depending on the selected unit of
assessment (see Chapter 8 for this
matrix’s use in selecting segments to
target)
Strong Medium Weak
Business position/strength
Figure 12.7
Market attractiveness – business position model – known as the Directional Policy Matrix (DPM)
approached selectively.30 SBUs that occupy the invest/grow position can lose their position through
faulty marketing strategies.
Decisions on allocating resources to SBUs of medium overall attractiveness should be arrived
at on a basis relative to other SBUs that are either more or less attractive. The lower-right area of
the matrix is a low-growth harvest/divest area. Harvesting is a gradual withdrawal of marketing
resources on the assumption that sales will decline at a slow rate but profits will still be significant
at a lower sales volume. Harvesting and divesting, even abandonment, or deletion from the product
line, may be appropriate strategies for SBUs characterized by low overall attractiveness.
Marketers proficient in this technique often use the agreed variables and weightings to evaluate
market segments in order to determine investment priorities: certain segments will be more attrac-
tive than others, while the organization’s strengths will vary between segments (see Chapter 7).
The matrix can also be used for mapping a company’s products or brands.
Practitioners’ use of the Marketing 1.

Identify a set of opportunity or
directional policy matrix tools and market attractiveness criteria.
These should be a mix of short-term
(dpm) techniques variables (e.g. sales volumes and
current profitability) and longer-term
Most organizations have more than one
variables (e.g. market growth prospects
product and operate in several markets.
or ability to sustain a differential advantage). In addition,
This results in the need to prioritize in which markets to
some variables should be internal-facing (e.g. profitabil-
focus resources, particularly in terms of sales and market-
ity) and some variables must be market-facing (e.g. cus-
ing activities. Often the ‘who shouts the loudest’ approach to
tomer satisfaction or intensity of competition). The aim is
management meetings wins, or else historical successes with
to have a balanced set of criteria.
specific clients, products or markets colour the judgement
2. Allocate 100 points across the selected variables in order
of decision-makers irrespective of current business perfor-
to weight them in terms of their relative importance. If a
mance. One effective approach to ensuring that objectivity
team of managers is involved, each should ‘vote’ with 100
has an input into such prioritization is the directional policy
points, then the whole team’s votes should be aggregated.
matrix (DPM) or GE grid.
Along with the PEST marketing environment analysis 3. Identify business strength variables and, as with market
described in Chapter 3, the directional policy matrix is a attractiveness, allocate 100 points between these busi-
pivotal tool in strategic business planning. The DPM is useful ness strength variables for their weighting.
to marketers as a means for identifying the relative merits 4. Then the main task. Score each major product group,
of apparently attractive opportunities. Suggested worthwhile market segment or marketing opportunity (whatever
opportunities may be benchmarked against a company’s is the specific context of the analysis). To score, a
existing activities to judge the value of supporting the new simple three-category scoring system is usually ade-
ideas. The tool can be used to evaluate the relative merits of quate: n 3 15 strong/good; n 3 0.5 5 ‘so-so’/average;
individual products or product groups. The DPM is useful, too, n 3 0 5 low/ weak/poor (where n 5 the selected variable).
in selecting between market segments (see Chapter 8). The When scoring, business strength variables are usually
market attractiveness criteria identified for the DPM can easily taken as being relative to the dominant player(s) in the
be utilized to assess the relative merits of market segments market, while market attractiveness scoring is usually one
(see Figure 12.7). brand, product or market segment versus ‘the others’ in
So, how is a DPM produced? Occasionally, a strategic the company’s portfolio.
planner or marketing director may produce such an analysis, 5. Weight 3 score 5 total to be plotted. Therefore each
but often the variables to be used in order to construct the product group, segment or opportunity is allocated a
DPM are selected and weighted by a team of senior decision value of between 0 and 100 for market attractiveness
makers, often the directors or leadership team of a company, and separately for business strength, so its position may
supplemented by marketing managers and analysts who be plotted on the DPM grid. The Y axis represents market
understand the trends and dynamics of individual markets. attractiveness (0–100), while the X axis represents busi-
The steps are as follows: ness strength (0–100).
Marketing attractiveness weighting Business strengths weighting

Long-term prospects with the client 14 Clarity and cohesion of message 19
Profitability 14 Thought leadership 16
Strategic fit 12 Easy to do business with/flexibility 15
Size of the opportunity 12 Right people/right support/right milieu 14
(Right) relationship 9 Perceived quality of delivery 12
Ability to deliver the necessary solution 9 Understanding of the market sector 10
How well the opportunity can be defined/realized 8 Referenceability 7
Current presence in the client 8 Price competitive 3
Nature of competition 6 Winning business/closure mindset 2
Risk 5 Breadth and depth 2
Whether the task can be replicated or referenced 3
In the real B2B example, the company identified 11 Having assessed each of its many market segments, this
arket attractiveness criteria and 10 business strength
m company plotted them on a DPM. In addition, the m anagement
criteria. Each market segment was in turn judged against team predicted where the segments would head over the
all 21 variables, warranting 1, 0.5 or 0. For example, m
arket following three years. The circle size represents the proportion
segment ‘A’ scored 0.5 for ‘long-term prospects with the of total income to the company from each market segment.
client’ (14 3 0.5 5 7) and 0.5 for ‘current presence in the Further details may be found in the authors’ titles Market
client’ (8 3 0.5 5 4) and so forth. However, segment ‘B’ Segmentation Success: Making It Happen! (Routledge/The
scored 1 for the first variable (14 3 15 14) . The result is Haworth Press, 2008) and Marketing Planning (Cengage
depicted in the DPM chart. Learning, 2009).
Corporate DPM (current)

markets
100 High
Market attractiveness
67
33
Low
0
100 66 33
High Business strength Low
The Marketing Tools and Techniques box

“Practitioners’ use of the directional policy
matrix (DPM)” offers a step-by-step
example of one company’s use of
directional policy
matrix (DPM) the directional policy matrix
A more commonly used (DPM), in this instance examining
name for the market the relative performance of differ-
attractiveness – business ent market segments. The same
position model.
approach could be deployed to
examine SBUs’ products, rather
than market segments.
The abc sales:contribution

ABC sales:contribu- analysis
tion analysis
An approach that exam- The ABC sales:contribution
ines the financial worth analysis can be conducted at
to a company of its
product group or product line
products, product groups
or customers. level; for the total market, territo-
ries or sub-markets; for customer
groups/market segments; or for
individual customer accounts. For example,
The White Company (see Figure 12.8)
might decide to conduct this analysis for its
bedding, women’s clothing, homeware and
kids’ product lines. In other words, whatever
the unit of analysis, the ABC sales:contribu-
tion analysis is revealing. In the context of Figure 12.8
The White Company has a reputation for retailing superior prod-
this chapter, individual products or product
ucts, a theme emphasized in this shop window
groups may be plotted. Sales managers
focusing on key accounts may plot individual key customer accounts, instead of products, while
marketers developing target market strategies may well plot different market segments in order to
understand their relative performance better (see Chapter 8).
The aim of this analysis is to show both the amount of sales and the financial contribution from
these sales; that is, the financial worth to the company’s fortunes. Financial success after all, is not
confined to sales volume figures; a company must have an adequate level of contribution – sales
revenue minus all variable costs – from its sales. This analysis helps companies to identify the
relative value of different products, markets or even individual customer accounts, assisting with
the allocation of resources.
An example of an ABC sales:contribution analysis chart is shown in Figure 12.9. The 45-degree
diagonal line from bottom left to top right is the optimum. It is a straightforward rule, not a regres-
sion line. Ideally, the dots plotted on the chart would be located on the line – having both good
sales and contribution – and be at the top right of the graph – with high sales and high contribution.
These ‘sell a lot, make a lot’ plots to the top right, are the ‘A’ class. Typically, however, this is not
the case: often the majority of products, customers or markets – depending on the selected unit
of analysis – fall to the bottom left of the graph. Here, they are low sales and low contribution (the
‘C’ class) or they have average sales and average contribution (the ‘B’ class).
Three important conclusions can be drawn from an ABC analysis:
1. The analysis can identify highly attractive customers, markets or products (depending on the
chosen unit of analysis) in terms of the associated contributions, but where sales are relatively
low. For such accounts, an increase in sales, no matter how slight, with associated high prices
and good financial returns, will be highly rewarding overall.
High
A
s
las
C
C B
Great value to
s
las
the business
Sales
The dots could be products, product

groups, market territories, segments or
even individual customer accounts
depending on the chosen level of analysis
C
s
las
C
Little value to
Low the business
Low High
Contribution
Figure 12.9
Example of an ABC sales:contribution chart
2. The analysis can determine accounts with high sales figures but low or pitiful contributions.
Cash flow may be good, but the company’s profitability is not helped. Even a slight increase in
contribution is most desirable and will greatly assist the company’s overall fortunes.
3. The analysis can challenge the historical perspective that often clouds judgement as to
what constitutes a good product, market or customer. Every organization has its historically
most rewarding customers and products that in reality are no longer performing in terms of
sales, contribution or both . . . the tail. Often, managers still believe the historical rhetoric,
rather than recognize that the situation has moved on; new priorities must benefit from the
available resources and marketing effort. The ABC analysis generally unearths a few such
instances and identifies the rump of unrewarding products or accounts that are not worth
pursuing.
The approaches presented here provide an overview of the most popular analytical methods
used in strategic market planning. This chapter has focused on the management of product port-
folios, but as has been explained, techniques such as the directional policy matrix (DPM) and the
ABC sales:contribution analysis are extremely helpful in evaluating the relative merits of market
segments or even individual customer accounts.
The BCG’s portfolio analysis, the market attractiveness – business position model, the ABC
sales:contribution analysis and the product life cycle concept are used not only to diagnose prob-
lem areas or to recognize opportunities, but also to facilitate the allocation of resources among
business units. They are not intended to serve as formulae for success or prescriptive guides, which
lay out specific strategic action plans.31 These approaches are supplements to, not substitutes
for, the marketing manager’s own judgement. The real test of each approach, or any integrated
approach, is how well it helps management diagnose the company’s strengths and weaknesses
and prescribe strategic actions for maintaining or improving performance. The emphasis should
be on making sound decisions with the aid of these analytical tools.32
Summary
To maximize the effectiveness of a product mix, a company usually has to alter its mix through the modification of existing
products, deletion of a product or new product development. Developing and managing products is critical to a company’s
survival and growth. The various approaches available for organizing product management share common activities, func-
tions and decisions necessary to guide a product through its life cycle. A product manager is responsible for a product, a
product line or several distinct products that make up an interrelated group within a multi-product organization. A brand
manager is responsible for a single brand. Marketing managers are responsible for managing the marketing activities that
serve a particular group or class of customers or a market sector. A venture or project team is sometimes used to create
and develop entirely new products that may be aimed at new markets.
A new product may be an innovation that has never been sold by any organization; or it can be a product that a given
company has not marketed previously, although similar products have been available from other organizations. Before a
product is introduced, it goes through the seven phases of new product development. (1) In the idea generation phase,
new product ideas may come from internal or external sources. Co-creation is nowadays popular, involving customers and
supply chain partners in the collaborative design of new products. Online discussion groups and observations also help.
(2) In the process of screening ideas, those with the greatest potential are selected for further review. (3) Concept testing
presents a small number of potential buyers with the concept idea in order to ascertain early approval indicators. (4) During
the business analysis stage, the product idea is evaluated to determine its potential contribution to the company’s sales,
costs and profits. (5) Product development is the phase in which the organization determines if it is technically feasible to
produce the product and if it can be produced at costs low enough for the final price to be reasonable. (6) Test marketing
is a limited introduction of a product in geographic areas or channels chosen to represent the intended market. (7) The
decision to enter the commercialization phase means that full-scale production of the product begins and a complete
marketing strategy is developed.
Not all ‘new’ products are genuinely new! Many product introductions are in fact a line extension – the development of a
product that is closely related to products in the existing product line but designed to meet different customer needs. The
product adoption process that buyers go through in accepting a product includes awareness, interest, evaluation, trial and
adoption.
As a product moves through its life cycle, marketing strategies will require continual adaptation. In the growth stage, it is
important to develop brand loyalty and a market position. Marketers may move from an exclusive distribution or selective
distribution to a more intensive distribution of dealers. In the maturity stage, a product may be modified or new market
segments may be developed to rejuvenate its sales.
Product modification involves changing one or more characteristics of a company’s products. This approach to altering a
product mix can be effective when the product is modifiable, when customers can perceive the change and when cus-
tomers want the modification. Quality modifications are changes that relate to a product’s dependability and durability.
Changes that affect a product’s versatility, effectiveness, convenience or safety are called functional modifications. Style
modifications change the sensory appeal of a product.
A product that is declining may be maintained so long as it makes a contribution to profits or enhances the product mix.
Marketers must determine whether to eliminate the declining product or to reposition it to extend its life.
Product deletion is the process of eliminating a product that is unprofitable, consumes too many resources and no longer
satisfies a sufficient number of customers. Phase out, run out and immediate drop are three ways to delete a product.
A product mix should be systematically reviewed to determine when to delete products.
A number of tools have been developed to aid marketing managers in their portfolio planning efforts; these include the
Boston Consulting Group (BCG) product portfolio analysis, the market attractiveness – business position model, and the
ABC sales:contribution analysis. The product life cycle concept is also important in determining marketing strategies. The
BCG approach is based on the philosophy that a product’s market growth rate and its relative market share are key factors
influencing marketing strategy. All the company’s products are integrated into a single, overall matrix including stars, cash
cows, dogs and problem children and are evaluated to determine appropriate strategies for individual SBUs and the overall
portfolio strategies.
The market attractiveness – business position model is a two-dimensional matrix, often known as the directional policy
matrix (DPM). The market attractiveness dimension includes multiple variables that relate to the attractiveness of the
market or product opportunity, such as seasonality, economies of scale, competitive intensity, industry sales and the cost
of competing. The business position axis measures multiple variables that relate to a business’s strengths and capabilities,
such as sales levels, relative market share, research and development expertise, and other factors that support building
market share for a product. Each set of marketers will select variables pertinent to the respective company and industry.
The ABC sales:contribution analysis examines the financial worth to a company of its products, product groups or cus-
tomers. The analysis highlights areas in which to avoid or limit further investment and sales and marketing activity. It also
reveals specific targets for financial contribution improvement or sales volume improvement.
Tools for portfolio planning are used only to diagnose problem areas or recognize opportunities. They are supplements to,
not substitutes for, the marketing manager’s own judgement. The real test of each approach, or any integrated approach,
is how well it helps management diagnose the company’s strengths and weaknesses, and prescribe strategic actions for
maintaining or improving performance.
The portfolio planning approaches presented here provide an overview of the most popular analytical methods used in
strategic market planning. This chapter has focused on the management of product portfolios, but techniques such as the
market attractiveness – business position model – more commonly now known as the directional policy matrix (DPM) –
and the ABC sales:contribution analysis are extremely helpful in evaluating the relative merits of market segments or even
individual customer accounts.
Cash cows
Key links Co-creation
Commercialization
●● This chapter has examined the development of prod- Concept testing
ucts and the first part should be read in conjunction Directional policy matrix (DPM)
with Chapter 10, on product decisions. Dogs
●● The management of products should be considered in Exclusive distribution
harmony with the material presented in Chapter 11, Functional modifications
on branding. Idea generation
●● The product portfolio techniques explained in this Immediate drop
chapter, particularly the directional policy matrix and Intensive distribution
ABC sales:contribution analysis, are often deployed Line extension
by marketers making trade-off decisions between Market attractiveness – business position model
emerging opportunities or various market segments. Marketing manager
These techniques are useful when reading about New product development
targeting in Chapter 8’s discussion of market segmen- Phase out
tation and targeting decisions. Problem children
Product adoption process
Product deletion
Product development
Important terms Product manager
ABC sales:contribution analysis Product modification
Brand manager Product portfolio analysis
Business analysis Quality modifications
Run out 11. Detail the key stages of the product life cycle.
Screening ideas 12. How can a company prolong the life of a mature product?
Selective distribution What actions should be taken to try to stem the product’s
Stars decline?
Style modifications
13. Give several reasons why a company might be unable to
Test marketing
eliminate an unprofitable product.
Venture or project team
14. In what ways do the stages of the product life cycle impact
on a company’s management of its product portfolio?
15. What are the major considerations in developing the BCG
1. What organizational alternatives are available to a company product portfolio matrix? Define and explain the four basic
with two product lines, each consisting of four product types of product suggested by the Boston Consulting Group.
items?
16. What are the advantages of the directional policy matrix
2. When is it more appropriate to use a product manager than (DPM) over the BCG product portfolio matrix?
a marketing manager?
17. What are the diagnostic capabilities of the ABC sales:contri-
3. What type of company might use a venture team to develop bution analysis?
new products?
4. What are the advantages and disadvantages of such a team? Recommended readings
5. Do small companies that manufacture one or two products
Baker, M. and Hart, S., Product Strategy and Management (Pearson/FT,
need to be concerned about developing and managing
2007).
products? Why or why not? Busuttil, J., The Practitioner’s Guide To Product Management (Piatkus, 2015).
6. Why is product development a cross-functional activity Crawford, C.M. and Di Benedetto, C.A., New Products Management
within an organization? That is, why must finance, engi- (McGraw-Hill, 2014).
neering, manufacturing and other functional areas be Day, G.S., Analysis for Strategic Marketing Decisions (West, 1986).
involved? Haines, S., The Product Manager’s Desk Reference (McGraw-Hill, 2014).
Lehmann, D. and Winer, R., Product Management (McGraw-Hill, 2007).
7. Develop a list of information sources for new product ideas Loch, C. and Kavadias, S., Handbook of Product Management
for the car industry. (Butterworth-Heinemann, 2008).
8. What are the advantages and disadvantages of test Pichler, R., Strategize: Product Strategy and Product Roadmap Practices
marketing? for the Digital Age (Pichler Consulting, 2016).
Trott, P., Innovation Management and New Product Development
9. Compare and contrast three ways of modifying a product.
(FT/Pearson, 2016).
10. What are the stages of the product adoption process and Wind, Y.J., Product Policy: Concepts, Methods and Strategy
how do they affect the commercialization phase? (Addison-Wesley, 1982).
Web task Classroom tools 1. What product features and

characteristics are portrayed
The success of BMW’s Mini has on the Mini website?
been phenomenal. Despite a lim-
2. To what extent does Mini’s
ited range of cars, each one on the road appears unique, and
commercialization enable
research reveals that Mini owners feel they have the power to
customers to individualize or personalize their cars?
tailor their car to suit their specific tastes and driving styles.
BMW and Mini have incorporated this individualization, of
what in reality is far from a bespoke one-to-one product, in
Group tasks
their product development process and in their commercial- 1. Brainstorm ideas for new products or services which
ization of this product. Take a look at either: www.mini.co.uk might assist students in finding suitable accommodation.
or www.mini.com and in particular the sections detailing Outline the process you would need to follow in order to
accessories and configuring your Mini. take the best of these ideas to market.
2. Think about a product or service which has disappointed ●● bespoke parties

you. Why were you disappointed? How could the market- ●● comedy nights
ers of this product or service have avoided your disap- ●● on main coach/bus routes
pointment? What process should they have followed? ●● Dolby stereo-equipped auditoria
●● Sony Digital
Applied mini-case ●● air conditioning
●● excellent facilities for the disabled
People visit cinemas to watch a film for many reasons: to
●● autism friendly screenings
catch the latest release; because friends are going; to be
●● screenings for the elderly and deaf
entertained; to go on a date; to occupy the children; to escape
●● late-night shows every Friday and Saturday
from the children; to be with people; to have an emotional
●● efficient, courteous service
experience; to kill time; to have a rest, or ‘just because it’s
●● gift certificates always available
somewhere to go’. The choice of which film to see may often
●● art gallery with prints for sale.
be the first decision, but these days, with the growth of mul-
tiplexes and record cinema attendances, the choice may be For many companies, not only Showcase, the augmented
which multiplex: Odeon, Cineworld, Vue, Showcase? For rival product is an increasingly important element in the market-
operators, the ‘augmented’ product is becoming increasingly ing strategy and the search for customer satisfaction. The
important as they seek to develop a competitive edge and to new product development process increasingly includes the
encourage customer loyalty. For example, Showcase strongly required customer service attributes desired by targeted cus-
emphasizes many once secondary or minor features in an tomers to accompany the purchased product.
attempt to add to the appeal of its cinemas:
Question
●● state-of-the-art film projection
●● acres of free, illuminated car parking As a marketing manager, to what extent does inclusion of the
●● best seats in town and exclusive rocking loungers augmented product simplify or complicate the new product
●● bargain matinees daily development process?
●● freshly-popped popcorn Source: Showcase Cinema, Coventry; www.showcasecinemas.co.uk, March
●● cinema hire and special group rates 2018.
Sellotape or adhesive represented the ‘most significant change

tape? Increasing market Case study in the brand’s 60-year history’, according
to Neil Ashley, then executive director of the
penetration – a classic tale company renamed the Sellotape Company.
Just as JCB is a generic term for backhoe The name Sellotape had been the company’s
diggers in the construction industry, Hoover core marketing asset for many decades, with
for vacuum cleaners, Post-it for those useful sticky s tationery nine out of ten consumers familiar with the brand.
tags, and iPad for tablets, for many decades since 1937 However, the company had for some time sold a wider
Sellotape has been the term applied to sticky transparent range of products than its sticky tape association implies.
tape. It is even cited in the Oxford Dictionary. However, over Michael Peters of the branding specialist Identica, responsible
the years many other brands and suppliers have entered the for the Sellotape rethink, was more fervent in his view: ‘While
market and eaten away Sellotape’s once dominant market it was a very famous trademark, it was a grey one’. Qualitative
share. So where was Sellotape to seek growth? marketing research revealed that, although well known, hardly
At the end of 1995, following nearly two years of research any consumer asked for Sellotape by name. Worse, they read-
and planning, Sellotape enjoyed a £2 million relaunch. This ily accepted other brands because they could see no obvious
product or brand features that gave Sellotape a competitive Consumers were encouraged to have several jars in their
edge or differentiation over rival products. cupboards and to consume greater quantities, which they
The relaunch aimed to address the inherent weakness in duly did.
becoming a generic name for a product by re-establishing For Sellotape, research showed that most customers
a new brand identity alongside existing core brand values. bought only one roll of sticky tape each year, often around
Rival products not using cellulose are cheaper, so alongside Christmas. The launch of ranges designed for different target
its traditional tape, the Sellotape Company offered a range of markets – retail, DIY and office – and for various applications
tape made from other source materials. For example, Elephant – children’s activities and home security uses – emulated the
Tape was a heavy-duty fabric tape that was targeted at the brand extension principles so well deployed by Colman’s.
do-it-yourself (DIY) market. Sellotape’s strong brand awareness and identity meant
Under the sub-brand Sellotape Office, a range of products that the company did not need to advertise heavily. Instead,
aimed at office use was launched. Ranges were also targeted the Sellotape Company relied on direct m arketing and
at the children’s market and the home security market. The point-of-sale promotion to create awareness of its new sub-
view that there were three distinct markets – retail, DIY and brands and their applications. A core task for the c ompany
office – led to the development of novel product applications had been to break down the traditional views of the product
and totally separate ranges. and its customers held by employees, and to establish addi-
The key problem to overcome was ‘the Colman’s mustard tional channels of distribution through toy shops and garden
dilemma’. Colman’s, the market leader in mustards, had tre- c entres to reflect the extended and additional p roduct
mendously high brand awareness and consumers perceived ranges. If the Sellotape Company could, like C olman’s,
its mustards to be of high quality. Unfortunately, these con- encourage its customers to buy two products annually
sumers usually bought only one type of mustard, English; and instead of just one and to look for its branded products by
that one jar lasted for years! Colman’s had to increase usage. name, the heritage of the brand and the reorganization of
It achieved this by both: the company would reap significant rewards. Today, owned
by global adhesives giant Henkel, this strategy is proving
1. demonstrating in advertisements and cookery supple-
very successful for Sellotape. The company has main-
ments that mustard could be used in a variety of ways,
tained the targeting strategy, with applications for everyday
particularly as an additional ingredient in many sauces,
sticking and mending, gifting, crafts, home and office, as
just like a herb or spice;
well as marketing its dispensers.
2. bringing out a range of different mustards, each with
unique strengths, flavours and applications, French, Questions for discussion
Italian and American mustards, along with the traditional
English. 1. At what stages in their product life cycle are the differ-
ent Sellotape products, and what are the management
implications?
2. Why was it necessary for the Sellotape Company to
relaunch its Sellotape range?
3. How might new lines help Sellotape develop its competi-
tive position in this market?
Sources: ‘Sellotape acts to avoid getting stuck in a rut’, Independent on Sunday,

26 November 1995, IB8; the Sellotape Company, 1996; B&Q, 1996; Sainsbury’s
Homebase, 1996, 2004. With grateful thanks to Meg Carter; sellotape.henkel-
online.co.uk/home.php, January, 2008; ‘Welcome to Sellotape’, sellotape.
ctisn-online.com/home.php, 5 March 2011; www.henkel.com /brands-and-
solution/adhesives-sealants-surfacetreatments-12123.htm, 2011; www.sellotape.
com, April 2015 and March 2018.
Chapter 13
The marketing of services
Nebulous and difficult to differentiate, for services, consistent quality,
effective delivery and strong branding are paramount
Introduction
Objectives As discussed in Chapter 10, all products, goods, services
and ideas possess a certain amount of intangibility. For ser-
To understand the nature and char-
vice products, intangibility is often all-embracing because a
acteristics of services.
service is something provided to consumers or business cus-
To classify services. tomers which happens or takes place
and which is experienced. A s ervice
To understand the development of service
An intangible product is an intangible product involving a
marketing strategies for services.
involving a deed, a deed, a performance or an effort that
To understand the problems performance or an effort cannot physically be possessed.1
involved in developing a differential that cannot physically be
This chapter presents concepts
possessed.
advantage in services. that apply specifically to the marketing
of services. Services marketing also
To examine the concept of service
involves marketing in non-profit organizations such as educa-
quality.
tion, healthcare, charities and government, as well as for-profit
To explore the concept of marketing making areas such as entertainment, tourism, finance, personal
in non-profit situations. services and professional services.
The marketing concept discussed so far in Marketing Strate-
To understand the development of
gies and Concepts applies fully to services. However, the char-
marketing strategies in non-profit
acteristics of services and the markets for services demand
organizations.
important adaptation of the marketing toolkit and warrant spe-
To describe methods for controlling cific discussion of the nuances of the service ‘product’. This
non-profit marketing activities. chapter should be read in conjunction with Chapter 21.
376
Chapter 13 The marketing of services 377
Marketing a solution to
A t Champneys,
wellness is a way
of life. We’re driven by today’s stresses
As the UK’s original health
resort, few can lay claim to
the traditions inherent in our
the simple belief that last- very being. We’ve set trends
ing beauty is more than just and started health revolutions;
skin deep. Past, present and future, our passion for well-being drives
whatever we do, it’s all about the nour- who we are and what we do. Robed
ishment of the mind, body and soul. Starting out – over 90 years and relaxed, we create moments of calm;
ago – as the extraordinary vision of one eccentric Latvian mas- it’s what we do best.
sage pioneer, we now stand as the go-to spa with four health spa
resorts, a hotel and six city spas located throughout Great Britain. Champneys is but one of dozens of large-scale spa busi-
nesses to emerge during the past few decades, responding
to the stresses of modern living and hectic business lives, as
consumers seek solace from the rigours of daily life, either for
routine ‘pick-me-ups’ or special occasion pampering. There
are plenty of tangible aspects to a typical spa, from treatment
beds to invigorating spa pools, but for most consumers it is the
experience that they seek, supplemented with an appropriate
ambience and attentive staff. The marketing concept is just as
relevant for such experiential and nebulous products as for the
marketers of smartphones or tablets. However, the execution
of the marketing process has rather important characteristics
unique to experiential services, as suggested by the sentiments
of Champneys’ proposition, with its focus on expert staff, sur-
roundings, proficient processes and the customer’s experience.
www.champneys.com Source: www.champneys.com
T
he health and well-being products offered by Champneys are services rather than tangible
goods and they are experiential. This chapter presents concepts that apply specifically
to products that are services and how they are marketed. The organizations that market
service products include: for-profit businesses, such as those offering financial, personal and pro-
fessional services; and non-profit organizations, such as educational institutions, religious groups,
charities and governments. The activities of the so-termed third sector lie within these realms. The
practices of social marketing, as explored in Chapter 1, are directly applicable for many non-profit
services.
The chapter begins by considering the contribution of service industries to the economy. It then
addresses the unique characteristics of services and the problems they present to marketers: these
traits often form the basis for examination questions and they explain why marketers of services
have to manipulate an extended marketing mix, devote extensive resources to branding and often
struggle to create a differential advantage over rivals. Next, the chapter presents various classifica-
tion schemes that can help services marketers develop marketing strategies. A variety of marketing
mix considerations is discussed, along with the associated problems of creating and sustaining a
differential advantage. The important concept of service quality is then explored. Finally, the chapter
defines non-profit marketing and examines the development of non-profit marketing strategies and
the control of non-profit marketing activities.
The nature and importance of services

Few products can be classified as a pure good or a pure service. Consider, for example, the pur-
chase of a laptop computer. When consumers buy a laptop, they take ownership of a physical item
which they might use at work and at home, but the maintenance contract linked with the purchase
and providing reassurance is a service and a helpline facility offering software support is providing
a service. Most products, such as computers and other high-tech goods, contain both tangible
and intangible components. An airline provides a service, yet offers tangible items such as lounges
and comfortable seats; hotels require tangible items such as pools, beds, tables, yet fundamentally
provide a service . . . somewhere to stay/sleep. One component, however, will dominate, and it is
this dominant component that leads to the classification of goods, services and ideas.
Figure 13.1 illustrates the tangibility concept by placing a variety of ‘products’ on a continuum
of tangibility and intangibility. Tangible-dominant products are typically classified as goods, and
intangible-dominant products are typically considered services. A restaurant meal or taxi cab may
be tangible and physical, but the restaurant or taxi operator is providing a service: refreshment
or transportation. Thus, as defined in Chapter 10, services are intangible-dominant products that
involve the application of human and mechanical efforts to people or objects.
s e
ice n
au d
ce
ice l
rv ho
st oo
rv cia
n
nt
n
lo y
y
io
na
sa aut
se lep
m ars/
re st-f
se nan
er
s
ra
s
na
at
ne
te
ell
TV
ns
Te
Be
Goods Services
Fa
uc
na
Fi
rli
ain
w
Ed
Ba
Ai
Je
(tangible) (intangible)
Figure 13.1
A continuum of product tangibility and intangibility
consumer services Growth of services

Services such as
In Europe, as in the United States, the importance of services in the economy is increas-
education, healthcare,
leisure, catering, tourism, ing, with nearly two-thirds of the EU workforce employed in the sector. Service industries
financial, entertainment, encompass trade, communications, transport, leisure, food and accommodation, legal,
home maintenance and financial, medical, education, government and technical services. There are services
other services to help intended for consumers – c onsumer services – and those designed to satisfy busi-
consumers.
nesses – business services.
Economic prosperity has been a major catalyst for consumer services growth, leading
to an increase in financial services, travel, entertainment and personal care. Lifestyle
business services
changes have also encouraged expansion of the service sector. Smaller families result
Services such as repairs
and maintenance, con- in more free time and relatively higher disposable income. Consumers are keener than
sulting and professional ever to ‘buy in’ outside services. With the growth of households in which both adults
advice, installation, are working, many consumers want to avoid tasks such as meal preparation, house
equipment leasing, mar- cleaning, home maintenance and preparation of tax returns, so they buy-in such service
keting research, adver-
provision or assistance. Furthermore, Europeans have become more fitness and rec-
tising, temporary office
personnel and caretaking reation oriented and, with greater leisure time, the demand for fitness and recreational
services. facilities has escalated. In terms of demographics, the population is growing older, and
this change has promoted tremendous expansion of healthcare services. Finally, the
number and complexity of goods needing servicing have spurred demand for installation
and repair services.
Not only have consumer services grown in the economy, business services have prospered
as well. Business services include repairs and maintenance, consulting and professional advice,
installation, equipment leasing, banking and legal advice, marketing research, analytics, advertising,
digital, logistics, temporary office personnel, real estate and facilities management services. Expen-
ditures for business services have risen even faster than expenditures for consumer services. This
growth has been attributed to the increasingly complex, specialized and competitive business envi-
ronment and a trend for businesses to outsource to third party specialists many routine operations
such as catering, IT and facilities management.2 There is also a desire to monetize the aftermarket
and to servitize aspects of product use. The sharing economy, typified by Uber substituting for car
ownership, also is extending the service economy.
As Figure 13.2 shows, many services are explicitly targeted at businesses. There are four key
reasons behind the growth of business-to-business services:
1. Specialization – the delegation of non-core tasks to external suppliers or partners, such as
advertising, digital, energy purchasing and car fleet management.
2. Technology – the increase in sophistication leading to the ‘buying in’ of expert knowledge and
skills, such as IT computing consultants or manufacturing design.
3. Outsourcing of support functions to external providers who take over a company’s processes
and personnel, for payroll and recruitment, catering, healthcare and insurance arrangements,
facilities management, real estate and IT services.
4. Flexibility – the need in many organizations to avoid fixed overhead costs; for example, mar-
keting research, executive recruitment, event catering, maintenance and overhaul of systems
are often brought in only on an ad hoc basis when required.
Characteristics of services
The marketing of services is distinct from goods marketing.3 To understand the nature of services
marketing, it is necessary to appreciate the particular characteristics of services. Services have
for a long time been viewed in marketing circles as ‘being different’ to goods, because of four
fundamental distinguishing characteristics:
intangibility 1. intangibility
An inherent quality 2. inseparability of production and consumption
of services that are
performed and there- 3. perishability
fore cannot be tasted, 4. heterogeneity.4
touched, seen, smelled
or possessed.
Table 13.1 summarizes these characteristics and the resulting marketing challenges.
search qualities Intangibility The characteristic of intangibility stems from the fact that services are
Tangible attributes of performances which are experienced. They cannot be seen, touched, tasted or smelled,
a service that can be nor can they be possessed or stock-piled. Intangibility also relates to the difficulty that
viewed prior to purchase. consumers may have in understanding service offerings.5 Services have a few tangible
attributes, called search qualities, which can be viewed prior to purchase, such as the
décor in a restaurant or the facilities in a care home. When consumers cannot examine
experience qualities
Attributes that can be
a service product in advance, they may not understand exactly what is being offered.
assessed only after pur- Even when consumers do gain sufficient knowledge about service offerings, they may
chase and consumption, not be able to evaluate the possible choices. On the other hand, services are rich in
including satisfaction and experience and credence qualities. Experience qualities are those qualities that can
courtesy. be assessed only after purchase and consumption (satisfaction, courtesy, pleasure). Fit-
ness centres and holidays are examples of services that are high in experience qualities.
Credence qualities are those qualities that cannot be assessed even after purchase
credence qualities
Attributes that cannot be
and consumption.6 A medical operation, car repairs, consulting and legal representation
assessed even after pur- are examples of services high in credence qualities. How many consumers are knowl-
chase and consumption. edgeable enough to assess the quality of an appendectomy, even after the surgery has
been performed?
Table 13.1 Service marketing challenges

Service characteristics Resulting marketing challenges
Intangibility Difficult for customer to evaluate
Customer does not take physical possession
Difficult to advertise and display
Difficult to set and justify prices
Service process is not usually protected by patents
Inseparability of production and consumption Service provider cannot mass produce services
Customer must participate and comply in production
Other consumers affect service outcomes
Services are difficult to distribute and replicate
Perishability Services cannot be stored
Very difficult to balance supply and demand
Unused capacity is lost forever
Demand may be very time-sensitive
Heterogeneity Service quality is difficult to control
Difficult to standardize service delivery
Client-based relationships Success depends on satisfying and keeping customers over the long term
Generating repeat business is challenging
Relationship building becomes critical
Customer contact Service providers are critical to delivery
Requires high levels of service employee training and motivation
Changing a high-contact service into a low-contact service to achieve lower costs without
reducing customer satisfaction
Sources: Adapted from the ideas of K. Douglas Hoffman and John E.G. Bateson, Essentials of Services Marketing (Fort Worth, TX: Dryden Press, 1997),
pp. 25–38; Valarie A. Zeithaml, A. Parasuraman and Leonard L. Berry, Delivering Quality Service: Balancing Customer Perceptions and Expectations (New York:
Free Press, 1990); Leonard L. Berry and A. Parasuraman, Marketing Services: Competing through Quality (New York: Free Press, 1991), p. 5.
A Renault car can be test-driven before being purchased. It can be viewed in the dealer’s
showroom and on the streets. It can to an extent be consumed (tested) prior to purchase. A new
smartphone or tablet may be trialled in the store or by using a friend’s device prior to purchase.
The same is not true of a beauty treatment or an opera seat. The beauty treatment and the opera
may fail to live up to expectations, but by the time this disappointment is recognized it is too late
– the service has been partially consumed and paid for and the opportunity cost has long gone.
inseparability Inseparability Related to intangibility is inseparability of production and consump-

In relation to production tion. Services are normally produced at the same time as they are consumed. A medical
and consumption, a examination is an example of simultaneous production and consumption. In fact, the
characteristic of services doctor cannot possibly perform the service without the patient’s presence, and the
that means they are pro-
consumer is actually involved in the production process. With other services, such as
duced at the same time
as they are consumed. taking tennis lessons, consumers are simultaneously involved in production. Due to
high consumer involvement in most services, standardization and control are difficult to
maintain. The Building Customer Relationships box ‘Providing pet services for nations
of dog lovers’ illustrates how dog owners and their pets combine with these service
providers to experience the service.
perishability
A characteristic of ser- Perishability As production and consumption are simultaneous, services are also
vices whereby unused characterized by perishability. The consumer of a service generally has to be present
capacity on one occasion
cannot be stockpiled or
and directly involved in the consumption of the service at the time of its production. This
inventoried for future means that unused capacity in one time period cannot be stockpiled or inventoried for
occasions. future time periods. This is a problem that airline operators face every day. Each operator
engages in an ongoing struggle to maintain seat occupancy levels. Empty seats mean
lost business/revenue. Many operators offer ‘last-minute’ cut-price deals to reduce the
numbers of empty seats. In many cases it is not possible to change the flight on which
the seat is booked and monies paid are generally not refunded in the event of cancella-
tion. This example illustrates how service perishability presents problems very different
from the supply and demand problems encountered in the marketing of goods.7 While
an empty airline seat on a flight is a sale lost forever, cans of soup remaining on the
supermarket shelf at the close of business will be available for sale the following day.
Heterogeneity Most services are labour intensive, so they are susceptible to

eterogeneity. For the service to be provided and consumed, the client generally
h
meets and deals directly with the service provider’s personnel. Direct contact and inter-
action are distinguishing features of services. However, the people delivering services
do not always perform consistently. There may be variation from one service to another
within the same organization or variation in the service that a single individual provides
from day to day and from customer to customer. A good branch manager is crucial
for a restaurant chain such as Pizza Express or a coffee shop like Starbucks, as poor
customer reaction and branch performance can often be traced back to a poor branch
manager.8 Waiting times in either outlet can vary greatly, often due to teamwork, speed
and efficiency variations between branches. This may result in varying levels of customer
Figure 13.2 satisfaction between one Starbucks and another. Thus standardization and quality are
Many services are targeted extremely difficult to control. However, it is also true that the characteristics of services
at business customers. themselves may make it possible for marketers to customize their offerings to consum-
Here wholesalers Capital ers. In such cases, services marketers often face a dilemma: how to provide efficient,
Hair and Beauty attempt to
standardized service at an acceptable level of quality, while simultaneously treating each
entice new clients for its
services, via a wide range
customer as a unique person.
of products and display
services Client-based relationships The success of many services depends on creating and
Source: Image courtesy of maintaining client-based relationships; interactions with customers that result in sat-
Capital Hair. isfied customers who use a service repeatedly over time.9 In fact, some service provid-
ers, such as solicitors, accountants and financial advisers, call their customers ‘clients’
and often develop and maintain close, long-term relationships with them. Customers are
heterogeneity generally more satisfied in relational exchanges over time than they are with exchanges
Variability in the quality of based on single transactions. Indeed, research suggests that customer loyalty and
service because services re-patronage behaviour can be encouraged through this approach.10 The building of
are provided by people,
such relationships has also been shown to be important in non-profit contexts.11 It seems
and people perform
inconsistently. that services businesses are successful only to the degree to which they can maintain
a group of clients who use their services on an ongoing basis. For example, a dentist
may serve a family for many years. If the family members are confident in the dentist
client-based and think he or she offers a good service, they are likely to recommend the dentist to
relationships friends. If this positive word-of-mouth communication continues, the dentist may acquire
Interactions that result in a large number of clients through this route. To ensure that client-based relationships are
satisfied customers who created and maintained, a service provider must take action to build trust, demonstrate
use a service repeatedly
customer commitment, and satisfy customers so well that they become very loyal to the
over time.
provider and unlikely to switch to competitors.
Customer contact Not all services require a high degree of customer contact, but
customer contact many do. Customer contact refers to the level of interaction between the service provider
The level of interaction
between the provider
and the customer that is necessary to deliver the service. High-contact services include
and customer needed to healthcare, real estate, and hair and beauty services. Examples of low-contact services
deliver the service. are car repairs and dry cleaning. As the following section explains, the level of customer
contact is sometimes used as the basis for classifying services.
Classification of services
Services are a very diverse group of products and an organization may provide more than one
kind. Examples of services include car hire, maintenance services, healthcare, hairdressing, health
centres, childcare, domestic services, legal advice, banking, insurance, air travel, education, enter-
tainment, catering, business consulting, dry cleaning and accounting. Nevertheless,
services can be meaningfully analyzed using a five-category classification scheme:
five-category
classification
A method of analyzing 1. type of market
services according to 2. degree of labour intensiveness
five criteria: type of
market, degree of labour 3. degree of customer contact
intensiveness, degree of 4. skill of the service provider
customer contact, skill
of the service provider 5. goal of the service provider.
and goal of the service
provider. Table 13.2 summarizes this scheme.
Table 13.2 Classification of services

Category Examples
Type of market
Consumer Childcare, legal advice, entertainment
Business Consulting, facilities management, digital, installation
Degree of labour intensiveness
Labour-based Education, haircuts, dentistry
Equipment-based Telecommunications, fitness centres, public transport
Degree of customer contact
High Healthcare, hotels, air travel
Low Home deliveries, postal service
Skill of the service provider
Professional Legal advice, healthcare, accountancy
Non-professional Domestic services, dry cleaning, public transport
Goal of the service provider
Profit Financial services, insurance, tourism
Non-profit Some healthcare, education, government
Type of market Services can be viewed in terms of the market or type of customer they serve,
consumer or business.12 The implications of this distinction are very similar to those for all products.
Degree of labour intensiveness A second way to classify services is by degree of labour inten-
siveness. Many services – such as domestic cleaning, education and medical care – rely heavily on
human labour. Other services – such as telecommunications, fitness centres and public transport –
are more equipment intensive.
Labour-based (that is, people-based) services are more susceptible to heterogeneity than most
equipment-based services. Marketers of people-based services must recognize that the service
providers are often viewed as the service itself. Therefore strategies relating to selecting, training,
motivating and controlling employees are crucial to the success of most service businesses. A
bad attitude from Ryanair’s ground staff would colour the customer’s view not just of the employee
concerned but also of the company, the brand and all of its service products. A customer who
has flown quite happily with Ryanair for many years may, if badly treated, consider taking his or
her custom to a rival company.
Degree of customer contact The third way in which services can be classified is by degree of
customer contact. High-contact services include healthcare, hotels, property agents and restau-
rants; low contact services include home deliveries, theatres, dry cleaning and spectator sports.13
High contact services generally involve actions that are directed towards individuals. As these
services are directed at people, the consumer must be present during production. Sometimes,
for example in the case of a car valeting service, it is possible for the service provider to go to
the consumer. However, high-contact services typically require that the consumer goes to the
‘production’ facility. Consequently, the physical appearance and ambience of the facility may be a
major component of the consumer’s overall evaluation of the service. The enjoyment of a visit to a
health spa stems not just from the quality of the beauty treatments, or the suitability of the dietary
or fitness programmes on offer, but also from the décor and furnishings, general ambience, and
the abilities and attitude of the staff. Since the consumer must be present during production of a
high-contact service, the process of production may be just as important as its final outcome. For
example, open-plan banks, quick queue systems and ATM facilities aim to improve the transaction
process and make the service more enjoyable for the consumer.
Low-contact service, in contrast, commonly involves actions directed at ‘things’. Although
consumers may not need to be present during service delivery, their presence may be required to
initiate or terminate the service. The Post Office maintains a network of branches, sorting offices
and vehicles. The process of sending a parcel from Edinburgh to Cardiff or Lille is lengthy. Yet con-
sumers only need to be present to initiate the service. The appearance of the production facilities
and the interpersonal skills of actual service providers are thus not as critical in low-contact services
as they are in high-contact services.14
Skill of the service provider Skill of the service provider is a fourth way to classify services.
Professional services tend to be more complex and more highly regulated than non-professional
services. In the case of legal advice, for example, the final product is situation-specific. As a result,
consumers often do not know what the actual service will involve or how much it will cost until the
service is completed.
Goal of the service provider Finally, services can be classified according to whether they are
profit or non-profit. The second half of this chapter examines non-profit (not-for-profit) marketing,
such as that present in the public sector and charities. Most non-profit organizations provide ser-
vices rather than goods.
Developing marketing strategies for services

Strategic considerations
In developing marketing strategies, the marketer must first understand what benefits the customer
wants, how the company’s service offer and brand are perceived relative to the competition and
what services consumers buy.15 In other words, the marketer must develop the right service for
the right people at the right price, in the right place with the right positioning, image and customer
value proposition. The marketer must then communicate with consumers so that they are aware
of the need-satisfying services available to them. The key aspects of effective target marketing as
explained in Chapters 7 and 8 and of managing the implementation of the determined marketing
strategy apply strongly to the marketing of services.16
One of the unique challenges service marketers face is matching supply and demand. Price can
be used to help smooth out demand for a service, but there are also other ways in which marketers
can alter the marketing mix to deal with the problem of fluctuating demand. Through price incen-
tives, advertising and other promotional efforts, marketers can remind consumers of busy times
and encourage them to come for service during slack periods. Additionally, the product itself can be
altered to cope with fluctuating demand. Restaurants, for example, may change their menus, vary
their lighting and décor, open or close the bar, and change the entertainment on offer. A historical
tourist destination may stage theatrical events and firework displays to attract customers out of
season. Theme parks heavily discount prices in colder and wetter months. Finally, distribution can
be modified to reflect changes in demand. For example, some libraries have mobile units that travel
to different locations during slack periods.17
The strategies that the marketers of services implement are contingent upon a good under-
standing of the pattern and determinants of demand. Does the level of demand follow a cycle?
What are the causes of this cycle? Are the changes random?18 An attempt to use price decreases
to shift demand for public transport to off-peak periods would achieve only limited success because
of the cause of the cyclical demand for public transport. Employees have little control over their
working hours and are therefore unable to take advantage of pricing incentives.19
Table 13.3 summarizes a range of marketing and non-marketing strategies that service
businesses may use to deal with fluctuating demand. Non-marketing strategies essentially involve
internal, employee-related actions.20 They may be the only choices available when fluctuations in
demand are random.
Table 13.3 Strategies for coping with fluctuations in demand for services
Marketing strategies Non-marketing strategies
Use different pricing Hire extra staff/lay off employees
Alter product Work employees overtime/part time
Change place/distribution Cross-train employees
Use promotional efforts Use employees to perform non-vital tasks during slack times
Modify customer service levels Subcontract work/seek subcontract work
Alter branding and positioning Slow the pace of work
Focus on a niche segment Turn away business
differential advantage Creating a differential advantage in services

Something desired by the
The aim of marketing is to satisfy customers by achieving product or brand differentiation
customer that only one
company – not its rivals with an advantage over competitors’ products. This differential advantage, sometimes
– can offer. termed a ‘competitive edge’, is determined by customers’ perceptions. A differential
advantage is something desired by the customer that only one company can offer, as
explained in Chapter 2. If the targeted customers do not perceive an advantage, in mar-
keting terms the product offers no benefit over rival products and its financial viability is in doubt.
For any product, achieving and sustaining a differential advantage is difficult, but for services
the challenge is even greater. The intangibility of the service product and the central role of people
in its delivery are the prime causes of this difficulty, but as Table 13.4 shows there are others, such
as difficulties ensuring consistent service quality delivery and the fact that the interface with the
customer may be difficult to control.
Table 13.4 Difficulties in creating a differential advantage in services

Intangibility minimizes product differentiation
No or little patent protection exists
Few barriers to entry enable competitors to set up and copy successful initiatives
The interface with customers is difficult to control
Growth is hard to achieve, particularly since key personnel can only be spread so far
Service quality is irregular
It is difficult to improve productivity and lower the cost to the consumer
Innovation leads to imitation
Restrictive regulations abound, particularly in the professions
The difficulty encountered in creating a differential advantage in services makes it even more
important that marketing activities are carried out in a systematic and appropriate manner. Thus
services marketers must ensure that the needs of targeted markets are well understood, in order
to bring service products and the marketing mix into line with customers’ exact requirements.
There must be a clear appreciation of competitors’ service offerings and marketing programmes,
and regular efforts are needed to research customers’ satisfaction levels. Branding, supported with
well-constructed promotional campaigns, is even more central to the reinforcement and commu-
nication of any differential advantage for services.
The extended marketing mix for services

The standard marketing mix comprises the ‘4Ps’:
●● product
●● promotion
●● price
●● place/distribution.
The discussion about the classification of services has emphasized the importance of three
additional elements:
extended marketing ●● process

mix for services
In addition to the stan- ●● physical evidence (ambience)
dard ‘4Ps’ marketing ●● people.
mix – product, promo-
tion, price and place/
Collectively, these seven elements, which are sometimes called the ‘7Ps’, form what
distribution – there are
3Ps: process, physical is termed the extended marketing mix for services (see Figure 13.3). It is essential
evidence (ambience) and for the marketers of services to recognize the importance of these additional ‘3Ps’. The
people. implications for marketing mix activities are discussed further in Chapter 21 of Marketing:
Concepts and Strategies.
Product Promotion
People Price
Physical Place/
evidence distribution
(ambience)
Process
Figure 13.3
Service quality
The delivery of high-quality services is one of the most important and difficult tasks that any service
organization faces. As a result of their unique characteristics, services are very difficult to evalu-
ate. Hence customers must look closely at service quality when comparing services.
service quality
Service quality is defined as customers’ perception of how well a service meets or
Customers’ perception exceeds their expectations.21 Service quality is judged by customers, not the organi-
of how well a service zation. This distinction is critical because it forces services marketers to examine their
meets or exceeds their quality from the customer’s viewpoint. For example, a dental surgery may view service
expectations. quality as having friendly and knowledgeable employees. However, the customers may
be more concerned with waiting time, cleanliness and the effectiveness of patient pain
relief. Thus it is important for service organizations to determine what customers expect
and then develop service products that meet or exceed those expectations.
Customer evaluation of service quality

The biggest obstacle for customers in evaluating service quality is the intangible nature of the ser-
vice. How can customers evaluate something they cannot see, feel, taste, smell or hear? The eval-
uation of a good is much easier because all goods possess ‘search qualities’ in the form of tangible
attributes, such as colour, style, size, feel or fit, that can be evaluated prior to purchase. Trying on a
new coat and taking a car for a test drive are examples of how customers evaluate search qualities.
Services, on the other hand, have very few search qualities; instead, they abound in experience and
credence qualities. Experience qualities – such as taste, satisfaction or pleasure – are attributes
that can be assessed only during the purchase and consumption of a service. Restaurants and
holidays are examples of services high in experience qualities. Credence qualities are attributes
that customers may be unable to evaluate even after the purchase and consumption of the service.
Examples of services high in credence qualities are surgical operations, vehicle repairs, consulting
and legal representation. Most consumers lack the knowledge or skills to evaluate the quality of
these types of service. Consequently, they must place a great deal of faith in the integrity and
competence of the service provider.
Providing pet services for The growth in e-commerce and by

nations of dog lovers Building customer owners’ indulgence of their furry and
feathered friends, is fuelling global growth
relationships in speciality pet services the UK, as well as
The market for pet-related services
has never looked brighter. According to in other markets, such as China, Russia, India
the Pet Food Manufacturers’ Association and Japan. Pet sitting, boarding, travel ser-
figures for 2018, 12m UK households now vices, dog walking, dog training, behavioural
own a pet, with a total pet population of approxi- consulting, pet massage, pet insurance and pet por-
mately 54 million. That’s nine million dogs, eight million traiture are just some of the services now on offer to pet
cats, 300 000 hamsters and 100 000 pigeons! According owners. The table below, which provides a small snapshot of
to the PFMA report, among the changes this year are an some of the services on offer, clearly reveals the diversity of
11% rise in the number of households with children that businesses that are supplying these markets. These suppliers
now have a dog. range from large scale commercial enterprises to charities that
were set up to raise funds in support of animal well-being.
Some Services for Pets

Takeyourpet.com Travel service Membership service offering dog owners access to a directory of pet
www.takeyourpet.com friendly places to stay, at which they can enjoy discounted rate, guid-
ance on travelling with pets, access to a discussion forum and reduced
car hire costs.
Animal friends Pet insurance Insurance for cats, dogs and horses, offered by this company which was
www.animalfriends.co.uk/ established to raise money for a wide range of animal charities through
selling pet insurance.
Doga Dog yoga A charity which offers yoga classes for dogs and owners, which was set
dogamahny.com/ up to raise funds to campaign against the Yulin dog meat trade around
the world. According to its website “Doga is a human yoga practice that
helps support the natural bond we have with our dog”.
Dignity Pet Crematorium Pet funeral services Pet crematorium offering a range of services, including pet collection,
www.dignitypetcrem.co.uk/ individual cremations, funeral and remembrance services, caskets, urns,
memorials and keepsakes, plus pet bereavement counselling.
One area that has enjoyed recent growth is the provision of also included, together with details of arrangements for trans-
pet-friendly travel services. According to The Guide Dogs Great porting pets on airplanes, Eurotunnel, buses, ferries and taxis.
British Dog Survey (2017), 70% of UK dog owners want to be A range of dog-friendly places to stay is shown and a Pet
able to go on holiday with their dogs. It is not surprising that Concierge service is available that will design holidays to suit
the number of websites offering these services is increasing. the needs of the fussiest pet. Personalized pet travel kits are
The PetsPyjamas pet lifestyle website is one such pro- provided free with every trip that is booked, available as Silver,
vider, having recently launched its PetsPyjamas travel bro- Gold and Platinum versions, according to the amount spent on
chure targeting dog owners. According to the co-founder of the holiday. The website features well-known celebrities and
the business, “Our customers see their dog as very much part their pets in its marketing and blogs. There is an active social
of family and recognize that holidays are more fun when Fido media presence to stay connected with customers.
comes too. However, owners no longer want to compromise Sources: www.pfma.org.uk/pet-population-2018, accessed on 8 July 2018;
on the quality of their holiday because of their pet, nor do they PetsPyjamas launch dog-friendly travel brochure, Pet Product Marketing,
February 27, 2018, accessed on 7 July 2018; www.petproductmarketing.
want to feel like their dog is merely being tolerated during
co.uk/news-articles/2018/2/27/petspyjamas-launch-dog-friendly-travel-
their stay”. These sentiments reveal the business opportuni- brochure; Europe’s pet-owning households: www.fediaf.org/who-we-are/
ties which can become available to provide new services in facts-and-figures.html; The Guide Dogs Great British Dog Survey 2017: www.
guidedogs.org.uk/news/2017/november/great-british-dog-survey-2017;
growing and changing markets.
takeyourpet.com/; blog.marketresearch.com/4-pet-industry-trends-to-watch-
The PetsPyjamas brochure features must-have travel in-2018-and-beyond; www.thebalancecareers.com/hot-industry-trends-in-pet-
essentials, such as squeaky toys, travel beds, personalized businesses-2660622; www.petproductmarketing.co.uk/news-articles/2018/2/27/
petspyjamas-launch-dog-friendly-travel-brochure; www.animalfriends.co.uk/
blankets and travel bags. Information about pet passports is
charities-we-support/.
Despite the difficulties in evaluating quality, service quality may be the only way customers can
choose one service over another. For this reason, service marketers live or die by understanding
how consumers judge service quality. This is one reason behind many retail banks now returning
staff to their branches and refocusing on their branches as a key part of their customer relationship
building. Table 13.5 defines five dimensions consumers use when evaluating service quality:
1. tangibles
2. reliability
3. responsiveness
4. assurance
5. empathy.
Table 13.5 Dimensions of service quality

Dimension Evaluation criteria Examples
Tangibles Appearance of physical facilities A clean and professional-looking doctor’s office.
Physical evidence of the service Appearance of service personnel A clean and neatly dressed repair person
Tools or equipment used to provide The appearance of food in a restaurant
the service The equipment used in a medical examination
Reliability Accuracy of billing or record-keeping An accurate bank statement
Consistency and dependability in per- Performing services when promised A confirmed hotel reservation
forming the service An airline flight departing and arriving on time
Responsiveness Returning customer phone calls A server refilling a customer’s cup of tea without
Willingness or readiness of employees Providing prompt service being asked
to provide the service Handling urgent requests An ambulance arriving within three minutes
Assurance Knowledge and skills of employees A highly trained financial adviser
Knowledge/competence of employ- Company name and reputation A known and respected service provider
ees and ability to convey trust and Personal characteristics of employees A doctor’s bedside manner
confidence
Empathy Listening to customer needs A store employee listening to and trying to understand a
Caring and individual attention provided Caring about customers’ interests customer’s complaint
by employees Providing personalized attention A nurse counselling a heart patient
Sources: Adapted from Leonard L. Berry and A. Parasuraman, Marketing Services: Competing through Quality (New York: Free Press, 1991); Valarie A.
Zeithaml, A. Parasuraman and Leonard L. Berry, Delivering Quality Service: Balancing Customer Perceptions and Expectations (New York: Free Press, 1990);
A. Parasuraman, Leonard L. Berry and Valarie A. Zeithaml, ‘An empirical examination of relationships in an extended service quality model’, Marketing Science
Institute Working Paper Series, report no. 90–112 (Cambridge, MA: Marketing Science Institute, 1990), p. 29.
Note that all of these dimensions have links to employee performance. Of the five, reliability is
the most important in determining customer evaluations of service quality.22
The marketers of services pay a great deal of attention to the tangibles dimension of service
quality. Tangible attributes, or search qualities, such as the appearance of facilities and employees,
are often the only aspects of a service that can be viewed before purchase and consumption.
Therefore, services marketers must ensure that these tangible elements are consistent with the
overall image of the service product.
Except for the tangibles dimension, the criteria that customers use to judge service
service expectations quality are intangible. For instance, how does a customer judge reliability? Since dimen-
A factor used in judging sions such as reliability cannot be examined with the senses, consumers must rely on
service quality involving other ways of judging service criteria. One of the most important factors in customer
impressions from past
experiences, word-of-
judgements of service quality is service expectations. These are influenced by past
mouth communication and experiences with the service, word-of-mouth communication from other customers and
the company’s advertising. the service company’s own advertising. For example, customers are usually eager to try
a new restaurant, especially when friends recommend it. These same customers may
also have seen advertisements placed by the restaurant. As a result, these customers have an
idea of what to expect when they visit the restaurant for the first time. When they finally dine at the
restaurant, the quality they experience will change the expectations they have for their next visit
and affect their own comments to friends. That is why providing consistently high service quality is
important. If the quality of a restaurant, or any services marketer, begins to deteriorate, customers
will alter their own expectations and word-of-mouth communication to others accordingly.
Delivering exceptional service quality

Providing high-quality service on a consistent basis is very difficult. All consumers have experi-
enced examples of poor service: long queues at retail checkouts, trains and buses that are late,
or rude cinema employees. Obviously, it is impossible for a service organization to
service quality factors ensure exceptional service quality 100 per cent of the time. However, there are many
Factors that increase the
steps that can be taken to increase the likelihood of providing high-quality service.
likelihood of providing
high-quality service: First, though, the service company must understand the four service quality factors.
understanding customer They are:
expectations, service
quality specifications, 1. analysis of customer expectations
employee performance, 2. service quality specifications
managing service
expectations. 3. employee performance
4. managing service expectations.23
People’s performance delivery, but perhaps the students in the

is inconsistent . . . Good Building customer first session were more participative,
upbeat and prepared, so played their parts
lecture? relationships more effectively than the ‘customers’ in the
second session.
How often have you seen a truly awe-
Universities do a great deal to maintain
some lecturer perform consistently s ession
the consistency and quality of session deliv-
to session without a drop in her or his perfor-
ery. Training of staff, systems for reviewing teaching
mance? Just as actors have an ‘off p erformance’, so do
materials, peer reviews, student evaluation processes
your lecturers. It is unlikely they left home with the express
seeking feedback and formal staff appraisals, are just some of
intention of disappointing you, failing to p rovide you with value
the devices employed. Nevertheless, an outstandingly engag-
for money, or not helping you with your studies . . . and yet
ing and informative lecture may well be followed with one not
they might fail to deliver to their normally high standards.
so strong or well received.
More likely, an email rant from a colleague, an a nnoying
You might have found a reassuring and sympathetic dentist
tweet, a worrying situation for a student under their care,
who seems capable, courteous and attentive. Unfortunately,
rejection from the editor of a journal for a hard-crafted
your next appointment occurs after your dental practitioner
research paper, or a problem at home, has distracted your
has been awake all night looking after a poorly toddler, or
tutor. Academics often deliver back-to-back lectures with
while s/he is still seething following a morning row with their
identical visual aids and script to ostensibly similar cohorts
spouse, or your dentist might be distracted having learned of
of students in terms of their profiles and motivations for
a relative’s illness. Your experience is in no way similar to your
attending the lecture. Nevertheless, rarely are such s essions
previous visit and you feel somewhat let down and possibly
delivered in an identical fashion or to similar levels of
very annoyed. Unfortunately, service delivery often is erratic
acclaim . . . one lecture zings while the other in the supposed
and is inextricably linked to the mood, skills, behaviour and
matching pair falls flat. Not only because of the tutor’s service
engagement of the person delivering the service.
Occasionally, you may encounter a pleasant surprise: and your experience of customer service. The problem is that
the car dealer’s service personnel listen attentively to your you suspect it will not be such a good experience next time
concerns, locate the problem promptly, fix it soon after, and you visit. The challenges for marketers are to maintain con-
the cost is considerably less than you feared. Their attentive, sistency in the customer’s experience and to ensure the level
smiling and engaging manner has left you with an all-round of satisfaction is high. These desires will not be achieved by
good feeling of your experience. As a result, you feel more accident. They must be planned, monitored, controlled and
positive about the dealership, the brand of car you are driving modifications made continually.
Analysis of customer expectations Providers need to understand customer expectations when

designing a service to meet or exceed those expectations. Only then can they deliver good service.
Customers usually have two levels of expectations: desired and acceptable. The desired level of
expectations is what the customer really wants. If this level of expectations is provided, the cus-
tomer would be very satisfied. The acceptable level is viewed as a reasonable level of performance
that the customer considers as being adequate. The difference between these two levels
of expectations is called the customer’s zone of tolerance.24
customer’s zone of
tolerance Service marketers sometimes use marketing research, such as mystery shoppers,
The difference between surveys and focus groups, as a means of discovering customer needs and expectations,
the customer’s desired and they monitor online chatter and discussions on social media. Some services com-
level of expectations panies, such as hotel chains, seek customer feedback using comment cards. Another
and the customer’s
approach is to ask employees. Since customer-contact employees interact daily with
acceptable level of
expectations. customers, they often know what customers want from the company. Service managers
should interact regularly with their employees to ensure that they remain in touch with
this useful source of information. The digital era makes this much easier than previously.
Service quality specifications Once an organization understands its customers’ needs, it must
establish goals to help ensure good service delivery. These goals, or service specifications, are
typically set in terms of employee or machine performance. For example, a bank may require its
employees to conform to a dress code. The same bank may insist that all incoming phone calls
are answered by the third ring. Specifications like these can be very important in providing quality
service as long as they are linked to customer needs.
Service managers who are visibly committed to service quality become role models for all
employees in the organization.25 Such commitment motivates personnel at all levels in the orga-
nization, from customer-contact employees through to senior managers, to comply with service
specifications.
Employee performance Once an organization sets service quality standards and managers are
committed to them, the organization must find ways to ensure that customer contact employees
perform their jobs well. Contact employees in many service industries – bank tellers, flight cabin
crew, waiters, sales assistants – are often the least trained and lowest-paid members of the
organization. Yet these individuals represent the most important link to the customer and are the
‘face of the brand’, so their performance is critical to customer perceptions of service quality.26
Well-managed recruitment and training are essential if employees are to understand properly how
to do their jobs. Providing information about customers, service specifications and the organization
itself, during training promotes this understanding.27
The use of evaluation and remuneration systems plays a part in employee performance. Many
service employees are evaluated and rewarded on the basis of output measures such as sales
volume for car salespeople, or lack of errors during work for data-input administrators. Such
systems may overlook certain key aspects of job performance: friendliness, teamwork, effort and
customer satisfaction. As the importance of customer relationship building comes more to the
fore, companies are increasingly considering that customer-oriented measures of performance

may be a better basis for evaluation and reward. For example, Dun & Bradstreet has tied employee
commissions to customer satisfaction surveys rather than sales volume.28 This type of system
stimulates employees to take care of customer needs rather than focus solely on sales or profits.
Managing service expectations As expectations are so significant in customer evaluations of

service quality, service companies recognize that they must set realistic expectations about the
service they can provide. These expectations can be set through advertising and good internal
communication. In their advertisements, service companies make promises about the kind of ser-
vice they will deliver. In fact, a service company is forced to make promises since the intangibility
of services prevents it from showing them in the advertisement. However, the advertiser should not
promise more than it can deliver; doing otherwise may mean disappointed customers.
To deliver on promises made, a company needs to have good internal communication among
its departments, especially management, marketing communications and operations. Assume,
for example, that a supermarket’s advertising guarantees that shoppers will not have to queue
at the checkout for more than five minutes. In order to meet this promise, the retailer will need
to ensure that its operations and staff levels can support such a guarantee. Failure to do so may
result in customers’ service expectations not being met, with a consequent loss of credibility for
the company.
Word-of-mouth and digital communication from other customers also shape customer expec-
tations. However, service companies cannot manage this ‘advertising’ directly. The best way to
ensure positive word-of-mouth communication is to provide exceptional service quality. It has been
estimated that customers tell four times as many people about bad service as they do about good
service. Consequently, services marketers must provide four good service experiences for every
bad experience just to break even. Social media in this digital area has speeded up the likelihood
of consumers informing others about a specific brand, for better or for worse depending on how
well they regarded their experience.
The dominance of relationships and service

Many marketers argue that services are now more important than goods, with services marketing
forming ‘a new dominant logic for marketing, one in which service provision rather than goods is
fundamental to economic exchange’. Vargo and Lusch have popularized this notion in recent years,
suggesting that marketing has moved from a goods-dominant view, in which tangible output and
discrete transactions were central, to a service-dominant view, in which intangibility, exchange pro-
cesses and relationships are central to marketing, as well as an understanding of what customers
value.29 Certainly the growth of interest in maintaining ongoing relationships (see Chapter 1) with
customers and building the augmented product (see Chapter 10) in order to satisfy customers who
support this contention. Many tangible goods are marketed together with associated services in
order to provide targeted customers with added value, peace of mind, support in using the pur-
chased product and to create differentiation vis-à-vis competitors. Department store John Lewis
sells goods, but its positioning promotes its customer service, returns policy, technical support and
after-sales provision. Customers value this support and peace of mind when they buy new shoes,
a carpet, baby’s highchair or a flatscreen TV from John Lewis.
Non-profit marketing
Marketing was broadly defined earlier as a set of individual and organizational activities aimed at
facilitating and expediting satisfying exchanges in a dynamic environment through the creation,
distribution, promotion and pricing of goods, services and ideas. 30 Most of the concepts and
approaches to managing marketing activities discussed above also apply to non-profit situations,
such as the public sector and charities. This is largely why social marketing has
social marketing
Social marketing uses emerged as a subset of the marketing discipline. Of special relevance is the material
tools and techniques offered in the first half of this chapter, because many non-profit organizations and public
from commercial market- bodies provide services. As a discipline, marketing is becoming increasingly import-
ing to make interventions ant in the non-profit sector, particularly in the context of government interventions to
and encourage positive
change people’s usage and attitudes towards eating more healthily, exercising, quit-
behavioural changes,
such as quitting smok- ting smoking, saving energy, responsibly managing personal debt, avoiding reckless
ing, reducing alcohol gambling and viewing other ethnic groups more favourably. All of these interventions
consumption, minimizing by government bodies or agencies active in each of these fields requires an apprecia-
anti-social behaviours tion of the ‘consumer’, identification of which ‘consumers’ will be receptive to change
or reducing carbon
intervention, the creation of appropriate messaging, and engagement with the selected
footprint. The health and
well-being of individuals, targets. Although there is no product being sold and no price charged as is the case
society and the planet in commercial marketing situations, this process hinges on the marketing process
are at the core of social explained throughout this book. Social marketing uses tools and techniques from com-
marketing. mercial marketing to encourage positive behavioural changes, such as quitting smok-
ing, reducing alcohol consumption, minimizing anti-social behaviours, reducing carbon
footprint, and to raise awareness of important social issues. The health and well-being
of individuals, society and the planet are at the core of social marketing. This is an area
of significant growth, employing many who apply the tools of marketing but to create
interventions rather than profit from selling goods.
non-profit marketing
Non-profit marketing includes marketing activities conducted by individuals and
Activities conducted by organizations to achieve some goal other than the ordinary business goals of profit,
individuals and organi- market share or return on investment. Charities, the voluntary sector, not-for-profit
zations to achieve some organizations, NGOs forming the third sector and government departments utilize
goal other than the the marketing concept and toolkit.31 Although a non-profit organization has primary
ordinary business goals
of profit, market share or
goals that are non-economic, it may be required to become involved in ‘profit making’
return on investment. in order to achieve those goals.32 Thus a charity, such as Oxfam, must raise funds
to support its charitable work. Non-profit marketing can be divided into two catego-
ries: non-profit organization marketing and social marketing. Non-profit organization
cause-related marketing is the application of marketing concepts and techniques to organizations
marketing such as hospitals and colleges. Social marketing is the development of programmes
The linking of an orga- designed to influence the acceptability of social ideas, such as getting people to
nization’s products to a
recycle more newspapers, plastics and aluminium, quit smoking, or promoting the
particular social cause on
a short-term or ongoing regeneration of a deprived inner-city area.33 Cause-related marketing is the linking
basis. of an organization’s products to a particular social cause on an ongoing or short-term
basis, The Body Shop-style, or when certain brands link-up with telethons such as
Comic Relief.
negotiation As discussed in Chapter 1, an exchange situation exists when individuals, groups
Mutual discussion or or organizations possess something that they are willing to give up in an exchange.
communication of terms In non-profit marketing, the objects of the exchange may not be specified in financial
and methods in an terms. Usually, such exchanges are facilitated through negotiation – mutual discus-
exchange situation.
sion or communication of terms and methods – and persuasion – convincing and
prevailing upon by argument. Often, negotiation and persuasion are conducted without
reference to, or awareness of, marketing’s role in transactions. The discussion here
persuasion
The act of prevailing
concerns the non-profit performance of marketing activities, whether exchange takes
upon someone by place or not.
argument to facilitate an The rest of this chapter first examines the concept of non-profit marketing to deter-
exchange. mine how it differs from marketing activities in commercial organizations. Next it explores
the overall objectives of non-profit organizations, their marketing objectives and the
development of their marketing strategies. The discussion closes by illustrating how a
marketing audit can control marketing activities and promote marketing awareness in a non-profit
organization.
Why is non-profit marketing different?

Traditionally and mistakenly, people have not thought of non-profit exchange activities as marketing,
but consider the following example. Warwick Business School provides educational services. It
used to promote its degree courses solely through the University of Warwick’s prospectuses. In the
early 1980s, its main programmes received small advertising budgets. As courses were improved
and cohorts grew, the wider use of advertising increased awareness of the school and its pro-
grammes. The school is not commercially driven in the context of seeking profits for stakeholders
or shareholders: any income from fees, training and consultancy is reinvested into its degree pro-
grammes, research and teaching facilities. A new corporate identity was developed by Coley Porter
Bell of London, and each degree programme, led by the MBA, developed its own full marketing mix
and more extensive promotional strategy, all in line with the school’s new mission statement. Even
when the corporate identity was updated, the school continued to ensure a good fit between the
marketing mixes for its different programmes and its overall strategy. As the school moved into the
twenty-first century, it became a budget holder within the university and managed its own budgets.
This move facilitated the appointment of a marketing director, public relations manager and external
affairs manager. These personnel developed target market strategies, updated the school’s mar-
keting programmes and monitored the performance of these marketing activities, just as marketers
in a for-profit company would do. Many university departments and state-maintained schools are
now engaging in developing a marketing strategy and associated marketing programmes.
Many non-profit organizations strive for effective marketing activities. Charitable organizations and
supporters of social causes are major non-profit marketers. Political parties, unions, religious groups
and student organizations also perform marketing activities, yet they are not considered businesses.
Whereas the chief beneficiary of a business enterprise is whoever owns or holds shares in it, the
main beneficiaries of a non-profit organization are its clients, its members or the public at large.
Non-profit organizations have a greater opportunity for creativity than most business organi-
zations, but trustees or board members of these organizations may find it harder to evaluate the
performance of doctors, lecturers or social workers than it is for sales managers to evaluate the
performance of salespeople or financial returns in a for-profit organization.
Another way in which non-profit marketing differs from for-profit marketing is that non-profit
organizations are sometimes quite controversial. Amnesty International, Oxfam and Greenpeace
spend lavishly on lobbying efforts to persuade government and even the courts to support their
interests, in part because acceptance of their aims is not always guaranteed. Although marketing
aims to provide a body of knowledge to further an organization’s goals, it does not attempt to
judge their appropriateness. It is for individuals to decide whether they approve of an organization’s
goal orientation. Most marketers would agree that profit and consumer satisfaction are appropriate
goals for business enterprises, but there may be considerable disagreement about the goals of a
non-profit organization, particularly a more controversial one.
Non-profit marketing objectives

The basic aim of non-profit organizations is to obtain a desired response from a target market.
The use of marketing principles is directly pertinent to third sector non-profit organizations, as they
seek to target and convey their messages. The response could be a change in values, a financial
contribution, the donation of services or some other type of exchange. Non-profit marketing objec-
tives are shaped by the nature of the exchange and the goals of the organization. BBC-sponsored
Children in Need and Comic Relief telethons have raised millions of pounds. Telethons have three
specific marketing objectives:
1. to raise funds to support programmes

2. to plead a case on behalf of disadvantaged groups
3. to inform the public about the organization’s programmes and services.
Tactically, telethons have received support by choosing good causes; generating extensive
grass-roots support; portraying disadvantaged people in a positive and dignified way; developing
national, regional and local support; and providing quality entertainment.34 Figure 13.4 illustrates
how the exchanges and the purpose of the organization can influence marketing objectives. These
objectives are used as examples and may or may not apply to specific organizations.
Police’s marketing objective: To serve the public by enforcing

laws and to gain public support
and cooperation
Protection and security
Police Citizen
Taxes, cooperation and support
Figure 13.4 Church’s marketing objective: To inform the public about the
Examples of marketing church’s doctrine and convince
objectives for different
people to become members
types of exchange
Source: Adapted from Religious values and services
Philip D. Cooper and Church Member
George E. McIlvain, Contributions, service and
‘Factors influencing
acceptance of values
marketing’s ability
to assist non-profit
organizations’, John H. Charity’s marketing objective: To serve the needs and wants of
Summey and Ronald clients and the donor public
D. Taylor, eds, ‘Evolving
Marketing Thought for Satisfaction from solving social
1980’, Proceedings of the problems or promoting a cause
Southern Marketing Asso-
Charity Donor
ciation (19–22 November
1980), p. 315. Used by
Financial contributions, time
permission. and support
Non-profit marketing objectives should state the rationale for an organization’s existence. An
organization that defines its marketing objective merely in terms of providing a product can be
left without a purpose if the product becomes obsolete. However, serving and adapting to the
perceived needs and wants of a target public or market, enhances an organization’s chances of
surviving and achieving its goals.
Developing non-profit marketing strategies

Non-profit organizations must also develop marketing strategies, by defining and analyzing a target
market, and creating and maintaining a marketing mix that appeals to that market. They practice
the techniques promoted by marketing, as described in this chapter’s concluding case study, and
apply many of the concepts routinely deployed by commercial marketers in for-profit businesses.
Target markets The concept of target markets needs to be revised slightly to apply
to non-profit organizations. Whereas a business is supposed to have target groups that
target public are potential purchasers of its product, a non-profit organization may attempt to serve
A collective of individuals many diverse groups. A target public is broadly defined as a collective of individuals
who have an interest
in or concern about an
who have an interest in or concern about an organization, a product or a social cause.
organization, a product The terms target market and target public are difficult to distinguish for many non-profit
or a social cause. organizations. The target public for campaigns promoting healthy eating is adults and
teenagers of all ages. However, the target market for many of the advertisements may
be individuals currently suffering from a weight problem. When an organization is concerned about
changing values or obtaining a response from the public, it views the public as a market.35 In non-
profit organizations, direct consumers of a product are called client publics and indirect
client publics
consumers are called general publics.36 For example, the client public for a university
In non-profit organiza-
tions, direct consumers is its student body, and its general public includes parents, graduates, employers and
of a product. the university senate. The client public usually receives most of the attention when an
organization develops a marketing strategy. The techniques and approaches to seg-
menting and defining target markets discussed in Chapters 7 and 8 very much apply to
general publics non-profit target markets.
In non-profit organiza-
tions, indirect consumers Developing a marketing mix A marketing mix strategy limits choices and directs
of a product.
marketing activities towards achieving organizational goals. The strategy should outline
or develop a blueprint for making decisions about product, place/channel, promotion/
communication, price and personnel. These decision variables should be blended to
serve the target market as specified in the marketing strategy.
When considering the product variable, it is important to recognize that non-profit organizations
deal more often with ideas and services than with goods. This means it is crucial for organizations
to have clearly defined exactly what they are providing. For example, what products do the Wom-
en’s Institute or a work’s social club provide? They offer a forum for social gatherings, courses,
outings and a sense of cooperation. Their products are more difficult to define than the average
business product. As indicated in the first part of this chapter, the intangibility of services means
that the marketing of ideas and concepts is more abstract than the marketing of tangibles, and it
requires considerable effort to present benefits.
Considering most non-profit products are ideas and services, distribution decisions relate to
how these ideas and services will be made available to clients and stakeholders. If the product
is an idea, selecting the right media (the promotional strategy) to communicate the idea will facil-
itate distribution. The availability of services is closely related to product decisions. By nature,
services consist of assistance, convenience and availability. Availability is part of the total service.
For example, making a product such as health services or personal debt management available
on the high street calls for knowledge of such retailing concepts as site location analysis, queuing
and operations management.
Developing a channel of distribution to coordinate and facilitate the flow of non-profit products to
clients is a necessary task, but in a non-profit setting the traditional concept of the marketing channel
may need to be reviewed. The independent wholesalers/dealers available to a business enterprise
do not exist in most non-profit situations. Instead, a very short channel – non-profit organization to
client – is prevalent, because production and consumption of ideas and services are often simulta-
neous. For example, local government departments often deal directly with householders. Charities
generally pitch their fundraising activities directly to their target customers/householders/donors.
Making promotional decisions may be the first sign that non-profit organizations are performing
marketing activities. Non-profit organizations use advertising, publicity and the web to communicate
with clients and the public. As the case study at the end of this chapter explains, direct mail remains
a means of fundraising for services such as those provided by Christian Aid and UNICEF. In addition
to direct mail, organizations such as these use press advertising, public relations and sponsorship,
supported by increasingly sophisticated websites and social media campaigns. Face-to-face selling
is also used by non-profit organizations, although it may be called something else. Churches and
charities rely on personal selling when they send volunteers to recruit new members or request
donations. The armed forces use personal selling when recruiting officers and when attempting to
persuade men and women to enlist. Special events to obtain funds, communicate ideas or provide
services are sales promotion activities. Competitions, entertainment and prizes offered to attract
donations resemble the sales promotion activities of business enterprises. Amnesty International,
for example, has held worldwide concert tours, featuring artists such as Sting and Phil Collins, to
raise funds and increase public awareness of political prisoners around the world.
The number of advertising agencies that are donating their time for public service announce-
ments (PSAs) or public information films is increasing, and the quality of print PSAs is improving.
Not-for-profit groups are becoming more interested in the impact of advertising on their organi-
zations, and they realize that second-rate PSAs can cause a credibility loss.37 For example, each
year the UK government’s ‘Don’t drink and drive’ campaign, usually timed to coincide with the
Christmas and New Year period, is a high-spending and hard-hitting programme of well-produced
advertisements designed to attract as much attention as possible.
Although product and promotion techniques may require only slight modification when applied to
non-profit organizations, the pricing structure is generally quite different and the decision-making more
complex. The different pricing concepts that the non-profit organization faces include pricing in user
and donor markets. There are two types of monetary pricing: fixed and variable. Membership fees,
such as the amount paid to become a member of a social club, or monthly fixed sum direct debit
contributions to a charity, represent a fixed approach to pricing, whereas fundraising activities that
lead to donations that help with the society’s running costs represent a variable pricing structure.38
The broadest definition of price (valuation) must be used when considering non-profit products
or services. Financial price, an exact monetary value, may or may not be charged for a non-profit
product. Economists recognize the giving up of alternatives as a cost. Opportunity cost is the
value of the benefit that is given up by selecting one alternative rather than another. This
opportunity cost
The value of the ben-
traditional economic view of price means that if a non-profit organization can persuade
efit that is given up by someone to donate time to a cause, or to change his or her behaviour, the alternatives
selecting one alternative given up are a cost to or a price paid by the individual. Volunteers who answer phones
instead of another. for a university counselling service or suicide hotline give up the time they could have
spent studying or doing other things, as well as the income they might have earned from
working part-time in a bar or shop.
For other non-profit organizations, financial price is an important part of the marketing mix.
Non-profit organizations today are raising money by increasing the prices of their services or start-
ing to charge for services if they have not done so before. For example, many museums and art
galleries, which traditionally allowed free entry to their exhibits, are now charging nominal entrance
fees. Organizations like these often use marketing research to determine for what kinds of product
people will pay.39 The pricing strategies of non-profit organizations often stress public and client
welfare over equalization of costs and revenues. If additional funds are needed to cover costs, then
donations, contributions or grants may be solicited.
The additional elements of the marketing mix for services are also important in non-profit mar-
keting. The physical environment quite often poses problems: subscribers and donors want an
organization with the appearance of business-like efficiency without any extravagance or high costs
of operation. It is important that funds do not appear to have been wasted on luxuries. The pro-
cess for transactions is increasingly important: regular donors are offered direct debits, automatic
payment methods and regular information packs or leaflets detailing the recipient organization’s
activities, expenditures and plans. People, too, are important: capable administrators, sympathetic
helpers, trustworthy fundraisers; they must project a caring yet efficient image to the client and
general publics and promote the desired brand positioning for the charity or cause.
Controlling non-profit marketing activities

To control marketing activities in non-profit organizations, managers use information obtained in
the marketing performance audit to make sure that goals are achieved. Table 13.6 lists several
summary statistics that are useful for both planning and control. Control is designed to check that
the activities outlined in the marketing strategy have taken place and to take corrective action
where any deviations are found. The purpose of control is not only to point out errors but to revise
organizational goals and marketing objectives as necessary. One way to measure the impact of
an advertisement is to audit the number of requests for information or applications, such as those
received by Amnesty International, the Army or the World Wildlife Fund (WWF). Hits on an orga-
nization’s website via leading search engines are also counted (see Figure 13.5). Costs must be
Table 13.6 Examples of Data Useful in Controlling Non-Business Marketing Requirements
Financial resources: Size and usage:

Types of funding: ●● Cash flows
●● EU ●● Budgets
●● Government grants/loans ●● Numbers of staff
●● Local government grants/loans ●● Seconded personnel
●● Foundations and charities ●● Volunteer personnel
●● National Lottery funding awards ●● Paid and non-paid staff
●● Public appeals ●● Numbers of users
●● Philanthropic donations ●● Types of users
●● Corporate partnerships ●● Dependency of users
●● Sponsorships ●● Frequency of use
●● Fees and charges ●● Sole and multi-provider usage mix
●● Number/proportion using each
●● Number combining several sources
Product/service mix: Facilities:

●● Nature of products or services ●● Number of facilities/locations
●● Number of providers ●● Nature of facilities
●● Strategic partners and suppliers ●● Location(s) of facilities
●● Channel characteristics ●● Investment pattern in facilities
●● Investment priorities for facilities
●● Sponsoring partnerships
Source: Adapted from Philip D. Cooper and George E. McIlvain, ‘Factors influencing marketing’s ability to assist non-profit organizations’, John H. Summey and Ron-
ald D. Taylor, eds, ‘Evolving Marketing Thought for 1980’, Proceedings of the Southern Marketing Association (19–22 November 1980), p. 315. Used by permission.
Figure 13.5
Many non-business organiza-
tions judge the effectiveness
of their marketing in terms
of hits on their websites
and phone calls requesting
information
Source: NFU
tightly controlled, the returns on activities understood, and often public statements of these have
to be made available in order to comply with the regulatory environment.
Many potential contributors decide which charities to support based on the amount of money
actually used for charitable purposes. Charities are more aggressively examining their own
erformance and effectiveness. For example, the Salvation Army contributes the majority of every
p
pound (£) it receives to the needy; its employees are largely volunteers, who work for almost
nothing. Charities are making internal changes to increase their effectiveness, and many are hiring
professional managers and fundraisers to help with strategic planning in developing short-term
and long-range goals, marketing strategies and promotional plans.
To control non-profit marketing activities, managers must make a proper inventory of activities
performed, and be prepared to adjust or correct deviations from standards. Knowing where and
how to look for deviations and knowing what types of deviation to expect are especially important
in non-profit situations. As non-profit marketing activities may not be perceived as marketing,
managers must define clearly what activity is being examined and how it should function.
It may be difficult to control non-profit marketing activities, because it is often hard to determine
whether goals are being achieved. A support group for victims of childhood abuse that wants to
inform community members of its services may not be able to find out whether it is communicating
with those people who need assistance. Surveying to discover the percentage of the population
that is aware of the assistance the group offers can show whether the awareness objective has
been achieved, but it fails to indicate what percentage of victims of abuse has been assisted. The
detection and correction of deviations from standards are certainly major purposes of control, but
standards must support the organization’s overall goals. Managers can refine goals by examining
the results that are being achieved and analyzing the ramifications of those results.
Techniques for controlling overall marketing performance must be compatible with the nature
of an organization’s operations. Obviously, it is necessary to control the marketing budget in most
non-profit organizations, but budgetary control is not tied to standards of profit and loss; responsible
management of funds is the objective. Central control responsibility can facilitate orderly, efficient
administration and planning. For example, most universities evaluate graduating students’ progress
to control and improve the quality of education provided. The audit phase typically relies on question-
naires sent to students and eventual employers. The employer completes a questionnaire to indicate
the former student’s progress; the graduate completes a questionnaire to indicate what additional
concepts or skills were needed to perform duties. In addition, a number of faculty members may
interview certain employers and former students to obtain information for control purposes. Results
of the audit are used to develop corrective action if university standards have not been met. Correc-
tive action could include an evaluation of the deficiency and a revision of the curriculum.
Summary
Services are experiential, intangible, dominant products that cannot physically be possessed, the result of applying human
or mechanical efforts to people or objects. The importance of services in the economy is increasing. There are consumer
services and business services.
Services have a number of distinguishing characteristics: intangibility, inseparability of production and consumption,
perishability, heterogeneity, client-based relationships and customer contact. Intangibility places greater importance
on search, experience and credence qualities. Services can be viewed in terms of a five-category classification: type of
market, degree of labour intensiveness, degree of customer contact, skill of the service provider and goal of the service
provider.
Fluctuating demand is a major problem for most service organizations. Marketing strategies and the marketing mix can
be used to deal with the problem. Before attempting to undertake any such strategies, however, services marketers must
understand the patterns and determinants of demand. The intangibility of the service product, together with the importance
of the people component of the extended marketing mix for services, leads to significant difficulties in creating and sus-
taining a differential advantage.
The basic marketing mix is augmented for services through the addition of people, physical evidence (ambience) and the
process of transaction in order to produce the ‘7Ps’ or the extended marketing mix for services.
Service quality is the perception of how well a service meets or exceeds customers’ service expectations. The intangibility
of services makes service quality very difficult for customers to evaluate. When competing services are very similar,
service quality may be the only way for customers to distinguish between them. It is crucial for marketers to comprehend
the four service quality factors: (1) understanding customer expectations, (2) service quality specifications, (3) employee
performance, and (4) managing service expectations. To achieve customer satisfaction, a service must fall within the
customer’s zone of tolerance.
Non-profit marketing includes marketing activities conducted by individuals and organizations to achieve goals other than
normal business goals. The chief beneficiary of a business enterprise is whoever owns or holds shares in the business, but
the beneficiary of a non-profit enterprise should be its clients, its members or its public at large. The goals of a non-profit
organization reflect its unique philosophy or mission. Some non-profit organizations have very controversial goals, but
many organizations exist to further generally accepted social causes. Government and agency interventions to improve
society and well-being use social marketing, which has been a significant growth area in recent years.
The marketing objective of non-profit organizations is to obtain a desired response from a target market, often through
negotiation or persuasion. Developing a non-profit marketing strategy consists of defining and analyzing a target market,
determining a strong customer value proposition, and creating and maintaining a marketing mix. Target, client and general
publics must all be identified. In non-profit marketing, the product is usually an idea or service.
Distribution is involved not so much with the movement of goods as with the communication of ideas and the delivery of
services, which results in a very short marketing channel. Promotion is very important in non-profit marketing; personal
selling, sales promotion, advertising and publicity are all used to communicate ideas and inform people about services.
Digital marketing and social media campaigns are particularly important. Price is more difficult to define in non-profit mar-
keting because of opportunity costs and the difficulty of quantifying the values exchanged.
It is important to control marketing strategies in non-profit situations. Control is designed to identify what activities have
occurred in conformity with marketing strategy and to take corrective action where deviations are found. The standards
against which performance is measured must support the non-profit organization’s overall goals.
Important terms
Key links Business services
This chapter about marketing services should be read in Cause-related marketing
conjunction with: Client publics
Client-based relationships
●● Chapter 10, the overview of the product ingredient of Consumer services
the marketing mix. Credence qualities
●● Chapter 12, exploring the management of product Customer contact
portfolios. Customer’s zone of tolerance
●● Chapter 8, which examines the creation of target mar-
Experience qualities
ket strategy.
Extended marketing mix for services
Five-category classification
General publics 7. Analyze the demand for the hire of sunbeds and discuss
Heterogeneity ways to cope with fluctuating demand.
Inseparability 8. What is the most important dimension in determining cus-
Intangibility tomer evaluation of service quality?
Negotiation
9. Compare and contrast the controversial aspects of non-
Non-profit marketing
profit versus business marketing.
Opportunity cost
Perishability 10. Relate the concepts of product, place/distribution, promo-
Persuasion tion and price to a marketing strategy aimed at preventing
Search qualities drug abuse.
Service 11. What are the differences between clients, publics and con-
Service expectations sumers? What is the difference between a target public and
Service quality a target market?
Service quality factors 12. Provide examples of social marketing interventions and
Social marketing consider who the target audiences are.
Target public
13. Discuss the development of a marketing strategy for a
university. What marketing decisions should be made in
Discussion and review questions developing this strategy?
14. Why is the concept of market segmentation relevant in the
1. Identify and discuss the distinguishing characteristics of
marketing of social causes?
services. What problems do these characteristics present to
marketers?
2. What is the significance of ‘tangibles’ in service industries? Recommended readings
3. Use the five-category classification scheme (Table 13.2) to
Berry, L., On Great Service (The Free Press, 1995).
analyze a car valeting service, and discuss the implications Grönroos, C., Service Management and Marketing (Wiley, 2007).
for marketing mix development. Kasper, H., van Helsdingen, P. and Gabbott, M., Services Marketing Man-
4. How do search, experience and credence qualities affect agement: A Strategic Perspective (John Wiley, 2014).
the way consumers view and evaluate services? Wirtz, J. and Lovelock, C.H., Services Marketing (Pearson, 2016).
Vargo, S. and Lusch, R., The Sage Handbook of Service Dominant Logic
5. What additional elements must be included in the market-
(Sage, 2018).
ing mix for services? Why? Palmer, A., Principles of Services Marketing (McGraw-Hill, 2014).
6. Why is it difficult to create and maintain a differential Wilson, A., Zeithaml, V. and Bitner, M., Services Marketing: Integrating
advantage in many service organizations? Customer Focus Across The Firm (McGraw-Hill, 2016).
Web task Classroom tools 2. How does comparethemarket.

com enhance customer service
As web usage rises, the number of and foster its relationship with
people using this method to identify customers?
services and compare prices has rocketed, with numerous
3. Discuss the degree to which experience and credence
comparison websites providing a price and feature com-
qualities exist in the services offered by
parison service across many suppliers, seeking to fulfil the
comparethemarket.com.
‘honest broker’ role. This is particularly so for assisting con-
sumers searching for the best deal for insurance policies.
Take a look at: www.comparethemarket.com/insurance and Group tasks
its range of information across car, home, van, travel, pet and
1. Consider the services provided by the Students’ Union
life insurance.
facility on your campus. What are the principal difficul-
1. Classify comparethemarket.com’s offering in terms of its ties involved with marketing and then delivering these
position on the service continuum. services?
2. Select a service which members of your group consider brand reputation and customer satisfaction. Inventory han-
to be ‘good’. Unpick the reasons why your team per- dling, assistance with customs clearance, barcoded tracking
ceives the selected service to be good. Consider how that can be monitored over the web, and the provision of a
the marketers for this service have ensured you per- responsive customer services function, are just some of the
ceive it to be good. extra services that are now expected as part of the product
offering. Some clients even require their carriers to play a role
Applied mini-case in the packing process in their pursuit of a delivery solution
that eases the movement of packages from the point of dis-
Express carriers such as TNT, UPS and Federal Express do
patch to the point of receipt.
much more than provide a swift delivery service for letters
and packages. As the sector has become more competitive
Question
and eShopping increases the numbers of packages deliv-
ered each day, the expectations of clients have also risen. Assume the role of a management consultant who has been
The home delivery service for many well-known brands is retained by one of the express carriers to undertake an anal-
subcontracted to the major carriers, which in effect impact ysis of service quality. Prepare a report that outlines the key
through their reliability and service levels on their clients’ dimensions of service quality.
Marketing for charities than ever, charities are recognizing that

Case study fundraising activities should be targeted
Marketing is not an activity that c onsumers particularly at those in the population who
automatically associate with charities. are prepared to become committed donors.
Instead they link advertising, sales promotion In some cases this means attracting a new
and digital marketing with big brands such as generation of people prepared to donate reg-
Coca-Cola, McDonald’s, John Lewis and Virgin. In reality, while ularly. A NOP survey suggested that just 15 per
commercial organizations such as these seek high returns cent of fundraising revenue is accrued from long-term
and profits, charities must find ways to boost awareness of donors, with human rights charities the biggest winners, and
their work and increase their revenues to fund their good good causes supporting the young or elderly gaining least
causes. In recent years, the fundraising activities of charities from this means.
have become characterized by an increasing professionalism, Even though many consumers dislike the use of direct
often involving the appointment of marketing managers, strat- marketing methods, such as direct mail and telephone calls
egists, public relations executives and digital experts. This has to solicit funds, the second most important channel for dona-
resulted in a greater variety of fundraising methods than ever tions is by post. This approach has proved particularly popular
before, including the use of viral campaigns, creative affinity with human rights and wildlife causes. However, relatively few
tie-ups, e-marketing and internet-based approaches. supporters of children’s charities and those supporting the
Research shows that nearly 90 per cent of UK adults have elderly choose this method. Indeed, it seems that traditional
participated in charitable activities in the past 12 months. personal approaches to collecting funds, such as the use of
Most are involved in giving money, but a third of these have collecting tins in shopping malls and high streets, are declin-
taken part in a special charity activity or event. Others have ing in effectiveness. Instead, the public’s imagination has been
been involved in organizing events or have worked for a captured by a host of media-based and online activities. For
charity. Face-to-face fundraising remains the most popular example, specially organized events, and television appeals
way to give, with 67 per cent of all those donating using this and programmes have been shown to be particularly effective
approach. However, there has been a trend away from tradi- ways of attracting funds. The use of high-profile individuals
tional tin-rattling and towards the use of ‘chugging’ or face-to- in such appeals, such as royalty, television personalities, and
face recruitment, designed to encourage would-be donors to well-known actors or sports stars, is particularly popular. In a
agree to regular direct debit or covenant arrangements. More survey, 80 per cent of consumers questioned also supported
arguably are harder hitting and more outspoken than the TV

broadcasters or viewing public will tolerate. A recent debate on
Facebook was deliberately timed to coincide with a lobbying
campaign aimed at MPs regarding microchipping of pets. Bul-
lying UK, the anti-bullying charity, used social media to foster
word-of-mouth communication of its core messages. The char-
ity’s posters have a mobile download version which can then be
shared easily by readers amongst their social media contacts.
Children’s charity Barnardo’s is using the web as a means of
recruiting and communicating with its younger donors. In the
age of television, the internet and the smartphone, it seems
the use of commercial and promotional schemes, such as the that charities such as these must be ready, willing and able to
sale of products through gift shops and catalogues. A similar use the full range of media-based approaches available as they
percentage stated that they like to buy products that involve enact their social marketing strategies.
the manufacturer making a contribution to charity.
Evidence of increasing professionalism in fundraising is Questions for discussion
readily apparent across the charity sector. Cancer Research
1. Why are charities such as Barnardo’s and Cancer
overhauled its marketing strategy to focus afresh on fund-
Research UK turning more to the marketing approaches
raising. This followed a period when the charity concentrated
deployed by consumer goods companies?
on brand building, following its creation out of the merger of
Imperial Cancer Research and the Cancer Research Campaign. 2. To what kinds of donor must charities appeal? How
Social marketing techniques have been embraced by most might collection methods vary for these different groups?
leading charities, while web-based communications have now 3. How might the marketing strategy vary according to
enabled many to target and reach their audiences more effec- whether a charity is targeting consumers or corporate
tively than in the past. Many charities are utilizing the web to donors?
good effect. Charity the Dog’s Trust’ focuses on dog welfare and
has used its social media networks to convey messages about References: www.bullying.co.uk, March 2011 and April 2015; www.barnardos.org.
uk, March 2011 and April 2015; www.wspa.org.uk; Ross McCulloch of Third Sector
re-homing, neutering and microchipping. Mainstream TV com- Lab, ‘How four charities got the social marketing mix right’, www.mycustomer.
mercials also regularly appear, but the social media messages com, March 2011; www.dogstrust.org.uk/, March 2011 and April 2015.
Chapter 14
Marketing channels
Channel selection and multi-channel management drive products
to market
Introduction
Objectives Distribution involves activities that make products available to
customers when and where they want to purchase them. It is
To understand the marketing chan-
sometimes referred to as the ‘place’ element in the marketing
nel concept and the nature of mar-
mix of the 5Ps: product, place (distribution), promotion, price
keting channels.
and people. Choosing which channels of distribution to use is a
To discuss the functions of market- major decision in the development of marketing strategies, par-
ing channels. ticularly with the advances in digital options. High customer ser-
vice levels may require heavy investment in distribution and the
To examine different types of
shrewd identification of channel members with which to work.
channel.
There has to be a compromise between adequate responsive-
To examine channel integration and ness to customers’ needs and expectations and delivering to
levels of market coverage. their requirements in a cost-effective manner.
This chapter focuses on the description and analysis of mar-
To consider the selection of distri-
keting channels, first discussing the nature of channels and their
bution channels and the emergence
functions, and then explaining the main types of channel and
of direct marketing.
their structures. These sections are followed by a review of sev-
To understand the impact of eral forms of channel integration. Consideration is given to how
multi-channel management on marketers determine the appropriate intensity of market cover-
marketing. age for a product and to the factors that are considered when
selecting suitable channels of distribution. The chapter explores
To explore the behavioural aspects
how, increasingly, many organizations operate through multiple
of channels, especially the con-
channels, requiring the management of customer experience
cepts of cooperation, relationship
across channels. After examining behavioural patterns within
building, conflict and leadership.
marketing channels, and the relationships that develop between
To examine legal issues in channel channel members, the chapter concludes by looking at several
management. legal issues affecting channel management.
403
BA’s focus on
N ot too many years
ago, the bulk of BA
flights were booked either
e-channels and digital
was necessary. Soon,
most travellers could
simply scan a passport
via travel agents or over the or insert a credit card into
telephone by passengers. In late self-serve BA kiosks in order to
2003, BA made a radical decision. self-check in, or they could print-
Its 24-hour telephone booking service ceased: night-time off boarding passes at home before
tele-booking or changes to travel itineraries became a thing leaving for the airport. Even access to a boarding card has
of the past, too. Although partly driven by a cost-saving strat- now changed, as increasing numbers of BA passengers sim-
egy, the reduction in call centres also reflected the growth ply download a booking barcode onto their smartphones to be
in the airline’s e-booking service. ‘If you choose to complete scanned at airport security for totally paperless transactions
your booking by phone, you will incur a £15 offline service and boarding.
fee per passenger’, greeted customers dialling 0870 8507850 Prior to the opening of Heathrow’s Terminal 5, BA’s new
intending to book seats by phone, as BA steered customers hub, marketing researchers probed consumers’ buy-in to
towards its web-based operation. While passengers wishing e-tickets and self-check-in. The result was the opening of
to book at night could no longer speak over the telephone to a very different passenger experience, with numerous self-
a BA customer service agent, they could go online 24 hours a check kiosks, bag drop-off points and few queues at old-style
day, in order to make or change a booking. Since then, BA has check-in counters.
nudged its customers towards the web and also harnessed The BA website reflects this shift in emphasis, suggesting
mobile marketing in a big way. special offers, linking to customer support and providing web
BA introduced e-tickets, rather than sending out traditional users with corporate information, but focusing on:
books of travel coupon tickets, and passengers could print
●● Flight
off their own documentation. Soon, even such behaviour was
passé, as a simple booking reference sufficed and paper- ●● Flight and Hotel
less travel had arrived. Passengers either inserted their credit ●● Flight and Car
card into a ticket dispenser at the airport or told a customer ●● Flights and Holidays
service agent their allocated booking reference code in order
●● Manage My Booking
for the agent to allocate a seat and boarding pass. No paper
●● Information
●● Executive Club
The primary focus on the home page, though, is on a Find

Flights menu-driven system providing speedy access to BA’s
network and timetable. Find Flights enables users to check for
routes, suitable times, prices and seat availability in seconds,
or to place a confirmed booking in under a minute. Flight-only
or flight with hotel/car. The company launched a set of related
mobile services, with timetables, booking, check-in and now
boarding enabled digitally and remotely. The airline has fully
embraced eCommerce and mobile as a channel to market.
References: www.BA.com, May 2004; BA, BAA, January 2008; www.ba.com,
January 2008; www.britishairways.com, June 2011, 2015 and June 2018.
A
s in the example of BA’s move to focus on eCommerce and mobile, changes in the manner
in which products are distributed have a major impact on customers. For example, many
traditionally store-based retailers have been struggling to compete effectively against rivals
not bearing the cost structure of operating stores in town centres. Launching their own online sites
alongside their stores has failed to secure a viable future for many well-known brands. The web and
Chapter 14 Marketing channels 405
mobile marketing have radically altered distribution channels in many markets. In some markets,
such as music sales and banking transactions, there has been a huge shift to online transactions
away from music stores and bank branches. Such direct marketing and digital transactions negate
the need for high street real estate, and changes the nature of the proposition being marketed.
All products and services pass through a distribution channel or supply chain. The selection of
the type most applicable to a particular target market is an important choice for marketers. This
chapter focuses on the nature of marketing channels and their functions, types of channel and their
structures. The factors relevant in selecting a channel of distribution are discussed, along with the
nature of relationships within the marketing channel.1
The nature of marketing channels and supply

chain management
A channel of distribution (sometimes called a marketing channel) is a group of indi-
channel of distribution
A group of individuals viduals and organizations that direct the flow of products from producers to customers.
and organizations that Providing customer satisfaction should be the driving force behind all marketing channel
direct the flow of prod- activities. Buyers’ needs and behaviour are important concerns of channel members.
ucts from producers to Channels of distribution make products available at the right time, in the right place and
customers.
in the right quantity by providing such product-enhancing functions as transport, storage
and customer service.2 Some products pass through few stages, whereas others have
complex channels with many parties involved.
The basic premise is simple. A manufacturer of a particular product could sell directly to the
intended ultimate consumers, or the manufacturer could utilize the services of wholesalers, retailers
or other channel members, rather than bear the hassle and costs of dealing with many end-user
consumers directly. Alternatively, the manufacturer could opt to use a mix of routes to convey its
products to the ultimate consumers: some direct selling, links with wholesalers and retailers, and
possibly alliances with the selling activities of other manufacturers. Multiple channels require man-
agement and are costly to operate, but they expose a brand or product to more potential customers.
There has to be a balance for any business between optimizing customer satisfaction and making
an adequate return on investment. These are the challenges of channel management for marketers.
Challenges which are significantly complicated with the onset of digital channels and often a new set
of online competitors given access to markets previously ignored or unattainable to them.
Most, but not all, channels of distribution have marketing intermediaries, although
marketing
there is currently a growth in direct marketing with some suppliers interacting with
intermediary consumers without the use of intermediaries. A marketing intermediary, or ‘middle-
A middleman who links man’, links producers to other middlemen or to those who ultimately use the products.
producers to other Marketing intermediaries perform the activities described in Table 14.1. There are two
middlemen or to those major types of intermediary: merchants and functional middlemen – agents and brokers.
who ultimately use the
products.
Merchants take title to products and resell them, whereas functional middlemen do
not take title to products but enable their sale. Both types facilitate the movement of
goods and services from producers to consumers.
merchants Both retailers and wholesalers are intermediaries. Retailers purchase products for
Intermediaries who take the purpose of reselling them to users. Merchant wholesalers resell products to other
title to products and wholesalers and to retailers. Functional wholesalers, such as agents and brokers, expe-
resell them.
dite exchanges among producers and resellers, and are compensated by fees or com-
missions. For purposes of discussion in this chapter, all wholesalers are considered
functional middlemen merchant middlemen unless otherwise specified.3
Intermediaries who do Channel members share certain significant characteristics. Each member has differ-
not take title to products. ent responsibilities within the overall structure of the distribution system, but mutual profit
and success can be attained only if channel members cooperate in delivering products
Table 14.1 Marketing channel activities performed by intermediaries

Category of marketing activities Possible activities required
Marketing information and market Collect and analyze information such as sales data; perform or commission marketing research
insight studies
Marketing management Establish objectives; plan activities; manage and coordinate financing, personnel and risk taking;
evaluate and control channel activities
Facilitating exchange Choose and stock product assortments that match the needs of buyers
Promotion Set promotional objectives; coordinate advertising, personal selling, web activity, sales promotion,
publicity, sponsorship, direct mail and packaging
Price Establish pricing policies and terms of sales
Physical distribution Manage transport, warehousing, materials handling, inventory control and communication
Customer service Provide channels for advice, technical support, after sales back-up and warranty provision
Relationships Facilitate communication, products and parts, financial support and credit, inventory levels,
aftermarket needs, on-time delivery and customer service to maintain relationships with other
marketing intermediaries and between suppliers and their targeted customers
to the market. The area of relationship management has received a great deal of attention in
marketing circles. This is increasingly important in delivering adequate customer service to target
market customers. A supplier desires an ongoing and lucrative relationship with its customers: it
recognizes the importance of the various channel members in maintaining this relationship and
strives for mutually beneficial relationships with its channel intermediaries.
Although distribution decisions need not precede other marketing decisions, they do exercise
a powerful influence on the rest of the marketing mix. Channel decisions are critical because they
determine a product’s market presence and buyers’ accessibility to the product. They also affect
customers’ overall satisfaction with the product or service provider.4 At a time when organizations
increasingly offer their products through multiple channels, the challenges of maintaining quality of
delivery and guaranteeing a customer’s experience of a brand across channels irrespective of the
channel used, are very much to the fore. The strategic significance of channel decisions is further
heightened by the fact that they often entail long-term commitments. For example, it is much
easier for a company to change prices or packaging than to change existing distribution systems.
It may be necessary for companies to use different distribution paths in different countries,
for different target market segments or for the various products in its portfolio. Some compa-
nies, particularly clothing retailers, have stores and a web proposition in their home country but
only an online presence overseas. The links in any channel are the merchants – including pro-
ducers and agents – who oversee the movement of products through that channel. Marketing
channels are commonly classified into channels for consumer products/services or channels for
business-to-business products/services.
Increasingly, an important function of the marketing channel is the joint effort of all
channel members to create a supply chain, which is a total distribution system that
supply chain serves customers and creates a competitive advantage.5 Supply chain management
management
Long-term partnerships
refers to long-term partnerships among marketing channel members that reduce inef-
among marketing ficiencies, costs and redundancies in the marketing channel and develop innovative
channel members that approaches to satisfying targeted customers. The goal is still to provide customers with
reduce inefficiencies, the product or service demanded, in line with their expectations, but in a more coor-
costs and redundancies dinated way that builds on the combined strengths of the members of the distribution
in the marketing channel
and develop innovative
channel. Key tasks in supply chain management include planning and coordination of
approaches to satisfying marketing channel partnerships; sourcing necessary resources, goods and services to
targeted customers. support the supply chain; facilitating delivery; handling customer service and the after-
market; and relationship building in order to nurture ongoing customer relationships.
Functions of marketing channels

Marketing channels serve many functions. Although some of these functions may be performed by
a single channel member, most are accomplished through both the independent and joint efforts
of channel members. These functions include creating utility, facilitating exchange efficiencies,
alleviating discrepancies, standardizing transactions and providing customer service.
Creating utility
Marketing channels create four types of utility-time, place, possession and form:
1. Time utility is having products available when the customer wants them.
2. Place utility is created by making products available in locations where customers wish to
purchase them.
3. Possession utility is created by giving the customer access to the product to use or store for
future use. Possession utility can occur through ownership or through arrangements such as
lease or rental agreements that give the customer the right to use the product.
4. Channel members sometimes create form utility by assembling, preparing or otherwise refining
the product to suit individual customer needs.
Facilitating exchange efficiencies

Marketing intermediaries can reduce the costs of exchanges by performing certain services or
functions efficiently. Even if producers and buyers are located in the same city, there are costs
associated with exchanges. As Figure 14.1 shows, when four buyers seek products from four
producers, 16 transactions are possible. If one intermediary serves both producers and buyers,
the number of transactions can be reduced to eight. Intermediaries are specialists in facilitating
exchanges. They provide valuable assistance because of their access to, and control over, import-
ant resources used in the proper functioning of marketing channels.
Nevertheless, the press, consumers, public officials and other marketers freely criticize inter-
mediaries, especially retail wholesalers, dealers and distributors. Critics accuse wholesalers of
being inefficient and parasitic. Consumers often wish to make the distribution channel as short
as possible, assuming that the fewer the intermediaries, the lower the price. For example, Virgin’s
financial services operation or Direct Line insurance aim to offer competitive prices by cutting out
brokers. Because suggestions to eliminate them come from both ends of the marketing channel,
wholesalers must be careful to perform only those marketing activities that are truly desired. To
survive, they must be more efficient and more customer-focused than alternatives.
Critics who suggest that eliminating wholesalers would lower consumer prices do not recognize
that doing so would not remove the need for services that wholesalers provide. Although wholesal-
ers can be eliminated, in many markets the functions they perform cannot. Other channel members
would have to perform those functions, and customers would still have to fund them. In addition,
all producers would have to deal directly with retailers or consumers, so that every producer would
have to keep voluminous records and hire enough personnel to deal with a multitude of customers.
Customers might end up paying a great deal more for products because prices would reflect the
costs of less efficient channel members.
Direct customer–supplier marketing is possible in some markets. For instance, telesales-led
Direct Line has a successful direct relationship with its insurance-buying customers. JCB, on the
other hand, would find it difficult to sell directly and depends on its dealers for parts and mainte-
nance provision to its construction equipment customers. Heinz, Kellogg’s, Sony, Ford and BA
all utilize channel members, retailers, dealers or travel agents in order to sell their products and
services. These companies may well use the web and other marketing communications to contact
Producers Buyers
Producers Buyers
Middleman or
intermediary
Figure 14.1
Efficiency in exchanges
provided by an
intermediary
their existing or potential customers, but channel members play an important role in some of their
marketing programmes. Some, such as BA, utilize multiple channels. BA sells direct online and
also through third party travel agencies and ticketing operators.
To illustrate wholesalers’ efficient services, assume that all wholesalers have been eliminated.
As there are millions of retailers, a widely purchased consumer product such as toilet paper would
require an extraordinary number of sales contacts, possibly more than a million, to maintain the
current level of product exposure. For example, Kimberly-Clark would have to deliver its paper
products, establish warehouses all over Europe and maintain fleets of trucks. Selling and distribu-
tion costs for Kimberly-Clark’s products would rocket. Instead of a few contacts with food brokers,
large retail businesses and merchant wholesalers, such manufacturers would face thousands of
expensive contacts with, and shipments to, smaller retailers. Such an operation would be highly
inefficient, and costs would be passed on to consumers. Wholesalers are often more efficient and
less expensive.
Alleviating discrepancies
The functions performed within marketing channels help to overcome two major distribution prob-
lems: discrepancies in quantity and discrepancies in assortment. With respect to discrepancies in
quantity, consider a company that manufactures jeans. The company specializes in the goods it
can produce most efficiently: denim clothing. To make jeans most economically, the producer turns
out 100 000 pairs of jeans each day. Few people, however, want to buy 100 000 pairs of jeans;
they just want a few pairs. Retail customers may want a few hundred pairs. Thus the quantity of
jeans the company can produce efficiently is more than the average customer wants.
This is called ‘discrepancy in quantity’.

An assortment is a combination of products put together to provide customer ben-
assortment
A combination of prod- efits. Consumers create and hold an assortment. The set of products made available
ucts put together to pro- to customers is a company’s assortment. Most consumers want a broad assortment
vide customer benefits. of products. Besides jeans, they want to buy shoes, food, cars, entertainment sys-
tems, soft drinks and many other products. Yet the jeans manufacturer has a narrow
assortment because it only makes jeans and a few other denim clothes. A discrepancy
in assortment exists because consumers want a broad assortment, but an individual
manufacturer produces a narrow assortment.
sorting activities
Functions that let chan-
Quantity and assortment discrepancies are resolved through the sorting activities
nel members divide roles of channel members. Sorting activities are functions that allow channel members to
and separate tasks. divide roles and to separate tasks; they include sorting out, accumulation, allocation and
assorting of products (see Figure 14.2).6
Sorting out Accumulation Allocation Assorting
Classifying Developing a Breaking down Combining

heterogeneous bank or stock homogeneous products into
products into of homogeneous stocks (inven- collections or
homogeneous products to tories) into assortments
Figure 14.2
groups provide aggre- smaller units that buyers
Sorting activities
conducted by channel gate inventory want
members
sorting out Sorting out Sorting out, the first step in developing an assortment, is separating
Separating products into conglomerates of heterogeneous products into relatively uniform homogeneous groups
uniform homogeneous based on product characteristics such as size, shape, weight or colour. Sorting out is
groups. especially common in the marketing of agricultural products and other raw materials,
which vary widely in size, grade and quality, and would be largely unusable in an undiffer-
entiated mass. A grape crop, for example, must be sorted into grapes suitable for mak-
ing wine, those best for turning into grape juice and those to be sold by food retailers.
accumulation
Accumulation Accumulation is the development of a bank, or inventory, of homo-
The development of a geneous products with similar production or demand requirements. Farmers who grow
bank of homogeneous relatively small quantities of grapes, for example, transport their sorted grapes to central
products with similar collection points, where they are accumulated in large lots for movement into the next
production or demand level of the channel. Accumulation lets producers continually use up stocks and replenish
requirements.
them, thus minimizing losses from interruptions in the supply of materials.
allocation Allocation Allocation is the breaking down of large homogeneous inventories into
The breaking down of smaller lots. This process, which addresses discrepancies in quantity, enables wholesal-
large homogeneous ers to buy efficiently in lorry loads or railway car loads, and apportion products by cases
inventories into smaller to other members. A food wholesaler serves as a depot, allocating products according
lots.
to market demand. The wholesaler may divide a single lorry load of Del Monte canned
tomato juice among several retail food stores.
Assorting Assorting is the process of combining products into collections or assort-

assorting
The grouping of products
ments that buyers want to have available in one place. Assorting eliminates discrepancies
that buyers want to have in assortment by grouping products in ways that satisfy buyers. Assorting is especially
available in one place. important to retailers, for they strive to create assortments matching the demands of
consumers who visit their stores. Although no single customer is likely to buy one of
everything in the store, retailers must anticipate the probability of purchase and provide a satisfac-
tory range of product choices. For example, the same food wholesaler that supplies local shops
with Del Monte tomato products may also buy canned goods from competing food processors
so that the grocery store can choose from a wide assortment of canned fruit and vegetables. The
Building Customer Relationships box, entitled ‘Tesco’s multi-channel approach to market leader-
ship’, outlines Tesco’s multi-channel strategy and the importance of assorting.
Tesco’s multi-channel shopping service. The sight of the Tesco

approach to market Building customer logo displayed by the company’s delivery
vans has become very familiar. In addition,
leadership relationships the retailer is using a combination of local
poster and in-store advertising, direct mail
The internet has changed the way in which
and a web campaign to promote the Tesco.
consumers shop. In the past, those seeking
com operation. Today, Tesco’s is the most used
to replenish their kitchen cupboards, fridges
website of all e-tailers.
and freezers would usually visit their local supermarket or
Increasing familiarity with shopping on the internet
hypermarket. Now, these same consumers can go online – from
looks set to increase the demand for services like Tesco.
their home, place of work or while on the move – to order their
com. A whole generation of young adults is emerging that
groceries for direct delivery to their homes. The concept is seen
has grown up with the convenience and reassurance of web-
to be particularly attractive to professional, high-earning, ABC1
based shopping. Tesco management clearly understands that
men and women who work long hours and have limited leisure
retaining its market-leading position means being ready to
time, but many other consumers increasingly buy their grocer-
respond to changing shopping needs. Most grocery retailers
ies online. Indeed, some of the most visited websites each week
are managing multiple channels alongside each other, striving
are those operated by Tesco, Asda, Sainsbury’s and Ocado.
to ‘own’ consumers’ spending wherever it occurs and across
Tesco.com is one service that allows customers to buy their
all channels.
groceries direct over the internet. Consumers can access the
In common with many retailers, Tesco has a multi-channel
Tesco website at Tesco.com and select their purchase items.
operation. Tesco Extra is an edge-of-town hypermarket busi-
Their orders are then compiled by a team of in-store sales
ness offering mixed merchandise on top of groceries. Tesco
assistants for delivery to consumers’ homes at a time of their
Superstores are large grocery-led supermarkets, often on
choosing. So large is the internet part of the grocery market
edge-of-town retail parks. The town centre and suburbs are
that many supermarket retailers now operate fully ‘dark stores’,
not ignored in Tesco’s multi-channel strategy: Tesco Express is a
where no consumers visit and only teams of staff operate, pick-
large chain of C-stores (convenience stores) – often mini-marts
ing online orders for home delivery. Assorting within such stores
– in the suburbs and Tesco Metro is a chain of town centre
into clusters or product categories is particularly important for
supermarkets focusing on only groceries. These store-based
operations staff, just as it is within normal stores for consumers
propositions are joined by Tesco.com for groceries, the online
requiring similar products to be grouped together.
Tesco Bank and Tesco Direct. This online shopping service
Initially, the Tesco.com concept was trialled in 11 stores
provides home deliveries of everything found in a Tesco Extra
in two major UK cities. The company’s preliminary research
hypermarket and more, from furniture, electrical goods, jewel-
showed that around 200 000 consumers were using the ser-
lery, entertainment and clothing to groceries. Some consumers
vice offered by these 11 stores and that this was increasing
may prefer just one of these channel options, while others will
by 10 000 every week. Before long, the obvious popularity
use a mix of Tesco stores depending on their whereabouts, the
of internet shopping prompted Tesco to roll out Tesco.com
occasion and time of shopping, and may prefer the web and
to other parts of the UK. By the end of the first year, the
Tesco.com. Tesco’s management must understand the different
company offered the service from 100 Tesco stores. Careful
customer profiles that its concepts attract and engage accord-
consideration has been given to the marketing of the internet
ingly with these consumers in order to build loyalty.
Standardizing transactions
Marketing channels help to standardize the transactions associated with numerous products. In
many purchase situations, the price is not negotiable; it is predetermined. Although there may be
some variation in units of measurement, package sizes, delivery schedules and location of the
exchange, marketing channel members tend to limit customer options with respect to these types
of issue. When a customer goes to a supermarket to purchase a loaf of bread, it is unlikely that the
individual will be able to buy half a loaf of bread, buy a loaf sliced lengthwise, negotiate the price,
obtain a written warranty or return an unused portion of the loaf. Many of the details associated
with the purchase of a loaf of bread are standardized.
Providing customer service

Channel members participate in providing customer service. Retailers of durable goods are
expected to provide in-store advice and demonstrations, technical know-how, delivery, installation,
repair services, parts and perhaps instruction or training. Channel members above the retailers
are responsible for supporting retailers’ efforts to provide end-user service and satisfaction, even
though they may not come into direct contact with ultimate customers. To gain and maintain a
differential advantage, channel members make decisions and take actions to provide excellent
customer service and support.
In mature markets with relatively little product differentiation between rival brands – such as
packaged holidays, TV systems, conference venues or replacement car exhausts/tyres – and in
newly emerging markets with innovative products and inexperienced consumers, it is often the
customer service provided through the distribution channel that provides marketers with an edge
over their competitors. In many markets – from cars and financial services to grocery retailing and
PCs – it is the service provided by channel members that maintains an ongoing, mutually satis-
factory relationship between supplier and consumer, and that may be responsible for maintaining
brand loyalty.
Types of channel
Because marketing channels appropriate for one product may be less suitable for others, many
different distribution paths have been developed. The various marketing channels can be classified
generally as channels for consumer products and services, or channels for business-to-business
products and services.
Channels for consumer products or services

Figure 14.3 illustrates several channels used in the distribution of consumer products or services.
Besides the channels listed, a manufacturer may use a network of its own sales branches or sales
offices.
Channel a Channel A describes the direct movement of goods from producer to consumers.
Customers who pick their own fruit from commercial orchards or buy cosmetics from door-to-door
salespeople are acquiring products through a direct channel. A producer who sells goods directly
from the factory to end-users and ultimate consumers is using a direct marketing channel; for exam-
ple, Direct Line’s tele-selling of its own car insurance policies. Although this channel is the
eCommerce simplest, it is not necessarily the cheapest or the most efficient method of distribution.
The use of the internet
for marketing commu-
eCommerce – the use of the internet for marketing communications, selling and pur-
nications, selling and chasing – has in recent years led to a growth in direct marketing for a variety of prod-
purchasing. ucts, notably travel tickets, music downloads and movie streaming, financial services
and merchandise retailed by the traditional mail-order catalogue operators. Channel A,
A B C D
Producer Producer Producer Producer
Agents or
brokers
Wholesalers Wholesalers
Retailers Retailers Retailers
Figure 14.3
Typical marketing Consumers Consumers Consumers Consumers
channels for
consumer products
the direct approach, certainly is no longer the preserve of only farm shops and factory outlets.
Indeed, many companies have entered markets with digital channels only, particularly for clothing
and homewares.
Channel b Channel B, which moves goods from producer to retailers and then to consumers, is
often used by large retailers that can buy in quantity from a manufacturer. Such retailers as Marks
& Spencer, Sainsbury’s, Aldi and Carrefour sell clothing, food, household goods and many other
items they have purchased directly from the producers. Cars are also commonly sold through this
type of marketing channel.
Channel c A long-standing distribution channel, especially for consumer products, channel C

takes goods from producer to wholesalers, then to retailers and finally to consumers. This option is
very practical for a producer who sells to hundreds of thousands of consumers through thousands
of retailers. A single producer finds it hard to do business directly with thousands of retailers. For
example, consider the number of retailers that stock Coca-Cola. It would be extremely difficult, if
not impossible, for Coca-Cola to deal directly with all the retailers that sell its brand of soft drink.
Manufacturers of tobacco products, confectionery, some home appliances, hardware and many
convenience goods sell their products to wholesalers, who then sell to retailers, who in turn do
business with individual consumers.
Channel d Channel D, through which goods pass from producer to agents to wholesalers to
retailers, and only then to consumers, is frequently used for products intended for mass distribu-
tion, such as processed food. For example, to place its biscuit line in specific retail outlets, a food
processor may hire an agent (or a food broker) to sell the biscuits to wholesalers. The wholesalers
then sell the biscuits to supermarkets, vending machine operators and other retail outlets.
Benefits of a long channel Contrary to popular opinion, a long channel may be the most efficient
distribution channel for certain consumer goods. When several channel intermediaries are available
to perform specialized functions, costs may be lower than if one channel member is responsible
for all the functions in all territories. Some manufacturers opt for all or most of these four channels
so as to cater for the needs and buying processes of the different customers that make up their
various targeted market segments.
Channels for business-to-business products or services

Figure 14.4 shows four of the most common channels for business products and services. Like
their consumer products’ counterparts, manufacturers of business products sometimes work with
more than one level of wholesalers.
E F G H
Agents Agents
Business-to- Business-to-
business business
distributors distributors
Figure 14.4
Typical marketing Business Business Business Business
channels for industrial customers customers customers customers
or business-to-busi-
ness products
Channel e Channel E illustrates the direct channel for business products. In contrast to consumer
goods, many business products – especially expensive equipment, such as steam generators, air-
craft and mainframe computers – are sold directly to the buyers. For example, Airbus sells aircraft
directly to airlines such as British Airways and Air France. The direct channel is most feasible for
many manufacturers of business goods because they have fewer customers, and those customers
may be clustered geographically, as explained in Chapter 6. Buyers of complex industrial products
can also receive technical assistance from the manufacturer more easily in a direct channel. In
some cases, the provision of such information may continue for the lifetime of the product. As with
consumer markets, eCommerce and the desire to develop one-to-one direct relationships have
led to a growth in the use of channel E.
Channel f If a particular line of business products is aimed at a larger number of

industrial distributors
customers, the manufacturer may use a marketing channel that includes industrial
An independent business
that takes title to indus- distributors or merchants who take title to products and carry inventory (channel F).
trial products and carries Construction products made by Case or JCB are sold through distributors, as are build-
inventories. ing materials, operating supplies and air-conditioning equipment. Industrial distributors
are carrying an increasing percentage of business products. Due to mergers and acqui-
sitions, they have become larger and more powerful.7 Industrial distributors can be most
effectively used when a product has broad market appeal, is easily stocked and serviced, is sold
in small quantities and is needed rapidly to avoid high losses.8
Channel g Channel G – from producer to agents to business buyers – may be chosen when a
manufacturer without a marketing department needs market information, when a company is too
small to field its own salesforce or when a company wants to introduce a new product or to enter
a new market without using its own salespeople. Thus a large soya bean producer might sell its
product to animal food processors through an agent.
Channel h Channel H is a variation of channel G: goods move from producer to agents to

distributors and then to business customers. A manufacturer without a salesforce may rely on
this channel if its business customers purchase products in small quantities or if they must be
re-supplied frequently and therefore need access to decentralized inventories. For example, Chi-
nese manufacturers of electronic components work through export agents who sell to distributors
serving small producers or dealers overseas.
Multiple marketing channels

When aiming at diverse target markets, it may be appropriate for a manufacturer to use several mar-
keting channels simultaneously, with each channel involving a different group of intermediaries. For
example, a manufacturer turns to multiple channels when the same product is directed to both con-
sumers and business customers. When Procter & Gamble sells cleaning products for household use,
the products are sold to supermarkets through grocery wholesalers or, in some cases,
dual distribution directly to the larger retailers, whereas the cleaning products going to restaurants or insti-
A channel practice tutions follow a different distribution channel. In some instances, a producer may prefer
whereby a producer dual distribution: the use of two marketing channels for distributing the same products.
distributes the same
Villeroy & Boch is a respected supplier of fine china and glassware to households across
products through two
different channels. the world. The company also has ranges for the catering industry, sold and promoted
through a separate marketing channel.
A strategic channel alliance exists when the products of one organization are
strategic channel distributed through the marketing channels of another. The products are often similar
alliance with respect to target markets or product uses, but they are not direct competitors. For
Arrangement for distrib- example, a brand of bottled water might be distributed through a marketing channel
uting the products of one
organization through the
for soft drinks, or a US cereal producer could form a strategic channel alliance with a
marketing channels of European food processor. Alliances can provide benefits both for the organization that
another. owns the marketing channel and for the company whose brand is being distributed
through the channel.
Multi-channel marketing is the decision to reach target consumers or business cus-
multi-channel tomers through more than one channel.9 Increasingly, companies opt to serve their target
marketing
markets via online channels and more traditional channels side by side. For example,
The decision to reach
target consumers or Sony products are available online or in-store, while many business-to-business products
business customers and services now can be sourced online as well as from industrial distributors, brokers or
through more than one other middle players.10 Omni-channel marketing is the term applied to multi-channel
channel. marketing when it involves marketers utilizing all available channels to offer customers a
seamless brand experience across a company’s channels (see Chapter 19).11
omni-channel
marketing
When multi-channel Channel integration
marketing involves mar-
keters utilizing all avail- Channel functions may be transferred among intermediaries, to producers and even
able channels to offer to customers. This section examines how channel members can either combine and
customers a seamless
brand experience across
control most activities or pass them on to another channel member. Remember that
a company’s multiple the channel member cannot eliminate functions; unless buyers themselves perform the
channels. functions, they must pay for the labour and resources needed for the functions to be
performed. Middlemen may be eliminated, but not their functions.
Many marketing channels are determined by consensus. Producers and intermediaries coor-
dinate their efforts for mutual benefit. However, some marketing channels are organized and con-
trolled by a single leader, which can be a producer, a wholesaler or a retailer, depending on the
industry and the relative power within the supply chain. The channel leader may establish channel
policies and coordinate the development of the marketing mix. Marks & Spencer and IKEA, for
example, are channel leaders for several of the many products they sell, exerting significant pres-
sure on suppliers to adhere to their production, delivery and pricing standards. The various links
or stages of the channel may be combined under the management of a channel leader, either
horizontally or vertically. Integration may stabilize supply, reduce costs and increase coordination
of channel members.
Vertical channel integration

Combining two or more stages of the channel under one management is v ertical
vertical channel
integration channel integration. One member of a marketing channel may purchase the oper-
The combination of ations of another member or simply perform the functions of the other member, elimi-
two or more stages of nating the need for that intermediary as a separate entity. For example, changes in the
the channel under one regulations controlling the UK electricity industry led to an increase in vertical channel
management.
integration, as companies controlling the generation and distribution of electricity have
merged. Total vertical integration encompasses all functions from production to ultimate
buyer; it is exemplified by oil companies such as BP or Shell, which own oil wells, pipelines, refin-
eries, terminals, consumer-facing brands and service station forecourts.
Whereas members of conventional channel systems work independently and seldom cooperate,
participants in vertical channel integration coordinate their efforts to reach a desired target market.12
This more progressive approach to distribution enables channel members to regard other mem-
bers as extensions of their own operations. Vertically integrated channels are often more effective
against competition because they result in increased bargaining power, the ability to inhibit com-
petitors, and the sharing of information and responsibilities.13 At one end of an integrated channel,
a manufacturer might provide advertising and training assistance, and the retailer at the
other end would buy the manufacturer’s products in quantity and actively promote them.
vertical marketing
system (VMS)
In the past, integration has been successfully institutionalized in marketing channels
Marketing channel in called vertical marketing systems. A vertical marketing system (VMS) is a marketing
which a single channel channel in which a single channel member coordinates or manages channel activities
member coordinates or to achieve efficient, low-cost distribution aimed at satisfying target market customers.
manages channel activ- As the efforts of individual channel members are combined in a VMS, marketing activ-
ities to achieve efficient,
low-cost distribution
ities can be coordinated for maximum effectiveness and economy, without duplication
aimed at satisfying target of services. Vertical marketing systems are also competitive, accounting for a growing
market customers. share of retail sales in consumer goods. Most vertical marketing systems today take one
of three forms: corporate, administered or contractual.
The corporate vms The corporate VMS combines all stages of the marketing channel, from
producers to consumers, under a single ownership. Supermarket chains that own food-processing
plants, and large retailers that purchase wholesaling and production facilities, are examples of
corporate VMSs.
The administered vms In an administered VMS, channel members are independent, but a high
level of inter-organizational management is achieved by informal coordination. For example, mem-
bers of an administered VMS may agree to adopt uniform accounting and ordering procedures,
and to cooperate in promotional activities. Although individual channel members maintain their
autonomy, as in conventional marketing channels, one channel member – such as the producer or
a large retailer – dominates the administered VMS, so that distribution decisions take into account
the system as a whole.
The contractual vms Under a contractual VMS, the most popular type of vertical marketing
system, inter-organizational relationships are formalized through contracts. Channel members are
linked by legal agreements that spell out each member’s rights and obligations. For instance,
franchise organizations such as McDonald’s and KFC are contractual VMSs. Other contractual
VMSs include wholesaler-sponsored groups such as SPAR or Mace stores, in which independent
retailers band together under the contractual leadership of a wholesaler.
Horizontal channel integration

Combining institutions at the same level of channel operation under one management
constitutes horizontal channel integration. An organization may integrate horizon-
horizontal channel
integration tally by merging with other organizations at the same level in a marketing channel. For
The combination of insti- example, the owner of a bistro chain may buy another bistro or a bar chain and then
tutions at the same level rebrand it in the same way as the existing business and merge the two chains’ supply
of channel operation channels. Horizontal integration may enable an organization to generate sufficient sales
under one management.
revenue to integrate vertically as well.
Although horizontal integration permits efficiencies and economies of scale in pur-
chasing, marketing research, advertising and specialized personnel, it is not always the most
effective method of improving distribution. The increase in size may result in decreased flexibility,
difficulties in coordination, and the need for additional research and large-scale planning. Unless
distribution functions for the various units can be performed more efficiently under unified man-
agement than under the previously separate managements, horizontal integration will not reduce
costs or improve the competitive position of the integrating company.
Different levels of market coverage

The kind of coverage that is appropriate for different products is determined by the characteris-
tics and behaviour patterns of buyers. Chapter 10 divided consumer products into three broad
categories – convenience products, shopping products and speciality products – according
to how the purchase is made. In considering products to buy, consumers take into account
replacement rate, product adjustment, duration of consumption, time required to find the
product and similar factors.14 Three major levels of market coverage are intensive, selective
and exclusive distribution.
Intensive distribution
In intensive distribution, all available outlets are used for distributing a product. Inten-
intensive distribution
The use of all available sive distribution is appropriate for convenience products such as bread, chewing gum,
outlets for distributing a beer and newspapers. To consumers, availability means a store located nearby and
product. minimal time necessary to search for the product at the store. Sales may have a direct
relationship to availability. The successful sale of bread and milk at service stations or of
petrol at convenience grocery stores has shown that the availability of these products
is more important than the nature of the outlet. Convenience products have a high replacement
rate and require almost no service. To meet these demands, intensive distribution is necessary,
and multiple channels may be used to sell through all possible outlets. Producers of packaged
consumer items rely on intensive distribution. In fact, intensive distribution is one of L’Oréal’s key
strengths (see Figure 14.5). L’Oréal shampoo and its other products such as make-up, skincare,
sun screen and perfume, are expected to be readily and intensively available by consumers.
Figure 14.5
L’Oréal hair products are
intensively distributed
Selective distribution
In selective distribution, only some available outlets in an area are chosen to distribute
selective distribution
The use of only some a product. Selective distribution is appropriate for shopping products. Durable goods –
available outlets in an area such as electrical appliances and exclusive fragrances – usually fall into this category.
to distribute a product. Such products are more expensive than convenience goods. Consumers are willing to
spend more time searching: visiting several retail outlets to compare prices, designs,
styles and other features.
Selective distribution is desirable when a special effort, such as customer service, from a
channel member is important. Shopping products require differentiation at the point of pur-
chase. To motivate retailers to provide adequate pre-sale service, selective distribution and
company-owned stores are often used. Many business products are sold on a selective basis
to maintain a certain degree of control over the distribution process. For example, agricultural
herbicides are distributed on a selective basis because dealers must offer services to buyers,
such as instructions about how to apply the herbicides safely, or offer the option of having the
dealer apply the herbicide.
Exclusive distribution
exclusive distribution
In exclusive distribution, only one outlet is used in a relatively large geographic area.
The use of only one Exclusive distribution is suitable for speciality products that are purchased rather infre-
outlet in a relatively large quently, consumed over a long period of time, or require service or information to fit them
geographic area to dis- to buyers’ needs. Exclusive distribution is not appropriate for convenience products and
tribute a product. many shopping products. It is often used as an incentive to sellers when only a limited
market is available for products. For example, cars such as the Rolls-Royce are sold
on an exclusive basis. Royal Copenhagen’s premium china is retailed through carefully selected,
exclusive retail outlets. A producer who uses exclusive distribution generally expects a dealer to
be very cooperative with respect to carrying a complete inventory, sending personnel for sales and
service training, participating in promotional programmes and providing excellent customer service.
Exclusive distribution gives a company tighter image control because the types of distributors and
retailers that distribute the product are monitored closely.15
Choosing distribution channels

Choosing the most appropriate distribution channels for a product can be a complex affair. Some
well-known store-based retailers still are reluctant to lose in-store impact by switching to the web.
Consumers interested in IKEA or Selfridges were until relatively recently frustrated by not being able
to purchase online, as these companies perceived their store-based offerings to be their core appeal.
The Building Customer Relationships box entitled ‘A multi-channel strategy for retailer John Lewis’
outlines this retailer’s multi-channel strategy. Producers must choose specific intermediaries care-
fully, evaluating their sales and profit levels, performance records, other products carried, clientele,
availability and so forth. In addition, producers must examine other factors that influence distribution
channel selection, including organizational objectives and resources, market characteristics, buying
behaviour, product attributes and environmental forces. In some markets, such as the distribution
of insurance products, these factors may indicate that multiple channels should be used.16
Organizational objectives and resources

Producers must consider carefully their objectives and the cost of achieving them in the market-
place. A company’s objectives may be broad – such as higher profits, increased market share and
greater responsiveness to customers – or narrow, such as replacing an intermediary that has left
the channel or adding an additional product line. The organization may possess sufficient financial
and marketing muscle to control its distribution channels, such as by engaging in direct marketing
or by operating its own delivery fleet. On the other hand, an organization may have no interest in
performing distribution services or may be forced by lack of resources and experience to depend
on retailers or wholesalers.
Companies must also consider how effective their past distribution relationships and methods
have been and question their appropriateness with regard to current objectives. One organization
might decide to maintain its basic channel structure but add members for increased coverage in
new territories. Another company might alter its distribution channel so as to provide same-day
delivery on all orders. The digital market has acted as a game-changer. With increasing numbers
of consumers expecting 24/7 online access to their brands and favourite retailers, most companies
have added an online channel of distribution to their channel strategy, along with much more flexible
delivery options than previously offered.
Market characteristics
Beyond the basic division between consumer markets and business markets, several market vari-
ables influence the design of distribution channels. Geography is one factor; in most cases, the
greater the distance between the producer and its markets, the less expensive is distribution through
intermediaries rather than through direct sales. Market density must also be considered; when cus-
tomers tend to be clustered in several locations, the producer may be able to eliminate middlemen.
Transport, storage, communication and negotiation are specific functions performed more effi-
ciently in high-density markets. Market size measured by the number of potential customers in a
consumer or business market is yet another variable. Direct sales may be effective if a producer
has relatively few buyers for a product, but for larger markets the services of middlemen may be
required.17 eCommerce is encouraging many suppliers to deal directly with customers, even when
they are geographically spread or diverse in nature. This provides a growing role for logistics compa-
nies to facilitate deliveries on behalf of suppliers serving customers spread far and wide, increasingly
A mutli-channel strategy UK outside of London, but there are 350

for retailer John Lewis Building customer Waitrose branches, reaching catchments
not served by John Lewis.
relationships In addition, John Lewis offers various
Thirty years ago, if a shopper wanted
something from a favourite department options for delivering merchandise:
store, s/he headed there to make the pur- ●● Standard Delivery: within five working
chase at the store. Later if it was deemed days to the customer’s own locations.
to be faulty, a poor fit, or the wrong purchase, the ●● Next and Named Day Deliveries: its carrier
consumer had to travel back into the town centre in order
delivers next day or on a day of the customer’s choice
to exchange the unwanted product for another item or to
seven days a week, 7.30am - 6pm.
obtain a refund. In this scenario, now unfamiliar to so many
●● Click & Collect from John Lewis or Waitrose Stores: Click
readers, the comparison of items was made in the store
during the purchase and any information search tended & Collect is free from a chosen John Lewis or Waitrose
to comprise only word-of-mouth recommendations from branch, for orders of £30 and over. It is a seven-day
friends or family and the charms of the salesperson behind service.
the counter. ●● Collect+ From Local Shops: Collect+ is possible from one
Today, so much retail shopping is undertaken online with of thousands of local shops nationwide. There are over
delivery to the shopper’s home. Not just the purchase, but the 5500 local shops participating in the Collect+ scheme.
search for information and recommendations is online. If the
For retailer John Lewis, operating its stores, its online shop
item is not as hoped, the courier will return to the customer’s
and mail order catalogues provides its customers with greater
home or s/he will drop the item off at a local pick-up point.
choice and flexibility than if they could only visit a depart-
Throughout this process, there will have been no entry into
ment store. Harnessing its Waitrose supermarket branches
the store. Of course, there are hybrids of these solutions . . .
as order and collection points provides greater reach and
The information search and comparison of options may be
gives easy access to many more customers than only those
undertaken at home, in the office, on the move, 24/7, with the
served directly by John Lewis stores. Delivery to home or to
purchase and collection made in-store, particularly if same-
over 5500 local pick-up points within other companies’ shops
day consumption is necessary. Or an unwanted online pur-
provides even more options.
chase might be returned in-store, particularly if the shopping
Clearly this choice for the customer presents the retailer
trip is imminent or easily combined with another journey. Or a
with significant logistical, operational and customer service
shopper might view and compare products in a store or show-
challenges, with the potential to force operating costs to soar.
room, but for convenience buy online and have the product
So these customer options are not without their challenges.
home-delivered.
However, John Lewis believes these options are essential
Another variation is click and collect. Shoppers view,
to be competitive and also aligned to customers’ changing
choose and buy online, but opt for delivery to a close-to-home
expectations. The other challenge from this multi-channel
or near-to-office location. Some companies are able to utilize
approach is to ensure consistency for the shopper regard-
their branch networks well in such situations. First Direct can
ing the ethos of the brand, the customer value proposition
steer its customers to branches of parent bank HSBC, if a
presented, the customer service provided and the quality of
transaction is needed which is not possible online. Depart-
the shopping experience. Companies like John Lewis invest
ment store retailer John Lewis is able to offer click and collect
significantly in getting these aspects right.
in its sister company’s shops, supermarket chain Waitrose.
There are only 43 John Lewis department stores across the Reference: www.johnlewis.com/customer-services, June 1018.
expecting same-day delivery options. There is no doubt that the growing popularity of direct mar-
keting and web-based marketing is forcing marketers to reappraise their market characteristics and
deployment of channel intermediaries. This results in direct customer–supplier relationships in those
channels where wholesaler/retailer channel members once dominated, such as music, books, hol-
idays, clothing and financial services. Figure 14.6 shows homewares and furniture retailer Dunelm’s
home delivery operation.
Figure 14.6
Homewares and furniture retailer Dunelm, has an online catalogue operation, offering a wide range of products.
Source: Dunelm.
Buying behaviour
Buying behaviour is a crucial consideration in selecting distribution channels. To be able to match
intermediaries with customers, the producer must have specific, current information about cus-
tomers who are buying the product and how, when and where they are buying it.18 With changing
behaviours in the digital era, 24/7 mobile access to many brands and consumers who have grown
up expecting to access their favoured brands online, it is important for marketers to stay abreast of
their customers’ behaviours and preferences, as well as to combat the channel strategies adopted
by competitors as they seek to pursue their customers.
The producer must also understand how buyer specifications vary according to whether b uyers
perceive products as convenience, shopping or speciality items (see Chapters 5 and 10). For
example, customers for magazines are likely to buy the product frequently – even impulsively – from
a variety of outlets. Buyers of computers, however, carefully evaluate product features, dealers,
prices and after-sales services, while seeking the views of experts and also friends on social media.
Product attributes
Another variable in the selection of distribution channels is the product itself. As producers of
complex business products must often provide technical services to buyers both before and after
the sale, these products are usually shipped directly to buyers. Perishable or highly fashionable
consumer products with short shelf lives are also marketed through short channels. In other cases,
distribution patterns are influenced by the product’s value; the lower the price per unit, the longer
the distribution chain. Additional factors to consider are the weight, bulkiness and relative ease of
handling the products. Producers may find wholesalers and retailers reluctant to carry items that
create storage or display problems.19 For example, manufacturers of breakfast cereals, such as
Kellogg’s, must use packaging that retailers find easy to handle and display.
Marketing environmental forces

Finally, producers making decisions about distribution channels must consider the broader forces in
the total marketing environment – political, legal, regulatory, societal/green, technological, economic
and competitive forces. Technology, for example, made possible electronic scanners, computerized
inventory systems such as EPoS (electronic point-of-sale), electronic shopping devices and remote
payment systems, making it harder for technologically unsophisticated companies to remain com-
petitive. Mobile marketing apps, downloads of certain entertainment products, automated delivery
processes, online comparison sites and 3-D printing, are recent examples of technology impacting
on channel practices. Internet access has led to a growth in home shopping and direct marketing.
Changing family patterns and the emergence of important minority consumer groups are driving
producers to seek new distribution methods for reaching specific market segments. Interest rates,
inflation and other economic variables affect members of distribution channels at every level. Brexit
potentially will have significant channel and logistical implications for thousands of businesses.
Marketing environmental forces are numerous and complex. They must be taken into consider-
ation if distribution efforts are to be appropriate, efficient and effective, as explained in Chapter 3
of Marketing: Concepts and Strategies.
Behaviour of channel members

The marketing channel is a social system with its own conventions and behaviour patterns. Each
channel member performs a different role in the system and agrees implicitly or explicitly to accept
certain rights, responsibilities, rewards and sanctions for non-conformity. Channel members have
certain expectations of other channel members. For instance, retailers expect wholesalers and
manufacturers to maintain adequate inventories and to deliver goods on time. For their part,
wholesalers expect retailers to honour payment agreements and to keep them informed of inven-
tory needs. This section discusses several issues related to channel member behaviour, including
cooperation and relationship building, conflict and leadership. Marketers need to understand these
behavioural issues in order to make effective channel decisions, and to maintain relationships with
facilitating channel members and loyal customers.
Channel cooperation and relationship building

Channel cooperation is vital if each member is to gain something from other members.20 Without
cooperation, neither overall channel goals nor member goals can be realized. Policies must be
developed that support all essential channel members, otherwise failure of one link in the chain
could destroy the channel.
There are several ways to improve channel cooperation. A marketing channel should consider
itself a unified system, competing with other systems. This way, individual members will be less
likely to take actions that would create disadvantages for other members. Similarly, channel mem-
bers should agree to direct their efforts towards a common target market so that channel roles
can be structured for maximum marketing effectiveness, which in turn can help members achieve
their individual objectives.
Heineken, for example, was having difficulty with its 450 distributors; at one point, the time
between order and delivery stretched to 12 weeks. A cooperative system of supply chain man-
agement, with web-based communications, decreased the lead time from order to delivery to four
weeks, and Heineken’s sales increased 24 per cent.21 It is crucial to define precisely the tasks that
each member of the channel is to perform. This definition provides a basis for reviewing the inter-
mediaries’ performance and helps reduce conflicts because each channel member knows exactly
what is expected. It is often in the interests of channel members to build long-term relationships.
These relationships can improve channel cooperation and help individual channel members adapt
better to the needs of the others.22
Channel conflict
Although all channel members work towards the same general goal – distributing goods and ser-
vices profitably and efficiently – members may sometimes disagree about the best methods for
attaining this goal.23 Each channel member wants to maximize its own profits while maintaining
as much autonomy as possible.24 However, if this self-interest leads to misunderstanding about
role expectations, the end result is frustration and conflict for the whole channel. For individual
organizations to function together in a single social system, each channel member must commu-
nicate clearly and understand role expectations, especially as channel conflict often arises when a
channel member does not conduct itself in the manner expected by the other channel members.
Communication difficulties are a particular form of channel conflict and can lead to frustration,
misunderstandings and poorly coordinated strategies.
The increased use of multiple channels of distribution, driven partly by new technology, has
increased the potential for conflict between manufacturers and intermediaries. For example,
Hewlett Packard (HP) makes products available directly to consumers through its website
(www.hp.com/uk), thereby directly competing with existing distributors and retailers stocking
HP products.
Channel conflicts also arise when dealers over-emphasize competing products or diversify into
product lines traditionally handled by other, more specialized intermediaries. In some cases, con-
flict develops because producers strive to increase efficiency by circumventing intermediaries, as
happened in marketing channels for software and video games. Many software-only stores estab-
lished direct relationships with software producers, bypassing wholesale distributors altogether.
Some dishonest retailers also pirated software and made unauthorized copies, thus cheating other
channel members of their due compensation. Consequently, suspicion and mistrust heightened
tensions in software marketing channels.
Although there is no single method for resolving conflict, an atmosphere of cooperation can
be re-established if two conditions are met. First, the role of each channel member must be
specified. To minimize misunderstanding, all members must be able to expect unambiguous,
agreed-on levels of performance from one another. Second, channel members must institute
certain measures of channel coordination, a task that requires leadership and the benevolent
exercise of control.25 To prevent channel conflict, producers or other channel members may
provide competing resellers with different brands, allocate markets among resellers, define
direct sales policies to clarify potential conflict over large accounts, negotiate territorial issues
between regional distributors and provide recognition to certain resellers for the importance
of their role in distributing to others.
Channel leadership
The effectiveness of marketing channels hinges on channel leadership, which may be assumed by
producers, retailers or wholesalers. To become a leader, a channel member must want to influence
and direct overall channel performance. Furthermore, to attain desired objectives, the
channel power
The ability to influence
leader must possess channel power, which is the ability to influence another channel
another channel mem- member’s goal achievement. As Figure 14.7 shows, the channel leader derives power
ber’s goal achievement. from seven sources, two of them economic and five non-economic.
The five non-economic sources of power are crucial for establishing leadership:
1. A channel leader gains reward power by providing financial benefits.
2. Expert power exists when other channel members believe that the leader provides special
expertise required for the channel to function properly.
3. Referent power emerges when other members identify strongly with and emulate the leader.
4. Legitimate power is based on a superior–subordinate relationship.
5. Coercive power is a function of the leader’s ability to punish other channel members.26
In many countries, producers assume the leadership role in marketing channels. A manufacturer
whose large-scale production efficiency demands increasing sales volume may exercise power by
giving channel members financing, business advice, ordering assistance, advertising and support
materials.27 For example, BMW and Mercedes-Benz control their independently-owned dealers,
Control of
resources Economic
sources
Size of of power
company
Reward
Level of
power
power
Expert
power
Non-economic Dependency of
Referent Channel
sources other channel
power leadership
of power members
Legitimate
power
Willingness
Coercive
to lead
power
Figure 14.7
Determinants of channel leadership
Source: Updated from Marketing Channels and Strategies, 2nd ed. by R.D. Michman and S.D. Sibley, Publishing Horizons, Inc., 1980, p. 413. Reproduced by
permission of Dr Ronald D. Michman.
specifying showroom design and layout, discount levels and quotas of models. Coercion, though,
often causes dealer dissatisfaction that is stronger than any impact from rewards, so the use of
coercive power can be a major cause of channel conflict.28
Retailers can also function as channel leaders, and with the domination of national chains and
own-label merchandise they are increasingly doing so. For example, Sainsbury’s challenged Coca-
Cola with its own-label cola, whose packaging bore a strong resemblance to that of the market
leader. Small retailers may share in the leadership role when they command particular consumer
respect and patronage in local or regional markets. Among large retailers, Carrefour, IKEA, Marks &
Spencer and Tesco base their channel leadership on wide public exposure to their products. These
retailers control many brands and sometimes replace uncooperative producers. IKEA exercises
power by dictating manufacturing techniques, lead times, quality levels and product specifications.
Wholesalers assume channel leadership roles as well, although they were more powerful
decades ago, when most manufacturers and retailers were small, under-financed and widely
scattered. Today, wholesaler leaders may form voluntary chains with several retailers, which they
supply with bulk buying or management services or which market their own brands. In return, the
retailers shift most of their purchasing to the wholesaler leader. In Scandinavia, buying groups act
as wholesalers, with bulk ordering price advantages, expert advertising and purchasing. Other
wholesaler leaders, such as Intersport or SPAR, may also help retailers with store layouts, account-
ing and inventory control.
Legal issues in channel management

The multitude of laws governing channel management are based on the general principle that the
public is best served when competition and free trade are protected. Under the authority of national
legislation or EU Competition Laws and dictates, the courts and regulatory agencies determine
under what circumstances channel management practices violate this underlying principle and
must be restricted, and when these practices may be permitted. Although channel managers are
not expected to be legal experts, they should be aware that attempts to control distribution func-
tions may have legal repercussions. The following practices are among those frequently subject
to legal restraint.
Restricted sales territories

restricted sales To tighten its control over the distribution of its products, a manufacturer may try to
territories prohibit intermediaries from selling its products outside designated sales territories,
System by which a creating restricted sales territories. The intermediaries themselves often favour this
manufacturer tries to practice, because it lets them avoid competition for the producer’s brands within their
prohibit intermediaries
own territories. Many companies have long followed the policy of restricting sales in
from selling its products
outside designated sales this fashion. In recent years, the courts have adopted conflicting positions with regard
territories. to restricted sales territories. Although they have deemed restricted sales territories a
restraint of trade among intermediaries handling the same brands except for small or
newly established companies, the courts have also held that exclusive territories can
actually promote competition among dealers handling different brands. At present, the producer’s
intent in establishing restricted territories and the overall effect of doing so on the market must be
evaluated for each individual case.
Tying contract
When a supplier, usually a manufacturer or franchiser, furnishes a product to a channel
tying contract
Arrangement whereby a member with the stipulation that the channel member must purchase other products as
supplier (usually a man- well, a tying contract exists. Suppliers, for instance, may institute tying arrangements
ufacturer or franchiser) to move weaker products along with more popular items. To use another example, a
furnishes a product to franchiser may tie the purchase of equipment and supplies to the sale of franchises,
a channel member with
justifying the policy as necessary for quality control and protection of the franchiser’s
the stipulation that the
channel member must reputation. A related practice is full-line forcing. In this situation, a supplier requires that
purchase other products channel members purchase the supplier’s entire line to obtain any of the products.
as well. Manufacturers sometimes use full-line forcing to ensure that intermediaries accept new
products and that a suitable range of products is available to customers. The courts
accept tying contracts when the supplier alone can provide products of a certain quality,
when the intermediary is free to carry competing products as well, and when a company has just
entered the market. Most other tying contracts are considered illegal.
Exclusive dealing
When a manufacturer forbids an intermediary to carry the products of compet-
exclusive dealing ing manufacturers, the arrangement is called exclusive dealing. A manufacturer
System by which a receives considerable market protection in an exclusive dealing arrangement and
manufacturer forbids an
intermediary to carry the
may cut off shipments to an intermediary that violates such an agreement. An exclu-
products of competing sive dealing contract is generally legally permitted if dealers and customers in a
manufacturers. given market have access to similar products or if the exclusive dealing contract
strengthens an otherwise weak competitor.
refusal to deal Refusal to deal

Situation in which suppli-
Producers have the right to choose the channel members with whom they will do busi-
ers will not do business
with wholesalers or deal- ness and the right not to choose others. Within existing distribution channels, however,
ers simply because these suppliers may not refuse to deal with wholesalers or dealers just because these whole-
wholesalers or dealers salers or dealers have resisted policies that are anti-competitive or in restraint of trade.
have resisted policies Suppliers are further prohibited from organizing some channel members in refusal to
that are anti-competitive
deal actions against other members who choose not to comply with illegal policies.
or in restraint of trade.
Summary
Distribution refers to activities that make products available to customers when and where they want to purchase them.
A channel of distribution (or marketing channel) is a group of individuals and organizations that direct the flow of prod-
ucts from producers to customers. In most channels of distribution, producers and customers are linked by marketing
intermediaries or middlemen, called merchants if they take title to products and functional middlemen if they do not take
title. Channel structure reflects the division of responsibilities among members. Ongoing relationships with customers are
seen as increasingly important via relationship marketing. Effective distribution channels and the deployment of channel
intermediaries are central to the development of mutually satisfactory ongoing relationships between intermediaries,
and between producers and their customers. Most businesses today distribute through more than one channel, with
multi-channel selection and management a significant activity for marketers.
Supply chain management is the creation of long-term partnerships among marketing channel members that reduce
inefficiencies, costs and redundancies in the marketing channel and develop innovative approaches to satisfying targeted
customers. The goal is still to provide customers with the product or service demanded, in line with their expectations, but
in a more coordinated way that builds on the combined strengths of the members of the distribution channel. Key tasks
in supply chain management include planning, sourcing, facilitating delivery and relationship building to nurture ongoing
customer relationships.
Marketing channels serve many functions that may be performed by a single channel member but are mostly accom-
plished through both the independent and joint efforts of channel members. These functions include creating utility, facili-
tating exchange efficiencies, alleviating discrepancies, standardizing transactions and providing customer service. Although
intermediaries can be eliminated, their functions are vital and cannot be dropped; these activities must be performed by
someone in the marketing channel or passed on to customers. Because intermediaries serve both producers and buyers,
they reduce the total number of transactions that would otherwise be needed to move products from producer to ultimate
users. Intermediaries’ specialized functions also help keep down costs.
An assortment is a combination of products assembled to provide customer benefits. Intermediaries perform sorting activ-
ities essential to the development of product assortments. Sorting activities allow channel members to divide roles and
separate tasks. Through the basic tasks of sorting out, accumulation, allocation and assorting products for buyers, interme-
diaries resolve discrepancies in quantity and assortment. The number and characteristics of intermediaries are determined
by the assortments and the expertise needed to perform distribution activities.
Direct marketing, aided by eCommerce, has recently encouraged many marketers to cut out channel intermediaries in both
consumer and business-to-business transactions.
Channels of distribution are broadly classified as channels for consumer products or channels for business products.
Within these two broad categories, different marketing channels are used for different products. Although some consumer
goods move directly from producer to consumers, consumer product channels that include wholesalers and retailers are
often more economical and efficient. Business goods move directly from producer to end users more frequently than do
consumer goods. Channels for business products may also include agents, industrial distributors or both. Most producers
use dual distribution or multiple channels so that the distribution system can be adjusted for various target markets. Some-
times strategic channel alliances are used so that the products of one organization can be distributed through the market-
ing channels of another. Multi-channel marketing is the decision to reach target consumers or business customers through
more than one channel. In the digital era with consumers expecting 24/7 access to their favourite brands, multi-channel
marketing is increasingly commonplace. Omni-channel marketing refers to marketers utilizing all available channels.
Consumer brands may be retailed in store and via websites, while business products pass through dealers and directly via
web-selling.
Integration of marketing channels brings various activities under the management of one channel member. Vertical channel
integration combines two or more stages of the channel under one management. In the vertical marketing system (VMS)
a single channel member coordinates or manages channel activity for the mutual benefit of all channel members. Vertical
marketing systems may be corporate, administered or contractual. Horizontal channel integration combines institutions at
the same level of channel operation under a single management.
A marketing channel is managed so that products receive appropriate market coverage. In intensive distribution, producers
distribute a product using all available outlets. In selective distribution, outlets are screened to use those most qualified for
exposing a product properly. Exclusive distribution usually uses one outlet to distribute a product in a large geographic area
when there is a limited market for the product.
When selecting distribution channels for products, manufacturers evaluate potential channel members carefully. Producers
consider the organization’s objectives and available resources; the location, density and size of a market; buying behaviour
in the target market; product attributes; and external forces in the marketing environment. Technology, notably eCom-
merce, has recently played a major role in certain markets in the selection of distribution channels.
A marketing channel is a social system in which individuals and organizations are linked by a common goal: the profitable
and efficient distribution of goods and services. The positions or roles of channel members are associated with rights,
responsibilities and rewards, as well as sanctions for non-conformity. Channels function most efficiently when members
cooperate; when they deviate from their roles, channel conflict can arise. Effective marketing channels are usually a result
of channel leadership and of relationship building between channel members.
Channel leaders can facilitate or hinder other channel members’ goal achievement, deriving this channel power from seven
sources, two of them economic and five non-economic. Producers are in an excellent position to structure channel policy
and to use technical expertise and consumer acceptance to influence other channel members. Retailers gain channel
control through consumer confidence, wide product mixes and intimate knowledge of consumers. Wholesalers and buying
groups become channel leaders when they have expertise that other channel members value and when they can coordi-
nate functions to match supply with demand.
Channel management is governed by a variety of legal issues. These are based on the principle that the public is
best served when competition and free trade are protected. Various practices may be subject to legal restraint. To
tighten their distribution control, manufacturers may try to operate restricted sales territories, where intermediaries
are barred from selling products outside designated areas. A tying contract occurs when a supplier stipulates that
another channel member must purchase other products in addition to the one originally supplied. Exclusive dealing
occurs when a manufacturer forbids an intermediary to carry the products of competing manufacturers. Refusal
to deal means that a producer will not do business with a wholesaler or dealer that has resisted policies that are
anti-competitive or in restraint of trade.
2. ‘Shorter channels are usually a more direct means of

Key links distribution and therefore are more efficient.’ Comment on
this statement.
The choice of marketing channel is critical to the success
3. Describe an industrial distributor. What types of product are
of a marketing strategy, as explored in this chapter, and
marketed through industrial distributors?
channel selection is very much a part of the marketing
remit. This chapter should be read in conjunction with: 4. Why might a producer choose to use more than one
marketing channel?
●● Chapter 2, the overview of marketing strategy.
5. Why do consumers often blame intermediaries for
●● Chapter 10, the explanation of the product element of distribution inefficiencies? List several reasons.
the marketing mix.
6. How do the major functions that intermediaries perform
●● Chapter 15, which examines the players within mar- help resolve discrepancies in assortment and in quantity?
keting channels.
7. How does the number of intermediaries in the channel
relate to the assortments retailers need?
Important terms 8. Can one channel member perform all channel functions?
Accumulation 9. Identify and explain the major factors that influence

Allocation decision-makers’ selection of marketing channels.
Assorting 10. Name and describe companies that use (a) vertical integra-
Assortment tion and (b) horizontal integration in their marketing channels.
Channel of distribution (or marketing channel) 11. Explain the major characteristics of each of the three types
Channel power of vertical marketing system (VMS).
Dual distribution
12. Explain the differences among intensive, selective and
eCommerce
exclusive methods of distribution.
Exclusive dealing
Exclusive distribution 13. What impact has the growing popularity of eCommerce had
Functional middlemen on marketing channels?
Horizontal channel integration 14. ‘Channel cooperation requires that members support the
Industrial distributor overall channel goals to achieve individual goals.’ Comment
Intensive distribution on this statement.
Marketing intermediary 15. How do power bases within the channel influence the
Merchants selection of the channel leader?
Multi-channel marketing
16. Why is multi-channel marketing increasingly the norm?
Omni-channel marketing
Refusal to deal 17. What considerations should influence multi-channel selection?
Restricted sales territories
Selective distribution
Sorting activities Recommended readings
Sorting out Arikan, A., Multichannel Marketing: Metrics and Methods for On and
Strategic channel alliance Offline Success (Wiley, 2008).
Supply chain management Christopher, M., Logistics and Supply Chain Management (FT Publishing
Tying contract International, 2016).
Vertical channel integration Harrison, A., van Hoek, R. and Skipworth, H., Logistics Management and
Strategy: Competing Through the Supply Chain (Pearson, 2014; new
Vertical marketing system (VMS)
edition due 2019).
Moore, M. and Thomas, P., Marketing Multiplied: a Real-World Guide to
Discussion and review questions Channel Marketing (Franklin Kennedy Press, 2018).
Palmatier, R. and Stern, L., Marketing Channel Strategy (Routledge,
1. Compare and contrast the four major types of marketing 2016).
channel for consumer products. Through which type of Rosenbloom, B., Marketing Channels: A Management View (Cengage,
channel is each of the following products most likely to be 2012).
distributed: (a) new cars, (b) cheese biscuits, (c) cut-your-own Rushton, A., Croucher, P. and Baker, P., The Handbook of Logistics and
Christmas trees, (d) new textbooks, (e) sofas, (f) soft drinks? Distribution Management (Kogan Page, 2017).
Web task Classroom tools faced in managing the customer

experience for a punter
The fortunes of many manufactur- (customer) who gambles both in
ers depend on their dealer network, shops and online?
particularly producers of construction
equipment. Take a look at two such companies’ websites and
examine what they say about their dealer network and parts/ Applied mini-case
service support: www.caterpillar.com and www.jcb.com Most recorded music used to be purchased by consumers
1. In the context of these websites, how important to these from music stores or mail-order catalogues. First the internet
businesses is the chosen route to market: the dealer enabled e-selling from retailers’ catalogues, and now it has
network? permitted the instant downloading of a fan’s favourite tracks.
Not only are bands cutting out traditional distribution channels
2. In terms of delivering customer service, what is the role
by offering new material directly to their fans via streaming,
in the marketing channel of these dealerships?
but mainstream labels have also sidetracked the music store
as a response to this growing trend.
Group tasks
Question
1. Identify a brand your team buys online and also in-store.
How can traditional music store operators retailing vinyl, CDs
For each channel, does the marketing differ? To what
and DVDs strive to maintain a strong customer base in the
extent is the brand experience consistent across these
face of such strong competition from web-based rivals and
two channels?
downloads?
2. Traditional betting shops still exist on every high street,
but online there are now dozens of rivals. For a business
such as William Hill, Ladbrokes or Coral – with betting
shops and online gambling sites – what problems are
first direct’s innovative We’re always - always - here for you
banking channels Case study When the clock struck midnight on 1 Octo-
ber 1989, we received our first ever call. Our
lines have been open ever since, making us the
The UK’s most recommended bank, first first UK bank to offer an always-open service to
direct, offers many services including online our customers. And the people you’ll talk to are
banking, insurance, mortgages, investments famously brilliant at what they do. You’ll never talk
and share dealing. to a robot - no ’press 1 for . . .’ nonsense here, thank you
very much. We’re also available online and on your mobile and
We’re the people-powered bank
tablet, so it doesn’t matter where you are or what you’re doing:
The bank that does things differently. The bank that never closes.
we’re here for you.
The bank with real people answering the phone 24 hours a day,
We’re the pioneers of easy banking
7 days a week. We’re the bank that changed what being a bank
While we’re famous for our phone service, there’s much more
means - we’re not over there, on the high street, we’re right
to first direct than that. We launched our PC Banking service in
here, on your mobile or laptop. We’re first direct. We love what
1997, we were Text Message Banking in 1999, and Internet Bank-
we do. We love coming to work every day - even Christmas
ing in 2000. We were the first UK bank with a Twitter account. See
Days and New Year’s Days. Even Mondays - oh yes . . . And it’s
that curve? We try to stay ahead of it . . . Because we know that
all for you.
our love for banking is quite unusual - you guys just want easy, its high street competitors with their systems of bank charges.
seamless, intuitive control over your money, wherever, whenever. first direct is a telephone and online banking service that offers
So that’s what you get. full banking, mortgage, loan, investment/saving, insurance,
foreign currency and credit card services, plus ATM ‘hole in
www1.firstdirect.com, May 2018
the wall’ cash cards through HSBC’s international service-till
Most consumers have a bank account from which cash network. All normal banking transactions can be completed
is drawn, bills are paid and money is moved around, and over the telephone or online.
into which salaries, pensions or student loans are paid. For Initial reactions were positive, with many non-HSBC
some consumers, the bank is a high street or shopping cen- account holders switching to the innovative new style of
tre office – imposing, formal and often intimidating. Whether banking. Some more traditional customers were less easily
it’s NatWest, Barclays or Lloyds in the UK or ABN AMRO or converted. For the targeted, more financially aware and inde-
Rabobank in the Netherlands, each high street bank is fairly pendent income earner, first direct has proved to be very pop-
alike, with similar products and services, personnel, branch ular. Research shows that first direct is the most recommended
layouts, locations and opening hours. Differentiation has been bank with the most satisfied customers. first direct’s services
difficult to achieve and generally impossible to maintain over and products were not new, but the chosen marketing channels
any length of time, as competitors have copied rivals’ moves. were innovative at the time: no branches, only telephone call
Promotional strategy and brand image have been the focus centres, online banking and texting. Customers no longer had
for most banking organizations, supported with more minor to reach inaccessible, parked-up, town centre branches with
tactical changes in opening hours or service charges. For queues and restricted opening hours. The company enjoyed
many bank account holders, the branch – with its restricted this success because it was fast to adopt evolving technologies
openings, formal ambience and congested town centre loca- and opportunities to interact with its customers digitally.
tion – used to be the only point of contact for the bulk of first direct has been successful because it introduced an
transactions. accessible service, with lower costs, that aligned with the
first direct, owned by HSBC but managed separately, broke changing consumer needs of the time. When the new bank
the mould in 1989. Launched with a then massive £6 million was initially launched, HSBC was able to continue catering
promotional campaign, first direct bypassed the traditional for those consumers preferring the more traditional banking
marketing channel. first direct has no branches and no branch format. In recent years, the move to online banking has seen
overhead and operating costs. It provides free banking, unlike the high street banks flexing their marketing channels and
moving in a similar direction to first direct.

1. Why is innovation in marketing channels generally diffi-
cult to achieve?
2. Why was first direct different from its rivals? What gave it
differentiation when it first launched?
3. Why might some potential customers of first direct have
had reservations about the innovative nature of the service?
Source: www1.firstdirect.com, May 2018.
Chapter 15
Channel players and
physical distribution
Products must reach customers effectively, which depends on many
players within the distribution channel
Introduction
Objectives This chapter examines the roles of wholesaling, retailing and
To understand the nature of whole- physical distribution management within the marketing chan-
saling in its broadest forms in the nel, without which products would not reach intended users
marketing channel. appropriately. Although these areas are normally managed by
specialists, marketers must appreciate their importance when
To examine channel players that facil- developing their marketing programmes.
itate wholesaling and distribution. Wholesaling includes all transactions in which the purchaser
To understand the purpose and intends to use the product for resale, for making other products
function of retailing in the marketing or for its general business operations. Wholesaling does not
channel. include exchanges with the ultimate consumers. It is the domain
of intermediaries within the marketing channel. Hence the term
To describe and distinguish retail wholesaling is used here in its broadest sense: intermediaries’
locations, major store types and activity in the marketing channel between producers and busi-
non-store retailing. ness or trade customers. The focus is on:
To understand how physical distri- ●● merchant wholesalers and distributors
bution activities are integrated into
marketing channels and overall
●● agents and brokers
marketing strategies, and to exam- ●● manufacturers’ own branches and offices
ine physical distribution objectives. ●● the ‘middlemen’ in many marketing channels
To learn about order processing, ●● retailers, which are an important part of the marketing
materials handling and different channel for many products.
types of warehousing and their In addition to being part of the distribution channel for a host
functions. of products, the characteristics of retailing present retail market-
To appreciate the importance of ers with many challenges. Retailers are an influential link in the
inventory management and the marketing channel because they are both marketers for, and
development of adequate assort- customers of, producers and wholesalers. They perform many
ments of products for target markets. marketing activities, such as buying, selling, grading, risk-taking
and developing information about consumers’ requirements. Of
To gain insight into different trans- all marketers, retailers are often the most visible to ultimate con-
portation methods and how they sumers. They are in a strategic position to gain feedback from
are selected and coordinated.
430
Chapter 15 Channel players and physical distribution 431
consumers, and to relay ideas to producers and intermediaries in the marketing channel. Retailing,
involving physical store outlets and online, is an extraordinarily dynamic area of marketing.
Physical distribution is a set of activities that moves products from producers to consumers or
end users. These activities include order processing, materials handling, warehousing, inventory
management and transportation. While none of these activities would normally be the responsibility
of marketing managers, their smooth deployment impacts on customer service levels, customers’
experiences, customer satisfaction and also customers’ perceptions of a brand or business.
The main objective of physical distribution is to decrease costs while increasing customer service.
Order processing, the first stage in a physical distribution system, is the receipt and transmission
of sales order information. Materials handling, or the physical handling of products, is an import-
ant element of physical distribution: packaging, loading, movement and labelling systems must be
coordinated to maximize cost reduction and the meeting of customer requirements. Warehousing
involves the design and operation of facilities for storing and moving goods. The objective of inven-
tory management is to minimize inventory costs while maintaining a supply of goods adequate for
customers’ needs. Transportation adds time and place utility to a product by moving it from where it
is made to where it is purchased and then to where it is used. Physical distribution activities should
be integrated with marketing channel decisions and adjusted to meet the unique needs of a channel
member customer or facilitator. Online selling has added to the complexity of physical distribution.
Multi-channel changes
H ow did you purchase
your last smart
phone? From inside a
the rules
While for consumers,
new ways of acquiring
information, interacting
Vodafone or O2 store? A few with sellers and purchasing
years ago, this is how most con- products have been most wel-
sumers would have selected and come, opening up an ‘anytime/
acquired their mobile phone upgrade. Then ‘home shopping’ anywhere’ 24/7 purchasing culture,
kicked in. Tele-selling and then the web enabled an increasing this change of buying behaviour has presented significant
number of consumers to browse selections, read reviews and challenges for those businesses supplying consumers’ needs
compare tariffs from the comfort of their homes, receiving and for the managers tasked with delivering our products.
their new phone at home in the post. Today’s mobile market- In the original business model, Samsung or HTC had to
ing world has further broadened this freedom, so that we are ensure products were distributed in a timely fashion to the
able to select a brand and model while sitting on a train, wait- major retailers’ or mobile phone companies’ central ware-
ing for friends at a bar or during the break of a sports fixture. houses, letting these companies manage distribution out to
their stores and thereby to consumers. Some companies
also employed rack jobbers to visit stores directly to stock
shelves and store rooms with their handsets. The growth
of eCommerce forced the manufacturers and big mobile
phone networks to adopt multi-channel distribution, with
home delivery now accounting for more than half of units
shipped. Of course, the mobile phone sector is not alone in
this growth of home delivery and direct distribution, which
has proved good news for TNT, UPS, Royal Mail and other
delivery firms. The change in consumers’ buying behaviour
also enabled non-store competitors to emerge, without an
expensive store network and instead with single channels
of distribution direct to the purchaser’s selected address, be
it home or workplace.
This growth of mobile commerce has not only impacted Multi-channel marketing is now the norm for many manu-
on the channels of distribution, warehousing, inventory facturers, brands and retailers, with significant consequences
management, delivery modes and all aspects of logistics for their channel management and use of third parties to
management, but it has altered the mix of third party suppli- facilitate effective delivery to end-users. Marketers want their
ers and partners companies rely on in order to do business. brand to be consistent across the many channels they may
Digital selling depends on skills of content providers, social be using, along with a suitably harmonised customer expe-
media experts, bloggers and tweeters and a whole set of rience. However, they now rely on the roles and activities of
opinion formers and influencers. In addition to the physical many channel players and partners as part of a customer’s
distribution management players relevant to more traditional experience. Marketers may not be tasked with executing dis-
channels of distribution, the adoption of a direct channel, tribution of their products, but they should be aware of the
digital marketing and direct distribution has necessitated the consequences of their channel selection strategies and appre-
involvement of a new generation of channel members and ciate the practicalities of managing customers’ experiences
facilitating bodies. via the channels they select.
C
hapter 15 of Marketing: Concepts and Strategies addresses wholesalers’ and distributors’
activities within a marketing channel, the nature of retailing, plus the importance of physical
distribution management. Wholesaling is viewed here as all exchanges among organiza-
tions and individuals in marketing channels, except transactions with ultimate consumers. After
examining the role of wholesaling and the major types, the chapter overviews retailing and then
turns to physical distribution, its concepts, objectives and techniques: primarily order processing,
materials handling, warehousing, inventory management and transportation.
The nature and importance of wholesaling

Wholesaling comprises all transactions in which the purchaser intends to use the prod-
wholesaling uct for resale for making other products or for general business operations. It does not
Intermediaries’ activity
in the marketing channel
include exchanges with ultimate consumers. Wholesaling establishments are engaged
between producers and primarily in selling products directly to industrial, reseller (such as retailers), government
business customers to and institutional users. Note that this is a broader definition of wholesaling than that
facilitate the exchange applied by the retail trade for cash and carry wholesale suppliers.
– buying and selling of The term wholesaling is used in its broadest sense: intermediaries’ activity in
goods.
the marketing channel between producers and business customers to facilitate the
exchange - buying and selling of goods. A wholesaler is an individual or business
wholesaler engaged in facilitating and expediting exchanges that are primarily wholesale transac-
An individual or business tions. Only occasionally does a wholesaler engage in retail transactions, which are sales
engaged in facilitat- to ultimate consumers. A related topic is that of supply chain management, which is
ing and expediting the orchestration of the channel of distribution from sourcing supplies, manufacture to
exchanges that are
delivery to the customer often with the intention of creating long-term mutually beneficial
primarily wholesale
transactions. relationships. Although not part of marketing’s remit, those responsible for a business’s
logistics often focus on the concept of supply chain management. Effective supply chain
management is essential if consumer expectations are to be met.
supply chain
management
The orchestration of the
channel of distribution
The activities of wholesalers
from sourcing supplies,
manufacture to delivery In the USA and in Europe more than 50 per cent of all products are exchanged, or their
to the customer. exchange is negotiated, through wholesaling institutions. The strength of wholesaling
third parties varies, depending on the market, country and degree of direct commerce.
However, it is important to remember that the distribution of all goods requires wholesaling a ctivities,
whether or not a wholesaling institution is involved. Table 15.1 lists the major activities wholesalers
perform. The activities are not mutually exclusive; individual wholesalers may perform more or fewer
activities than Table 15.1 shows. Wholesalers provide marketing activities for organizations above
and below them in the marketing channel.
Table 15.1 Major wholesaling activities

Activity Description
Supply chain management Creating long-term partnerships among channel members
Wholesale management Planning, organizing, staffing and controlling wholesaling operations
Negotiating with suppliers Serving as the purchasing agent for customers by negotiating supplies
Promotion Providing a salesforce, advertising, sales promotion, publicity and other promotional mix
activity
Warehousing and product handling Receiving, storing and stock-keeping, order processing, packaging, shipping outgoing orders
and materials handling
Transport Arranging and making local and long-distance shipments
Inventory control and data processing Controlling physical inventory, book-keeping, recording transactions, keeping records for
financial analysis
Security Safeguarding merchandise
Pricing Developing prices and providing price quotations
Financing and budgeting Extending credit, borrowing, making capital investments and forecasting cash flow
Management and marketing assistance to Supplying information about markets and products and providing advisory services to assist
clients customers in their sales efforts
Services for producers

Producers, above wholesalers in the marketing channel, have a distinct advantage when they use
wholesalers. Wholesalers perform specialized accumulation and allocation functions for a number
of products, thus allowing producers to concentrate on developing and manufacturing products
that match business customers’ or consumers’ wants. Wholesalers provide services to producers
as well. By selling a manufacturer’s products to retailers and other customers, and by initiating sales
contacts with the manufacturer, wholesalers serve as an extension of the producer’s salesforce.
Wholesalers also provide four forms of financial assistance:
1. They often pay the costs of transporting goods.
2. They reduce a producer’s warehousing expenses and inventory investment by holding goods
in inventory.
3. They extend credit and assume the losses from buyers who turn out to be poor credit risks.
4. When they buy a producer’s entire output and pay promptly or in cash, they are a source of
working capital.
In addition, wholesalers are conduits for information and market insights within the marketing
channel, keeping manufacturers up-to-date on market developments and passing along the man-
ufacturers’ promotional plans to other middlemen in the channel.
Ideally, many producers would like more direct interaction with retailers, as close contact
with major retail chains may lead to greater shelf-space allocation and higher margins for
a producer’s goods, there being no middlemen to take a cut. Wholesalers, however, often
have close contact with retailers because of their strategic position in the marketing channel.
Besides, even though a producer’s own salesforce is probably more effective in its selling
efforts, the costs of maintaining a salesforce and performing the activities normally carried out
by wholesalers are usually higher than the benefits received from better selling. Wholesalers
can also spread their costs over many more products than most producers, resulting in lower
costs per product unit. For these reasons, many producers have chosen to control promotion
and influence the pricing of products, and have shifted transport, warehousing and financing
functions to wholesalers. The close relationship in the UK, Benelux, France and Germany
between manufacturers and the large retail groups is not typical of all of Europe, where whole-
salers tend to act as the manufacturer–retailer interface, particularly in southern, central and
eastern Europe.
Services for retailers

Wholesalers help their retailer customers select inventory (stock). In industries where obtain-
ing supplies is important, skilled buying is essential. A wholesaler that buys is a specialist
in understanding market conditions and an expert at negotiating final purchases. For exam-
ple, based on its understanding of local customer needs and market conditions, a building
supplies wholesaler purchases inventory ahead of season so that it can provide its retail
customers with the building supplies they want when they want them.1 A retailer’s buyer
can thus avoid the responsibility of looking for and coordinating supply sources. Moreover, if
the wholesaler makes purchases for several different buyers, expenses can be shared by all
customers. A manufacturer’s sales team can offer retailers only a few products at a time, but
independent wholesalers or dealers have a wide range of products always available, often
from a variety of producers.
By buying in large quantities and delivering to customers in smaller lots, a wholesaler can
perform physical distribution activities – such as transport, materials handling, stock planning,
communication and warehousing – more efficiently and can provide more service than a producer
or retailer would be able to do with its own physical distribution system. Furthermore, wholesalers
can provide quick and frequent delivery even when demand fluctuates. They are experienced in
providing fast delivery at low cost, thus allowing the producer and the wholesalers’ customers to
avoid the risks associated with holding large product inventories.2
Since they carry products for many customers, wholesalers can maintain a wide product line at
a relatively low cost. Often wholesalers can perform storage and warehousing activities more effi-
ciently, permitting retailers to concentrate on other marketing activities. When wholesalers provide
storage and warehousing, they generally take on the ownership function as well; an arrangement
that frees retailers’ and producers’ capital for other purposes.
Wholesalers are very important in reaching global markets. Approximately 85 per cent of all
prescription medicines sold in Europe go through wholesalers that are within national borders. It is
anticipated that more wholesalers will operate across borders.
Classifying wholesalers
Many types of wholesaler meet the different needs of producers and retailers. In addition, new
institutions and establishments develop in response to producers and retail organizations that want
to take over wholesaling functions. Wholesalers adjust their activities as the forces of the marketing
environment change.
Wholesalers are classified along several dimensions. Whether a wholesaler is owned by the
producer – often termed a company-owned dealership – influences how it is classified. Wholesalers
are also grouped according to whether they take title to (actually own) the products they handle.
The range of services provided is another criterion used for classification. Finally, wholesalers are
classified according to the breadth and depth of their product lines. Using these dimensions, this
section discusses three general categories or types of wholesaling establishment:
1. merchant wholesalers
2. agents and brokers
3. manufacturers’ sales branches and offices.
Remember that the term ‘wholesaling’ is used here in its broader context: intermediaries’ activity
in the marketing channel between producers and business-to-business customers.
Merchant wholesalers
merchant wholesalers
Merchant wholesalers (see Figure 15.1) take title to goods and assume the risks asso-
Wholesalers that take ciated with ownership. They are independently-owned businesses, buying and reselling
title to goods and products to business or retailer customers. Some are involved with packaging and devel-
assume the risks associ- oping their own-label brands for their retailer customers. Industrial product merchant
ated with ownership. wholesalers tend to be better established and earn higher profits than consumer goods
wholesalers and are likely to have selective distribution arrangements with manufactur-
ers. These wholesalers enable producers to service customers if they have inadequate
resources to sell directly. Wholesalers provide the producer with market coverage, making sales
contacts, storing stock, handling orders, collecting marketing intelligence and providing customer
service3. Merchant wholesalers are referred to by various names: wholesaler, jobber, distributor,
assembler, exporter and importer. They fall into two categories: full service or limited service.
Full service
wholesalers
General merchandise
Merchant wholesalers Limited line
Merchants take title, Speciality line
assume risk and are
usually involved in
buying and reselling
products to other Limited service
wholesalers, business wholesalers
customers or retailers Cash and carry
Truck
Rack jobber*
Drop shipper
Mail order
Figure 15.1 *Rack jobbers, in many cases, provide such a large number of services that they can be classified as full service,
speciality line wholesalers
Types of merchant
wholesaler
Full service merchant Full service wholesalers are middlemen who offer the wid-
full service wholesalers
Middlemen who offer the
est possible range of wholesaling functions. Their business customers rely on them for
widest possible range of product availability, suitable assortments, bulk breaking of larger quantities into smaller
wholesaling functions. orders, financial assistance and credit lines, technical advice and after-sales service. Full
service wholesalers often provide their immediate customers with marketing support.
Grocery wholesalers help smaller retailers with store design and layout, site selection,
limited service
wholesalers personnel training, financing, merchandizing, advertising, coupon redemption and scan-
Middlemen who provide ning. Gross margins are high, but so are operating expenses.
only some marketing
services and specialize in Limited service merchant wholesalers Limited service wholesalers provide only
a few functions.
some marketing services and specialize in few functions. The other functions are pro-
vided by producers, other middlemen or even by customers. Limited service merchant
general merchandise wholesalers take title to merchandise, but often do not deliver the merchandise, grant
wholesalers credit, provide marketing intelligence, carry stocks or plan ahead for customers’ future
Middlemen who carry needs. They earn smaller profit margins than full service merchant wholesalers. Relatively
a wide product mix but
few in number, these wholesalers are important for speciality foods, perishable items,
offer limited depth within
the product lines. construction supplies and fuels.
Table 15.2 summarizes the different categories of full service and limited service
merchant wholesalers: general merchandise wholesalers, including distributors,
distributors limited line wholesalers, speciality line wholesalers, plus: rack jobbers, cash and
Companies that buy and carry wholesalers, truck wholesalers, drop shippers and mail order wholesalers.
sell on their own account
but tend to deal in the
goods of only certain Agents and brokers
specified manufacturers.
Agents and brokers (see Figure 15.2) negotiate purchases and expedite sales but do not
take title to products. They are functional middlemen; intermediaries who perform a
limited line wholesalers limited number of marketing activities in exchange for a commission, which is generally
Wholesalers that carry based on the products’ selling price. Agents are middlemen who represent buyers or sell-
only a few product lines
ers on a permanent basis. Brokers are usually middlemen whom either buyers or sellers
but offer an extensive
assortment of products employ temporarily.
within those lines.
Agents
speciality line Represent either buyers
wholesalers or sellers usually on
Middlemen who carry
a permanent basis
the narrowest range of
products, usually a single Manufacturers’ agents
product line or a few items Selling agents
within a product line. Agents and brokers Commission merchants
These functional middlemen
do not take title to products
rack jobbers and are compensated with
Speciality line
commissions for negotiating
wholesalers that own
exchanges between sellers Brokers
and maintain their own
display racks in super- and buyers Bring buyers and sellers
markets and chemists. together on a temporary
basis
Food brokers
cash and carry
Land/property brokers
wholesalers
Middlemen whose cus- Other brokers, e.g.
tomers will pay cash and securities, insurance
provide transport.
Figure 15.2
truck wholesalers Types of agent and broker
Limited service wholesal-
ers that transport products Although agents and brokers perform even fewer functions than limited service
direct to customers for wholesalers, they are usually specialists in particular products or types of customer
inspection and selection. and can provide valuable sales expertise. They know their markets well and often form
long-lasting associations with customers. Agents and brokers enable manufacturers
Table 15.2 Types of full and limited service merchant wholesalers
Categories of full service merchant wholesalers Categories of limited service merchant wholesalers
1. General merchandise wholesalers 1. Cash and carry wholesalers
Middlemen who carry a wide product mix but offer Their customers are retailers or small industrial businesses who provide their own
limited depth within product lines. Medicines, hard- transport and collect from wholesale depots. Some full-service wholesalers also set
ware, non-perishable foods, cosmetics, detergents, up cash and carry depots in order to reduce their operating costs and boost margins
tobacco. Develop strong, mutually beneficial rela- when supplying smaller retailer or business customers.
tionships with local retail stores, who often buy all Cash and carry middlemen generally handle a limited line of products with a high turn-
their needs from these wholesalers. over rate, such as groceries, building materials, electrical supplies, office supplies.
For industrial customers, these wholesalers provide all For example, Booker has a network of cash and carry warehouse depots stocking
supplies and accessories and are often called indus- fresh and frozen foods, cigarettes, wines and spirits, meats and provisions. Selling
trial distributors or mill supply houses. only to the trade, Booker offers bulk discounts to hotels, restaurants, the catering
Distributors are companies which buy and sell on their industry and local small shops.
own account but tend to deal in the goods of only Cash and carry operators have little or no expenditures for outside sales staff, marketing,
certain specified manufacturers. research, promotion, credit or delivery. Their business customers benefit from lower
prices and immediate access to products.
2. Limited line wholesalers 2. Truck wholesalers
Wholesalers that carry only a few product lines, such as These wholesalers, sometimes called truck jobbers, transport a limited line of products
groceries, lighting fixtures, drilling equipment, con- directly to customers for on-the-spot inspection and selection. Often small operators
struction equipment, but offer an extensive assort- who own and drive their own trucks or vans, they tend to have regular routes, calling
ment of products within these lines. They provide on retailers and businesses to determine their needs. They may carry items, such
similar services to general merchandise wholesalers. as perishables, which other wholesalers do not stock. Meat, service station supplies
In business markets, they serve large geographic areas and tobacco lines are often carried by truck jobbers.
and provide technical expertise. In consumer goods Truck jobbers sell, promote and transport goods, but tend to be classified as limited
markets, they often supply single or limited line retail- service merchant wholesalers because they do not provide credit lines. Low volume
ers. Some computer limited line wholesalers provide sales and relatively high levels of customer service result in high operating costs.
customers with the products of only four or five man- In eastern and southern Europe, truck jobbers are common marketing channel
ufacturers, but for only a limited number of their lines. intermediaries.
3. Speciality line wholesalers 3. Drop shippers
These middlemen carry the narrowest range of products, These intermediaries, also known as desk jobbers, take title to goods and negotiate
often only a single product line or a few items within sales, but never take actual possession of products. They forward orders from retail-
a product line. Shellfish, fruit or cheese wholesalers ers, industrial buyers or other wholesalers to manufacturers and arrange for large
are speciality line wholesalers. shipments of items to be delivered directly from producers to customers. The drop
They understand the particular requirements of the shipper assumes responsibility for products during the entire transaction, including
ultimate buyer and offer their customers detailed the costs of any unsold goods.
product knowledge and depth of choice. To assist Drop shippers are involved most commonly in the large volume purchases of bulky
retailers, they may set up displays and arrange goods such as coal, coke, oil, chemicals, timber and building materials. Normally
merchandise. sold in wagon loads, these products are expensive to handle and ship relative to
In industrial markets, they are often better placed than their unit value, so it is sensible to minimize unloading. One facet of drop shipping
the manufacturer to offer customers technical advice is its use by the large supermarket retailers, direct from manufacturers to the larger
and service. supermarket stores. These large supermarkets can each sell an entire lorry load of
Rack jobbers are speciality line wholesalers who own certain produce.
and maintain their display racks in supermarkets Drop shippers incur no stockholding costs and provide only minimal customer assis-
and pharmacies. They specialize in non-food items, tance, leading to low operating costs which can be passed on to customers. They do
notably branded, widely advertised products sold on a provide planning, credit and personal selling services.
self-service basis, which retailers prefer not to order 4. Mail order wholesalers
or stock themselves because of inconvenience or These wholesalers use catalogues/websites instead of salesforces to sell to retail, insti-
risk. Health and beauty aids, toys, books, magazines, tutional and industrial buyers. Customers use telecommunications, the internet or
games, DVDs, hardware, housewares and stationery post to send orders which are often despatched through courier companies or the
are typical products handled by rack jobbers. They postal service. This enables customers in remote, inaccessible areas to be serviced.
send out delivery personnel who set up displays, mark As explained in Chapter 18, mail order in general is growing, and is particularly
merchandise, stock shelves and keep billing records. important for cosmetics, speciality foods, hardware, sporting goods, business and
The retail customer only has to provide the space. office supplies, car parts, clothing and music. Payment is usually expected upfront
Most rack jobbers operate on a pay and display basis, by cash or credit card, but discounts may be offered for bulk orders. Mail order
taking back any unsold stock from the retailer. wholesalers hold stocks but provide little other service.
Original Sources: Louis W. Stern, Barton A. Weitz, ‘The revolution in distribution: challenges and opportunities’ (Special Issue: The Revolution in Retailing), Long
Range Planning, December 1997, 30 (6), pp. 823–9; Leonard J. Kistner, C. Anthony Di Benedetto, Sriraman Bhoovaraghavan, ‘An integrated approach to the
development of channel strategy’, Industrial Marketing Management, October 1994, 23 (4), pp. 315–22; Elizabeth Jane Moore, ‘Grocery distribution in the
UK: recent changes and future prospects’, International Journal of Retail & Distribution Management, 19 July 1991, pp. 18–24; ‘Drop-shipping grows to save
depot costs’, Supermarket News, 1 April 1985, pp. 1, 17.
to expand sales when resources are limited, to benefit from the services of a trained
drop shippers
Intermediaries who sales-force and to hold down personal selling costs. However, despite the advantages
take title to goods and they offer, agents and brokers face increased competition from merchant wholesalers,
negotiate sales but never manufacturers’ sales branches and offices, and direct sales efforts, including the growing
actually take possession use of the web.
of products.
This section concentrates on three types of agent:
1. manufacturers’ agents
mail order wholesalers
2. selling agents
Wholesalers that use
catalogues instead of 3. commission merchants
salesforces to sell prod-
ucts to retail, industrial as well as examining the brokers’ role in bringing about exchanges between buyers
and institutional buyers. and sellers. Table 15.3 summarizes services provided by wholesalers including limited
service merchant wholesalers, agents and brokers.
Table 15.3 Services provided by wholesalers

Cash
a. Various services provided by limited and Truck Drop
service merchant wholesalers carry wholesaler1 shipper2 Mail order
Physical possession of merchandise Yes Yes No Yes
Personal sales calls on customers No Yes No No
Information about market conditions No Yes Yes Yes
Advice to customers No Yes Yes No
Stocking and maintenance of merchandise No Yes No No
in customers’ stores No No Yes Some
Credit to customers No Yes No No
Delivery of merchandise to customers
b. Various services agents and Manufacturers’ Selling Commission
brokers provide Brokers agents agents merchants
Physical possession of merchandise No Some No Yes
Long-term relationship with buyers or No Yes Yes Yes
sellers Yes No No Yes
Representation of competing product lines No Yes No No
Limited geographic territory No No Yes Some
Credit to customers No Some Yes Yes
Delivery of merchandise to customers
1
Also called truck jobber.
2
Also called desk jobber.
functional middlemen Agents Manufacturers’ agents – who account for over half of all agent wholesalers –
Intermediaries who are independent middlemen or distributors who represent two or more sellers and u sually
perform a limited number offer customers complete product lines. They sell and take orders all year round, much
of marketing activities in as a manufacturer’s sales office does. Restricted to a particular territory, a manufacturer’s
exchange for commission.
agent handles non-competing and complementary products. The relationship between
the agent and each manufacturer is governed by written agreements explicitly outlining
territories, selling price, order handling and terms of sale relating to delivery, service and
manufacturers’ agents warranties. Manufacturers’ agents are commonly used in the sale of clothing and acces-
Independent middlemen sories, machinery and equipment, iron, steel, furniture, automotive products, electrical
or distributors who goods and certain food items.
represent two or more
sellers, and usually offer
Although most manufacturers’ agents run small enterprises, their employees are pro-
customers complete fessional, highly skilled sales people. The agents’ major advantages, in fact, are their
product lines. wide range of contacts and strong customer relationships. These intermediaries help
large producers minimize the costs of developing new sales territories and adjust sales
strategies for different products in different locations. Agents are also useful to small producers who
cannot afford salesforces of their own, because they incur no costs until the agents have actually
sold something. By concentrating on a limited number of products, agents can mount an aggressive
sales effort that would be impossible with any other distribution method except producer-owned
sales branches and offices. In addition, agents are able to spread operating expenses among
non-competing products and thus offer each manufacturer lower prices for services rendered.
Many postgraduates from overseas are recruited by agents, who often represent several universities
seeking to recruit in a particular region.
The chief disadvantage of using agents is the higher commission rate (usually 10 to 15 per cent)
they charge for new product sales. When sales of a new product begin to build, total selling costs
go up, and producers sometimes transfer the selling function to in-house sales representatives.
For this reason, agents try to avoid depending on a single product line; most work for more than
one manufacturer. Manufacturers’ agents have little or no control over producers’ pricing and
marketing policies. They do occasionally store and transport products, assist with planning and
provide promotional support. Some agents help retailers advertise and maintain a service support
organization. The more services offered, the higher an agent’s commission.
selling agents Selling agents market either all of a specified product line or a manufacturer’s
Agents who market entire output. They perform every wholesaling activity except taking title to products.
either all of a specified Selling agents usually assume the sales function for several producers at a time and
product line or a manu-
facturer’s entire output.
are often used in place of a marketing department. In contrast to other agent wholesal-
ers, s elling agents generally have no territorial limits, and have complete authority over
prices, promotion and distribution. They play a key role in the advertising, marketing
research and credit policies of the sellers they represent, at times even advising on product
development and packaging.
Selling agents, who account for about one per cent of the wholesale trade, are used most often
by small producers or by manufacturers who find it difficult to maintain a marketing department
because of seasonal production or other factors. A producer having financial problems may also
engage a selling agent. By so doing, the producer relinquishes some control of the business, but
may gain working capital by avoiding immediate marketing costs. To avoid conflicts of interest,
selling agents represent non-competing product lines. The agents play an important part in the
distribution of textiles, and they also sometimes handle canned foods, household furnishings, cloth-
ing, timber and metal products. In these industries, competitive pressures increase the importance
of marketing relative to production, and the selling agent is a source of essential marketing and
financial expertise.
Commission merchants are agents who receive goods on consignment from local
commission
merchants
sellers and negotiate sales in large central markets. Most often found in agricultural mar-
Agents who receive keting, commission merchants take possession of commodities in lorry loads, arrange for
goods on consignment any necessary grading or storage, and transport the commodities to auction or markets
from local sellers and where they are sold. When sales have been completed, an agent deducts a commission
negotiate sales in large plus the expense of making the sale and then turns over the profits to the producer.
central markets.
Sometimes called factor merchants, these agents may have broad powers regarding
prices and terms of sale, and they specialize in obtaining the best price possible under
market conditions. Commission merchants offer planning assistance and sometimes
extend credit, but they do not usually provide promotional support. As commission merchants deal
in large volumes, their per unit costs are usually low. Their services are most useful to small produc-
ers who must get products to buyers, but choose not to field a sales force or accompany the goods
to market themselves. In addition to farm products, commission merchants may handle textiles, art,
furniture, or seafood products. Businesses including farms that use commission merchants have
little control over pricing, although the seller can specify a minimum price. Generally, the seller is
able to supervise the agent’s actions through a check of the commodity prices published regularly
in newspapers. Large producers, however, need to maintain closer contact with the market and
so have limited need for commission merchants.
brokers Brokers Brokers seek out buyers or sellers and help negotiate exchanges. In other
Brokers do not take pos- words, brokers’ primary purpose is to bring buyers and sellers together. Thus brokers
session of goods or set perform fewer functions than other intermediaries. They are not involved in financing
prices; instead they seek or physical possession, have no authority to set prices and assume almost no risks.
out buyers and sellers,
Instead, they offer their customers specialized knowledge of a particular commodity and
forge relationships and
negotiate. a network of established contacts.
Brokers are especially useful to sellers of certain types of product who market
those products only occasionally. Sellers of used machinery, seasonal food products,
financial securities and land/property may not know of potential buyers. A broker can furnish
them with this information. The party who engages the broker’s services – usually the seller
– pays the broker’s commission when the transaction is completed. Many consumers these
days deal with insurance brokers when insuring a car or house contents, or with a mortgage
broker when buying a house or moving.
Food brokers, the most common type of broker, are intermediaries who sell food
food brokers
Intermediaries who and general merchandise items to retailer-owned and merchant wholesalers, g rocery
sell food and general chains, industrial buyers and food processors. Food brokers enable buyers and sellers
merchandise items to adjust to fluctuating market conditions. They also aid in grading, negotiating and
to retailer-owned and inspecting foods, and in some cases they store and deliver products. Due to the
merchant wholesalers,
seasonal nature of food production, the association between broker and producer is
grocery chains, indus-
trial buyers and food temporary, though many mutually beneficial broker-producer relationships are resumed
processors. year after year. As food brokers provide a range of services on a somewhat permanent
basis and in specific geographic territories, they can more accurately be described as
manufacturers’ agents.
Manufacturers’ sales branches and offices

Sometimes called manufacturers’ wholesalers or dealerships, manufacturers’ sales branches and
offices resemble merchant wholesalers’ operations. These producer-owned middlemen account
for about nine per cent of wholesale establishments and generate approximately a third
sales branches (31 per cent) of all wholesale sales.4 Sales branches are manufacturer-owned middle-
Manufacturer-owned men selling products and providing support services to the manufacturer’s sales force,
middlemen selling
especially in locations where large customers are concentrated and demand is high.
products and providing
support services to the They offer credit, deliver goods, give promotional assistance and furnish other services.
manufacturer’s sales In many cases they carry inventory, although this practice often duplicates the functions
force, especially in loca- of other channel members and is now declining. Customers include retailers, business
tions where large cus- buyers and other wholesalers. Branch operations are common in the electrical supplies,
tomers are concentrated
plumbing, timber and car parts industries.
and demand is high.
Sales offices are manufacturer-owned operations that provide support services that
are normally associated with agents. Like sales branches, they are located away from
sales offices manufacturing plants, but unlike branches, they carry no inventory. A manufacturer’s
Manufacturer-owned sales offices or branches may sell products that enhance the manufacturer’s own prod-
operations that provide uct line. For example, Hiram Walker, a distiller, imports wine from Spain to increase the
support services nor- number of products its sales offices can offer wholesalers. Most large manufacturers
mally associated with
agents.
have their own networks of sales branches and sales offices.
Manufacturers may set up sales branches or sales offices so that they can reach
customers more effectively by performing wholesaling functions themselves. A man-
ufacturer may also set up these branches or offices when the required specialist wholesaling
services are not available through existing middlemen. In some situations, however, a manu-
facturer may bypass its wholesaling organization entirely, if the producer decides to serve large
retailer customers or even consumers directly. One major distiller bottles own-label spirits for
a UK grocery chain and separates this operation completely from the company’s sales office,
which serves other retailers.
Coca-Cola seeks more more popular. Getting its products into

control over distribution Building customer more stores, restaurants, bakeries and
other outlets is only the beginning. The com-
channels relationships pany arranges for branded cooling units to be
prominently positioned where customers can
Coca-Cola depends on partners, agents, see and reach them. It also provides colourful
stockists and the efforts of its own sales signs to build demand at the point of purchase.
offices to achieve growth, as much as the com- These are only a few of the supports it provides to its
pany requires a desirable product and strong brand able to stockists, working closely with its locally based bottlers
attract consumers. Can Coca-Cola double its global revenue and distributors.
to $200 billion by 2020? That is one major goal of the Atlanta In China, Coca-Cola is striving to become the most loved
beverage company’s long-term Vision 2020 plan for super- soft drink among China’s 355 million teenagers, riding on
charging future growth. Another goal is to be selling three its Share a Coke campaign. This has run for eight years
billion servings of its soft drinks every day by 2020, counting and is helping the brand resonate with its target audience
purchases in stores, restaurants, vending machines and every teens. However, the campaign alone cannot deliver suc-
other outlet where its beverages are available. Currently the cess. Coca-Cola’s bright red vending machines are now
company sells 1.9 billion daily servings of its beverages and commonplace in urban centres, which is one reason that
has sales of $36 billion. the nation’s average annual per capita consumption of its
To achieve these ambitious targets and compete with both beverages has reached 28 bottles. To support higher sales,
local brands and multinational rivals such as PepsiCo, Coca-Cola Coca-Cola has joint ventures with several Chinese enter-
is working with bottlers, agent distributors, and retail accounts prises, to build new production facilities, open more ware-
to get its 500-plus beverage brands to customers worldwide. houses, identify more stockists, expand the delivery fleet,
Twenty-one of its brands each achieve annual sales of over a and computerize routes for higher efficiency. Without third
billion dollars, including Fanta, Sprite, Powerade, Schweppes, party assistance, in the form of local partners, distribution
Aquarius, Minute Maid, Dasani, Fuze Tea and, of course, Coca- agents and retail stockists, Coca-Cola could not achieve
Cola. More than 75 per cent of its revenue comes from non-US its growth projections.
sales, which is why the company is expanding distribution in Sources: Bill Pride and O.C. Ferrell, Marketing, Cengage South-Western,
international markets and making its brands more visible to 2012; Coca-Cola, 2015; www.coca-cola.co.uk/packages/history/our-story-
customers when and where they want to buy. 2000-to-now-living-positively-125-years-on, April 2015; www.coca-cola-
company.com/our-company/infographic-coca-cola-at-a-glance, May 2018;
For example, Coca-Cola has its eye on the fast-growing How Coca-Cola is targeting China’s 355 million teens to Share a Coke, The
market in India, where ready-to-drink beverages are becoming Drum, April 28 2017.
facilitating agencies Facilitating agencies

Organizations such as
transport companies, The total marketing channel is more than a chain linking the producer, intermediary and
insurance companies,
advertising agencies,
buyer. Facilitating agencies – transport companies, insurance companies, advertising
marketing research agencies, marketing research agencies and financial institutions – may perform activities
agencies and financial that enhance channel functions. Note, however, that any of the functions these facilitat-
institutions that perform ing agencies perform may be taken over by the regular marketing intermediaries in the
activities that enhance marketing channel.
channel functions.
The basic difference between channel members and facilitating agencies is that
channel members perform the negotiating functions (buying, selling and taking title),
whereas facilitating agencies do not: they perform only the various tasks that are detailed below.5
In other words, facilitating agencies assist in the operation of the channel, but they do not sell
products. The channel manager may view the facilitating agency as a subcontractor to which
various distribution tasks can be farmed out according to the principle of specialization and divi-
sion of labour.6
Channel members (producers, wholesalers, distributors or retailers) may rely on facilitating agen-
cies because they believe that these independent businesses will perform various activities more
efficiently and more effectively than they themselves could. Facilitating agencies are functional
specialists that perform special tasks for channel members without getting involved in directing
or controlling channel decisions. Public warehouses, finance companies, transport companies,
trade shows and trade markets are facilitating agencies that expedite the flow of products through
marketing channels.
Public warehouses
Public warehouses are storage facilities available for a fee. Producers, wholesalers
public warehouses
Storage facilities avail-
and retailers may rent space in a warehouse instead of constructing their own facili-
able for a fee. ties or using a merchant wholesaler’s storage services. Many warehouses also order,
deliver, collect accounts and maintain display rooms where potential buyers can inspect
products.
To use goods as collateral for a loan, a channel member may place products in a bonded ware-
house. If it is too impractical or expensive to transfer goods physically, the channel member may
arrange for a public warehouser to verify that goods are in the channel member’s own facilities and
then issue receipts for lenders.7 Under this arrangement, the channel member retains possession
of the products but the warehouser has control. Many field public warehousers know where their
clients can borrow working capital and are sometimes able to arrange low-cost loans.
Finance companies
Wholesalers and retailers may be able to obtain financing by transferring ownership of products to a
sales finance company or bank while retaining physical possession of the goods. Often called ‘floor
planning’, this form of financing enables wholesalers and retailers – especially car and electrical
appliance dealers – to offer a greater selection of products for customers and thus increase sales.
Loans may be due immediately upon sale, so products financed this way are usually well known,
sell relatively easily and present little risk.
Other financing functions are performed by factors – organizations that provide clients with
working capital by buying their accounts receivable or by lending money, using the accounts
receivable as collateral. Most factors minimize their own risks by specializing in particular industries,
in order to better evaluate individual channel members within those industries. Factors usually
lend money for a longer time than banks. They may help clients improve their credit and collection
policies, and may also provide management expertise.
Transport companies
Rail, road, air and other carriers are facilitating agencies that help manufacturers and retailers trans-
port products. Each form of transport has its own advantages. Containerization is popular for imports
and exports (see Figure 15.3). Railways ship large volumes of bulky goods at low cost; in fact, outside
the UK, a ‘unit train’ is the cheapest form of overland transport for ore, grain or other commodi-
ties. Air transport is relatively expensive but is often preferred for shipping high-value or perishable
goods. Trucks, which usually carry short-haul, high-value goods, now carry more and more products
because factories are moving closer to their markets. As a result of technological advances, pipelines
now transport powdered solids and fluidized solid materials, as well as petroleum and natural gas.
Transport companies sometimes take over the functions of other middlemen. Due to the ease
and speed of using air transport for certain types of product, parcel express companies can elim-
inate the need for their clients to maintain large stocks and branch warehouses. In other cases,
freight forwarders perform accumulation functions by combining less than full shipments into full
loads and passing on the savings to customers, perhaps charging a wagon rate rather than a
less-than-wagon rate.
Figure 15.3
Many consumer durables and food lines depend
on sea freight to reach their intended markets
Trade shows and trade markets

Trade shows and trade markets enable manufacturers or wholesalers to exhibit products
trade shows
to potential buyers, and so help the selling and buying functions. Trade shows are
Industry exhibitions that
offer both selling and industry exhibitions that offer both selling and non-selling benefits.8 On the selling side,
non-selling benefits. trade shows let vendors identify prospects, gain access to key decision-makers, dis-
seminate facts about their products, services and personnel, and actually sell products
and service current accounts through contacts at the show.9 Trade shows also allow a
company to reach potential buyers who have not been approached through regular selling efforts.
In fact, many trade show visitors have not recently been contacted by a sales representative of any
company within the past year. Many of these individuals are willing to travel several hundred miles
to attend trade shows to learn about new goods and services. The non-selling benefits include
opportunities to maintain the company image with competitors, customers and the industry, gather
information about competitors’ products and prices, and identify potential channel members.10
Trade shows have a positive influence on other important marketing variables, such as maintaining
or enhancing company morale, product testing and product evaluation.
Trade shows can permit direct buyer–seller interaction and may eliminate the need for agents.
Companies exhibit at trade shows because of the high concentration of prospective buyers
for their products. Studies show that it takes, on average, 5.1 sales calls to close an industrial
business-to-business sale but less than one sales call (0.8) to close a trade show lead. The
explanation for the latter figure is that more than half of the customers who purchase a product
based on information gained at a trade show order the product by phone or email after the
show. When customers use these more impersonal methods to gather information, the need
for major sales calls to provide such information can be eliminated. Most manufacturers have
sales and technical personnel who attend relevant trade shows in key target market territories.
Birmingham’s National Exhibition Centre (NEC) offers a 240-hectare (600-acre) site, with open
display areas, plus 125 000 square metres (156 000 square yards) of covered exhibition space,
hotels, parking for thousands of cars, plus rail and air links. Each year there are toy,
trade markets fashion, giftware and antique trade fairs at the NEC, when trade customers can select
Relatively permanent
facilities that businesses
merchandise for their next sales seasons. Trade markets are relatively permanent
can rent to exhibit prod- facilities that businesses can rent to exhibit products year-round. At these markets,
ucts year-round. such products as furniture, home decorating supplies, toys, clothing and gift items are
sold to wholesalers and retailers.
Retailing
retailing Retailing includes all transactions in which the buyer intends to consume the product
All transactions in which through personal, family or household use. The buyers in retail transactions are the
the buyer intends to ultimate consumers.
consume the product A retailer is a business that purchases products for the purpose of reselling them to
through personal, family
the ultimate consumers – the general public – often from a shop or store, but increasingly
or household use.
also or instead online, adopting a multi-channel strategy. As the link between producers
and consumers, retailers occupy an important and highly demanding position in the
retailer marketing channel. It is complicated, too: retailers sell other companies’ products, yet
A business that pur- have to devise their own product/service mixes. They devise their own target market
chases products for the strategies and conduct analyses of marketing opportunities. The merchandise they sell
purpose of reselling them derives from producers that have undertaken their own analysis of marketing opportuni-
to ultimate consumers –
the general public – often
ties and developed their own target market strategies and brand positioning. Producers
from a shop or store. and retailers have to align these strategies in order for all channel members to make
adequate financial returns, while ultimately striving to give satisfaction to the consumer.
The growth of retail own-label brands has added to the complexity, with retailers now
creating their own brands, products and designs of merchandise, often retailed alongside the
proprietary brands of manufacturers.
By providing assortments of products to match consumers’ requirements, retailers create place,
time, possession and form utilities:
●● Place utility means moving products from wholesalers or producers to a location where con-
sumers want to buy them.
●● Time utility involves maintaining specific business hours to make products available when con-
sumers want them.
●● Possession utility means facilitating the transfer of ownership or use of a product to consumers.
●● In the case of services such as hairdressing, dry cleaning, restaurants and car repairs, retailers
themselves develop most of the product utilities. The services of such retailers provide aspects
of form utility associated with the production process.
Retailers of services usually have more direct contact with consumers and more opportunity to
alter the product in the marketing mix (see Chapter 13).
central business
district (CBD)
The traditional hub of Retail locations
most cities and towns;
the focus for shopping, The traditional hub of most cities and towns is the central business district (CBD),
banking and commerce, the focus for shopping, banking and commerce, and hence the busiest part of the whole
and hence the busiest area for traffic, public transport and pedestrians.11 Examples are London’s Oxford and
part of the whole area. Regent Streets, the Champs Elysées in Paris and Berlin’s Kurfürstendamm.12 The CBD
is sub-divided into zones: generally, retailers are clustered together in a zone; banking
and insurance companies locate together; legal offices occupy neighbouring premises;
prime pitch
The area at the centre of municipal offices and amenities are built on adjoining plots (town hall, library, law courts,
the shopping zone with art galleries). Within the shopping zone certain streets at the centre of the zone will have
the main shops and the the main shops and the highest levels of pedestrian footfall. In this area, known as the
highest levels of pedes- prime pitch, the key traders or magnet brands will occupy prominent sites, so gen-
trian footfall.
erating much of the footfall. Other retailers vie to be located close to these key traders
so as to benefit from the customer traffic they generate. The highest rents are therefore
customer thresholds
paid for such sites. Secondary sites are suitable for speciality retailers or discounters,
The number of customers which have either lower margins or lower customer thresholds – the number of cus-
required to make a profit. tomers required to make a profit. Figure 15.4 shows the composition of a typical central
business district (CBD).13
A 1
B
CBD Banks, building societies, Town hall, art

Bus station insurance companies gallery, library
Railway station Solicitors/legal Covered shopping
Central shopping area centres/malls
Coach station
Head Post Office Peak land value
Main road intersection (retail)
Minor road Department stores
Zone in transition*
Railway Market hall
Figure 15.4 Peak overall land
The composition of a Canal Law courts
value (CBD)
typical central busi-
ness district (CBD)
Sports stadium
*The zone in transition is the land use between the CBD and
Source: Lyndon Simkin suburban housing areas: light manufacturing, transport termini, Cinema/theatre
and Sally Dibb wholesaling, garages, medical, multi-family residences.
Historically, as urban areas expanded during the early part of the twentieth century,
suburban centres they joined and subsequently swallowed up neighbouring towns and villages. The shop-
Shopping centres cre- ping centres of these settlements survived to become the suburban centres of the now
ated at major road junc- larger city or town. Where the expansion of the town was planned, suburban centres
tions that cater for local
were created at major road junctions to cater for local shopping needs and reduce
shopping needs.
demands and congestion in the CBD.14 During the 1970s, as rents in the CBD rose
and sites sufficient for large, open-plan stores became harder to obtain, retailers looked
edge-of-town sites to the green fields adjacent to outer ring roads for expansion. The superstore era had
Retail locations on unde- dawned, as the major grocery, carpet and furniture, electrical and DIY retailers opened
veloped land, providing free-standing retail ‘sheds’. Needing more space to display stock and sell their goods
purpose-built stores, than they could afford or obtain in the CBD or even suburban centres, but still requir-
parking facilities and
amenities for their cus-
ing high traffic levels, they sought sites adjacent to major road arteries into the CBD.
tomers on the edge of a Relocating these stores to non-retail areas of the city, and particularly to e
dge-of-town
built-up area. sites, helped redistribute traffic volumes and make use of the latest infrastructure. Retail-
ers no longer had to occupy run-down warehouses; they could acquire undeveloped
land on the edge of built-up areas and provide purpose-built stores, parking facilities
retail parks
Groupings of freestand- and amenities for their customers.15 The progression of the out-of-town concept and
ing superstores, forming relaxation of planning regulations by local authorities led to the mid-1980s initiation
a retail village. of retail parks, in which free-standing superstores, each over 2500 square metres
(27 500 square feet) are grouped together to form retail villages or parks. Located close
to major roads, they offer extensive free parking.
department stores
Physically large stores
that occupy prominent Major store types
positions in the traditional
heart of the town or city, Retail stores are often classified according to width of product mix and depth of product
or as anchor stores in lines. Department stores are physically large – around 25 000 square metres (275 000
out-of-town malls.
square feet) – and occupy prominent positions in the traditional heart of the town or city,
the central shopping centre. Out-of-town shopping malls, such as Manchester’s Trafford
variety stores
Park or Kent’s Bluewater, include leading department stores as ‘anchors’ to attract con-
Slightly smaller and sumers and smaller retail store tenants. Department stores are characterized by wide
more specialized stores product mixes in considerable depth for most product lines. Within a department store,
than department stores, related product lines are organized into separate departments, such as cosmetics, men’s
offering a reduced range and women’s fashions and accessories, housewares, home furnishings, haberdashery
of merchandise.
and toys. Variety stores tend to be slightly smaller and are often more specialized, such
as Wilkinson’s or M&S, offering a reduced range of merchandise.
catalogue showroom In a catalogue showroom such as Argos, one item of each product class is on
Outlets in which one item display and the remaining inventory is stored out of the buyers’ reach. Using catalogues
of each product class that have been mailed to their homes or which are available on counters in the store,
is on display and the customers order the goods at their leisure, often from home with ‘click and collect’. Shop
remaining inventory is
stored out of the buyers’
assistants usually complete the order form and then collect the merchandise from the
reach. adjoining warehouse. Such showrooms tend to be in secondary town centre locations
or on retail parks.
In the 1960s, grocery retailers led by Sainsbury’s, Tesco and Fine Fare expanded in to
supermarkets and 1000-square-metre (11 000-square-foot) supermarkets, either in the city centre or within
grocery superstores suburban centres. As product ranges grew, self-service requirements called for more
Large, self-service stores
space; and as city centre rents rose, the age of the superstore arrived. Size requirements
that carry a complete line
of food products as well as grew further still, and there was an exodus from the city centre. In the 1980s, the average
other convenience items. grocery superstore grew from 2500 square metres to 5500 square metres (27 500 to
61 000 square feet) and moved away from the suburban centre either to free-standing
superstore sites or out-of-town retail parks with plenty of car parking. Now they are often
category management over 6000 square metres. Supermarkets and grocery superstores are large, self-
A core approach to
service stores that carry a complete line of food products as well as other convenience
merchandising, inventory
control and display in items, such as cosmetics, non-prescription medicines and kitchenware. Some, such as
many retailers, with Asda or Tesco, sell clothing and electrical appliances. Grocery superstores are laid out in
similar lines from sev- departments for maximum efficiency in stocking and handling products, but have central
eral suppliers being checkout facilities by the exits to the ample, free parking. Category management is
controlled by a category
now a core approach to merchandizing, inventory control and display in many retailers,
manager and managed
as a discrete unit. with similar lines from several suppliers being controlled by a category manager. He or
she is often an employee of one of the major suppliers to the category, giving that sup-
plier significant power over its rivals within the particular retailer account. Hypermarkets
hypermarkets take the benefits of the superstore even further, using their greater size over 9000 square
Stores that take the ben- metres (100 000 square feet) to give the customer a wider range and depth of products.
efits of the superstore The move away from the city or town centre was not confined to multiple grocery
even further, using their
greater size to give the
retailers. Furniture, carpets and electrical appliances require large display areas, ranges
customer a wider range with strength in depth and, if possible, one-floor shopping. The concentration of retailers
and depth of products. in the city centre led to limited store opening opportunities – large enough sites were hard
to find – and to high rents. Originally freestanding, these 2000 to 3500-square-metre
(22 000 to 39 000-square-foot) stores are increasingly found in out-of-town retail parks.
discount sheds
Cheaply constructed, Discount sheds are cheaply constructed, one-storey retail stores with no window
one-storey retail stores displays and few add-on amenities. Oriented towards car-borne shoppers, they have
with no window displays large, free car parks and spacious stock facilities to enable shoppers to take delivery of
and few add-on ame- their purchases immediately.
nities; oriented towards
Often categorized separately, category killers are large stores, tending to be super-
car-borne shoppers.
store sized, that specialize in a narrow line of merchandise. They are known as category
killers – an Americanism – because they have a huge selection within a narrow category
category killers of merchandise and ‘kill off’ the smaller stores retailing similar lines of merchandise.
Large stores, tending They require high footfall to be viable and tend to be located in large towns and cities
to be superstore sized, on edge-of-town sites. The expansion of large DIY operators such as B&Q, Castorama
which specialize in a nar-
and Homebase has led to the closure of many small, traditional hardware stores. Currys
row line of merchandise.
(electrical goods), Office World (office supplies) and the superstores of Sports Direct
(sporting goods) are examples of category killers.
warehouse clubs A rapidly growing form of mass merchandising, warehouse clubs are large-scale,
Large-scale, members- members-only selling operations combining cash and carry wholesaling with discount
only selling operations retailing. For a nominal annual fee, small retailers can purchase products at wholesale
combining cash-and- prices for business use or for resale. Warehouse clubs also sell to ultimate consumers
carry wholesaling with
discount retailing.
affiliated with credit unions, schools, hospitals and banks, but, instead of paying a mem-
bership fee, individual consumers pay about five per cent more on each item than do
business customers.
speciality shops Most shopping centres and towns have a major department store. At the other end of
Stores that offer self- the spectrum is the traditional corner shop. Few small shops these days retail a variety of
service but a greater level product groups. In suburban areas, such shops tend to specialize in retailing one conve-
of assistance from store
nience product category – newsagents with cigarettes and newspapers, greengrocers,
personnel than depart-
ment stores, and carry a chemists, hair salons and so on. In the town centre (CBD) few retailers of convenience
narrow product mix with goods, with their low margins, can afford the rents and business tax. Instead, the small
deep product lines. store retailers – 250 square metres (2750 square feet) and under – in the CBD specialize
in shopping or comparison items: clothing, footwear, computer games and entertain-
ment, cosmetics, jewellery. Speciality shops offer self-service but a greater level of
markets
assistance from store personnel than department stores and carry a narrow product
Halls where fresh foods,
clothing and housewares mix with deep product lines. A typical 300-square-metre (3300-square-foot) footwear or
are sold, catering for clothing retail store will have window displays to entice passing pedestrians, one or two
budget-conscious shop- checkout points, and three or four assistants. Such stores depend on the town centre’s
pers who typically have a general parking facilities and on proximity to a key trader, such as Boots or Marks &
middle- and down-mar-
Spencer, which will generate pedestrian traffic.
ket social profile.
In most towns there are wholesale markets selling meat, greengrocery, fruit, flowers
and fish from which speciality retailers make their inventory purchases. Traditional, too,
convenience stores is the general retail market selling to the general public, either in recently refurbished
Shops that sell essential Victorian market halls or in council-provided modern halls adjacent to the town centre
groceries, alcoholic shopping malls. Such market halls sell fresh foods, clothing and housewares, and cater for
drinks, medicines and budget-conscious shoppers who typically have a middle and down-market social profile.
newspapers outside
the traditional shopping
As the number of neighbourhood grocery stores declined in the 1960s and 1970s
hours. with the expansion of the superstore-based national grocery chains, a niche emerged in
the market to be filled by convenience stores. These shops – also known as ‘C-stores’
– sell essential groceries, alcoholic drinks, medicines and newspapers outside the tra-
ditional 9.00 a.m. to 6.00 p.m. shopping hours. The major superstores extended their opening
hours to 8.00 p.m. to facilitate after-work shopping, but no major retailers catered for ‘emergency’
or top-up shopping. There was a resurgence of the traditional corner shop located in suburban
housing estates, offering limited ranges but extended opening hours. Consumers pay a slight price
premium, but receive convenience in terms of location and opening hours. Tesco Express is an
example of retail majors targeting the growth of the C-store.
Retail villages initially sold seconds – imperfect new merchandise similar to the lines
factory outlet villages
Converted rural buildings stocked in many factory shops – in converted mills or rural locations, in some instances
or purpose-built out- with eight to ten shop units clustered together. Now developers are designing and
of-town retail parks for building out-of-town factory outlet villages, such as Cheshire Oaks on Merseyside,
manufacturers’ outlets for major manufacturers’ and branded goods, with up to 20 mini-superstores grouped
retailing branded sec-
together. Increasingly, major manufacturers and retailers are using these stores to off-
onds, excess stocks and
last season’s lines, or load last season’s lines, excess stocks and branded seconds, or to trial new lines. These
trialling new lines. outlets are very popular for designer-label clothing, linens, crockery and homewares.
Cash and carry warehouses, such as Booker or Makro, retail extensive ranges of
groceries, tobacco, alcohol, beverages and confectionery to newsagents, small super-
cash and carry markets and convenience stores and the catering trade (hotels, guest houses, restau-
warehouses
rants and cafés). By purchasing from manufacturers in bulk, cash and carry companies
Outlets that retail exten-
sive ranges of groceries, can offer substantial price savings to their customers, who in turn can add a retail margin
tobacco, alcohol, bever- without alienating their customers.
ages and confectionery
to newsagents, small
supermarkets and con-
Non-store retailing
venience stores, and the Non-store retailing is the selling of goods or services outside the confines of a retail
catering trade.
facility. This form of retailing accounts for an increasing percentage of sales and includes
personal sales methods, such as in-home retailing and telemarketing, and non-personal
non-store retailing sales methods, such as automatic vending and mail order retailing (which includes cat-
The selling of goods or alogue retailing). Of course, the main source of growth for non-store sales has been the
services outside the con- use of the internet to promote and sell goods and services; orders can be placed online
fines of a retail facility. using a credit card from home, office, or, increasingly, while mobile via a smartphone,
as explored in Chapter 19.
Retail technology innova-

Innovation consume, process and use knowledge like
tions changing customer and change a human being, only without the cost of
employing a human. In a scenario where a
experiences customer has a problem which Amelia the
robot is unable to address, Amelia observes
Fashion house Ted Baker has followed House of
a human helper tackling the problem, decon-
Fraser, Hawes & Curtis and Bentalls in introducing beacon-
structs how the problem has been solved and next
enabled mannequins. These let customers receive details
time around Amelia will be able to tackle the issue unaided.
about the clothes on display via their mobile. Customers using
In retail Amelia could deal with phone, email or web chat
the app when in range access product information and pur-
queries. Computers already direct data to the right person or
chase on the phone. Andy Harding, Multichannel D irector at
department and they suggest possible answers, but Amelia
House of Fraser said, ‘With such demand from mobile devices,
would go one step further and look to fully replace the human.
it’s important we continue to bring new technology to our
When combined with robotics, could we see the sales assis-
stores and believe that the Iconeme App provides retailers
tant replaced by Amelia inside a robot?
with an opportunity to really engage with their customers.’
In Land Rover showrooms augmented reality technology is
Other changes are imminent in store. Amelia, which was
bridging the gap between the announcement of a new model
launched at the end of 2014, is a multilingual artificial intelli-
and the vehicles arriving in showrooms. The new technology
gence engine designed to take over about a quarter of all retail
delivers a lifelike 3D model to showrooms. When visiting the
jobs within two decades. ‘Amelia helps deliver business value,
Land Rover retailer, customers put on the virtual reality head-
while also creating new lines of revenue and new customer
set and are immersed in a detailed photo-realistic 3D model
experiences. She turns every customer-facing touchpoint
of the new car. Customers will be able to walk around the
into a more enjoyable experience’ (www.ipsoft.com/amelia/).
vehicle to sense the size and scale of the car. When arriving
It is claimed that this new artificial intelligence will be able to
at the driver’s door, it will open to allow a full 360-degree units to enable customers to skip the checkout process. Sains-
view of the interior. Laura Schwab, Jaguar Land Rover UK bury’s and other supermarket chains have been providing
Marketing Director said, ‘This will give an exciting immersive self-scanning checkouts for some years. Now the Co-operative
experience, beyond that of a traditional online configurator or and Tesco are experimenting with no checkout or till what-
sales brochure.’ Virtual reality is one of the biggest innovations soever. A smartphone app scans each of a shopper’s trolley
for retailers to adopt in many years. items, but also permits payment through a customer’s phone,
Instead of inserting a coin into a shopping trolley to release so removing any need for tills. This development will speed up
it for use, if a customer’s store loyalty card is used instead, the shopping experience and provide customer satisfaction, as
the store knows the identity of the shopper as s/he wanders well as remove significant costs from Tesco’s operations given
around. Using insight from the shopper’s previous visits and the expense of checkout personnel and at-till technology.
purchases, offers may be tailored to that shopper in-store. The challenge for retail marketers is to embrace technol-
Supermarkets have been trialling Jumbo 747-style screens in ogy which enhances customer experience, befits the brand
shopping trolleys or in-store plasma displays, which via radio and its personality, results in a return on investment, and
tripping display bespoke messaging to individual shoppers. which targeted consumers are ready to accept. Simply adopt-
Customers searching for their absent size on a rack in River ing new toys because they are fun, innovative, newsworthy or
Island now find a helpful sales assistant gliding up, tablet in create excitement for the brand team must be avoided.
hand. This device can scan the barcode and instantly check Sources: ‘House of Fraser, Hawes & Curtis, Bentalls trial beacon-enabled manne-
the store’s stock-room for the right size of the item. This quins’, Essential Retail, 12 August 2014; Meet ‘Amelia: the computer that’s after
your job’, The Telegraph, 29 September, 2014; ‘Land Rover offers augmented
avoids losing the sale, but also enables the shopper to con-
reality preview of new car’, Luxury Daily, 12 December 2014; retail-innovation.
tinue browsing, as well as providing good customer service. com, April 2015; www.iconeme.com/where.html and www.ipsoft.com/amelia,
Shoppers dislike queuing and nowhere more than in super- June 2018; Waitrose and River Island, 2017; ‘Tesco trials shopping without tills,
BBC News, 29 June 2018.
markets at their tills. Waitrose offers hand-held self-scanning
Certain non-store retailing methods are in the category of direct marketing: the
direct marketing
The use of non-personal use of non-personal media, the internet or telesales to introduce products to consum-
media, the internet or ers, who then purchase the products by mail, telephone or the internet. In the case of
telesales to introduce telephone orders, sales people may be required to complete the sales. Telemarketing,
products to consumers, mail order and catalogue retailing are all examples of direct marketing, as are sales gen-
who then purchase the
erated by coupons, direct mail and Freephone 0800 numbers and the web. This topic
products by mail, tele-
phone or the internet. is revisited in Chapter 18 of Marketing: Concepts and Strategies.
In-home retailing is selling via personal contacts with consumers in their own
homes. Companies such as Avon or Amway send representatives to the homes of pre-
in-home retailing selected prospects. A variation of in-home retailing is the home demonstration, or party
Selling via personal con- plan, which companies such as Tupperware, Ann Summers and Mary Kay Cosmetics
tacts with consumers in
use successfully. One consumer acts as a host and invites a number of friends to view
their own homes.
merchandise at his or her home, where a salesperson is on hand to demonstrate the
products.
telemarketing Many organizations use the telephone to strengthen the effectiveness of traditional
The direct selling of marketing methods. Telemarketing is the direct selling of goods and services by tele-
goods and services by phone, based on either a cold canvass of the telephone directory or a pre-screened
telephone, based on list of prospective clients. Telemarketing can generate sales leads, improve customer
either a cold canvass of
the telephone directory
service, speed up collection of overdue accounts, raise funds for not-for-profit groups
or a pre-screened list of and gather market data.16 In some cases, telemarketing uses advertising to encourage
prospective clients. consumers to initiate a call or to request information about placing an order. Such
advertisements will include ‘a call to action’ to prompt target consumers to dial an 0800
Freephone number. This type of retailing is only a small part of total retail sales, but its
use is growing. Research indicates that telemarketing is most successful when combined with
other marketing strategies, such as direct mail or advertising in newspapers, radio and television.
Automatic vending makes use of coin- or credit-card-operated self-service

automatic vending
The use of coin- or machines and accounts for less than one per cent of all retail sales. However, there are
credit-card-operated approximately 1.5 million vending machines in the UK, accounting for sales of around
self-service machines to £4 billion.
sell small, standardized, Mail order retailing involves selling by description, because buyers usually do not
routinely purchased
see the actual product until it arrives in the mail. Sellers contact buyers through direct
products such as chew-
ing gum, sweets, news- mail, catalogues, television, radio, magazines and newspapers and increasingly via the
papers, cigarettes, soft web. A wide assortment of products, such as DVDs, books and clothing is sold to
drinks and coffee. consumers through the mail. When catalogue retailing – a specific type of mail order
retailing – is used, customers receive their catalogues by mail, or they may pick them up
if the catalogue retailer has stores. The Next Directory is an example. Although in-store
mail order retailing
visits result in some catalogue orders, most are placed by mail, telephone or the internet.
Selling by description
because buyers usually
do not see the actual
product until it arrives in Physical distribution
the mail.
Wholesalers, in their various guises, are essential ‘players’ in many businesses’ market-
ing channels. Also important is the ability to physically deliver products to customers.
catalogue retailing
A type of mail order retail- Physical distribution is a set of activities consisting of order processing, materials han-
ing in which customers dling, warehousing, inventory management and transportation, used in the movement
receive their catalogues of products from producers to consumers or end users. Planning an effective physical
by mail, the web, or pick distribution system can be a significant decision in developing a marketing strategy. A
them up if the catalogue
company that has the right goods in the right place at the right time in the right quantity,
retailer has stores.
and with the right support services, is able to sell more than competing businesses that
fail to accomplish these goals. Physical distribution is an important variable in a market-
physical distribution ing strategy because it can decrease costs and increase customer satisfaction. In fact,
A set of activities con- speed of delivery, along with service and dependability, is often as important to buyers as
sisting of order process- cost. In some situations – for example the emergency provision of a spare part for vital
ing, materials handling, production-line machinery – it may even be the single most important factor. For most
warehousing, inventory
management and trans-
companies, physical distribution accounts for about a fifth of a product’s retail price.
portation used in the Physical distribution deals with physical movement and inventory holding – the storing
movement of products and tracking of inventory or stock until it is needed – both within and among marketing
from producers to con- channel members. Often, one channel member will arrange the movement of goods for
sumers or end-users. all channel members involved in exchanges. For example, a packing company ships
fresh salmon and champagne (often by air) to remote markets on a routine basis. Fre-
quently, buyers are found while the goods are in transit.
The physical distribution system is often adjusted to meet the needs of a channel member.
For example, an agricultural equipment dealer who keeps a low inventory of replacement parts
requires the fastest and most dependable service when parts not in stock are needed. In this case,
the distribution cost may be a minor consideration when compared with service, dependability
and promptness. Grocery retailers, such as Aldi and ASDA, receive some deliveries to central and
regional warehouses, whereas other deliveries from manufacturers such as Heinz or Kellogg’s
go directly to individual stores as required, and insisted upon, by the retail companies. Failure to
deliver products to customers where, when and how they demand is likely to lose orders, diminish
customer loyalty and provide opportunities for competing suppliers, and is not going to create a
mutually satisfying relationship between supplier and customer.
objective of physical
distribution Physical distribution objectives
Decreasing costs while
increasing customer For most companies, the main objective of physical distribution is to decrease costs
service. while increasing customer service.17 In the real world, however, few distribution sys-
tems manage to achieve these goals in equal measure. The large stock inventories and
rapid transport, essential to facilitate high levels of customer service, drive up costs. On the other
hand, reduced inventories and slower, cheaper shipping methods cause customer dissatisfaction
because of stock-outs or late deliveries. Physical distribution managers strive for a reasonable
balance of service, costs and resources. They determine what level of customer service is accept-
able yet realistic, develop a ‘system’ outlook of calculating total distribution costs, and trade higher
costs at one stage of distribution for savings in another. In this section these three performance
objectives are examined more closely.
customer service Customer service

To varying degrees, all businesses attempt to satisfy customer
Customer satisfaction needs and wants through a set of activities known collectively as customer service.
in terms of physical Many companies claim that service to the customer is their top priority. These companies
distribution, based on see service as being as important in attracting customers and building sales as the cost
availability, promptness
or quality of the companies’ products.
and quality.
Customers require a variety of services. At the most basic level, they need fair prices,
acceptable product quality and dependable deliveries.18 There are many facets of service, as
described throughout this book, but in the physical distribution area, availability, promptness and quality
are the most important dimensions of customer service. These are the main factors that determine how
satisfied customers are likely to be with a supplier’s physical distribution activities.19 Customers seeking a
higher level of customer service may also want sizeable inventories, efficient order processing, availability
of emergency shipments, progress reports, post-sale services, prompt replacement of defective items
and warranties. Customers’ inventory requirements influence the level of physical distribution service
they expect. For example, customers who want to minimize inventory storage and shipping costs
may require that suppliers assume the cost of maintaining inventory in the marketing channel, or the
cost of premium transport.20 Since service needs vary from customer to customer, companies must
analyze and adapt to customer preferences. Attention to customer needs and preferences is crucial to
increasing sales and obtaining repeat sales. A company’s failure to provide the desired level of service
may mean the loss of customers. Without customers there can be no profit.
Companies must also examine the service levels offered by competitors and match those stan-
dards, at least when the costs of providing the services can be balanced by the sales generated.
For example, companies may step up their efforts to identify the causes of customer complaints or
institute corrective measures for billing and shipping errors. In extremely competitive businesses,
such as the market for vehicle parts, businesses may concentrate on product availability. To com-
pete effectively, manufacturers may strive for inventory levels and order processing speeds that
are deemed unnecessary and too costly in other industries.21
Services are provided most effectively when service standards are developed and stated in
terms that are specific, measurable and appropriate for the product – for example ‘Guaranteed
delivery within 48 hours’. Standards should be communicated clearly both to customers and
employees, and rigorously enforced. In many cases, it is necessary to maintain a policy of mini-
mum order size to ensure that transactions are profitable: special service charges are added to
orders smaller than a specified quantity. A number of carrier or courier companies operate on this
basis. Many service policies also spell out delivery times and provisions for back ordering, returning
goods and obtaining emergency shipments. The overall objective of any service policy should be
to improve customer service just to the point beyond which increased sales would be negated by
increased distribution costs.
Total distribution costs Although physical distribution managers try to minimize the costs of
each element in the system – transportation, warehousing, inventory carrying, order entry/customer
service and administration – decreasing costs in one area often raises them in another. Figure 15.5
shows the percentage of total costs that physical distribution functions represent. By using a total
cost approach to physical distribution, managers can view the distribution system as a whole,
not as a collection of unrelated activities. The emphasis shifts from lowering the separate costs of
individual functions to minimizing the total cost of the entire distribution system.
4%
3%
24%
21% Transportation
Warehousing
Customer service/
order entry
47% Administration
Figure 15.5
Proportional cost of each Inventory carrying
physical distribution function
as a percentage of total dis-
tribution costs
The total cost approach calls for analyzing the costs of all possible distribution alterna-
total cost analysis
Weighs inventory levels tives, even those considered too impractical or expensive. Total cost analysis weighs
against warehousing inventory levels against warehousing expenses; materials handling costs against various
expenses; and materials modes of transport; and all distribution costs against customer service standards. The
handling costs against costs of potential sales losses from lower performance levels are also considered. In
various modes of trans-
many cases, accounting procedures and statistical methods can be used to calcu-
port; and all distribution
costs against customer late total costs. Where hundreds of combinations of distribution variables are possible,
service standards. computer simulations may be helpful. In no case is a distribution system’s lowest total
cost the result of using a combination of the cheapest functions; instead, it is the lowest
overall cost compatible with the company’s stated service objectives.
cost trade-offs
The off-setting of higher
Cost trade-offs A distribution system that attempts to provide a specific level of cus-
costs in one area of the
distribution system by tomer service for the lowest possible total cost must use cost trade-offs to resolve
lower costs in another conflicts about resource allocations. That is, higher costs in one area of the distribution
area, to keep the total system must be offset by lower costs in another area, if the total system is to remain
system cost-effective. cost-effective.
Trade-offs are strategic decisions to combine and recombine resources for greatest
cost-effectiveness. When distribution managers regard the system as a network of inter-
locking functions, trade-offs become useful tools in a unified distribution strategy.
The furniture retailer IKEA uses a system of trade-offs. To ensure that each store carries enough
inventory to satisfy customers in the area, IKEA groups its retail outlets into regions, each served
by a separate distribution centre. In addition, each IKEA store carries a five-week back stock of
inventory. Thus IKEA has chosen to trade higher inventory warehousing costs for improved cus-
tomer service.22 The remainder of this chapter focuses on order processing, materials handling,
warehousing, inventory management and transportation, all of which are essential physical distri-
bution activities. While none of these activities would normally be the responsibility of marketing
managers, their smooth deployment impacts on customer service levels, customer satisfaction
and also customers’ perceptions of a brand or business.
order processing
The receipt and trans- Order processing
mission of sales order
information. Order Processing The first stage in a physical distribution system is the receipt and
transmission of sales order information. Although management sometimes overlooks
the importance of these activities, efficient order processing facilitates product flow. Computerized
order processing, used now by many businesses, speeds the flow of information from customer to
seller.23 Indeed, in many industries key suppliers are linked ‘live’ to retailers’ or distributors’ tills and
order books: they are then able to replenish or supply exactly in line with demand and actual sales.
When carried out quickly and accurately, order processing contributes to customer satisfaction,
repeat orders and increased profits.
Generally, there are three main tasks in order processing:
1. order entry
2. order handling
3. order delivery.24
Order entry begins when customers or salespeople place purchase orders by mail, tele-
phone, text, fax or the web. In some companies, sales service representatives receive and enter
orders personally and also handle complaints, prepare progress reports and forward sales order
information.25
The next task, order handling, involves several activities. Once an order has been entered, it
is transmitted to the warehouse, where the availability of the product is verified; and to the credit
department, where prices, terms and the customer’s credit rating are checked. If the credit depart-
ment approves the purchase, the warehouse begins to fill the order. If the product requested is
not in stock, a production order is sent to the factory or the customer is offered a substitute item.
Thanks to technology, these various tasks are carried out simultaneously in many businesses and
in only a few seconds. When the order has been filled and packed for shipment, the warehouse
schedules pick up with an appropriate carrier. If the customer is willing to pay for express service,
priority transport, such as an overnight courier, is used. The customer is sent an invoice, inventory
records are adjusted and the order is delivered.
Order processing can be done manually or electronically, depending on which method provides
greater speed and accuracy within cost limits. Manual processing suffices for a small volume of
orders and is more flexible in special situations; electronic processing is more practical for a large
volume of orders and lets a company integrate order processing, production planning, inventory,
accounting and transport planning into a total information system.26 These days, most
electronic data inter-
change (EDI)
companies use electronic data interchange (EDI), which uses IT to integrate order
The use of IT to integrate processing with production, inventory, accounting and transportation. Many leading retail
order processing with groups, with products from groceries to electrical goods, have their stores networked to
production, inven- the head office. Suppliers are also linked electronically to the retailers’ head offices, so
tory, accounting and that stock can be ordered electronically.
transportation.
Materials handling
materials handling Materials handling, or the physical handling of products, is important for efficient
The physical handling of
products.
warehouse operations, as well as in transport from points of production to points of
consumption. The characteristics of the product itself often determine how it will be
handled. For example, fresh dairy produce has unique characteristics that determine
how it can be moved and stored. Materials handling procedures and techniques should increase
the usable capacity of a warehouse, reduce the number of times a good is handled, improve ser-
vice to customers and increase their satisfaction with the product. Packaging, loading, movement
and labelling systems must be coordinated to maximize cost reduction and customer
unit loading satisfaction.
Grouping one or more In Chapter 11, it was noted that the protective functions of packaging are import-
boxes on a pallet or skid,
permitting movement
ant considerations in product development. Appropriate decisions about packaging
of efficient loads by materials and methods allow for the most efficient physical handling; most companies
mechanical means. employ packaging consultants or specialists to accomplish this important task. Mate-
rials handling equipment is used in the design of handling systems. Unit loading is
grouping one or more boxes on a pallet or skid; it permits movement of efficient loads
containerization
The practice of consol- by mechanical means, such as forklifts, trucks or conveyor systems. Containerization
idating many items into is the practice of consolidating many items into a single large container that is sealed at
a single large container its point of origin and opened at its destination. As individual items are not handled in
that is sealed at its point transit, containerization greatly increases efficiency and security in shipping.
of origin and opened at
its destination, greatly
increasing efficiency and Warehousing
security in shipping.
Warehousing, the design and operation of facilities for storing and moving goods, is an
important physical distribution function. Warehousing provides time utility by enabling
warehousing companies to compensate for dissimilar production and consumption rates. That is,
The design and operation when mass production creates a greater stock of goods than can be sold immedi-
of facilities for storing ately, companies may warehouse the surplus goods until customers are ready to buy.
and moving goods.
Warehousing also helps stabilize the prices and availability of seasonal items. There
follows a description of the basic functions of warehouses and the different types of
warehouse available. Distribution centres, special warehouse operations designed so that goods
can be moved rapidly, are also examined.
Warehousing functions Warehousing is not limited simply to the storage of goods. When ware-
houses receive goods by wagon loads or lorry loads, they break the shipments down into smaller
quantities for individual customers; when goods arrive in small lots, the warehouses assemble the
lots into bulk loads that can be shipped out more economically.27 Warehouses perform the following
basic distribution functions:
1. Receiving goods. The merchandise is accepted, and the warehouse assumes responsibility
for the goods.
2. Identifying goods. The appropriate stock-keeping units are recorded, along with the quantity
of each item received; the item may be marked with a physical code, tag or other label, or it
may be identified by an item code (a code on the carrier or container) or by physical properties.
3. Sorting goods. The merchandise is sorted for storage in appropriate areas.
4. Despatching goods to storage. The merchandise is put away so that it can be retrieved when
necessary.
5. Holding goods. The merchandise is kept in storage and properly protected until needed.
6. Recalling and picking goods. Items customers have ordered are retrieved efficiently from stor-
age and prepared for the next step.
7. Marshalling the shipment. The items making up a single shipment are brought together and
checked for completeness or explainable omissions. Order records are prepared or modified
as necessary.
8. Despatching the shipment. The consolidated order is packaged suitably and directed to the
right transport vehicle; necessary shipping and accounting documents are prepared.28
Types of warehouse A company’s choice of warehouse facilities is an important strategic con-

sideration. By using the right warehouse, a company may be able to reduce transportation and
inventory costs or improve its service to customers; the wrong warehouse may drain company
resources. For example, a company that produces processed foods must locate its warehousing
close to main transport routes to facilitate delivery to supermarkets in different parts of the country.
Besides deciding how many facilities to operate and where to locate them, a company must deter-
mine which type of warehouse will be most appropriate. Warehouses fall into two general catego-
ries: private and public. In many cases, a combination of private and public facilities provides the
most flexible approach to warehousing. Many companies operate their own warehousing, whereas
others outsource this requirement to specialist inventory management and haulage companies.
inventory Inventory management

management
Inventory management involves developing and maintaining adequate assortments of
The development and
maintenance of adequate products to meet customers’ needs. Since a company’s investment in inventory usually
assortments of products to represents 30 to 50 per cent of its total assets, inventory decisions have a significant
meet customers’ needs. impact on physical distribution costs and the level of customer service provided. When
too few products are carried in inventory, the result is a stock-out, or shortage of
products, which results in fewer sales and customers switching to alternative brands.
stock-out
But when too many products or too many slow-moving products are carried, costs
Shortages of products
resulting from a lack increase, as do the risks of product obsolescence, pilferage and damage. The objective
of products carried in of inventory management, therefore, is to minimize inventory costs while maintaining an
inventory. adequate supply of goods.
There are three types of inventory cost:
1. Carrying costs are holding costs; they include expenditures for storage space and materials
handling, financing, insurance, taxes and losses from spoilage of goods.
2. Replenishment costs are related to the purchase of merchandise. The price of goods, handling
charges and expenses for order processing contribute to replenishment costs.
3. Stock-out costs include sales lost when demand for goods exceeds supply, and the clerical
and processing expenses of back ordering.
A company must control all the costs of obtaining and maintaining inventory in order to achieve
its profit goals. Management must therefore have a clear idea of the level of each type of cost
incurred. Customers’ expectations of product availability and tolerable delivery lead times will vary
between target market segments.
Inventory managers deal with two issues of particular importance. They must know
reorder point
The inventory level that when to reorder and how much merchandise to order. In general, to determine when to
signals the need to order order, a marketer calculates the reorder point, which is the inventory level that signals
more inventory. that more inventory should be ordered. Three factors determine the reorder point:
1. t he order lead time, which is the expected time between the date an order is placed
order lead time and the date the goods are received and made ready for resale to customers
The average time lapse 2. the usage rate or rate at which a product is sold or used up
between placing the
order and receiving it. 3. the quantity of safety stock on hand, or inventory needed to prevent stock-outs.
The reorder point can be calculated using the following formula:
usage rate
reorder point 5 (order lead time 3 usage rate) + safety stock
The rate at which a prod- Thus if order lead time is 10 days, usage rate is three units per day and safety stock
uct’s inventory is used is 20 units, the reorder point is 50 units.
or sold during a specific The inventory manager faces several trade-offs when reordering merchandise. Large
time period. safety stocks ensure product availability and thus improve the level of customer service;
they also lower order-processing costs because orders are placed less frequently. Small
safety stocks, on the other hand, cause frequent reorders and high order-processing
safety stock
Inventory needed to pre- costs but reduce the overall cost of carrying inventory. To quantify this trade-off between
vent stock-outs. carrying costs and order-processing costs, a model for an economic order quantity
(EOQ) has been developed (see Figure 15.6); it specifies the order size that minimizes
the total cost of ordering and carrying inventory.29 The fundamental relationships under-
economic order quan- lying the widely accepted EOQ model are the basis of many inventory control systems.
tity (EOQ) However, the objective of minimum total inventory cost must be balanced against the
The order size that
minimizes the total cost
customer service level necessary for maximum profits. Therefore, because increased
of ordering and carrying costs of carrying inventory are usually associated with a higher level of customer service,
inventory. the order quantity will often lie to the right of the optimal point in the figure, leading to a
higher total cost for ordering and larger carrying inventory.
Total costs
Inventory carrying cost
Costs (£)
Order processing
cost
Figure 15.6 Optimal Q
Economic order
quantity (EOQ) model Order quantity (units)
Fluctuations in demand, for example in times of economic recession, mean that it is not always
easy to predict changing inventory levels. When management miscalculates reorder points or
order quantities, inventory problems develop. Warning signs include an inventory that grows at a
faster rate than sales, surplus or obsolete inventory, customer deliveries that are consistently late
or lead times that are too long, inventory that represents a growing percentage of assets, and large
inventory adjustments or write-offs. However, there are several tools for improving inventory control.
From a technical standpoint, an inventory system can be planned so that the number of products
sold and the number of products in stock are determined at certain checkpoints. The control may be
as simple as tearing off a code number from each product sold so that the correct sizes, colours and
models can be tabulated and reordered. Many bookshops insert reorder slips of paper into each item
of stock, which can be scanned and removed at the checkout. A sizeable amount of technologically
advanced electronic equipment is available to assist with inventory management. In many stores, such
as Tesco and B&Q DIY, checkout terminals connected to central computer systems instantaneously
update inventory and sales records. For continuous, automatic updating of inventory records, some
companies use pressure-sensitive circuits installed under ordinary industrial shelving to weigh inventory,
convert the weight to units and display any inventory changes on a video screen or computer printout.
Various techniques have also been used successfully to improve inventory management. The
just-in-time concept calls for companies to maintain low inventory levels and purchase products
and materials in small quantities, just at the moment they are needed for production. Ford, for
example, sometimes receives supply deliveries as often as every two hours.30 Just-in-time inventory
management depends on a high level of coordination between producers and suppliers, but the
technique enables companies to eliminate waste and reduce inventory costs significantly. Another
inventory management technique, the 80/20 rule, holds that fast-moving products should generate
a higher level of customer service than slow-moving products, on the theory that 20 per cent of
the items account for 80 per cent of the sales. Thus an inventory manager attempts to keep an
adequate supply of fast-selling items and a minimal supply of the slower moving products. ABC
sales:contribution analysis strives to maintain inventory levels while maximizing financial returns to
the business (see Figure 12.9 in Chapter 12).
transportation
The process of moving Transportation
a product from where
it is made to where it is Transportation adds time and place utility to a product by moving it from where it is
purchased and used. made to where it is purchased and used.31 As product availability and timely deliveries
are so dependent on transport functions, a company’s choice of transport directly affects
customer service and satisfaction. A business may even build its distribution and marketing strat-
egy around a unique transport system if the system ensures on-time deliveries that will give the
business a competitive edge. This section considers the principal modes of transport, the criteria
companies use to select one mode over another, and several methods of coordinating transport
services.
transport modes Transport modes There are five major transport modes, or methods of moving
Methods of moving goods: railways, motor vehicles, inland waterways, airways and pipelines. Each mode
goods; these include offers unique advantages; many companies have adopted physical handling procedures
railways, motor vehicles, that facilitate the use of two or more modes in combination.
inland waterways,
airways and pipelines.
Criteria for selecting transport Marketers select a transport mode on the basis
of costs, transit time, reliability, capability, accessibility, security and traceability.32 It is
important to remember that these relationships are approximations and that the choice of a trans-
port mode involves many trade-offs. These attributes all have a significant impact on a customer’s
perception of customer service levels.
costs Costs Marketers compare alternative means of transport to determine whether the
One consideration that benefits from a more expensive mode are worth the higher costs. Air freight carriers pro-
helps determine trans- vide many benefits, such as high speed, reliability, security and traceability, but at higher
portation mode, involving costs relative to other transport modes. When speed is less important, marketers prefer
comparison of alternative
lower costs. Recently, marketers have been able to cut expenses and increase efficiency.
modes to determine
whether the benefits of a Railways, airlines, road hauliers, barges and pipeline companies have all become more
more expensive mode are competitive and more responsive to customers’ needs. Surveys reveal that in recent
worth the higher costs. years transport costs per tonne and as a percentage of sales have declined, now aver-
aging 7.5 per cent of sales. This figure varies by industry, of course: electrical machinery,
textiles and instruments have transport costs of only three or four per cent of sales, whereas timber
products, chemicals and food have transport costs close to 15 per cent of sales.
transit time Transit time Transit time is the total time a carrier has possession of goods, including
The total time a carrier the time required for pick-up and delivery, handling, and movement between the points
has possession of goods. of origin and destination. Closely related to transit time is frequency, or number of ship-
ments per day. Transit time obviously affects a marketer’s ability to provide service, but
there are some less obvious implications as well. A shipper can take advantage of transit
time to process orders for goods en route, a capability especially important for agricultural and raw
materials shippers. Some railways also let shipments that are already in transit be redirected, for
maximum flexibility in selecting markets.
reliability Reliability The total reliability of a transport mode is determined by the consistency
In logistics, reliability of the service provided. Marketers must be able to count on their carriers to deliver
is the consistency of goods on time and in an acceptable condition. Along with transit time, reliability affects
service provided. a marketer’s inventory costs, which include sales lost when merchandise is not available.
Unreliable transport necessitates maintaining higher inventory levels to avoid stock-
outs. Reliable delivery service, on the other hand, enables customers to save money by reducing
inventories; for example, if pharmacists know that suppliers can deliver medicines within hours of
ordering, they can carry a smaller inventory.
capability
The ability of a transport Capability Capability is the ability of a transport mode to provide the appropriate
mode to provide the
appropriate equipment
equipment and conditions for moving specific kinds of goods. For example, many
and conditions for moving products must be shipped under conditions of controlled temperature and humidity.
specific kinds of goods. Other products, such as liquids or gases, require special equipment or facilities for their
shipment.
accessibility
Accessibility A carrier’s accessibility refers to its ability to move goods over a spe-
The ability to move goods cific route or network: flights, rail lines, waterways or roads.
over a specific route or
network. Security A transport mode’s security is measured by the physical condition of goods on
delivery. A business does not incur costs directly when goods are lost or damaged, because
the carrier is usually held liable in these cases. Nevertheless, poor service and lack of security
security
will lead indirectly to increased costs and lower profits for the company, since damaged or
The measure of the
physical condition of lost goods are not available for immediate sale or use. In some cases, companies find it
goods upon delivery. necessary to transport products using courier companies such as UPS or TNT.
Traceability Traceability is the relative ease with which a shipment can be located
traceability and transferred or found if it is lost. Quick traceability is a convenience that some busi-
The relative ease with
nesses value highly. Shippers have learned that the ability to trace shipments, along with
which a shipment can be
located and transferred. prompt invoicing and processing of claims, increases customer loyalty and improves a
company’s image in the marketplace.33 Courier companies now offer clients internet
tracking of goods in transit.
Physical distribution’s importance to marketing

The physical distribution functions discussed in this chapter – order processing, materials handling,
warehousing, inventory management and transportation – account for about a third of all marketing
costs. Moreover, these functions have a significant impact on customer service and satisfaction,
as well as people’s perceptions of a brand’s or business’s image, which are of prime importance
to marketers.34 Effective marketers accept considerable responsibility for the design and control of
the physical distribution system. They work to ensure that the business’s overall marketing strategy
is enhanced by physical distribution, with its dual objectives of decreasing costs while increasing
customer service. Remember, to ensure that customers are satisfied, they must be able to obtain,
within reason, the product or service when and where they want it and with a perception of ‘no
hassle’. The growth of multi-channel marketing has given customers greater flexibility and more
options for purchasing and delivery, but places more responsibility on marketers to manage these
experiences to ensure customer satisfaction. The growth of multi-channel marketing and home
delivery has placed greater importance on channel management to safeguard customer experi-
ence and ensure brand experience is similar across channels. The increase in direct delivery and
eCommerce has added to the facilitating agents and channel players on which marketers rely to
effectively manage their customers.
The strategic importance of physical distribution is evident in all elements of the marketing mix.
Product design and packaging must allow for efficient stacking, storage and transport; decisions
to differentiate products by size, colour and style, must take into account the additional demands
that will be placed on warehousing and shipping facilities. Competitive pricing may depend on
a company’s ability to provide reliable delivery or emergency shipments of replacement parts; a
company trying to lower its inventory costs may offer quantity discounts to encourage large pur-
chases. Promotional campaigns must be coordinated with distribution functions, so that advertised
products are available to buyers; order processing departments should be able to handle additional
sales order information efficiently. Distribution planners must consider warehousing and transpor-
tation costs, which may influence, for example, the company’s policy on stock-outs or its choice
to centralize or decentralize its inventory.
No single distribution system is ideal for all situations, and any system must be evaluated con-
tinually and adapted as necessary. For instance, pressures to adjust service levels or reduce costs
may lead to a total restructuring of the marketing channel relationships; changes in transportation,
warehousing, materials handling and inventory may affect speed of delivery, reliability and economy
of service. Marketing strategists must consider customers’ changing needs and preferences, and
recognize that changes in any one of the major distribution functions will necessarily affect all other
functions. Consumer-oriented marketers will analyze the various characteristics of their

outsourcing
Where a third-party target markets and then design distribution systems to provide products at acceptable
organization is empow- costs. In many instances, external logistics specialists are subcontracted to handle
ered to manage and con- inventory and physical distribution requirements. The use of third parties may in fact
trol a particular activity, be fully outsourced: outsourcing is where a third party is empowered to manage and
such as logistics.
control a particular activity such as catering, IT infrastructure management, fleet cars,
human resources and recruitment or, as in this case, a company’s logistics.
Summary
Wholesaling includes all transactions in which the purchaser intends to use the product for resale, for making other
products or for general business operations. It does not include exchanges with the ultimate consumers. Hence, the
term wholesaling is used in its broadest sense: intermediaries’ activity in the marketing channel between producers and
business-to-business customers to facilitate the exchange buying and selling of goods. Marketers use wholesaling to mean
much more than the function of retail wholesalers. Wholesalers are individuals or businesses that facilitate and expedite
primarily wholesale transactions between producers and business-to-business customers. Supply chain management has
become strategically important in recent years and, for marketers, this involves an improved appreciation of the role of
wholesaling and marketing intermediaries.
Except in many consumer markets, where large multiple retailers dominate, more than half of all goods are exchanged
through wholesalers (middlemen in the distribution channel), although the distribution of any product requires that some-
one must perform wholesaling activities, whether or not a wholesaling institution is involved. For producers, wholesalers
perform specialized accumulation and allocation functions for a number of products, letting the producers concentrate on
developing and manufacturing the products. For retailers, wholesalers provide buying expertise, wide product lines, effi-
cient distribution, warehousing and storage services.
Various types of wholesaler serve different market segments. How a wholesaler is classified depends on whether the
wholesaler is owned by a producer, whether it takes title to products, the range of services it provides and the breadth and
depth of its product lines. The three general categories of wholesaler are (1) merchant wholesalers, (2) agents and brokers
and (3) manufacturers’ sales branches and offices.
Merchant wholesalers are independently-owned businesses that take title to goods and assume risk; they account for over
half of all wholesale revenues. They are either full service wholesalers, offering the widest possible range of wholesaling
functions or limited service wholesalers, providing only some marketing services and specializing in a few functions.
Distributors buy and sell on their own account but tend to deal in the goods of only certain manufacturers. Full service
wholesalers include: (1) general merchandise wholesalers, which offer a wide but relatively shallow product mix; (2) limited
line wholesalers, which offer extensive assortments in a few product lines; and (3) speciality line wholesalers, which offer
great depth in a single product line or in a few items within a line. Rack jobbers are speciality line wholesalers that own
and service display racks in supermarkets and chemists. There are four types of limited service wholesalers. (1) Cash and
carry wholesalers sell to small businesses, require payment in cash and do not deliver. (2) Truck wholesalers transport a
limited line of products directly to customers for inspection and selection. (3) Drop shippers own goods and negotiate sales
but never take possession of products. (4) Mail order wholesalers sell to retail, industrial and institutional buyers through
direct mail catalogues.
Agents and brokers, sometimes called functional middlemen, negotiate purchases and expedite sales but do not take title
to products. They are usually specialists and provide valuable sales expertise. Agents represent buyers or sellers on a
permanent basis. Manufacturers’ agents offer customers the complete product lines of two or more sellers; selling agents
market a complete product line or a producer’s entire output; performing every wholesaling function except taking title
to products; commission merchants receive goods on consignment from local sellers and negotiate sales in large central
markets. Brokers, such as food brokers, negotiate exchanges between buyers and sellers on a temporary basis.
Manufacturers’ sales branches and offices are vertically integrated units owned by manufacturers. Sales branches sell
products and provide support services for the manufacturer’s salesforce in a given location. Sales offices carry no inven-
tory, and function much as agents do.
Facilitating agencies do not buy, sell or take title but perform certain activities that enhance channel functions. They include
public warehouses, finance companies, transport companies and trade shows and trade markets. In some instances, these
organizations eliminate the need for a wholesaling establishment.
Retailing includes all transactions in which the buyer intends to consume the product through personal, family or house-
hold use. Retailers are businesses that purchase products for the purpose of reselling them to ultimate consumers. They
are important links in the marketing channel because they are customers for wholesalers and producers. Much retailing
takes place inside stores or service establishments, but retail exchanges may also occur outside stores through tele-
marketing, vending machines, mail order catalogues and of course, the internet. By providing assortments of products to
match consumers’ wants, retailers create place, time, possession and form utilities.
Retail stores locate in the central business district (CBD) – the traditional centre of the town – or the prime pitch, or in
locations that provide an adequate customer threshold in suburban centres, in edge-of-town sites or in retail parks. The
national chains occupy the prime pitch sites in the CBD and the edge-of-town sites. Locally based independent retailers
tend to dominate in the suburbs and focus on convenience and some comparison goods.
Retail stores are often classified according to their width of product mix and depth of product lines. The major types of
retail store are department stores, variety stores, catalogue showrooms, supermarkets and superstores, hypermarkets, dis-
count sheds, category killers, warehouse clubs, speciality shops, markets, convenience stores, discounters, factory outlet
villages and cash and carry warehouses. Category management is strategically important in marketing, providing a sup-
plier with the opportunity to control a retail account’s category. Department stores are characterized by wide product mixes
in reasonable depth for most product lines. Their product lines are organized into separate departments that function much
as self-contained businesses do. Speciality retailers offer substantial assortments in a few product lines. They include tra-
ditional speciality shops, which carry narrow product mixes with deep product lines.
Non-store retailing is the selling of goods or services outside the confines of a retail facility. Direct marketing is the use
of non-personal media, the internet or telesales to introduce products to consumers, who then purchase the products by
mail, telephone or the internet. The web is very important in direct marketing. Forms of non-store retailing include: in-home
retailing (selling via personal contacts with consumers in their own homes); telemarketing (direct selling of goods and ser-
vices by telephone based on either a cold canvass of the telephone directory or a pre-screened list of prospective clients);
automatic vending (selling through machines); mail order retailing; the internet and catalogue retailing (selling by descrip-
tion because buyers usually do not see the actual product until it arrives in the mail).
Physical distribution is a set of activities that moves products from producers to consumers or end users. These activities
include order processing, materials handling, warehousing, inventory management and transportation. While none of these
activities would normally be the responsibility of marketing managers, their smooth deployment impacts on customer ser-
vice levels, customer satisfaction and also customers’ perceptions of a brand or business. An effective physical distribution
system can be an important component of an overall marketing strategy, because it can decrease costs and lead to higher
levels of customer satisfaction. Physical distribution activities should be integrated with marketing channel decisions and
should be adjusted to meet the unique needs of a channel member. For most companies, physical distribution accounts for
about a fifth of a product’s retail price.
The main objective of physical distribution is to decrease costs while increasing customer service. Physical distribution
managers therefore try to balance service, distribution costs and resources. Companies must adapt to customers’ needs
and preferences, offer service comparable to or better than that of their competitors, and develop and communicate desir-
able customer service policies. The costs of providing service are minimized most effectively through the total cost analysis
approach, which evaluates the costs of the system as a whole rather than as a collection of separate activities. Cost trade-
offs must often be used to offset higher costs in one area of distribution against lower costs in another area.
Order processing, the first stage in a physical distribution system, is the receipt and transmission of sales order informa-
tion. Order processing consists of three main tasks: (1) order entry is the placement of purchase orders from customers
or sales people by mail, telephone, fax or the web; (2) order handling involves checking customer credit, verifying product
availability and preparing products for shipping; and (3) order delivery is provided by the carrier most suitable for a desired
level of customer service. Order processing may be done manually or electronically, depending on which method gives
greater speed and accuracy within cost limits. Electronic data interchange (EDI) helps facilitate order processing.
Materials handling, or the physical handling of products, is an important element of physical distribution. Packaging, load-
ing, movement and labelling systems must be coordinated to maximize cost reduction and customer requirements. Basic
handling systems include unit loading on pallets or skids, permitting movement by mechanical devices, and containeriza-
tion, which is the practice of consolidating many items into a single large container.
Warehousing involves the design and operation of facilities for storing and moving goods. It is important for companies to
select suitable warehousing conveniently located close to main transport routes.
The objective of inventory management is to minimize inventory costs while maintaining a supply of goods adequate for
customers’ needs. All inventory costs – carrying, replenishment and stock-out costs – must be controlled if profit goals are
to be met. To avoid stock-outs without tying up too much capital in inventory, a business must have a systematic method of
determining a reorder point, which is the inventory level at which more inventory is ordered. The order lead time is lapsed
time between order placement and delivery. The usage rate is the rate at which inventory is used during a specific period
of time. The trade-offs between the costs of carrying larger average safety stocks and the costs of frequent orders can
be quantified using the economic order quantity (EOQ) model. Inventory problems may take the form of surplus inventory,
late deliveries, write-offs and inventory that is too large in proportion to sales or assets. Methods for improving inventory
management include systems that monitor stock levels continuously, techniques such as just-in-time management and the
80/20 rule.
Transportation adds time and place utility to a product by moving it from where it is made to where it is purchased and
used. The five major transport modes are motor vehicles, railways, inland waterways, airways and pipelines. Marketers
evaluate transport modes with respect to costs, transit time, reliability, capability, accessibility, security and traceability;
the final selection of a transport mode involves many trade-offs.
Physical distribution affects every element of the marketing mix: product, price, promotion, place/distribution and person-
nel/customer service. To give customers products at acceptable prices, marketers consider consumers’ changing needs
and any shifts within the major distribution functions. They then adapt existing physical distribution systems for greater
effectiveness. Physical distribution functions account for about a third of all marketing costs and have a significant impact
on customer satisfaction. Therefore, effective marketers are actively involved in the design and control of physical distribu-
tion systems. Increasingly, many of the logistics activities described in this chapter are subject to outsourcing.
The growth of multi-channel marketing and home delivery has placed greater importance on channel management to safe-
guard customer experience and ensure brand experience is similar across channels. The increase in direct delivery and
eCommerce has added to the facilitating agents and channel players on which marketers rely to effectively manage their
customers.
Factory outlet villages

Key links Food brokers
Full service wholesalers
Although wholesaling and logistical support are rarely con- Functional middlemen
trolled by the marketing function, they do impact on the General merchandise wholesalers
customer’s ability to attain a product, and on the custom- Hypermarkets
er’s experience, buying behaviour and satisfaction. In-home retailing
●● This chapter should be read in conjunction with Inventory management
hapter 14, which examines the nature of marketing
C Limited line wholesalers
channels and key participating channel members. Limited service wholesalers
Mail order retailing
●● And in conjunction with Chapter 18, which looks at the
Mail order wholesalers
growth of web-based retailing and direct marketing.
Manufacturers’ agents
●● Chapter 19 overviews digital marketing and its impli- Markets
cations on channels and channel members. Materials handling
Merchant wholesalers
Non-store retailing
Important terms Objective of physical distribution
Accessibility Order lead time
Automatic vending Order processing
Capability Outsourcing
Cash and carry warehouses Physical distribution
Cash and carry wholesalers Prime pitch
Catalogue retailing Public warehouses
Catalogue showroom Rack jobbers
Category killers Reliability
Category management Reorder point
Central business district (CBD) Retail parks
Commission merchants Retailer
Containerization Retailing
Convenience stores Safety stock
Cost trade-offs Sales branches
Costs Sales offices
Customer service Security
Customer threshold Selling agents
Department stores Speciality line wholesalers
Direct marketing Speciality shops
Discount sheds Stock-outs
Distributors Suburban centres
Drop shippers Supermarkets and grocery superstores
Economic order quantity (EOQ) Supply chain management
Edge-of-town sites Telemarketing
Electronic data interchange (EDI) Total cost analysis
Facilitating agencies Traceability
Trade markets 11. What factors must physical distribution managers consider
Trade shows when developing a customer service mix?
Transit time 12. What is the advantage of using a total cost approach to
Transport modes distribution?
Transportation
13. What are the main tasks involved in order processing?
Truck wholesalers
Unit loading 14. How does a product’s package affect materials-handling
Usage rate procedures and techniques?
Variety stores 15. Explain the major differences between private and public
Warehouse clubs warehouses. What is a field public warehouse?
Warehousing 16. Describe the costs associated with inventory management.
Wholesaler
17. How can managers improve inventory control? Give specific
Wholesaling
examples of techniques.
18. Compare the five major transport modes in terms of costs,
Discussion and review questions transit time, reliability, capability, accessibility, security and
traceability.
1. Is there a distinction between wholesalers and wholesaling?
If so, what is it? 19. Discuss how the elements of the marketing mix affect
physical distribution strategy.
2. Generically, what services do wholesalers provide to
producers and retailers?
3. Drop shippers take title to products but do not accept Recommended readings
physical possession. Commission merchants take physical
Arikan, A., Multichannel Marketing: Metrics and Methods for On and
possession of products but do not accept title. Defend the
Offline Success (Wiley, 2008).
logic of classifying drop shippers as wholesale merchants
Berman, B.R., Evans, J.R. and Chatterjee, P.M., Retail Management: A
and agents as commission merchants.
Strategic Approach (Pearson, 2017).
4. What are the advantages of using agents to replace Christopher, M., Logistics and Supply Chain Management (FT Publishing
merchant wholesalers? What are the disadvantages? International, 2016).
Dent, J., Technology Distribution Channels: Understanding and Managing
5. Why are manufacturers’ sales offices and branches
Channels to Market (Kogan Page, 2014).
classified as wholesalers? Which independent wholesalers
Harrison, A., van Hoek, R. and Skipworth, H., Logistics Management and
are replaced by manufacturers’ sales branches? Which
Strategy: Competing Through the Supply Chain (Pearson, 2014; new
independent wholesalers are replaced by manufacturers’ edition due 2019).
sales offices? Hines, T., Supply Chain Strategies (Taylor & Francis, 2017).
6. Discuss the role of facilitating agencies. Identify three Palmatier, R. and Stern, L., Marketing Channel Strategy (Routledge,
facilitating agencies and explain how each type performs 2016).
this role. Rosenbloom, B., Marketing Channels: A Management View (Cengage,
2012).
7. What role do retailers undertake in distribution? Rushton, A., Croucher, P. and Baker, P., The Handbook of Logistics and
8. What are the principal types of retailers? Distribution Management (Kogan Page, 2017).
Varley, R. and Rafiq, M., Principles of Retail Management (Palgrave
9. Describe the most common forms of non-store retailing and
Macmillan, 2014).
what is driving growth for some of these?
Waters, D. and Rinsler, S., Global Logistics: New Directions in Supply
10. Discuss the cost and service trade-offs involved in develop- Chain Management (Kogan Page, 2014).
ing a physical distribution system.
Web task Classroom tools on-site competition and the intro-

duction of branded operations and
Choose a major retail brand, such concessions. All proposals followed
as Tesco, John Lewis, Top Shop or extensive marketing research.
IKEA. Ensure it is a business whose stores you visit often. Then
Caffe Nero, Carluccio’s, Costa, EAT, Giraffe, Gordon Ramsey,
identify its website and log on.
La Salle, Oriel, Pret, Strada, Wagamama, Wetherspoon and
1. Are there any differences in the merchandise selection Yo! Sushi are some of the catering businesses now operating
offered in-store versus online? Why? within Heathrow, along with retailers such as Armani, Bally,
2. Why has the selected retailer developed such an Boots, Boss, Bulgari, Burberry, Cath Kidston, Chanel, Dior,
in-store/online strategy? Fortnum & Mason, Gucci, Harrod’s, Jack Wills, Jo Malone,
John Lewis, Louis Vuitton, M&S, Mac, Montblanc, Paul Smith,
Reiss, Rolex, Stella McCartney, Swarovski, Ted Baker, Versace
Group tasks and WH Smith. Only well-known retail brands are welcome.
Initially, the move by Heathrow was to compensate for
1. All small shops and catering establishments depend on the loss of duty-free sales when the EU phased out intra-
wholesalers for the bulk of their supplies, rather than community duty-free trade, but today retailing within the
buying directly from producers. Consider why this must airport is viewed as the way to continue generating profits
be the case. and adding to customer experience. 420 000 ft 2 of retail
2. Very few producers operate wholesalers. Even fewer space house 345 retail units. Heathrow has taken restless
retailers have reached back in the supply chain to passengers waiting for flights and put them into shops selling
become wholesalers. Why do other players in the dis- well-known brands and a variety of merchandise. Research
tribution channel shy away from acquiring or setting up from 120 000 interviews each year has shown that retail out-
wholesale businesses? lets are a high priority for passengers. The captive audience is
appreciative of the changes, as are the retailers.
Applied mini-case Question

Heathrow Airport, part-owned by Spain’s Ferrovial Group, is
Why has Heathrow devoted so much terminal space to retail-
one of the world’s busiest hubs. Eighty-one airlines serve 204
ing and in particular to well-known high street-branded retail
destinations in 85 countries, transporting 78 million passengers
businesses? What impact has the introduction of shopping
each year. It is the main base for British Airways and Virgin
malls had on the ambience of the terminals?
Atlantic. Some years ago, the then CEO John Egan instigated
a policy review emphasizing a commitment to quality service,
Today’s cash and carry supermarket operator Tesco has taken

mega-depots depend on Case study over Booker in a move which has further
transformed this sector, paying £3.7 billion
effective stockholding and for Booker in 2017. Booker will continue to
physical distribution be run as an independent company, but is
expected to offer its customers enhanced
Cash and carry businesses or warehouse clubs logistical support, marketing and digital capa-
stock manufacturers’ products and have as their customers bility, on the back of Tesco’s undoubted expertise in
other businesses. They supply small shopkeepers or the hos- these fields. Booker has 172 Booker-branded depots, at an
pitality sector, with these business-to-business customers average of 80 000 square feet, with 14 000 staff looking after
selecting merchandise appropriate for their respective target 400 000 business customers. In addition, Booker operates
consumers. In order to satisfy the demands of small retail thirty Makro branches.
businesses, the leading grocery cash and carry operators Cash and carry warehouses used to be dowdy depots that
have to stock extensive ranges, only a small part of which may paid little attention to layout, upkeep, design or ambience and
be selected by an individual retailer client. Inventory control is demonstrated even less regard for customer service and sat-
particularly important to these cash and carry businesses, but isfaction. Price was the name of the game… customers could
so too are the logistical considerations of receiving deliveries buy in bulk at a discount, but were offered few additional
from many manufacturers and enabling individual customers benefits. Today the cash and carry sector adopts the retailing
to take out their orders. Although price remains a core trading techniques of the hypermarket: carefully controlled branch
proposition, service and brand image are increasingly import- designs and layouts, high levels of staff training and a signif-
ant. A typical cash and carry operator offers groceries, fresh icant focus on building ongoing relationships with customers.
foods, wines, spirits, beer and cigarettes, household goods, Now customers are being offered better service, together
clothing, toys and sports equipment. They generally have with assistance in building their own company image through
own-label brands in these categories, alongside the major local press and television advertising, as well as social media.
brands in a category. The leading cash and carry companies are offering market-
Leading UK wholesaler Booker acquired the UK inter- ing support to their key accounts, not just to stimulate sales
ests of Dutch sector innovator Makro. Now the UK’s largest but also to build up those customers’ loyalty to their nearby
warehouse. Depots have been uprated by the leading groups,
with new equipment, better stocking systems and improved
physical distribution.

1. How are the major cash and carry companies respond-
ing to changing customer needs?
2. In what ways are state-of-the-art inventory management
and physical distribution systems important to compa-
nies such Booker?
References: www.booker.co.uk/, July 2018; www.prolificnorth.co.uk/featured/
marketing-services/2017/01/tesco-acquires-makro-owner-booker-group-
£37bn-deal; www.makro.co.uk/, July 2018.
Chapter 16
An overview of marketing
communications
If consumers or business customers are unaware or not seduced, they
won’t try, buy or return for more
Introduction
Objectives Marketers spend large sums of money and significant amounts
of time developing advertising campaigns, public relations (PR)
To understand the role of promotion
programmes, sales promotions, websites and mobile communi-
in the marketing mix.
cations, to list only some of the activities grouped under promo-
To examine the process of tional activity within the marketing mix. As discussed in Chapter 1
communication. of Marketing: Concepts and Strategies, many members of the
public consider there to be little more to the role of market-
To understand the product adop-
ing than the management of a company’s marketing commu-
tion process and its implications for
nications. In fact, there is much more to strategic marketing,
promotional efforts.
as described in Chapters 1 and 2. Nevertheless, the creation,
To understand the aims of execution and control of a company’s marketing communica-
promotion. tions are indeed significant tasks, occupying the time of many
marketers and using up their budgets.
To explore the elements of the pro-
Communication is a sharing of meaning through the trans-
motional mix.
mission of information. Marketing communication is the trans-
To appreciate the nature of inte- mission of persuasive information about a good, service or an
grated marketing communications idea, targeted at key stakeholders and consumers within the
(IMC). target market segment. Not only commercial products and ser-
vices require effective programmes of marketing communica-
To acquire an overview of the major
tions… the growth of social marketing causes and messages
methods of promotion.
which must be conveyed effectively by government agencies
To explore the factors that influence and third sector bodies to their target audiences is huge. Mar-
the selection of promotional mix keting communications centre on the promotional mix, which
ingredients. comprises advertising, public relations (PR), personal selling,
sales promotion, direct mail, sponsorship and the web, includ-
To appreciate the role of marketing
ing mobile marketing.
communications.
Until relatively recently, each of these specialist areas was
handled disparately within many companies. Integrated market-
ing communications (IMC) emerged as a concept, to coordinate
and integrate all marketing communication tools, avenues and
sources within a company into a seamless programme that
maximizes the impact on consumers and other end users. With
466
Chapter 16 An overview of marketing communications 467
most organizations now operating through multiple channels, the coordination of the customer’s
experience and encounters with the brand becomes even more important. IMC is an aspect of this
management of customer experience.
The ‘target audience’ is the marketing communications practitioner’s term for those within the
target market segment intended as the principal recipients of the promotional message… those
customers and potential customers who must be enticed and whose interest must be maintained.
The goal is to encourage consumers or business customers to try and then purchase a product and
to return for more. The product adoption process is awareness, interest, evaluation, trial and adop-
tion; marketing communications play a key role in enticing customers to progress from awareness
to adoption and consumption of a product. In this context, there are five ‘communications effects’:
category need, brand awareness, brand attitude, brand purchase intention and purchase facilitation.
Marketers must be clear about their promotional objectives, and realistic about the likely returns.
There must be synergy with the specified segmentation or target market strategy, brand posi-
tioning and brand strategy. There should be strong associations between the executed MarComms
and the understanding of consumers’ or business customers’ buying behaviour, market trends and
drivers, competitors’ propositions and activities, and the apparent capabilities of the product or brand
being promoted: marketing communications must be informed by the core marketing analyses
and the agreed target market strategy as explored in Parts One and Two of this book.
We want to make 5 Making children safer determined to keep building a

million children safer powerful movement to pro-
by 2021: tect every child from abuse
and neglect
‘Our responsibility is not just
Over the next 5 years, we’ll
to children, but to all children.
work harder than ever to make sure
Knowing that there’s something we
we achieve even more. We want to make
can do to prevent child abuse, how will we explain that we had
5 million children safer by 2021.
the chance to change the future - and didn’t?’
To make this happen, we’re investing in innovative services
John Cleese / NSPCC supporter and solutions. We’ll also be working with organizations and policy
makers across the country, sharing our knowledge so that what
Too many children are still being abused - emotionally, physi- we learn benefits children way beyond what we can achieve on
cally, sexually and online. But it doesn’t have to be like this. We’re our own.
Prevent child abuse in families facing Help children speak and adults take
adversity Prevent child sexual abuse action about abuse
Over the next 5 years we’ll: Over the next 5 years we’ll: Over the next 5 years we’ll:
build on services that we know work, such as develop and launch Together for Childhood make sure our Speak out Stay safe
Coping with Crying and Baby Steps for the prevention of child sexual abuse, programme reaches more primary
develop new services to intervene early and working in partnership with local areas school children in the UK
support families facing these problems run public education campaigns which offer a place for children to talk, be
develop and launch Together for Childhood make help and advice like The Under- heard and think about what help
for families who are struggling where we’ll wear Rule even more accessible they might need and how to get it
work with local partners, run local cam- develop and evaluate new services to pre- with our Childline service
paigns and offer training vent child sexual abuse, including help- offer adults help and advice on how to
ensure more families and children can ing young people to understand their take action for children through our
access the services we know help harmful sexual behaviour NSPCC helpline so adults can help
keep children safe
Marketing in the National Society for the Prevention

of Cruelty to Children has four primary aims: (1) to raise
awareness of the issues mentioned above, so that ‘secrets’
are not left unaddressed and help can be given to those in
need; (2) to make the charity and its support for victims readily
accessible to those in need of these services; (3) to encourage
and motivate volunteers, so necessary in the charity’s opera-
tions; and (4) to raise funding to pay for its services, support
and campaigns.
Within these marketing activities there are online mar-
keting communications, social media, call-lines, advertising,
publicity, printed materials and many events to manage, as
well as the overarching brand strategy, stakeholder mapping,
engagement of target audiences and all-important ongoing of its activities. Each of these areas of operation has a clear
relationships with many donors, supporters and interested marketing strategy, including target audience selection, brand
parties. The charity provides help in setting up and running positioning and customer value proposition, performance met-
fundraising events. For corporate or private donors, there rics and a fully specified marketing plan.
are strong calls and easy-to-navigate paths; as there are for Source: www.nspcc.org.uk/what-we-do/about-us/performance-plans/,
potential volunteers, on whom the charity depends for so many June 2018.
O
rganizations use various promotional approaches to communicate with target markets. Not
only for-profit businesses harness the power of effective marketing communications, as
evidenced with the NSPCC’s strategy and various campaigns. Promotion in the marketing
mix incorporates all aspects of marketing communications and the promotional mix, including
advertising, public relations, sponsorship, direct mail, sales promotion, personal selling and the
use of the web to communicate with an organization’s target audiences.
This chapter looks at the general dimensions of promotion, defining it in the context of marketing
and examining the roles it plays. Next, to understand how promotion works, the chapter analyzes the
meaning and process of communication, as well as promotion’s role within the product adoption pro-
cess. The remainder of the chapter discusses the major types of promotional methods and the factors
that influence an organization’s decision to use specific methods of marketing communications.
The role of promotion

The nature of promotion in the marketing mix has altered radically in recent years. First, the web
enabled communication to customers and potential users with virtually instant responses and
follow-up possible, along with tailored one-to-one messages not previously possible with mass
media communications. Second, the take-off of social media networking removed the power of
communication about products, services, brands, companies and those behind these, enabling
easy customer-to-customer communication about products, brands and experiences, as explored
in Chapters 5 and 19. Few marketers would disagree that Facebook, YouTube, Twitter and the like
have presented significant challenges, opportunities and also threats. As a result, many people’s
views about product or brand communications have changed. Third, the mass take-up of smart
devices means potential customers are accessible 24/7 and anywhere.
People’s attitudes towards promotion vary. Some hold that promotional activities, particularly
advertising and personal selling, paint a distorted picture of reality because they provide the cus-
tomer with only selected information.1 Proponents of this view often suggest that promotional
activities are unnecessary and wasteful, and that promotion costs are too high, resulting in higher
prices paid by customers. They may also argue that too much promotion has caused changes in
social values, such as increased materialism, unhealthy lifestyles and damage to the environment.
Others take a more positive view. Some welcome the potential to communicate well-being and
social cause messages. Others believe that advertising messages often project wholesome values,
such as affection, generosity or patriotism2, or that advertising – as a powerful economic force –
can free countries from poverty by communicating information.3 It has also been argued that the
advertising of consumer products was a factor in the decline of communism and the move towards
a free enterprise system in eastern Europe. However, none of these impressions is completely
accurate. Here we confine the discussion to the use of the promotional mix in the execution of a
marketing strategy. The morality and ethics of marketing communications are for a later chapter.
The role of promotion in a company is to communicate with individuals, groups
promotion
Communication with
or organizations, with the aim of directly or indirectly facilitating exchanges (pur-
individuals, groups or chasing, participation or donations) by informing and persuading one or more of the
organizations in order to audiences to accept the company’s products.4 Marketers need their brand, products
facilitate exchanges by and messaging to be noticed and to lead to a positive response from those they
informing and persuad- are pursuing.
ing audiences to accept
a company’s products.
Some marketers use cause-related marketing, which links the purchase of their
products to philanthropic efforts for a particular cause. Cause-related marketing often
helps a marketer boost sales and generate goodwill through contributions to causes that
cause-related members of its target markets want to support. For example, Procter & Gamble has tied
marketing promotional efforts for some of its products to a campaign to promote cleaner water for
The linking of an orga- children in developing countries so as to help 300 million children, by reducing illness
nization’s products to a
and saving 20 000 lives each year with purer water in these communities.
particular social cause on
a short-term or ongoing Exchanges are facilitated by marketers ensuring that information is targeted at appro-
basis. priate individuals and groups: supply chain partners, distributors, potential customers,
existing customers, special interest groups such as environmental and consumer groups,
current and potential investors, regulatory agencies, policy-makers, media analysts,
reviewers, bloggers and vloggers.5
Viewed from this wider perspective, promotion can play a comprehensive communications
role.6 Some promotional activities, such as publicity and public relations, can be directed towards
helping a company justify its existence and maintain positive, healthy relationships between itself
and various groups or stakeholders.
Although a company can direct a single type of communication – such as an advertisement or
blog – towards numerous audiences, marketers often design a communication precisely for a spe-
cific target market. A company frequently communicates several different messages concurrently,
each to a different group. For example, McDonald’s may direct one communication towards cus-
tomers for its Big Mac, another message about its salads towards health-concerned consumers,
a different message towards investors about the company’s stable growth, a pitch to potential
franchisees, and a communication towards society in general regarding the company’s approach
to sustainability and packaging.
To gain maximum benefit from promotional efforts, marketers must make every effort to prop-
erly plan, implement, coordinate and control communications. As is explained later, the concept
of integrated marketing communications helps to harmonize and coordinate an organization’s
promotional activities. Effective promotional activities are based on information from the marketing
environment (see Chapter 3) and the company’s market insights. How effectively marketers can
use promotion to maintain positive relationships depends largely on the quantity and quality of
information an organization takes in. For example, concerns about healthier eating and obesity
have led certain supermarkets to improve in-store labelling, so that consumers are better informed
about the products offered.
The basic role of promotion is to communicate, so it is important to analyze what communication
is and how the communication process works.
The communication process

communication
A sharing of meaning Communication can be viewed as the transmission of information.7 For communication
through the transmission to take place, both the sender and the receiver of the information must have some
of information. common ground. They must share an understanding of the symbols used to trans-
mit information, usually pictures or words. For instance, an individual transmitting the
following message may believe he or she is communicating with readers of Marketing:
marketing
communication Concepts and Strategies:
The transmission of
persuasive information
about a product, service
or an idea, targeted at
key stakeholders and However, communication has not taken place, because few readers understand the
consumers within the intended message.8 Thus communication is defined here as a sharing of meaning.9
target market segment.
Implicit in this definition is the notion of transmission of information, because sharing
necessitates transmission. Communication is a sharing of meaning through the trans-
source
mission of information. M arketing communication is the transmission of persuasive
A person, group or information about a product, service or an idea, targeted at key stakeholders and con-
organization that has sumers within the target market segment. Marketing communications centre on the
an intended meaning it promotional mix, which comprises advertising, public relations, personal selling, sales
attempts to share with promotion, direct mail, sponsorship and the web, including mobile communications.
an audience.
As Figure 16.1 shows, communication begins with a source. A source is a person,
group or organization that has an intended meaning it attempts to share with an audi-
receiver ence. For example, a source could be a political party wishing to recruit new members
An individual, group or an organization that wants to send a message to thousands of consumers through
or organization that an advertisement. Developing a strategy can enhance the effectiveness of the source’s
decodes a coded communication. For example, a strategy in which a sales person attempts to influence
message.
a customer’s decision by eliminating competitive products from consideration has been
found to be effective.10 A receiver is the individual, group or organization that decodes
receiving audience
a coded message. A receiving audience is two or more receivers who decode a mes-
Two or more receivers sage. The intended receivers, or audience, of an advertisement for MBA courses might
who decode a message. be business executives wishing to broaden their managerial skills. The source may be
a European business school, such as INSEAD.
Coded Medium of Decoded Receiver or

Source
message transmission message audience
Figure 16.1 Feedback

The communication
process Noise Noise
To transmit meaning, a source must convert that meaning into a series of signs that
coding process
The process of convert- represent ideas or concepts. This is called the coding process or encoding. When
ing meaning into a series encoding meaning into a message, a source must take into account certain character-
of signs that represent istics of the receiver or receiving audience. First, to share meaning, the source should
ideas or concepts; also use signs that are familiar to the receiver or receiving audience. Marketers who under-
called encoding.
stand this fact realize how important it is to know their target market and to make sure
that an advertisement or blog, for example, is written in language that the target market
can understand. Thus when Unilever advertises its Persil washing powder, it makes no attempt to
explain the chemical reactions involved when the product removes dirt and grease, because this
would not be meaningful to consumers. There have been some notable problems in the language
translation of advertisements. For example, Budweiser has been advertised in Spain as the ‘Queen
of Beers’ and the Chinese have been encouraged to ‘eat their fingers off’ when receiving KFC’s
slogan ‘Finger-Lickin’ Good’.11
Second, when encoding a meaning, a source should try to use signs that the receiver or
receiving audience uses for referring to the concepts the source intends. Marketers should
generally avoid signs that can have several meanings for an audience. For example, an inter-
national advertiser of soft drinks should avoid using the word soda as a general term for soft
drinks. Although in some places soda is taken to mean ‘soft drink’, in others it may connote
bicarbonate of soda, an ice-cream drink, something to mix with Scotch whisky or a chemical in
industrial processes.
To share a coded meaning with the receiver or receiving audience, a source must
medium of select and use a medium of transmission. A medium of transmission carries the
transmission coded message from the source to the receiver or receiving audience. Transmission
The tool used to carry
media include ink on paper, vibrations of air waves produced by vocal cords, chalk
the coded message from
the source to the receiver marks on a chalkboard and electronically produced communication, as in radio, televi-
or receiving audience. sion, mobile phones, the internet and broadband.
Sometimes a source chooses an inappropriate medium of transmission. A coded
message may reach some receivers, but not the right ones. For example, suppose a
local theatre group spends most of its advertising budget on radio advertisements. If theatre-goers
depend mainly on newspapers for information about local drama, then the theatre group will not
reach its intended target audience via radio. Coded messages may also reach intended receivers
in an incomplete form because the intensity of the transmission is weak, it is not sustained/frequent
enough to register or it is interfered with by other transmissions.
In the decoding process, signs are converted into concepts and ideas. Seldom
decoding process
does a receiver decode exactly the same meaning that a source encoded. When
The process in which
signs are converted into the result of decoding is different from what was encoded noise exists. Noise has
concepts and ideas. many sources and may affect any or all parts of the communication process. When
a source selects a medium of transmission through which an audience does not
expect to receive a message, noise is likely to occur. Noise sometimes arises within
noise the medium of transmission itself. Erratic broadband coverage, prolonged buffering,
A condition that exists radio static, faulty printing processes and laryngitis are sources of noise. Interference
when the decoded mes-
sage is different from
on viewers’ television sets during an advertisement is noise and reduces the impact
that which was encoded. of the message. Noise also occurs when a source uses a sign that is unfamiliar to the
receiver or that has a different meaning from the one the source intended. Noise may
also originate in the receiver. As Chapter 5 discussed, a receiver may be unaware of
a coded message because his or her perceptual processes block it out or because the coded
message is too obscure.
The receiver’s response to a message is feedback to the source. The source usu-
feedback
The receiver’s response ally expects and normally receives feedback, although it may not be immediate. During
to a message. feedback, the receiver or receiving audience is the source of a message that is directed
towards the original source, which then becomes a receiver. Feedback is encoded, sent
through a medium of transmission – for example, a survey questionnaire to a smart-
phone – and then decoded by the receiver, the source of the original communication. It is logical
to think of communication as a circular process.
During face-to-face communication, such as in personal selling or product sampling, both
verbal and non-verbal feedback can be immediate. Instant feedback enables communicators to
adjust their messages quickly to improve the effectiveness of their communication. For exam-
ple, when a salesperson realizes through feedback or body language that a customer does not
understand a sales presentation, s/he adapts the presentation to make it more meaningful to the
customer. This may be why face-to-face sales presentations create higher behavioural intentions
to purchase services than do telemarketing sales contacts.12 In interpersonal communication,
feedback occurs through talking, touching, smiling, nodding, eye movements and other body
movements and postures.
When mass communication such as advertising is used, feedback is often slow and difficult to
recognize in terms of impact on sales or even buy-in to a brand proposition. If Disneyland in Paris
increased its advertising in order to raise the number of visitors, it might be six to 18 months before the
theme park could recognize the effects of the expanded advertising. Although it is harder to recognize,
feedback does exist for mass communication. Advertisers do obtain feedback in the form of changes
in sales volume or in consumers’ attitudes and awareness levels, monitored through tracking research.
The coupon redemption rate for the advertisement in Figure 16.2 provides an opportunity for feedback.
Online advertising often can be measured in terms of clicked response and click-through. It should be
noted that web-based comms provide much more instant feedback; response to web-based adver-
tising and other online tools is much more rapidly apparent and easier to assess (see Chapter 19).
Figure 16.2
This direct response advertisement provides an opportunity for feedback based on the coupon redemption rate
Source: Courtesy of Nestlé, Cheerios.
Each communication channel has a limit on the volume of information it can handle
channel capacity
The limit on the volume effectively. This limit, called channel capacity, is determined by the least efficient com-
of information that a ponent of the communication process. Communications that depend on vocal speech
particular communication provide a good illustration of this. An individual source can talk only so fast, and there
channel can handle is a limit to how much an individual receiver can take in aurally. Beyond that point,
effectively.
additional messages cannot be decoded; thus meaning cannot be shared. Although a
radio announcer can read several hundred words a minute, a one-minute advertising
message should not exceed 150 words because most announcers cannot articulate
the words into understandable messages at a rate beyond 150 words per minute. This figure is
the limit for both source and receiver, and marketers should keep this in mind when developing
radio advertisements. At times, a company creates a television advertisement that contains several
types of visual material and several forms of audio message, all transmitted to viewers at the same
time. Such communication may not be totally effective, because receivers cannot decode all the
messages simultaneously.13 Researchers believe that Generation Y and Z consumers devote less
than ten seconds to viewing a web message, TV advertisement or paragraph of a text document,
so advertisers targeting younger consumers must tailor their approach accordingly, as in effect this
attention span and multi-platform tasking present a capacity restraint.
Now that the basic communication process has been explored, it is worth considering
more specifically how promotion is used in marketing communications to influence individuals,
groups or organizations to accept or adopt a company’s products. Although the product
adoption process was touched upon briefly in Chapter 10, it is discussed more fully in the
following section in order to provide a better understanding of the conditions under which
promotion occurs.
product adoption
process
A series of five stages
Promotion and the product adoption
in the acceptance of process
a product: awareness,
interest, evaluation, trial
Marketers do not promote simply to inform, educate and entertain; they communicate
and adoption.
to facilitate exchanges of products or services for money or donations. One long-run
purpose of promotion is to influence and encourage buyers to accept or adopt goods,
awareness stage services and ideas. At times, an advertisement may be informative or entertaining, yet
The beginning of the it may fail to entice the audience to purchase the product. For example, some adver-
product adoption pro- tisements seem to be weak in communicating benefits; they focus instead on getting
cess, when individuals customers to feel good about the product. The ultimate effectiveness of promotion is
become aware that the
product exists but have
determined by the degree to which it affects product adoption among potential buyers
little information about it. or increases the frequency of current buyers’ purchases.
To establish realistic expectations about what promotion can do, product adoption
should not be viewed as a one-step process. Rarely can a single promotional activity
interest stage cause an individual to buy a previously unfamiliar product. The acceptance of a product
The stage of the product involves many steps. Although there are several ways to look at the product adoption
adoption process when
process, it is commonly divided into five stages, as depicted in Figure 16.3 and explored
customers are motivated
to obtain information in Chapter 10:
about the product’s fea-
1. awareness
tures, uses, advantages,
disadvantages, price or 2. interest
location.
3. evaluation
4. trial
evaluation stage 5. adoption.14
The stage of the prod-
uct adoption process In the awareness stage, individuals become aware – are made aware by marketers
when customers decide and consumer-to-consumer communication – that the product exists, but they have little
whether the product will
information about it and are not concerned about obtaining more.
satisfy certain criteria
that are crucial for meet- Consumers enter the interest stage when they are motivated to obtain informa-
ing their specific needs. tion about the product’s features, uses, advantages, disadvantages, price or location.
During the evaluation stage, individuals consider whether the product will satisfy
certain criteria that are crucial for meeting their specific needs. In the trial stage, they
trial stage use or experience the product for the first time, possibly by purchasing a small quantity,
The stage of the product by taking advantage of a free sample or demonstration, or by borrowing the product
adoption process when
individuals use or experi-
from someone. Supermarkets, for example, frequently offer special promotions to
ence the product for the encourage consumers to taste products such as cheese, cooked meats, snacks or
first time. pizza. During this stage, potential adopters determine the usefulness or desirability of
the product under the specific conditions for which they need it.
Individuals move into the adoption stage by choosing the specific product when
adoption stage
The final stage of prod- they need a product of that general type. It cannot be assumed that because a person
uct acceptance, when enters the adoption process he or she will eventually adopt the new product. Rejection
customers choose a may occur at any stage, including adoption. Both product adoption and product rejec-
specific product. tion can be temporary or permanent. Even if adoption occurs, as explored in Chapter 5,
there is no guarantee of brand loyalty. Marketers must work hard to ensure repeat buying
and an ongoing relationship.
For the most part, people respond to different information sources at various stages of the adop-
tion process. Figure 16.3 illustrates the most effective sources for each stage. Mass communication
sources, such as television advertising or the web, are often effective for moving large numbers of
people into the awareness stage. Producers of consumer goods commonly use massive adver-
tising campaigns when introducing new products. They do so to create product awareness as
quickly as possible within a large portion of the target market.
Mass communication sources –

Awareness
television, magazines, radio, internet
Mass communication sources –

Interest television, magazines, radio, internet,
but not necessarily the same message
as for awareness
Personal sources –
Evaluation
relatives, friends, social media
Personal sources –
Trial
sales people, relatives, friends
Figure 16.3
Effective promotional tools for reaching Personal sources and, for
Adoption
consumers in various stages of the product reassurance, mass communication
adoption process
Mass communication sources may also be effective for people in the interest stage who want
to learn more about a product. During the evaluation stage, individuals often seek information,
opinions and reinforcement from trusted personal sources – relatives, friends and associates. In
the trial stage, individuals depend on sales people and postings online for information about how
to use the product properly in order to gain the most out of it. Marketers must use advertising
carefully when consumers are in the trial stage. If advertisements greatly exaggerate the benefits of
a product, the consumer may be disappointed when the product does not meet expectations.15 It
is best to avoid creating expectations that cannot be satisfied, because rejection at this stage will
prevent adoption. Friends and peers may also be important sources during the trial stage, along
with groups on social media. By the time the adoption stage has been reached, both personal
communication from sales personnel and mass communication through advertisements may be
required. Even though the particular stage of the adoption process may influence the types of
information source consumers use, marketers must remember that other factors – such as the
product’s characteristics, price and uses, as well as the characteristics of customers – also affect
the types of information source that buyers desire and believe.
As people in separate stages of the adoption process often require different types
adopter categories
Five groups into which of information, marketers designing a promotional campaign must determine what
customers can be stage of the adoption process a particular target audience is in before they can
divided according to the develop the message. Potential adopters in the interest stage will need different infor-
length of time it takes mation from people who have already reached the trial stage. Often a campaign will
them to adopt a product:
include several different advertisements and promotional mix tools in order to appeal
innovators, early adopt-
ers, early majority, late simultaneously to different consumers who are at different stages in the product
majority and laggards. adoption process.
When a company introduces a new product, people do not all begin the adoption
process at the same time and they do not move through the process at the same speed.
innovators Of those people who eventually adopt the product, some enter the adoption process
The first people to adopt
rather quickly, whereas others start considerably later. For most products, there is a
a new product.
group of non-adopters who never begin the process.
early adopters Product adopter categories

People who choose new
products carefully and Depending on the length of time it takes them to adopt a new product, people can be
are often consulted by divided into five major adopter categories: innovators, early adopters, early majority,
people from the remain- late majority and laggards.16 Figure 16.4 shows each adopter category and indicates
ing adopter categories.
the percentage of total adopters that it typically represents.
Innovators
Early Early Late
Figure 16.4 2.5%
adopters majority majority Laggards
Distribution of product
13.5% 34% 34% 16%
adopter categories
Innovators are the first to adopt a new product. They enjoy trying new products and
early majority
People who adopt tend to be venturesome. Early adopters choose new products carefully and are viewed
products just prior to the as ‘the people to check with’ by those in the remaining adopter categories. People in the
average person. early majority adopt just prior to the average person; they are deliberate and cautious in
trying new products. Late majority people, who are quite sceptical about new products,
eventually adopt them because of economic necessity or social pressure. Laggards,
late majority
the last to adopt a new product, are oriented towards the past. They are suspicious of
People who are quite
sceptical about new new products or unable to afford them easily, and when they finally adopt the innovation,
products but eventually it may already have been replaced by a newer product. When developing promotional
adopt them because of efforts, a marketer should bear in mind that people in different adopter categories often
economic necessity or need different forms of communication and different types of information or message.
social pressure.
laggards
Aims of promotion
The last people to adopt a
new product, suspicious Product adoption is a major focus for any promotional activity. In addition, there are five
of new products and ori- basic communications aims, known as the five communication effects. These are:17
ented towards the past.
1. category need
2. brand awareness
3. brand attitude
five communication
effects 4. brand purchase intention
Communication aims
5. purchase facilitation.
that include category
need, brand awareness,
brand attitude, brand
purchase intention and Category need
purchase facilitation.
The consumer must realize s/he wants a particular product – particularly for innovative
new category product launches – and must perceive a category need in order to be
category need motivated even to consider a product. Mobile phone networks have persuaded many
The consumer’s percep-
users of the need for built-in cameras, web browsing or music downloads: eye-catching
tion of his or her need
for a product in a certain advertising communicated the benefits of these mobile attributes, creating category
category. need. Tablets had to adopt a similar need-generating approach in their launch commu-
nications. Electric vehicles are facing a similar challenge.
Brand awareness
The consumer must be able to identify – recognize or recall – a manufacturer’s or retail-
brand awareness
The consumer’s ability to er’s brand within the category in sufficient detail to make a purchase. Brand awareness
identify a manufacturer’s means that the manufacturer or retailer must make its brand stand out, initially through
or retailer’s brand in suffi- product attributes supported by distinctive promotional activity. Sony wants consumers
cient detail to distinguish to be aware of its products rather than those from LG or Panasonic. In most marketing
it from other brands.
communications there is the objective of establishing brand awareness among target
consumers.
brand attitude
A consumer’s particular Brand attitude
impression of a brand,
formed by emotions and Emotions and logic or cognitive beliefs combine to give the consumer a particular impres-
logic or cognitive beliefs. sion of a product. This brand attitude directs consumer choice towards a particular
brand. Companies need customers to have a positive view of their brands. Much pro-
motional mix activity and the creation of the promotional message relate to developing
a favourable brand attitude, but other marketing mix ingredients also impact on these perceptions,
notably product design, features and performance.
Brand purchase intention

brand purchase
Once a category need and brand awareness are established, if the consumer’s brand
intention attitude is favourable, s/he will decide to purchase the particular product and take steps
The consumer’s decision to do so, showing brand purchase intention.
and efforts to purchase
the particular product.
Purchase facilitation
Having decided to buy, the consumer requires the product to be readily available at a
convenient location, at a suitable price and from a familiar dealer: purchase facilitation.
purchase facilitation
Circumstances that A manufacturer or supplier must ensure that other marketing mix factors: product,
make it possible for the people, place (distribution) and price, do not hinder the purchase. Sony customers
consumer to purchase expect wide distribution from reputable retailers, with no budget pricing. Sony produces
the product: availability, high-quality goods, but it has several well-respected competitors and must ensure prod-
location, price and famil-
uct availability, competitive pricing and continued product improvement to prevent brand
iarity of vendor.
switching.
To provide a better understanding of how promotion can move people closer to the
acceptance of goods, services and ideas, the next section focuses on the major promotional meth-
ods available to an organization – the promotional mix and integrated marketing communications.
The promotional mix

Several types of promotional methods can be used to communicate with individuals, groups
and organizations. When an organization combines specific ingredients to promote a particular
product, that combination constitutes the promotional mix for that product. The four
promotional mix traditional ingredients of a promotional mix were advertising, personal selling, publicity/
The specific combina- public relations and sales promotion. Over time, sponsorship and direct mail became
tion of ingredients an
elements of the promotional mix in their own right (see Figure 16.5).18 Direct marketing,
organization uses to
promote a product, tra- the web and mobile are relatively recent additions to the promotional mix. For some
ditionally including four products, organizations use all of these ingredients; for other products, two or three
ingredients: advertising, will suffice. Each has its pros and cons, but each must be pertinent to the product cat-
personal selling, publicity egory’s accepted norms, to targeted buyers’ expectations and behaviours, and to the
and public relations and
product’s adopted brand positioning and tone of voice. This section analyzes the major
sales promotion, but
joined today by direct ingredients of a promotional mix and the chief factors that influence an organization to
marketing and web- include specific ingredients in the promotional mix for a specific product. Each ingredient
based communications. is explored more thoroughly in subsequent chapters.
Publicity
Personal and public
selling relations
The internet Sales

and digital promotion
Advertising Sponsorship
Direct mail
Figure 16.5
Possible ingredients of an organization’s
promotional mix
Promotional mix ingredients

At this point consideration is given to some general characteristics of advertising, personal selling,
publicity and public relations, sales promotion, sponsorship, direct mail, the internet and direct
marketing.
advertising Advertising Advertising is a paid form of non-personal communication about an

A paid form of non- organization and its products that is transmitted to a target audience through a mass
personal communication medium such as television, radio, newspapers, magazines, direct mail, public transport,
about an organization outdoor displays, catalogues and now the web. Individuals and organizations use adver-
and its products that is
tising to promote goods, services, ideas, issues and people. As it is highly flexible, adver-
transmitted to a target
audience through a mass tising offers the options of reaching an extremely large target audience or focusing on a
medium. small, precisely defined segment of the population. For instance, McDonald’s advertising
focuses on a large audience of potential fast-food consumers, ranging from children
to adults, whereas advertising for DeBeers’ diamonds focuses on a much smaller and
specialized target market. Web-based advertising can be tightly focused in terms of recipients,
compared to press or TV advertising, both of which also can be targeted at only certain readers
or viewers. The main uses of advertising include the promotion of products or an organization in
order to create awareness among targeted audiences, the stimulation of demand, the off-setting
of competitors’ advertising, to support personal selling drives, for the education of a target market
about a brand and its enhanced marketing mix or product benefits and attributes, to increase con-
sumption and the perceived uses of a product, to remind and reinforce with intended customers,
and to even out seasonal sales fluctuations or manage production cycles.
Advertising offers several benefits. It can be an extremely cost-efficient promotional method
because it reaches a vast number of people at a low cost per person. For example, if the cost
of an eight-colour, one-page advertisement in a well-known Sunday newspaper is £34 000, and
the newspaper reaches 500 000 readers, the cost of reaching 1000 readers only £68 per person.
A web presence: As with many brands, a digital pres-

now routine behaviour ence on Twitter, Facebook, Instagram and
Topical insight YouTube are now routinized expectations
In the early days of web-based marketing for Pepsi consumers and the company’s
many corporate giants avoided using ban- brand managers. Pepsi online provides
ners, buttons and other early forms of internet through Pepsi Pulse entertainment, celebrity
advertising, believing them to be inefficient and blogs and features, games, promotions, news, mer-
ineffective. Now companies embrace web advertising and dig- chandise offers and access to a digital community of con-
ital communications. McDonald’s uses its website and digital sumers sharing interests and lifestyles in which Pepsi plays a
media to develop a relationship with its consumers and build part. Pepsi Pulse reveals the lifestyles – the pulse – of Pepsi
the brand’s profile. McDonald’s on your mobile and Wraps on users, harnessing the blogs and posted photos of consumers
YouTube are just two examples of McDonald’s digital activity. around the world to create an entertaining and involving way
As the company’s director for media explains, ‘We’re not going for consumers to become part of a lifestyle-led online commu-
to sell burgers online, but we can extend the experience of the nity. As Pepsi Pulse states, Now is what you make of it. Show
brand online and bring McDonald’s to life online.’ us how you #livefornow.
PEPSI PULSE LETS YOU LIVE AT THE SPEED OF NOW WITH
Digital experts believe few consumer or business brands
OUR PICK OF THE HOTTEST UPDATES FROM THE WORLDS
can now avoid harnessing web-based marketing communica-
OF MUSIC, SPORTS AND ENTERTAINMENT, PLUS THE MOST
tions, particularly if – as in the case of McDonald’s – the target IMPORTANT WORLD OF ALL – YOURS. LIVING FOR NOW IS
audience is young and made up of consumers who have been MORE THAN A MOTTO. IT’S A MINDSET. IT’S A CALL TO ARMS.
brought up as ‘digital dream kids’, used to 24-hour online BUT ABOVE ALL, IT’S A NEVER-ENDING ADVENTURE WITH YOUR
access anywhere they happen to be. NAME ON IT.
Nike has many websites, some of which promote specific
www.pepsi.com/en-gy/about
brands, linking into its sponsorship of entertainers and sports
stars. Guerrilla moves, such as mentioning its websites or The Beautiful Game site celebrates soccer, reflecting
celebrity tie-ins in chat room messages, have been hugely Pepsi’s growing sponsorship of the sport, but in a manner
successful for the company in attracting hundreds of thou- which engages with Pepsi consumers in another lifestyle
sands of visitors to its websites for specific online promotions experience. Beats of the Beautiful Game linked soccer with
and advertising campaigns. Sports-focused video clips, down- Pepsi’s long-term love of music, with the album available
loadable tracks, musical ePostcards suitable for personaliza- on iTunes. Whether sports, celebrities’ postings, consumers’
tion, and games have proved a big hit with the youth market blogs and videos, Pepsi is harnessing the web to advertise
targeted by so many Nike products. NikePlus.com… just do it. its wares, build its brand and engage consumers in its online
Follow Us on Twitter community.
Like Us on Facebook
Join Us on Instagram
Connect With Us on Google+ Sources: McDonald’s, Nike and Pepsi, with thanks to Advertising Age and
Watch Us on YouTube Campaign.
Advertising also enables the user to repeat the message a number of times. Unilever advertises
many of its products – cleaning products, foods, cosmetics – on television, in magazines, via
the web and through outdoor advertising. Advertising repetition has been found to be especially
effective for brand name extensions beyond the original product category.19 In addition, advertising
a product in a certain way can add to its value. For example, BMW cars are advertised as having
more sophistication, style, driving experience and technical innovation than Honda, Toyota and
other Japanese companies’ vehicles. The visibility that an organization gains from advertising
enhances the company’s public image. There clearly is a link between a product’s brand positioning
and the role of marketing communications.
Advertising also has several disadvantages. Even though the cost per person reached may be
low, the absolute monetary outlay can be extremely high, especially for advertisements shown
during popular television programmes. These high costs can limit, and sometimes prevent, the use
of advertising in a promotional mix. Moreover, advertising rarely provides rapid feedback. Measur-
ing its effect on sales is difficult, and it ordinarily has a less persuasive impact on customers than,
for example, personal selling.20 With the growth in satellite channels, the creation of ever greater
numbers of consumer and trade magazines, the role of the web for advertisers, mobile marketing
and interactive television, the choice of media for advertisers is growing increasingly complex and
prone to error unless handled by specialist media buyers.
Identify
Define Create Determine
and analyze
advertising advertising advertising
advertising
objectives platform budget
target audience
Evaluate Create Develop

Figure 16.6 Execute
General steps for advertising advertising media
campaign
developing and imple- effectiveness message plan
menting an advertising
campaign
As illustrated in Figure 16.6, there are eight stages in creating an advertising campaign:
1. The identification and understanding of the advertising target audience, which relates to the
company’s target market strategy and a deep appreciation of targeted consumers’ or busi-
ness customers’ expectations, perceptions, requirements and buying behaviour, as explored
in Chapters 5 and 6.
2. The scoping of objectives for the campaign, such as sales levels, increased awareness of the
brand, a specific impact on a competitor or a change in the target audience’s perceptions and
attitudes.
3. The creation of the advertising platform which has relevance to the target audience and seeks
to differentiate the brand from rivals, such as Andrex’s puppies or BMW’s The Ultimate Driving
Machine.
4. Agreement on the available advertising budget, which is often a specific project amount, the
percentage of sales approach or an amount set to match a specific competitor’s activity.
5. The highly specialized act of establishing a media plan, which with the proliferation of TV chan-
nels, consumer magazines, local radio stations, eChannels and viral possibilities, has become
far more flexible but much more complex.
6. The creation of the specific message, such as Direct Line’s triumphant red phone proposition
or Asda’s value-led deals.
7. The execution of the campaign using the agreed platform, message, media and associated
IMC activities.
8. The evaluation of the effectiveness of the campaign and assessment of its apparent benefits.
Personal selling Selling that involves informing customers and persuading them to
personal selling purchase products through personal communication in an exchange situation is called
The use of personal
communication in an
personal selling. The phrase ‘to purchase products’ should be interpreted broadly to
exchange situation to encompass the acceptance of ideas and issues. Telemarketing, described as direct
inform customers and selling over the telephone, relies heavily on personal selling.
persuade them to pur- Personal selling has both advantages and limitations when compared with advertis-
chase products. ing. Advertising is general communication aimed at a relatively large target audience,
whereas personal selling involves more specific communication aimed at one person
or several people. Reaching one person through personal selling costs considerably
telemarketing
Direct selling over the more than doing so through advertising, but personal selling efforts often have a greater
telephone, relying heavily impact on customers. Personal selling also provides immediate feedback, which allows
on personal selling. marketers to adjust their message to improve communication. It helps them determine
and respond to customers’ needs for information.
When a sales person and customer meet face-to-face, they use several types of
interpersonal communication. Obviously, the predominant communication form is lan-
kinesic guage, both speech and writing. In addition, a sales person and customer frequently use
communication kinesic communication or body language by moving their heads, eyes, arms, hands,
Body language, including legs or torsos. Winking, head nodding, hand gestures and arm motions are forms of
winking, head nodding, kinesic communication. A good salesperson can often evaluate a prospect’s interest in
hand gestures and arm
movements.
a product or presentation by watching for eye contact and head nodding. Proxemic
communication, a less obvious form of communication used in personal selling, occurs
in face-to-face interactions when either person varies the physical distance that sepa-
proxemic rates the two people. When a customer backs away from a salesperson, that individual
communication may be indicating that s/he is not interested in the product or may be expressing dislike
A subtle form of commu- for the sales person. Touching or tactile communication can also be used; shaking
nication used in face-to-
hands is a common form of tactile communication in many countries. Management of
face interactions when
either person varies the sales people is very important in making this component of promotion effective. Sales-
physical distance that people who are directly involved in planning sales activities develop greater trust in their
separates the two. company and have increased sales performance.21
tactile communication
Publicity and public relations Publicity refers to non-personal communication in
Interpersonal communi- news-story form about an organization or its products, or both, that is transmitted through
cation through touching, a mass medium at no charge. Examples of publicity include magazine, newspaper, radio
including shaking hands. and television news stories about new retail stores, new products or personnel changes
in an organization. Although both advertising and publicity are transmitted through mass
communication, the sponsor does not pay the media costs for publicity and is not iden-
publicity
tified. Nevertheless, publicity should never be viewed as free communication. There are
Non-personal communi-
cation in news-story form clear costs associated with preparing news releases and encouraging media personnel
about an organization to broadcast or print them. A business that uses publicity regularly must have employees
and/or its products that to perform these activities or obtain the services of a public relations consultancy or an
is transmitted through advertising agency. Either way, the company bears the costs of the activities.
a mass medium at no
Publicity must be planned and implemented so that it is compatible with, and sup-
charge.
portive of, other elements in the promotional mix.22 However, publicity cannot always be
controlled to the extent that other elements of the promotional mix can be. For example,
just as Toyota prepared for new model launches, major component failures led to a series of embar-
rassing product recalls, causing issues for the brand’s reputation and credibility which suddenly
had to be addressed by the company’s public relations partners. The public relations
public relations
Managing and controlling mechanism manages and controls the process of using publicity.23
the process of using Marketing public relations, now so important because of information availability online
publicity effectively. It is and growing digital consumer-to-consumer communications via social media, promotes
the planned and sus- products or brands, while corporate public relations focuses on the company and its
tained effort to establish
impact on society with all stakeholders and not just intended customers. Marketers
and maintain goodwill
and understanding make use of PR events, campaigns and programmes. In addition to using a company’s
between an organization web pages to communicate information, blogs and vlogs, PR practitioners use press
and its target publics. releases, feature articles, press conferences, interviews, visits and stunts. Third party
endorsement of a product or company by trusted and respected independent authori-
ties and personalities can prove very effective. In addition to creating product or brand
awareness and generating interest, public relations is very important in handling crises and com-
bating any negative publicity engineered by competitors or stemming from the media, regulatory
bodies or public interest groups.
sales promotion Sales promotion A sales promotion is an activity or material that acts as a direct
An activity or material inducement by offering added value to, or incentive for, the product to resellers, sales
that acts as a direct people or consumers.24 Examples of sales promotion include coupons, on-pack deals,
inducement by offering trade shows, bonuses and contests used to enhance the sales of a product. The term
added value to or incen-
sales promotion should not be confused with promotion; sales promotion is but a part of
tive for the product to
resellers, sales people or the more comprehensive area of promotion that encompasses advertising, personal sell-
consumers. ing, publicity and public relations, sponsorship, direct mail, the web and direct marketing.
Some sales promotions, however, are closely associated with additional elements of the
promotional mix. Currently, marketers spend about half as much on sales promotion as
they do on advertising. Sales promotion appears to be growing in use more than traditional forms
of advertising.
Marketers frequently rely on sales promotion to improve the effectiveness of other promotional
mix ingredients, especially advertising and personal selling. For example, some organizations allo-
cate 25 per cent of their annual promotional budget to trade shows in order to introduce new prod-
ucts, meet key industry personnel and identify likely prospects.25 For many business-to-business
marketers, sales promotions are very important.
Marketers design sales promotions to produce immediate, short-run sales increases. For
example, the major brewers, such as Heineken, use a continuous programme of sales promotion
techniques to boost sales in the highly competitive beer and lager market: free drinks and prize
competitions, scratch cards and trade incentives.
Generally, if a company employs advertising or personal selling, it either depends on them
continuously or turns to them cyclically. However, a marketer’s use of sales promotion tends to be
irregular. Many products are seasonal. For example, Thomas Cook promotes summer package
holidays predominantly in the winter and spring months. Flymo pushes its lawn mowers and other
gardening equipment from Easter onwards. On the whole, sales promotions are infrequent, ad
hoc campaigns.
Consumer sales promotions encourage consumers to patronize a specific retail store or to
try a particular product, or they strive to bring forward purchases by existing customers. Tech-
niques include coupons, free samples, demonstrations, competitions, frequent-user incentives
and loyalty programmes, point-of-sale materials, money refunds, premiums, product bundling,
placements and price offers. Trade sales promotions encourage wholesalers, retailers or distrib-
utors to stock a product, increase display space and market the product. Popular techniques
include buy-back allowances, buying allowances/temporary price reductions, count and re-count
promotions, free merchandise or bundling, point-of-sales materials, merchandise allowances,
cooperative advertising, dealer listings, money to incentivize sales personnel, sales competitions
and dealer loaders/gifts.
sponsorship Sponsorship The financial or material support of an event, activity, person

The financial or material rganization or product by an unrelated organization or donor is called sponsorship.
o
support of an event, Funds are made available to the recipient of the sponsorship in return for prominent
activity, person, organi- public recognition of the benefactor’s generosity and display of the sponsor’s name,
zation or product by an
products and brands. Sponsorship is no longer confined to the arts or the sporting
unrelated organization
or donor. world, although many galleries, theatrical companies, sports events and teams could
not survive without sponsorship. Research and development, buildings, degree
courses and charitable events all often benefit from sponsorship. The donor or
sponsor gains the benefits of enhanced company, brand or individual reputation and aware-
ness, as well as improved morale and employee relations. Note the number of prestigious
or well-known brands sponsoring the Olympics or football’s World Cup. It is important to
select sponsorship partners with care, as negative publicity about one may in turn tarnish the
reputation of the other.
Direct mail The direct mail industry takes a significant slice of the promotional bud-
direct mail gets for many companies and organizations. Few households and companies fail to
A method of commu- receive direct mail solicitations. Direct mail is used to entice prospective customers or
nication used to entice charitable donors to invest in products, services or worthy causes. Throughout Europe,
prospective customers direct mail is used as a pre-sell technique prior to a sales call, to generate orders, qualify
or charitable donors to
prospects for a sales call, follow up a sale, announce special or localized sales, and raise
invest in products, ser-
vices or worthy causes. funds for charities and not-for-profit organizations. Good and compliant database man-
agement is essential. The material must be targeted carefully to overcome the growing
public aversion to ‘junk mail’. Contact lists and follow-ups must be compliant with the
new data governance regulations and privacy safeguards under GDPR.
internet
A network of computer The internet
From humble beginnings as a ‘talking shop’ for boffins and computer
networks stretching buffs, the internet – a network of computer networks stretching across the world,
across the world, linking linking computers of different types – is now firmly established in office workers’
computers of different
daily routines, accessed in millions of households and by consumers on the move
types and sharing
information. through smartphones and tablets. Marketers have been quick to identify this addi-
tional medium as a huge opportunity for providing existing and potential customers
with company, product and brand information. Most companies now have their
own websites, while the major internet servers such as Google and Yahoo! are targeting small
businesses and providing eCommerce capability at affordable prices.26 Web-based marketing
is particularly important in many business-to-business markets. Use of the web is not uniform
across all parts of society, although there is evidence to suggest that it is no longer the pas-
time of only the young, affluent and well educated. Scrambling of confidential information such
as credit card and bank account details enabled an explosion in the number of purchases
made online. The web has provided a channel to market as well as a platform for marketing
communications.
As a promotional mix ingredient, the web provides a tool that can be interactive,
digital marketing
The use of technology-led
updated or modified quickly, and that can produce material aimed at very tightly defined
channels of communica- target groups or even individual consumers. This is why digital marketing is so popular
tion and selling to man- (see Chapter 19). From Interflora to Tesco to JCB, the internet is increasingly part of
age customer interaction the promotional mix and, for direct marketers, the actual point of the sales transaction.
and provide customer Many television and press advertisements for services or consumer goods now direct
experience in a digitally
connected environment.
their target audience to associated websites for additional information. Consumers can
then interact with these hosts, in many instances, via email, chatrooms and interactive
web page information request facilities. Websites must be tailored to match the target
customer buying behaviour and expectations, and must be informative but not mesmerizing, while
reflecting the existing branding and product positioning already established by an organization’s
marketers. They should be part of a harmonised and consistent customer experience of a brand.
They require expert design and updating, as with any ingredient in the promotional mix.
Intranets – internal in-company internet networks – have improved communications within many
organizations, becoming an important facet of internal marketing.
Facebook can be a customers in order to better understand

marketer’s best friend and and serve them. These pages are inex-
Topical insight pensive and easy to produce, making
her worst enemy them accessible to all businesses.
Few businesses fail to embrace Facebook
Founded in 2004, Facebook was initially
and most marketers recognize the importance
created just to connect students at Harvard
of having a strong and responsive presence in social
with other Ivy League universities; it soon expanded
media. Businesses must tread carefully, however. Recent
to include family, friends and colleagues. Since being opened
data sharing breeches have caused uproar in the media, with
to the general public, it has grown to support more than 1.5
politicians, policy makers and consumers calling for stringent
billion users daily. There are 2.2 billion monthly active users
protocols to protect users’ data, with some brands withdraw-
and daily 1.2 billion mobile users. Facebook users share more
ing from the platform in disapproval for how access to peo-
than five billion pieces of web content daily and upload 300
ple’s data has been used by third parties.
million photographs each day. Although it still serves its orig-
In addition, marketers must understand that Facebook
inal purpose, Facebook has acquired diverse new roles, even
users do not want to feel as if they are being subjected to sales
changing how people use the web in conducting purchasing
pitches. In order to make fans feel connected to a company –
research … many people now seek recommendations from
without making them feel like they are being pressured to buy
their social media networks before conducting other kinds of
something against their will – companies must dedicate time
searches. The Like and Share buttons are shared across over
to responding to fan posts and providing relevant information.
ten billion websites daily.
Problems aside, fan pages and other uses of widgets are a
Marketing strategists say businesses now must worry
cheap way for companies to advertise their goods and services
about how to connect to consumers via social media. One
while also garnering information about consumers. However,
of the ways is to create a fan page, of which Facebook has
Facebook and other social media present challenges, too. For
billions. The average user becomes a fan of four pages
Example, Facebook is readily available to competitors and is
each month. Fan pages use widgets, which help companies
vulnerable to sharing of negative messaging by unscrupulous
keep information on who is becoming a fan of their page.
rivals and third parties with vested interests
Businesses can use widgets to learn about and track their
Direct marketing First used in the 1960s, until recently direct marketing described the most
common direct marketing approaches: direct mail and mail order. Currently experiencing a surge
in popularity, direct marketing now encompasses all the communications tools that
mobile marketing enable a marketer to deal directly with targeted customers: direct mail, telemarket-
Marketing to encourage ing, direct response television advertising, door-to-door/personal selling, the web and
consumer engagement mobile marketing. Direct marketing is a decision by a company’s marketers to both:
anywhere or anytime
while on or using a ●●
select a marketing channel that avoids dependence on marketing channel
mobile device, such as intermediaries
a smartphone or tablet,
and heavily dependent on ●● focus marketing communications activity on promotional mix ingredients that deal
mobile apps which pro- directly with targeted customers.
vide users with informa-
tion, entertainment and Direct marketing is now adopted by a host of organizations ranging from fast-moving
location-based services. consumer goods companies, business-to-business marketers, charities and even
government departments.27 Of all elements of the promotional mix, it is reported to be
the fastest growing, but this is partly a reflection of the large number of promotional mix
direct marketing
A decision by a compa- ingredients it includes and the role of the web.28
ny’s marketers to select a In terms of the promotional mix, there are several key implications. Direct mail is on
marketing channel which the increase. Telemarketing has grown and will continue to do so, with more organiza-
avoids dependence tions turning to the direct marketing toolkit aided by advances in automated call centres.
on marketing channel
Door-to-door selling and leaflet dropping, visible forms of direct marketing encountered
intermediaries and to
focus marketing commu- by most householders, are also on the increase. Direct response advertising containing
nications activity on pro- a call for action within the advertisement by coupon, telephone or web now makes
motional mix ingredients up close to a third of all advertising as marketers turn to direct marketing, and as the
which deal directly with growth in satellite and cable television channels enables more direct response television
targeted customers.
advertising. The internet, too, is used by direct marketers to communicate with current
and prospective customers. The deployment of any direct marketing campaign must
strive to reflect targeted customer behaviour, needs and perceptions; provide a plausible
proposition that is clearly differentiated from competitors’ propositions; and match an organization’s
corporate goals and trading philosophy.
The more radical shift in recent years towards digital channels, digital marketing and mobile mar-
keting, along with greater consumer-to-consumer communication facilitated by social media, have
revolutionized how marketers manage their promotional strategies, create awareness and foster
product adoption. The digital era has added significantly to marketers’ fire power and provided the
opportunity for more tailored, frequent and interactive communication. The core ingredients of the
promotional mix are still integral to marketing communications, but the digital era has brought a
new wealth of options. Leading media buyers suggest that internet-based advertising will account
for over 90% of the growth in advertising spend over the next three years. Currently desktop and
mobile web advertising is around 22 per cent of companies’ spending on marcomms, while tele-
vision is 33 per cent. These digital developments are explored in Chapter 19.
Integrated marketing communications (imc)

Currently popular is the concept of integrated marketing communications (IMC).29
integrated marketing
communications (IMC) This is the coordination and integration of all marketing communication tools, avenues
The coordination and and sources within a company into a seamless programme of marketing communi-
integration of all market- cations activities.30 As marketers increasingly operate across multiple channels and
ing communication tools, embrace digital marketing, the principles of IMC are particularly pertinent to ensure
avenues and sources
consistent customer experience and branding across channels. The intention of IMC
within a company into
a seamless programme is to maximize the impact on consumers or business customers and other target audi-
that maximizes the ences at the lowest possible cost. IMC avoids the waste and duplication inherent in
impact on consumers some organizations in which each element of the promotional mix is controlled by sep-
and other end-users, at arate managers and may even be executed through different external agencies. There
minimal cost.
is nothing worse than when an advertising campaign on radio created by one agency
has little resemblance to a television campaign running at the same time, and created
by another advertising agency, while the online messaging and imagery are different
again. This is often compounded by digital, public relations, sponsorship, packaging and sales
promotions being implemented by yet more agencies in a poorly coordinated fashion. On one
occasion, five different agencies were developing marketing communications for market-leading
Gordon’s Gin, each using different shades of green – the brand’s famous identity – and adopting
various typefaces for the logo.
IMC is the integration of the whole promotional mix, but also all business-to-business, marketing
channel, customer-focused and internally directed communications. IMC as a concept is focused
on complete coordination and harmonized execution of various campaigns across the elements of
the promotional mix. Rather than treating all aspects of the promotional mix and internal marketing
separately, often utilizing many different departments and external agencies in an uncoordinated
manner, the company instead opts to fully harmonize these activities. This does not have to result
in only one supplying agency being commissioned: coordination ensures shared goals and com-
mon approaches to execution in a carefully scheduled manner. The benefits of IMC include greater
clarity to customers, marketing channel members, employees and suppliers, as well as reduced
costs, stronger impact in the marketplace and more effective branding.
Advertising, along with the rest of the promotional mix, exists to help implement a brand’s
target market strategy by communicating the product appeal and the brand positioning image
to intended customers and other key stakeholders (see Chapter 8). Occasionally, a creative
execution can be sufficiently memorable and strike a chord so well with the target audience,
that an organization rethinks its whole marketing mix for a brand or product. BMW had already
decided to focus its whole strategy on the driving experience, but the inception of the mem-
orable The Ultimate Driving Machine positioning strapline has for over 35 years steered the
strategy. While Mercedes emphasizes the comfort and luxury of its cars to all in the cabin,
German rival BMW designs its vehicles around the driver, whose experience is indeed more
rewarding than that of cabin passengers. The company prides itself on its engineering and
technology innovation, updating new models with dozens of improvements and innovative gad-
gets, but all orientated primarily around the driver’s position and use, along with the drivability
of the vehicle. The brand’s marketing communications, using all aspects of the promotional
mix (just go to www.bmw.co.uk for some examples) in an integrated programme, emphasizing
both the driving experience and the technical prowess of the range, under The Ultimate Driving
Machine brand positioning.
Now that the basic components of an organization’s promotional mix have been discussed, it
is important to consider how that mix is created. The factors and conditions that affect the selec-
tion of the promotional methods a specific organization uses in its promotional mix for a particular
product need to be examined.
Selecting promotional mix ingredients

Marketers vary the composition of promotional mixes for many reasons. Although all ingredients
can be included in a promotional mix, frequently a marketer chooses not to use them all. In
addition, many organizations that market multiple product lines use several promotional mixes
simultaneously.31
An organization’s promotional mix (or mixes) is not an unchanging part of the marketing mix.
Marketers can and do change the composition of their promotional mixes, often more easily and
faster than adjusting the product or channel ingredients of the marketing mix. The specific promo-
tional mix ingredients employed and the intensity with which they are used depend on a variety of
factors, including the organization’s promotional resources, objectives and policies; characteristics
of the target market; competitors’ activities; characteristics of the product; and the cost and avail-
ability of promotional methods.
Promotional resources, objectives and policies The quality of an organization’s promotional

resources affects the number and relative intensity of promotional methods that can be included in
a promotional mix. If a company’s promotional budget is extremely limited, the business is likely to
rely on personal selling because it is easier to measure a salesperson’s contribution to sales than
to measure the effect of advertising. A company must have a sizeable promotional budget if it is
to use regional or national advertising and sales promotion activities. Organizations with extensive
promotional resources can usually include more ingredients in their promotional mixes. However,
larger promotional budgets do not necessarily imply that the companies will use a greater number
of promotional methods.
An organization’s promotional objectives and policies also influence the types of promotion
used. If a company’s objective is to create mass awareness of a new convenience good, its pro-
motional mix is likely to lean heavily towards advertising, the web, sales promotion and possibly
publicity. If a company hopes to educate consumers about the features of durable goods, such
as home electrical appliances, its promotional mix may combine a moderate amount of adver-
tising, possibly some sales promotion efforts designed to attract customers to retail stores and
a great deal of in-store personal selling, this being an excellent way to inform customers about
these types of product. If a company’s objective is to produce immediate sales of consumer non-
durables, such as paper products and many grocery goods, the promotional mix will probably
stress advertising and sales promotion efforts. Business-to-business marketers often use detailed
trade advertising, personal selling through sales representatives, sales promotions – often in the
guise of bulk discounts and trade show exhibits – and direct mail of brochures and price lists, as
well as their websites.
Characteristics of the target market The size, geographic distribution and socio-economic
characteristics of an organization’s target market also help dictate the ingredients to be included
in a product’s promotional mix. To some degree, market size determines the composition of the
mix. If the size is quite limited, the promotional mix will probably emphasize personal selling, which
can be quite effective for reaching small numbers of people. Organizations that sell to business
markets, and companies that market their products through only a few wholesalers or dealers,
frequently make personal selling the major component of their promotional mixes. When markets
for a product consist of millions of customers, organizations use advertising, sales promotion and
digital marketing, because these methods can reach masses of people at a low cost per person.
The geographic distribution of a company’s customers can affect the combination of promo-
tional methods used. Personal selling is more feasible if a company’s customers are concentrated
in a small area than if they are dispersed across a vast region. When the company’s customers are
numerous and dispersed, advertising an online activity may be more practical.
The distribution of a target market’s socio-economic characteristics, such as age, income or
education, may dictate the types of promotional technique that a marketer selects. For example,
personal selling or sales promotions may be much more successful than print advertisements for
communicating with poorly educated people, because it allows meaning or product attributes to
be explained face-to-face or trialled.
Activities of competitors While in general terms, differentiation is sought by marketers, if key

competitors are educating customers to expect a certain form of marketing communication, it is
difficult not to follow suit. If a strong rival is promoting new product features or attractive pricing, a
brand may be forced to adopt similar messaging and choices of media.
Characteristics of the product Generally, promotional mixes for business products con-
centrate on personal selling and the web, particularly if they are complex and require a great
deal of explanation. In promoting consumer goods, on the other hand, advertising and mobile
play major roles. This generalization should be treated with caution, however. Industrial goods
producers do use some advertising to promote their goods, particularly in the trade press and
online. Advertisements for computers, road-building equipment and aircraft are not altogether
uncommon, and sales promotion is deployed to promote industrial goods. Personal selling
is used extensively for services and consumer durables, such as insurance, leisure and edu-
cation, home appliances, cars and houses, and consumer convenience items are promoted
mainly through advertising and sales promotion. Publicity appears in promotional mixes for
business goods, consumer goods and services. Many organizations use direct mail, and more
are now examining the growing use of corporate sponsorship. Of course, most organizations
have websites and now use digital marketing.
Marketers of highly seasonal products are often forced to emphasize advertising, and possibly
sales promotion, because off-season sales will not support an extensive year-round salesforce.
Although many toy producers have salesforces to sell to resellers (retailers), a number of these
companies depend to a large extent on advertising to promote their products.
The price of a product also influences the composition of the promotional mix. High-priced
products call for more personal selling because consumers associate greater risk with the purchase
of such products and usually want the advice of a salesperson. For example, few consumers
would be willing to purchase a car, refrigerator or home entertainment system from a self-service
establishment. For low-priced convenience items, marketers use advertising and sales promotions
rather than personal selling at the retail level. The profit margins on many of these items are too low
to justify the use of salespeople, and most customers do not need advice from sales personnel
when buying such products.
A further consideration in creating an effective promotional mix is the stage of the product
life cycle (see Chapter 10). During the introduction stage, a good deal of advertising and digital
marketing may be necessary for business-to-business and consumer products to make potential
users aware of a new product. For many products, personal selling and sales promotion are also
helpful at this stage, to demonstrate and seek trialling. In the case of consumer non-durables, the
growth and maturity stages call for a heavy emphasis on advertising and a strong web presence.
Business products, on the other hand, often require a concentration of personal selling and some
sales promotion efforts during these stages. In the decline stage, marketers usually decrease their
promotional activities, especially advertising. Promotional efforts in the decline stage often centre
on personal selling, sales promotion efforts and a web presence.
The intensity of market coverage is yet another factor that affects the composition of the pro-
motional mix. When a product is marketed through intensive distribution, the organization depends
strongly on advertising and sales promotion. A number of convenience products – such as lotions,
cereals and coffee – are promoted through samples, coupons and cash refunds. Where marketers
have opted for selective distribution, marketing mixes vary considerably in terms of amount and
type of promotional method. Items handled through exclusive distribution frequently demand more
personal selling and less advertising. Expensive watches and high-quality furniture are products
that are typically promoted heavily through personal selling. Intensive, selective and exclusive
distribution were discussed in Chapter 14.
A product’s use also affects the combination of promotional methods. Manufacturers of highly
personal products, such as non-prescription contraceptives, feminine hygiene products and hae-
morrhoid treatments, count on advertising for promotion because many users do not like to talk
to sales personnel about such products.
Cost and availability of promotional methods The cost of promotional methods is a major
factor to analyze when developing a promotional mix. National advertising and sales promotion
efforts require large expenditures. For example, some detergent brands have annual advertising
budgets of £20 to £30 million. Some retailers spend £20 million in only the few weeks leading
up to Christmas. However, if the efforts are effective in reaching extremely large numbers of
people, the cost per individual reached may be quite small, possibly a few pence per person.
Moreover, not all forms of advertising are expensive. Many small, local businesses advertise their
products through local newspapers, magazines, radio stations, outdoor signs, public transport
and on the web.
Another consideration that marketers must explore when formulating a promotional mix is the
availability of promotional techniques. Despite the tremendous number of media vehicles, a company
may find that no available advertising medium reaches a certain market effectively. For example, a
product may be banned from being advertised on television, as are cigarettes in many countries.
A stockbroker may find no suitable advertising medium for investors in Manchester United Football
Club – should the stockbroker use financial publications, sports magazines or general media?
The problem of media availability becomes even more pronounced when marketers try to adver-
tise in other countries. Some media, such as television, simply may not be available to advertisers.
Television advertising in Scandinavia is minimal. In the UK, 12 minutes of advertising are permitted
per average hour of terrestrial television. The media that are available may not be open to cer-
tain types of advertisement. For example, in Germany, advertisers are forbidden to make brand
comparisons in television advertisements. Other promotional methods have limitations as well. An
organization may wish to increase the size of its salesforce but be unable to find qualified personnel.
In the US, some state laws prohibit the use of certain types of sales promotion activities, such as
contests. Such prohibited techniques are thus ‘unavailable’ in those locations.
push policy Push policy versus pull policy

A promotional policy in
Another element that marketers should consider when they plan a promotional mix is
which the producer pro-
motes the product only to whether to use a push policy or a pull policy. With a push policy, the producer pro-
the next institution down motes the product only to the next institution down the marketing channel. For instance,
the marketing channel. in a marketing channel with wholesalers and retailers, the producer promotes to the
wholesaler, in this case the channel member just below the producer (see Figure 16.7).
Each channel member in turn promotes to the next channel member. A push policy
pull policy
normally stresses personal selling. Sometimes sales promotion, direct mail and adver-
A promotional policy in
which an organization tising are used in conjunction with personal selling to push the products down through
promotes directly to the channel.
consumers in order to As Figure 16.7 shows, a company using a pull policy promotes directly to con-
develop a strong consumers with the intention of developing a strong consumer demand for the products.
sumer demand for its
It does so through advertising, sales promotion, direct mail, the web, sponsorship and
products.
packaging that helps manufacturers build and maintain market share.32 As a result, con-
sumers are persuaded to seek the products in retail stores, and retailers will in turn go
to wholesalers or the producer to buy the products. The policy is thus intended to ‘pull’ the goods
down through the channel by creating demand at the consumer level.
‘Push’ policy ‘Pull’ policy
Producer Producer = Flow of

products
= Flow of
communications
Wholesalers Wholesalers
Retailers Retailers
Figure 16.7
Comparison of push Consumers Consumers
and pull promotional
policies
A push policy can be combined with a pull policy. Mars, for example, has a pull policy aimed
at the consumer: sponsorship of events and advertising create awareness; packaging, sales pro-
motions such as competitions or discounts and direct mail prompt product trial and adoption.
Simultaneously, the company’s push policy of trade advertising, sales promotions and personal
selling persuades channel members to stock and retail its products.
Summary
The primary role of promotion is to communicate with individuals, groups or organizations with the aim of directly or indi-
rectly facilitating exchanges. Promotion is commonly known as marketing communications. The nature of promotion in the
marketing mix has altered radically in recent years owing to the web’s immediacy and tailored messages, along with far
more rapid consumer-to-consumer communication about brands, products and experiences via social media networks and
mobile communications.
Communication is a sharing of meaning through the transmission of information. The communication process involves sev-
eral steps. Using the coding process, the source first converts the meaning into a series of signs that represent concepts.
The source should employ signs that are familiar to the receiver or receiving audience and choose signs that the receiver
or receiving audience uses for referring to the concepts or ideas being promoted. The coded message is sent through a
medium of transmission to the receiver or receiving audience. The receiver or receiving audience then uses the decoding
process to convert the signs into concepts and usually supplies feedback to the source. When the decoded message differs
from the encoded one, a condition called noise exists. Occasionally, channel capacity is reached when the volume of infor-
mation can no longer be handled effectively.
Marketing communication is the transmission of persuasive information about a product, service or an idea, targeted at
key stakeholders and consumers within the target market segment. Marketing communications centre on the promotional
mix, which comprises advertising, public relations, personal selling, sales promotion, direct mail, sponsorship and the web,
including mobile marketing. Cause-related marketing links product purchases to a ‘good’ cause. The recent growth of
social marketing largely hinges on the effective use of appropriate communications to convey messages and interventions
to relevant target audiences for well-being and sustainability causes.
One long-run purpose of promotion is to influence and encourage customers to accept or adopt goods, services and ideas.
The ultimate effectiveness of promotion is determined by the degree to which it affects product adoption or increases the fre-
quency of current buyers’ purchases. The product adoption process consists of five stages: (1) in the awareness stage, indi-
viduals become aware of the product; (2) people move into the interest stage when they seek information about the product;
(3) in the evaluation stage, individuals decide whether the product will meet certain criteria that are crucial for satisfying their
specific needs; (4) during the trial stage, the consumer actually uses or experiences the product for the first time; (5) in the
adoption stage, the consumer decides to use the product on a regular basis. Product rejection may occur at any stage.
People can be divided into five major adopter categories: innovators, early adopters, early majority, late majority and lag-
gards according to how long it takes them to start using a new product.
There are five communication effects. A manufacturer or retailer must establish a category need for a product. Consumers
must have brand awareness and a favourable brand attitude towards the products. If the consumer decides to make a pur-
chase – brand purchase intention – the company’s overall marketing policy must guarantee distribution, suitable product
quality and attributes, and set the relevant price points – purchase facilitation.
The promotional mix for a product traditionally included the four major promotional methods – advertising, personal selling,
publicity/public relations and sales promotion. Now it is usually defined as also including sponsorship, direct mail and the
web. Digital marketing has significantly added to the fire power of marketers.
Advertising is a paid form of non-personal communication about an organization and its products that is transmitted to
a target audience through a mass medium. Personal selling is a process of informing customers and persuading them
to purchase products through personal communication in an exchange situation. Telemarketing often supports personal
selling. Kinesic, proxemic and tactile communication are important in personal selling. Publicity is non-personal commu-
nication in news-story form about an organization or its products, or both, that is transmitted through a mass medium at
no charge and controlled by the public relations mechanism. Sales promotion is an activity or material that acts as a direct
inducement by offering added value to, or incentive for, the product to resellers, sales people or consumers. Sponsorship
involves financial or material support of an event, activity, person, organization or product in return for prominent public
recognition and display of the sponsor’s name, products and brands. Direct mail is used to entice prospective customers or
charitable donors to invest in products, services or worthy causes. The internet, networked independent computers sharing
information through organizations’ websites, is a huge part of promotional activity. Digital marketing and its spin-off mobile
marketing are now at the forefront of most marketing communications, indeed of many companies’ marketing strategies,
as explored in Chapter 19.
Many businesses are turning to direct marketing, which is a decision to avoid the use of marketing channel intermediaries
and to focus marketing communications activity on promotional mix ingredients that deal directly with targeted customers,
such as personal selling, direct mail, direct response advertising, telemarketing and the web.
Currently popular is the concept of integrated marketing communications (IMC). IMC is the coordination and integration of
all marketing communication tools, avenues and sources within a company into a seamless programme that maximizes
the impact on consumers and other end users at the lowest possible cost. It is integration of the whole promotional mix but
also all business-to-business, marketing channel, customer-focused and internally directed communications. Rather than
treating all aspects of the promotional mix and internal marketing separately, often utilizing many different departments
and external agencies in an uncoordinated manner, a company instead opts to fully harmonize these activities. The benefits
of IMC include greater clarity, reduced costs, stronger impact in the marketplace, more effective branding and an improved
customer experience in terms of brand consistency. Multiple channel marketing in the digital era places greater importance
on such principles of coordination, to ensure consistent consumer experience of a brand.
There are several major determinants of what promotional methods to include in a promotional mix: the organization’s
promotional resources, objectives and policies; the characteristics of the target market; the activities of competitors; the
characteristics of the product; and the cost and availability of promotional methods. Marketers must also consider whether
to use a push policy or a pull policy, or a combination of the two. With a push policy, the producer promotes the product
only to the next institution down the marketing channel. A company that uses a pull policy promotes directly to consumers,
with the intention of developing a strong consumer demand for the products. Once consumers are persuaded to seek the
products in retail stores, retailers in turn go to wholesalers or the producer to buy the products.
Important terms
Key links Adopter categories
Adoption stage
This chapter overviews the role of promotion – marketing
Advertising
communications – within the marketing mix. It should be
Awareness stage
read in conjunction with:
Brand attitude
●● Chapter 10, which features the product adoption pro- Brand awareness
cess in developing products. Brand purchase intention
●● Chapter 8, which examines brand positioning. Category need
Cause-related marketing
●● Chapter 11, which covers branding.
Channel capacity
●● Chapters 17 and 18, which examine in more detail the Coding process
various ingredients of the promotional mix. Communication
●● Chapter 19, which summarizes digital marketing. Decoding process
Digital marketing
Direct mail 4. Identify several causes of ‘noise’. How can a source reduce
Direct marketing noise?
Early adopters 5. Describe the product adoption process. In certain circum-
Early majority stances, is it possible for a person to omit one or more of
Evaluation stage the stages in adopting a new product? Explain your answer.
Feedback
6. Describe a product that many people are in the process
Five communication effects
of adopting. Have you begun the adoption process for this
Innovators
product? If so, what stage have you reached?
Integrated marketing communications (IMC)
Interest stage 7. What is category need? Illustrate your answer with examples.
Internet 8. Identify and briefly describe the major promotional methods
Kinesic communication that can be included in an organization’s promotional mix.
Laggards 9. How does publicity differ from advertising?
Late majority
10. What forms of interpersonal communication in addition to
Marketing communication
language can be used in personal selling?
Medium of transmission
Mobile marketing 11. List the communications tools that direct marketing encom-
Noise passes and explain the recent surge in popularity of this
Personal selling promotional tool.
Product adoption process 12. What is digital marketing and how does it impact on promo-
Promotion tional strategy?
Promotional mix 13. How do target market characteristics determine which pro-
Proxemic communication motional methods to include in a promotional mix?
Public relations
14. Assume that a company is planning to promote a cereal
Publicity
to both adults and children. Along what major dimensions
Pull policy
would these two promotional efforts have to be different?
Purchase facilitation
Push policy 15. How can a product’s characteristics affect the composition
Receiver of its promotional mix?
Receiving audience 16. Explain the difference between a pull policy and a push
Sales promotion policy. Under what conditions should each be used?
Source 17. What is integrated marketing communications (IMC) and
Sponsorship what are the benefits of this approach?
Tactile communication
Telemarketing
Trial stage Recommended readings
Belch, G. and Belch, M., Advertising and Promotion: An Integrated
Discussion and review questions Marketing Communications Perspective (McGraw-Hill, 2017).
Chaffey, D. and Smith, P.R., Digital Marketing Excellence: Planning,
1. What is the major task of promotion/marketing Optimizing and Integrating Online Marketing (Routledge, 2017).
communications? De Pelsmacker, P., Geuens, M. and van den Bergh, J., Marketing
2. What significant developments have impacted most on Communications: A European Perspective (Pearson, 2017).
Fill, C. and Turnbull, S., Marketing Communications: Discovery, Creation
marketers’ use of marketing communications?
and Conversations (Pearson, 2016).
3. What is communication? Describe the communication pro- Juska, J.M., Integrated Marketing Communications (Routledge, 2017).
cess. Is it possible to communicate without using all of the Pickton, D. and Broderick, A., Integrated Marketing Communications
elements in the communication process? If so, which ones (FT Prentice-Hall, 2011).
can be omitted? Shimp, T.A. and Andrews, J.C., Integrated Marketing Communications in
Advertising and Promotion (Cengage, 2013).
Web task Classroom tools awareness and encourage

sales. What forms of marketing
Most leading brands embrace a mix communications dominate their
of promotional techniques, including activities today?
advertising, sales promotions, publicity, the web and the rest
of the promotional mix. Pepsi is no exception.
Pepsi Pulse lets you live at the speed of NOW with the Applied mini-case
hottest updates on music, sports and entertainment. Whether from Nintendo, Sony, Microsoft or Atari, gamers are
Pepsi’s Pepsi Pulse award-winning website is an important well used to the ‘next big thing’. The Xbox, Nintendo Switch
part of the company’s promotional activity, integrating adver- and Wii, Sony Playstation and many others all strive to create
tising, sales promotions activity and publicity releases with maximum impact when launching or introducing their next
customer involvement. Brand information, TV advertisements, generation consoles and games. Straightforward broadcast
music links, sports, celebrity pieces, promotions and street adverts over the years have been supplemented with celeb-
motion – there is much on offer on Pepsi’s web pages. Log on rity blogs, publicity stunts, competitions, in-store displays, PR
to www.pepsi.com/en-gy/d. campaigns and significant social media activity. Well-known
1. In what ways and with what messages is Pepsi engaging vloggers are encouraged through product placement to
with customers through the pages of its website? endorse certain systems and brands. While existing gamers
tend to look forward with relish to impending developments
2. How do these approaches support the brand’s
and product launches, these companies also require much
positioning?
broader interest particularly among non-gamers, in order
3. How do the web pages relate to the brand’s television to leverage their heavy investments in these new products,
advertising? attract new users, grow their market shares and volumes, and
dent competitors’ fortunes.
Group tasks
Question
1. Consider a major sporting event such as the Olympics or As marketing manager for Nintendo, Sony or Microsoft, tasked
the World Cup. What forms of marketing communications with launching the next generation of your gaming platform,
are used by the organizers to maximize their revenues? how would you gain the attention of existing customers and
2. Brands such as Pepsi or Coca-Cola tradition- also that of consumers not currently hooked on in-home gam-
ally depended on broadcast advertising, in-store ing? What would be the core messages and what ways could
sales promotions and sponsorships to gain brand be used to communicate these messages?
Häagen-Dazs: everyday new premium ice cream. As part of its

made extraordinary Case study European launch, Häagen-Dazs spent
£30 million on advertising, stressing the
Share It With Those You Love… When it deluxe ingredients, unusual flavours and
comes to ingredients, Häagen-Dazs deserves novelty of its product.
perfect. That’s why every scoop of our ice cream Innovative targeting and messaging
starts with 100% real cream and the freshest French milk (Oh la were core to the brand’s success, against well-
la). We then blend this with carefully selected ingredients, to cre- established brands already with strong popularity.
ate an ice cream with a unique, velvety texture and unforgettable Häagen-Dazs intended to increase consumption by appeal-
taste. Every spoonful of Häagen-Dazs is an absorbing, intensely ing to more than traditional ice cream-loving children. The
pleasurable experience, so good that you can’t help but share it summer afternoon stroll with an ice cream cornet, the family
with those you love (sometimes).
trip to a fun park or beach, a snack during a film or concert,
www.haagen-dazs.co.uk/our-story/
the sticky climax of a birthday party feast, had long been the
core market for Wall’s and Nestlé. Ice Cream Mars changed
Häagen-Dazs makes the best-selling super premium ice all that by creating an ice cream bar suitable for any occasion
cream in North America. Its luscious ingredients include and particularly attractive to adults. Häagen-Dazs went fur-
chocolate from Belgium, vanilla from Madagascar, coffee ther. Award-winning press adverts, artistically shot, often in
from Brazil, strawberries from Oregon and nuts from Hawaii. black and white, featured lithe, semi-nude couples entwined
The packaging serenely asserts that it is the world’s best ice in exotic poses while feeding each other Häagen-Dazs ice
cream. ‘Our passion for your pleasure is at the very heart of cream. The appeal of vanilla ice cream bars hand-dipped in
the Häagen-Dazs philosophy.’ Belgian chocolate and rolled in roasted almonds now seems
London’s Leicester Square shop served close to one mil- hard to resist for adults everywhere. The advertising imagery
lion ice-cream lovers in its first year. The success of the Victor promotes an adult, upmarket, glamorous positioning for this
Hugo Plaza shop in Paris, now one of the company’s busiest, super premium ice cream. The sexy themes from the 1990s
led to the establishment of its first European factory in France. might have been replaced recently with communications sug-
Häagen-Dazs shops have opened in Italy, Spain, Benelux, gesting that Häagen-Dazs has a place in the daily necessities
Scandinavia and many other places. The appealing flavours of life, but still the focus is on adults indulging themselves . . .
can now be found not only in the company’s shops but also at Everyday Made Extraordinary.
airports, in cafés and in carefully selected delicatessens, with The Häagen-Dazs range has grown, expanding to include
rapidly growing popularity. frozen yoghurts, sorbets and ice cream novelties, such as
The product’s high quality has been essential in main- the ice cream sandwich made with cookies. Formats have
taining a loyal customer following, but it was promotional evolved, from sharing tubs to minis, stick-bars to novelty lines.
work that led to the successful take-off of what was previ- Product development and quality controls are important to
ously an unheard-of brand in Europe. Sales promotion – in Häagen-Dazs’ brand positioning as an upmarket, indulgent
the guise of free tasting – was a major part of the promo- treat for adults, but so are the company’s innovative promo-
tional mix: over five million free cupfuls of ice cream were tional mix and the messages at the heart of its advertising.
given away during the company’s initial launch in Europe. Industry observers suggest that despite the exceptional qual-
Thousands of retailers, cafés and delis were supplied with ity and novel flavours, without marketing communications
branded freezers both to display and carefully look after the Häagen-Dazs would not have been so successful.

1. Why did the London launch of Häagen-Dazs utilize more
than just advertising?
2. Why did Häagen-Dazs target the adult market rather than
families or children?
3. Was the ‘adult’ positioning and promotional execution risky?
Why did Häagen-Dazs deploy this positioning strategy?
Sources: Sainsbury’s and Waitrose; www.haagen-dazs.co.uk/our-story/, June

2018; Rebecca Stewart, “Häagen-Dazs’ top UK marketer on why it’s switching
sexy and suggestive ads for a new brand ethos”, The Drum, May 22, 2017.
Chapter 17
Advertising, public relations
and sponsorship
In the digital era advertising still drives MarComms and most marketers’
budgets
Introduction
Objectives Ask a lay person—someone who has not read Chapters 1 or 2
of this book!—to define marketing, and the most common polite
To explore the nature and uses of
responses are ‘advertising’, ‘selling’ or ‘marketing research’ and
advertising.
‘collecting information’. While readers of this book will by now
To become aware of the major appreciate that there is much more to marketing than these
steps involved in developing an activities, it is true that advertising is a major output of the mar-
advertising campaign. keting process and accounts for a large proportion of market-
ers’ budgets.
To find out who is responsible for
This chapter overviews the importance of advertising, and
developing advertising campaigns.
discusses its core uses and the stages required in developing
To gain an understanding of public- an advertising campaign. Digital advertising is introduced. This
ity and public relations. chapter also explores public relations (PR) and a key output
from a public relations programme, which is publicity.
To examine the nature and uses of
Sponsorship used to be limited and often was handled by
sponsorship.
those responsible for PR. While many PR consultancies do
To develop a sound understand- advise their clients about sponsorship, there are now also spe-
ing of these ingredients of the cialist sponsorship agencies, reflecting the growing role within
promotional mix and of marketing the promotional mix of sponsorship, whether corporate or for
communications. individual brands. Few observers could fail to appreciate the role
of sponsorship when at major cultural or sporting events, such
as the Olympics or World Cup.
494
Chapter 17 Advertising, public relations and sponsorship 495
Cancer—advertising
M ention advertising
and most people
immediately think about
helps fight the early signs
The Department of
Health appointed the
agency M&C Saatchi in
campaigns involving big of cancer 2010 and together they
brands. But advertising is also created the Be Clear on C ancer
a powerful tool in supporting social brand. Be Clear on Cancer has
marketing causes. Despite UK government spending cuts in been in use since January 2011 to
the wake of the global economic meltdown, a £9 million pro- promote awareness and early diagnosis. While it depends on
gramme to alert people to the early signs of cancer was put the cancer type, for most activities the target audience for
in place. The initial programme was made up of 59 local cam- Be Clear on Cancer is primarily men and women from lower
paigns addressing breast, bowel and lung cancers, which are socio-economic groups who are over the age of 50. Public
three big killers in the UK. The Be Clear on Cancer programme awareness of key symptoms of cancer is low and research
is led by Public Health England, working in partnership with shows that, for some cancers, people from lower socio-
the Department of Health and NHS England. Each campaign is economic backgrounds or people who have lower education
tested locally and then regionally, with a view to rolling them levels tend to delay seeing their GP. At the heart of the Be Clear
out nationally if they prove to be effective. on Cancer campaign is a centrally-led awareness campaign,
using PR, press, radio, TV and social media.
A big advantage is that periodically new campaigns can be
launched or previous ones reprised—all under the overarch-
ing Be Clear on Cancer banner. In 2017, a previous campaign
to encourage the public to look out for respiratory symptoms
was re-run. People were told to report persistent coughs or
becoming out of breath to their doctors. In 2018, there was a
relaunch of the ‘blood in pee’ campaign to raise awareness of
the symptoms of kidney and bladder cancer.
Campaigns include using TV and radio advertising, along
with social media channels; adverts positioned in places such
as washrooms and on bus routes where people will notice
them; and leaflets distributed via doctors’ surgeries. These,
and many other initiatives within the overall Be Clear on
Cancer awareness programme, will save the NHS significant
sums of money in ongoing treatments for those detected too
late, while evidently there will be significant benefits for those
members of the public who respond to the programme and
are able to be more effectively treated. The advertisers’ tool-
kit has many such applications, away from the more visible
advertising of Nike, Apple or BMW, but the same fundamental
principles for powerful, targeted and relevant advertising still
apply.
References: Public Health England, June 2018, campaignresources.phe.gov.
uk/resources/campaigns/16-be-clear-on-cancer/overview; Cancer Research
UK, June 2018, www.cancerresearchuk.org/health-professional/awareness-
and-prevention/be-clear-on-cancer; www.cancerresearchuk.org/sites/
default/files/blood_in_pee_2010806.pdf; www.england.nhs.uk/wp-content/
uploads/2017/04/bcoc-announcement-letter.pdf
T
his chapter explores the many dimensions of advertising, publicity, public relations and
sponsorship. It should be remembered that Chapter 16 explained how companies are
increasingly benefiting from a more coordinated approach to their marketing communica-
tions through integrated marketing communications (IMC). Indeed, research suggests that higher
levels of integration in marketing communications leads to enhanced performance.1 However, this
chapter examines specific ingredients of the promotional mix to aid a thorough understanding of
these components—the other promotional mix ingredients are addressed in the next chapters,
including the growth of the web and digital marketing.
The present chapter commences by focusing on how traditional advertising is used, before exam-
ining the major steps by which an advertising campaign is developed and describing who is respon-
sible for developing such campaigns. After analyzing publicity and public relations, and comparing
their characteristics with those of advertising, the chapter explores the different forms publicity may
take. The following section considers how publicity is used and what is required for an effective public
relations programme. After discussing negative publicity and some problems associated with the use
of publicity, the chapter looks at the increasing use of sponsorship in the promotional mix. The role
of digital forms a separate chapter altogether.
The nature of advertising

Advertising permeates everyone’s daily lives.2 It may be perceived positively or as an annoyance,
encouraging channel hopping during advertising breaks or fast-forwarding of programme record-
ings.3 Some advertising informs, persuades or entertains; some of it bores or even offends. For
example, there were instances of consumer groups whitewashing billboards advertising tobacco
products because they believed such advertisements encouraged children to smoke.
First ambient and now ‘live’

Innovation of advertising using the outdoor world
advertising and change represents a move away from the tradi-
tional media of digital, television, radio,
When did you last spot an advertisement in a cinema, press and posters. Advocates of
surprising place? Perhaps it was a Volkswagen this approach believe that ambient advertis-
promotion on the handle of a petrol pump, an advert on a bus ing offers many possibilities.
ticket, a large building completely draped in a Ford Mondeo Companies commissioning promotional work
banner, a transfer of a brand’s logo on a famous cricketer’s involving ambient media have been pleased to discover that
face, a logo featuring in an actor’s tattoo, a plane or drone fly- much free press coverage can result. Ben and Jerry’s, the
ing overhead towing a banner, a poster on the back of a toilet American ice-cream business, attracted considerable publicity
cubicle door, an advert plastered across a cricket pitch, or when it hired cows to act as mobile advertising hoardings.
even the promotion of clean air in Wales on the back of a dirty The animals, which were grazing alongside a major motorway,
van. The industry refers to the use of such media as ambient were fitted with coats sporting an ice-cream advertisement.
advertising. The aim is to catch people’s attention in unex- Meanwhile Beck’s beer was promoted using an advertisement
pected places and away from traditional advertising’s outlets. mown on a 30-acre field sited alongside a heavily used rail-
According to media buying agency Concord, which claims to way line.
have been the first to define the form, ambient advertising In addition to identifying new surfaces as replacement
is ‘non-traditional out-of-home advertising’. An early exam- billboards, ambient advertising makes use of existing objects
ple, at the Atlanta Olympic Games, was when sprinter Linford as promotional sites. Elida Fabergé advertised its Vaseline
Christie promoted Puma by wearing contact lenses featur- Intensive Care deodorant by attaching fake roll-on containers
ing the sportswear brand. Finding new and creative ways to the hanging grab-straps on the London Underground. The
aim was to draw attention to the product at a time when
commuters might be particularly amenable to considering its advertisements familiar from television. London movie-goers
benefits. Views about the effectiveness of ambient advertis- were surprised by an interruption to the screened adver-
ing vary, given ambient campaigns do not always target a tisements when a group of actors took to the stage and
specific audience. The Beck’s advert targeted a whole com- re-enacted a popular television commercial live on stage.
muter train of people, only a small number of whom like to The agency argued that this form of ‘in your face’ advertising
drink Beck’s. Arguably the publicity associated with this stunt is necessary when consumers are assailed by so many pro-
generated more impact and awareness among beer drinkers. motional messages every day. Certainly, the London movie-
Nevertheless, as advertisers seek novel executions and ways goers exposed to these ‘live’ role-playing advertisements were
of attracting the attention of consumers, ambient advertising distracted from shuffling in their seats, chatting and snack-
is a welcome addition to adland’s armoury. ing! It is expected that live advertising—a variation on sales
Instigated in London by a leading South African agency, promotion stunts—will become more popular, particularly
is so-called ‘live’ advertising. Cinema-goers are used to 15 for fast-moving consumer goods but even at business con-
minutes’ preamble on the screen prior to the blockbuster ventions and trade shows for business-to-business products
feature, including trailers for forthcoming attractions and and services.
Advertising is a paid form of non-personal communication that is transmitted

advertising
A paid form of non- through mass media such as television, radio, newspapers, magazines, direct mail,
personal communication public transport vehicles, outdoor displays and now the internet. As explained in the
that is transmitted Innovation and Change box above, advertising takes on some innovative forms. An orga-
through mass media nization can use advertising to reach a variety of audiences, ranging from small precise
such as television, radio,
groups, such as the stamp collectors in the major conurbations, to large audiences,
newspapers, magazines,
direct mail, public trans- such as all the buyers of iPads in America.
port vehicles, outdoor When people are asked to name major advertisers, most immediately mention busi-
displays and the internet. ness organizations. However, many types of organization - including governments,
churches, universities, civic groups and charities - take advantage of advertising. For
example, the UK government is one of the largest advertisers: anti-drug, healthy-eating,
give-up smoking, skills training, employment advice, road safety campaigns, drink driving and
business initiatives are just a few examples. So even though advertising is analyzed here in the
context of business organizations, it should be borne in mind that much of the discussion applies
to all types of organization.
Table 17.1 Leading UK advertising agencies

Agency Billings 2016 (£m) Top spending clients
Abbot Mead Vickers BBDO £516m BT, DSG, Sainsbury’s, Mars, Camelot
McCann Erickson £390m Aldi, Microsoft, L’Oreal, Vauxhall
Adam & Eve/DDB £294m VW, Lloyds, Waitrose, John Lewis, Halifax
Grey London £271m Vodafone, P&G, GSK, Volvo, Coty
Bartle Bogle Hegarty £269m Virgin Media, Tesco, KFC, Audi, Barclays
Leo Burnett £236m McDonald’s, P&G, Lindt & Sprungli, Co-Op
Publicis UK £223m Morrisons, Renault, Garnier, Coca-Cola, P&G
VCCP £221m BGL, O2, Muller, Nationwide, easyJet
WCRS £216m Sky, B&Q, Santander, Ministry of Defence
Saatchi & Saatchi £211m P&G, EE, Direct Line, Toyota, Asda
Source: Campaign magazine based on Nielsen data (www.campaignlive.co.uk/article/top-100-agencies/1427521)
Table 17.2 Leading global advertising agencies

Young & Rubicam DDB McCann Erickson BBDO Ogilvy & Mather
Young & Rubicam- DDB’s principal founder, One of the pioneers BBDO is arguably the David Ogilvy created
Brands is the umbrella Bill Bernbach, is often in global marketing, world’s most admired Ogilvy & Mather virtu-
for a collection of considered to be the McCann Erickson was creative network, ally from scratch in the
marketing services single most influential the first ad agency having won more years after World War II,
providers led by adver- figure in post-war to diversify into other industry awards since establishing himself as
tising agency Y&R and advertising. Now a marketing disciplines. 2005 than any other. one of the ad industry’s
digital & direct marketer subsidiary of Omnicom, McCann Worldgroup The main advertising most influential ambas-
Wunderman. It has DDB Group also houses also contains PR giant agency is the biggest sadors. The agency,
been a wholly owned a collection of other Weber Shandwick, and by revenues in the US, part of WPP, remains
subsidiary of WPP since agencies including CRM branding specialist and regional units such a global powerhouse,
2000, but continues network Rapp, branding Futurebrand as well as AMV BBDO of the UK partnered by satellite
to operate as a largely agency Interbrand and as healthcare, sales and Clemenger BBDO of networks specialising
self-contained group. digital specialist Tribal. promotion and CRM Australia lead their own in healthcare, PR and
specialists. local markets. CRM.
Dentsu TBWA Publicis Havas FCB
No other advertising TBWA is the youngest The only global network Havas (known as Euro FCB re-adopted its old
agency dominates of the three advertising still headquartered in RSCG until 2014) is the name in 2014 after sev-
its home market as networks within Omni- France, Publicis is the main advertising net- eral years as Draftfcb.
comprehensively as com, positioned as an biggest brand within work within the French That entity was created
Dentsu of Japan, which alternative brand, the group of the same marketing group of the from the merger of the
controls around 30% of with a reputation for name, sitting alongside same name. The last of old Foote Cone & Beld-
all that country’s mass “disruptive” work. It is acquired businesses the major independent ing agency with a sep-
media advertising. But best known for its work such as Leo Burnett agency networks until arate unit within parent
although it has also for keystone clients and Saatchi. Despite 2016, it is now a unit of Interpublic, direct mar-
established a strong such as Nissan and a global presence, the French media and tele- keter Draft Worldwide,
presence in other Asian especially Apple, for main Publicis Conseil coms group Vivendi. to create an integrated
territories, the Dentsu whom it has created a office in Paris remains worldwide marketing
brand has little profile series of iconic market- the network’s clear services giant.
in Western markets. ing campaigns. flagship.
Source: Adbrands (www.adbrands.net/top-advertising-agencies-index.htm)
Marketers sometimes give advertising more credit than it deserves. This attitude causes them to
use advertising when they should not. For example, manufacturers of basic products such as sugar,
flour and salt often try to differentiate their products, with minimal success. However, under certain
conditions, advertising can work effectively for an organization. The questions in Table 17.3 raise
some general points that a marketer should consider when assessing the potential value of advertis-
ing as an ingredient in a product’s promotional mix. However, the list is not all-inclusive, as numerous
factors have a bearing on whether advertising should be used at all and if so, to what extent.
The uses of advertising

Advertising can serve a variety of purposes. Individuals and organizations use it to promote prod-
ucts and organizations, to stimulate demand, to off-set competitors’ advertising, to make sales
personnel more effective, to educate a market’s customers and dealers, to increase the uses of
a product, to remind and reinforce customers, and to reduce sales fluctuations (see Figure 17.1).
institutional advertising Promoting products and organizations

The type of advertising
that promotes organiza- Advertising is used to promote goods, services, ideas, images, issues, people and
tional images, ideas or indeed anything that the advertiser wants to publicize or foster. Depending on what is
political issues. being promoted, advertising can be classified as institutional or product advertising.
Institutional advertising promotes organizational images, ideas or political issues.
Table 17.3 Some issues to consider when deciding whether to use advertising
1. Does the product possess unique and important features?
Although homogeneous products such as cigarettes, petrol and beer have been advertised successfully, they usually require considerably more
effort and expense than other products. On the other hand, products that are differentiated on physical rather than psychological dimensions are
much easier to advertise. Even so, ‘being different’ is rarely enough. The advertisability of product features is enhanced when buyers believe that
those unique features are important and useful. A strong customer value proposition should be defined before considering advertising.
2. Are ‘hidden qualities’ important to buyers?
If by viewing, feeling, tasting or smelling the product buyers can learn all there is to know about the product and its benefits, advertising will
have less chance of increasing demand. Conversely, if not all product benefits are apparent to consumers on inspection and use of the product,
advertising has more of a story to tell, and the probability that it can be profitably used increases. If the product provides a psychological benefit
or fits with consumers’ desired self-image, understanding in what ways is important for directing advertising.
3. Is the general demand trend for the product favourable?
If the generic product category is experiencing a long-term decline, it is less likely that advertising can be used successfully for a particular
brand within the category. The product has to provide ‘value’ to the intended customer and have a plausible customer value proposition. Adver-
tising might slow down decline, but without a clear reason to acquire for the target audience, a product will not be saved by advertising spend.
4. Is the market potential for the product adequate?
Advertising can be effective only when there are sufficient actual or prospective users of the brand in the target market. Without clear segmenta-
tion and explicit targeting of certain customer types, success is unlikely.
5. Is the competitive environment favourable?
The size and marketing strength of competitors, and their brand shares and loyalty, will greatly affect the possible success of an advertising
campaign. There needs to be a compelling proposition versus competing products, otherwise the desired market share will not be attainable or
sustainable.
6. Are general economic conditions favourable for marketing the product?
The effects of an advertising programme and the sales of all products are influenced by the overall state of the economy and by specific busi-
ness conditions. Advertising alone cannot overcome economic uncertainty or trade challenges.
7. Is the organization able and willing to spend the money required to launch an advertising campaign?
As a general rule, if the organization is unable or unwilling to undertake an advertising expenditure that as a percentage of the total amount
spent in the product category is at least equal to the market share it desires, advertising is not likely to be effective. A new product launch wholly
dependent on hefty advertising, lacking other differentiators and appeal, is doomed to failure when, inevitably, the advertising budget is cut or
shelved.
8. Does the company possess sufficient marketing expertise to market the product?
The successful marketing of any product involves a complex mixture of product and consumer research, brand strategy, product development,
packaging, pricing, financial management, promotion, customer service and distribution and business acumen. Weakness in any area of market-
ing is an obstacle to the successful use of advertising.
Source: Updated and adapted from Charles H. Patti, ‘Evaluating the role of advertising’, Journal of Advertising, Fall 1977, pp. 32–3. Reprinted by permission of
the Journal of Advertising.
Institutional advertisements may deal with broad image issues, such as organizational strength or
the friendliness of employees. They may also aim to create a more favourable view of the company
in the eyes of non-customer groups - such as stakeholders, consumer advocacy groups, potential
stockholders or the general public. For example, the advertising of some manufacturers of alcoholic
beverages promotes the idea that drinking and driving do not mix, in order to create and develop a
socially responsible image. When a company promotes its position on a public issue - for instance,
a tax increase, the Euro, Brexit, sustainability, well-being, abortion or international coa-
advocacy advertising
litions - institutional advertising is referred to as advocacy advertising. Institutional
Promotes a company’s advertising may be used to promote socially approved behaviour such as recycling and
position on a public issue. moderation in consuming alcohol. This type of advertising not only has societal benefits
but also helps build an organization’s image. As explained in Chapters 1 and 24, social
marketing harnesses the marketing toolkit to create changes in behaviour for the benefit
of society or for well-being, and is heavily dependent on segmentation and targeting, positioning
and marketing communications, including advocacy advertising.
Advertising uses
organizations and causes
Stimulate primary and
Remind and reinforce

Offset competitors'
Educate the market

Aid sales personnel
Promote products,
selective demand
Increase uses
Reduce sales
of a product
fluctuations
advertising
Figure 17.1
Major uses of advertising
Product advertising promotes goods and services. Business, government and

product advertising
The type of advertising private non-business organizations turn to it to promote the uses, features, images and
that promotes goods and benefits of their products or services. It is this type of advertising that most readers of
services. this book will be familiar with, be it in the form of advertisements for Ford cars, Kellogg’s
cereals or Barclays’ banking services.
Stimulating primary and selective demand

Primary demand When a specific business is the first to introduce an innovation, it tries to
stimulate primary demand for a product category, rather than a specific brand of the product
through pioneer advertising. This is often referred to as creating category need, as
explained in Chapter 16. Pioneer advertising informs people about a product: what
pioneer advertising
The type of advertising it is, what it does, how it can be used and where it can be purchased. As pioneer
to create category need advertising is used in the introductory stage of the product life cycle when there are
that informs people no competitive brands, it neither emphasizes the brand name nor compares brands.
about a product: what it The first company to introduce the CD player, for instance, initially tried to stimulate
is, what it does, how it
primary demand and create category need by emphasizing the benefits of CD players
can be used and where
it can be purchased. in general rather than the benefits of its brand. The first DVD player, smartphone, tab-
let, eReader, drone or tobacco vapourizer were promoted this way. Product advertis-
ing is also used sometimes to stimulate primary demand for an established product.
competitive Occasionally, an industry trade group rather than a single company sponsors adver-
advertising tisements to stimulate primary demand. For example, to stimulate demand for many
The type of advertising meats and dairy categories, industry bodies promote their qualities. In Figure 17.2
that points out a brand’s advertising promotes British strawberries.
uses, features and
advantages, which may
not be available in com- Selective demand To build selective demand, or demand for a specific brand, an
peting brands. advertiser turns to competitive advertising. Competitive advertising points out a
brand’s uses, features and advantages that benefit consumers but may not be available
Figure 17.2
This advertising aims to stimulate primary
demand for strawberries but also stresses the
particular merits of Tesco’s recently-picked British
strawberries
Source: Image courtesy of Tesco.
in competing brands. For example, BMW heavily promotes the technical abilities and innovative
features of its cars in its advertising.
Another form of competitive advertising is comparative advertising, in which two
comparative
advertising
or more brands are compared on the basis of one or more product attributes. Compa-
The type of advertising nies must not, however, misrepresent the qualities or characteristics of the comparison
that compares two or product and, in certain countries, overt comparisons of rival products or brands are
more brands on the basis prohibited. The leading nappy manufacturers often name and shame their inferior rivals
of one or more product when their product has new attributes which out-perform competing brands. Rivals
attributes.
producing nappies tend to use comparative advertising.
Off-setting competitors’ advertising

defensive advertising When marketers advertise to off-set or lessen the effects of a competitor’s promotional
The type of advertising programme, they are using defensive advertising. Although defensive advertising
that aims to off-set or does not necessarily increase a company’s sales or market share, it may prevent a
lessen the effects of a loss in these areas. For example, when McDonald’s first test-marketed pizza, Pizza Hut
competitor’s promotional
countered with defensive advertising to protect its market share and sales. Pizza Hut
programme.
advertised both on television and in newspapers in two test cities, emphasizing that its
product is made from scratch, whereas McDonald’s was made using frozen dough.4
Defensive advertising is used most often by companies in extremely competitive consumer product
markets, such as the fast-food industry.
Making sales personnel more effective

Business organizations that stress personal selling often use advertising to improve the effec-
tiveness of sales personnel. Advertising created specifically to support personal selling activities
tries to pre-sell a product to buyers by informing them about its uses, features and benefits, and
by encouraging them to contact local dealers or sales representatives. This form of advertising
helps salespeople find good sales prospects. Advertising is often designed to support personal
selling efforts for business products, insurance and consumer durables, such as cars and major
household appliances. For example, advertising may bring a prospective buyer to a showroom,
but usually a salesperson plays a key role in actually closing the sale.
Educating the market

A change to a company’s strategy may lead to it entering new markets or introducing innovative
products. This will require an orientation programme for targeted customers and the required channel
intermediaries. Part of this communications task may entail advertising. Even if a company modifies
its marketing mix in existing markets – new product specifications, after-sales policies or pricing, for
example – it may need to educate the market, customers and dealers regarding the changes.
Increasing the uses of a product

The absolute demand for any product is limited because people in a market will consume only so
much of it. Given both this limit on demand and competitive conditions, marketers can increase
sales of a specific product in a defined geographic market only to a certain point. To improve
sales beyond this point, they must either enlarge the geographic market and sell to more people
or develop and promote a larger number of uses for the product. If a business’s advertising con-
vinces buyers to use its products in more ways, the sales of the products go up. When promoting
new uses, an advertiser attempts to increase the demand for its own brand without driving up the
demand for competing brands.
Reminding and reinforcing customers

reminder advertising Marketers sometimes employ reminder advertising to let consumers know that an
The type of advertising established brand is still around and that it has certain uses, characteristics and benefits.
that reminds customers Procter & Gamble, for example, reminds consumers that its Crest toothpaste is great
of the uses, character- for preventing cavities. Reinforcement advertising, on the other hand, tries to assure
istics and benefits of an
current users that they have made the right choice and tells them how to get the most
established brand.
satisfaction from a product.
Both reminder and reinforcement advertising aim to prevent a loss in sales or market
reinforcement share. Much of Ford’s range-focused advertising is designed to reassure existing Ford
advertising owners that the company is forward thinking and customer oriented. The advertising for
The type of advertising Head & Shoulders shampoo is as much concerned with reminding existing users of its
that tries to assure cur-
virtues as it is about building awareness for potential new users.
rent users that they have
made the right choice
and tells them how to Reducing sales fluctuations
get the most satisfaction
from the product. The demand for many products varies from month to month because of such factors
as climate, holidays, seasons and customs. However, a company cannot operate at
peak efficiency when sales fluctuate rapidly. Changes in sales volume translate into
changes in the production or inventory, personnel and financial resources it requires. To the extent
that marketers can generate sales during slow periods, they can smooth out fluctuations. When
advertising reduces fluctuations, a manager can use the business’s resources more efficiently.
Business-user-oriented hotels such as Holiday Inn or Hilton promote discounted rooms for week-
end leisure breaks in order to utilize otherwise unused facilities.
Advertising is often designed to stimulate business during sales slumps. For example, advertise-
ments promoting price reductions of lawn care equipment or summer holidays can increase sales
during the winter months. On occasion, a business advertises that customers will get better service
by coming in on certain days rather than others. During peak sales periods, a marketer may refrain
from advertising to prevent over-stimulating sales to the point where the company cannot handle
all the demand. For example, money-off coupons for the delivery of pizza are often valid only from
Monday to Thursday, not Friday to Sunday, which are the peak delivery days.
A company’s use of advertising depends on its objectives and resources, as well as on external
environmental forces. The degree to which advertising accomplishes the marketer’s goals depends
to a large part on the advertising campaign.
advertising campaign Developing an advertising campaign

An attempt to reach a
particular target market An advertising campaign involves designing a series of advertisements and placing
by designing a series
of advertisements and
them in various advertising media to reach a particular target market. As Figure 17.3 indi-
placing them in various cates, the general steps in developing and implementing an advertising campaign are:
advertising media.
1. identifying and analyzing the advertising target audience
2. defining the advertising objectives
3. creating the advertising platform
4. determining the advertising budget
5. developing the media plan
6. creating the advertising message
7. executing the campaign
8. evaluating the effectiveness of the advertising.
Identify Define Create Determine

and analyze advertising advertising advertising
advertising objectives platform budget
target audience
Figure 17.3 Evaluate Create Develop

Execute
General steps for advertising advertising media
campaign
developing and imple- effectiveness message plan
menting an advertis-
ing campaign
The number of steps and the order in which they are carried out may vary according to an
organization’s resources, the nature of its product, the types of target market or audience to be
reached, the product’s stage in its life cycle (see Chapter 10), the current sales levels and market
standing of the product, the nature of competitors’ promotional mix activity, and the advertising
agency selected.5 The agreed overall objectives and strategy for the marketing communications
will also steer the development of the campaign, as explained in the previous chapter. However,
these general guidelines for developing an advertising campaign are appropriate for all types of
organization.
Identifying and analyzing the advertising target audience

The advertising target audience is the group of people at which advertisements are
advertising target
audience aimed. For example, the target audience for Special K and All-Bran cereals is health-
The group of people at conscious adults, and the Be Clear on Cancer programme targeted the over-50s in
which advertisements specific socio-economic groups in certain regions of the UK. Identifying and analyzing
are aimed. the advertising target are critical processes; the information they yield helps determine
the other steps in developing the campaign. The advertising target often includes every-
one in a company’s target market. However, marketers may seize some opportunities
to slant a campaign at only a portion of the target market. Web advertising has presented even
greater opportunities for targeting separate advertisements at narrowly defined target audiences.
Advertisers analyze advertising targets, or target audiences, to establish an information base

for a campaign. Information commonly needed includes the location and geographic distribution
of the target group; the distribution of age, income, ethnic origin, sex and education; consumer
attitudes regarding the purchase and use of both the advertiser’s products and competing prod-
ucts; the lifestyles of these consumers, their buying behaviour, their media habits and networks. It
is important to be able to profile the targeted consumers, but also to be able to understand their
views likes/dislikes, uses, anxieties about, peer expectations of the product being advertised. It is
crucial to know how consumers perceive the standing and brand positioning of the product vis-
à-vis competitors’ propositions. Qualitative marketing research is very important in this process,
particularly the use of focus group discussions and social media fora, as explored in Chapter 9.6
The exact kinds of information that an organization will find useful depend on the type of product
being advertised, levels of brand awareness, the characteristics of the advertising target, and the
type and amount of competition. Generally, the more advertisers know about the advertising target
(those people intended to be influenced by the advertising), the more likely they are to develop an
effective advertising campaign. When the advertising target is not precisely identified and properly
analyzed, the campaign may not succeed.
Defining the advertising objectives

The advertiser’s next step is to consider what the company hopes to accomplish with the cam-
paign. Since advertising objectives guide campaign development, advertisers should define their
objectives carefully to ensure that the campaign will achieve what they want. Advertising campaigns
based on poorly defined objectives seldom succeed.
Advertising objectives should be stated clearly, precisely and in measurable terms. Precision and
measurability allow advertisers to evaluate advertising success: to judge, at the campaign’s end,
whether the objectives have been met and, if so, how well. To provide precision and measurability,
advertising objectives should contain benchmarks, the current condition or position of the business,
and indicate how far and in what direction the advertiser wishes to move from these benchmarks.
For example, the advertiser should state the current sales level (the benchmark) and the amount
of sales increase that is sought through advertising. Brand awareness should be assessed prior
to the campaign, during its run and at its conclusion, so as to ascertain progress. An advertising
objective should also specify a timeframe, so that advertisers know exactly how long they have
in order to accomplish the objective. Thus an advertiser with average monthly sales of £450 000
(the benchmark) might set the following objective: ‘Our primary advertising objective is to increase
average monthly sales from £450 000 to £540 000 within 12 months.’ Another company might
set the following objective: ‘We have 12 per cent brand awareness in our core target market. At
the end of 15 months, we wish this percentage to match that of our key rival.’ This also tells the
advertiser when evaluation of the campaign should begin. As explained in Chapter 23, marketers
must be able to assess the performance of their marketing programmes.
If an advertiser defines objectives by sales, the objectives focus on raising absolute mone-
tary sales, increasing sales by a certain percentage or increasing the company’s market share.
However, even though an advertiser’s long-run goal is to increase sales, not all campaigns
are designed to produce immediate sales. Some campaigns are designed to increase prod-
uct or brand awareness, make consumers’ attitudes more favourable or increase consumers’
knowledge of a product’s features. These objectives are stated in terms of communication. For
example, when Apple first introduced tablets, its initial campaign did not focus on sales but on
creating brand awareness and educating consumers about the features and uses of tablets.
A specific communication objective might be to increase product feature awareness from 0 to
40 per cent in the target market at the end of six months. Objectives must be realistic. An adver-
tising agency must be prepared to let a client know when its goals are not attainable. Ultimately,
advertising is merely a communications tool: it cannot overcome product deficiencies or a poorly
developed marketing strategy.
Creating the advertising platform

Before launching a political campaign, party leaders develop a political platform, which
advertising platform
The basic issues or states the major issues that will be the basis of the campaign. Like a political platform,
selling points that an an advertising platform consists of the basic issues or selling points that an advertiser
advertiser wishes to wishes to include in the advertising campaign. A single advertisement in an advertising
include in the advertising campaign may contain one or several issues in the platform. Although the platform sets
campaign.
forth the basic issues, it does not indicate how they should be presented.
A marketer’s advertising platform should consist of issues that are important to con-
sumers. One of the best ways to determine what those issues are is to survey consum-
ers about what they consider most important in the selection and use of the product involved.
For example, Procter & Gamble has developed refill packages for some of its cleaning products.
These refill packages provide a unique benefit by not adding to solid waste disposal problems.
Environmentally conscious consumers consider this a positive selling feature. McDonald’s has
added healthier eating options to its menu and advertised these, to reflect consumers’ growing
awareness of obesity problems. The selling features of a product must not only be important to
consumers; if possible, they should also be features that competitive products do not have.
Although research is the most effective method for determining the issues of an advertising plat-
form, it is expensive. As a result, the advertising platform is most commonly based on the opinions
of personnel within the business and of individuals in the advertising agency, if an agency is used.
As discussed in Chapter 9, qualitative research typically in the form of focus groups or online fora
is often used to test the validity of these insiders’ views before the campaign is produced. This
trial-and-error approach generally leads to some successes and some failures.
As the advertising platform is a base on which to build the message, marketers should analyze
this step carefully. A campaign can be perfect in the selection and analysis of its advertising target,
the statement of its objectives, its media strategy and the form of its message. But the campaign
will still fail if the advertisements communicate information that consumers do not consider import-
ant when they select and use the product.
Determining the advertising budget

The advertising budget is the total amount of money that a marketer allocates for
advertising budget
The total amount of advertising over a period of time. It is difficult to determine this amount because there is
money that a marketer currently no way to measure the precise effects of spending a certain amount of money
allocates for advertising on advertising.
over a period of time. Many factors affect a business’s decision about how much to spend on advertising.
The geographic size of the market and the distribution of buyers within the market
have a great bearing on this decision. Both the type of product being advertised and
a business’s sales volume relative to competitors’ sales volumes play a part in determining what
proportion of a business’s revenue is spent on advertising. Advertising budgets for business prod-
ucts are usually quite small relative to the sales of the products. More is spent on personal selling,
direct mail and trade shows, whereas consumer convenience items, such as soft drinks, soaps
and cosmetics, generally have large budgets.
objective and task
approach The objective and task approach Of the many techniques used to determine
A technique for determin- the advertising budget, intuitively one of the most logical is the objective and task
ing an advertising budget approach. Using this approach, marketers initially determine the objectives that a cam-
that involves determining paign is to achieve and then attempt to list the tasks required to accomplish them. The
campaign objectives and
then attempting to list the
costs of the tasks are then calculated and added to arrive at the amount of the total
tasks required to accom- budget. This approach has one main problem: marketers usually find it hard to estimate
plish them. the level of effort needed to achieve certain objectives. A coffee marketer, for example,
might find it extremely difficult to determine by what amount it should increase national
television advertising in order to raise a brand’s market share from eight to 12 per cent. As a result
of this problem, advertisers do not often use the objective and task approach.
percentage of sales
The percentage of sales approach In the more widely used percentage of
approach sales approach, marketers simply multiply a company’s past sales, plus a factor
A budgeting technique for planned sales growth or decline, by a standard percentage based on both what
that involves multiplying the business traditionally spends on advertising and what the industry averages.
a company’s past sales, This approach has one major flaw: it is based on the incorrect assumption that
plus a factor for planned
sales create advertising, rather than the reverse. Consequently, a marketer using
sales growth or decline,
by a standard percent- this approach at a time of declining sales will reduce the amount spent on adver-
age based on both what tising. However, such a reduction may further diminish sales. Though illogical, this
the business traditionally technique has gained wide acceptance because it is easy to use and less disruptive
spends on advertising competitively; it stabilizes a company’s market share within an industry. However, in
and what the industry
times of declining sales, many businesses do increase their contribution to advertis-
averages.
ing in the hope of reversing the decline.
The competition matching approach Another way to determine the advertising bud-
competition matching
get is the competition matching approach. Marketers who follow this approach try
approach
A budgeting technique either to match their major competitors’ budgets or to allocate the same percentage of
in which marketers sales for advertising as their competitors do. Although a wise marketer should be aware
either match their major of what competitors spend on advertising, this technique should not be used by itself,
competitors’ budgets because a company’s competitors probably have different advertising objectives and
or allocate the same
different resources available for advertising. Many companies and advertising agencies
percentage of sales
for advertising as their engage in quarterly competitive spending reviews, comparing competitors’ expenditures
competitors. in print, radio, television and digital with their own spending levels. Competitive tracking
of this nature occurs at both the national and regional levels.
arbitrary approach The arbitrary approach At times, marketers use the arbitrary approach: a high-level
A budgeting technique
executive in the business states how much can be spent on advertising for a certain
in which a high-level
executive in the business time period. The arbitrary approach often leads to under-spending or over-spending.
states how much can be Although hardly a scientific budgeting technique, it is expedient.
spent on advertising over Establishing the advertising budget is critically important. If it is set too low, the cam-
a certain time period. paign cannot achieve its full potential for stimulating demand. When too much money
is allocated for advertising, the over-spending that results wastes financial resources.
An advertising agency being briefed must know the budget size in order to be able to plan the
campaign effectively.
Developing the media plan

Advertisers spend tremendous amounts of money on advertising media. These amounts have
grown rapidly during the past two decades. To derive the maximum results from media expendi-
tures, a marketer must develop an effective media plan. A media plan sets forth the
media plan
exact media vehicles to be used for advertising (specific magazines, television channels,
The process of estab-
lishing the exact media newspapers, radio programmes, movies, billboards, websites, mobile and so forth), and
vehicles to be used for the dates and times when the advertisements will appear. The effectiveness of the plan
advertising, and the determines how many people in the advertising target will be exposed to the message.
dates and times when It also determines, to some degree, the effects of the message on those individuals.
the advertisements will
Media planning is a complex task that requires thorough analysis of the advertising tar-
appear.
get, as well as of any legal restrictions that might apply. For example, the EU has strict
regulations pertaining to the advertising of tobacco, foods and pharmaceuticals, and to
comparative advertising. More regulations are on their way too, in connection with alcohol, financial
services, cars, environmental labelling and the portrayal of women.
To formulate a media plan, the planner selects the media for a campaign and draws up a time
schedule for each medium. The media planner’s primary goal is to reach the largest possible number
of people in the advertising target for the amount of money spent on media. In addition, a secondary
goal is to achieve the appropriate message reach and frequency for the target audience
reach while staying within the budget. Reach refers to the percentage of consumers in the
The percentage of con- advertising target audience actually exposed to a particular advertisement in a stated
sumers in the advertising
time period. Frequency is the number of times these targeted consumers are exposed to
target actually exposed
to a particular advertise- the advertisement. Some experts believe that a target consumer must be exposed more
ment in a stated time than 30 times to an advertisement for a consumer durable or fast-moving consumer good
period. before there is acceptance and full awareness of the advertising platform. However, most
consumers, unless highly stimulated by the advertising, are not prepared to read, watch
or hear an advertisement so many times. The platform, creativity and media choices must
frequency be smart enough to overcome this lack of interest in advertising.
The number of times
targeted consumers are
Media planners begin with rather broad decisions, but eventually they must make very
exposed to a particular specific choices. A planner must first decide which kinds of media to use: radio, televi-
advertisement. sion, newspapers, magazines, direct mail, outdoor displays, ambient, public transport,
the web/mobile,7 or a combination of two or more of these. After making the general
Table 17.4 Results of tested recall of advertisements

Q: Which of the following TV commercials do you remember seeing recently?
Last week (Previous
week’s position) Brand Agency/TV Buyer %
1 (2) Halifax Delaney Lund Knox Warren/Vizeum UK 77
2 (1) Asda Publicis/Carat 75
3= (10) National Lottery Abbott Mead Vickers BBDO/OMD UK 74
3= (4=) McDonald’s Leo Burnett/OMD UK 74
5 (4=) Specsavers ln-house/Mediaedge:cia 73
6 (7) Churchill EBP/MediaCom 72
7= (3) Tesco Lowe/Initiative 70

7= (4=) B&Q J Walter Thompson/ZenithOptimedia 70
9 (−) Walkers Abbott Mead Vickers BBDO/OMD UK 68
10 (−) Argos Euro RSCG London/MindShare 66
11 (12=) Currys M&C Saatchi/Walker Media 65
12 (−) PC World M&C Saatchi/Walker Media 61
13= (−) Abbey TBWA\London/MindShare 59
13= (−) DFS Phillipson Ward Longworth Camponi/Brilliant Media 59
15= (−) 3 WCRS/MindShare 54
15= (−) Norwich Union Abbott Mead Vickers BBDO/Brand Connection 54
17 (−) Pot Noodle HHCL Red Cell/Initiative 51
18 (−) Quaker Oatso Simple Abbott Mead Vickers BBDO/OMD UK 50
19= (−) Iceland HHCL Red Cell/MediaCom 49
19= (16) KFC Bartle Bogle Hegarty/Walker Media 49
Source: Adwatch of the Year, Marketing magazine Reproduced with the permission of the copyright owner, Haymarket Business Publications Limited.
media decision, the planner selects specific sub-classes within each medium. For example, Estée
Lauder might advertise its Clinique cosmetic line in lifestyle magazines, as well as during daytime,
prime-time and late-night television.
Media planners take many factors into account as they devise a media plan. They analyze the
locations, movements and demographic characteristics of people in the advertising target because
the various media appeal to particular demographic groups in particular locations. For example,
there are radio stations directed mainly at teenagers, magazines for men in the 18–34 age group
and television programmes aimed at specific ethnic groups. Media planners should also consider
the size and type of audiences that are reached by specific media. Several data services collect
and periodically publish information about the circulations and audiences of various media. Most
publishers and broadcasters offer prospective advertisers media packs, containing independently
audited data about readership or viewing figures. For example, satirical magazine Private Eye
states that each issue has the potential to be read by 700 000 people, who are carefully profiled
for advertisers in terms of socio-economics. The cost of media is an important but troublesome
consideration. Planners try to obtain the best coverage possible for the amount of money spent,
yet there is no accurate way of comparing the cost and impact of a television advertisement with
the cost and impact of a newspaper advertisement.
The content of the message sometimes affects the choice of media. Print media can be used
more effectively than broadcast media to present many issues or numerous details. The makers of
many food brands produce wordy magazine advertisements, including recipes as well as product
details, to boost demand and educate consumers about the product’s uses. If an advertiser wants
to promote beautiful colours, patterns or textures, media that offer high-quality colour reproduction
– magazines, television or digital – should be used instead of newspapers. For example, cosmetics
can be far more effectively promoted in a full-colour magazine advertisement than in a black and
white newspaper advertisement. The medium selected is determined by the characteristics, advan-
tages and disadvantages of the major media available. Digital has provided numerous new options.
Given the variety of vehicles within each medium, media planners must deal with a vast number
of choices. The multitude of factors that affect media rates obviously add to the complexity of media
planning. A cost comparison indicator enables an advertiser to compare the costs of
cost comparison
several vehicles within a specific medium such as two newspapers in relation to the number
indicator
A measure that allows of people reached by each vehicle. For example, the ‘milline rate’ is the cost comparison
an advertiser to compare indicator for newspapers; it shows the cost of exposing a million people to a space equal to
the costs of several one agate line (an agate line is one column wide and the height of the smallest type normally
vehicles within a specific used in classified newspaper advertisements: there are 14 agate lines in one column inch).
medium in relation to
Figure 17.4 shows how one major advertising agency links many of these stages for
the number of people
reached by each vehicle. creating advertising and their outputs into a formal brief for both its creatives and for
seeking client sign-off for the proposed course of action. This example also illustrates the
importance of having a clear targeting strategy, well-articulated positioning and sensible
objectives. It also demonstrates the importance of having first undertaken analysis of targeted
consumers or business users, competitors and external macro drivers.
Creating the advertising message

The basic content and form of an advertising message are a function of several factors. The prod-
uct’s features, uses and benefits affect the content of the message. Characteristics of the people
in the advertising target audience – their sex, age, education, ethnic origin, income, occupation,
lifestyle, locations, media habits and other attributes – influence both the content and form. When
Procter & Gamble promotes its Crest toothpaste to children, the company emphasizes the impor-
tance of daily brushing and decay control. When it markets Crest to adults, it discusses tartar,
plaque and whiteness. To communicate effectively, an advertiser must use words, symbols and
illustrations that are meaningful, familiar and attractive to the people who constitute the advertising
target or the target audience.
Client: Interim Review:

Account Owner: Final Review:
Product: Presentation:
Job Number: Cost Group:
What is the advertising required to do?
Media budget? Production budget?
Requirements? (One-off ad, campaign, new campaign)
Format? (TV Cinema Press Radio Poster Outdoor Internet Viral)
Size/Time/Length
Any possible links between media channel & message?
What is the single most important thing we want to say?
Why should people believe this?
What tone of voice should we use?
What are the mandatory requirements? (logo, colour, web address, etc.)
Who are we talking to?
What do we want them to think or feel having seen the advertising?
What have we said previously?
Which brands are we up against and what are they saying/claiming?
How will we stand out?
When is this required?
Figure 17.4 What problems are anticipated?

How one agency underpins
the creative brief during the Signatures: Client Agency (Legal )
advertising process
The objectives and platform of an advertising campaign also affect the content and form of its
messages. For example, if a company’s advertising objectives involve large sales increases, the
message demands hard-hitting, high-impact language and symbols. When campaign objectives
aim at increasing brand awareness, the message may use much repetition of the brand name,
and words and illustrations associated with it. Thus the advertising platform is the foundation on
which campaign messages are built. Agencies strive to develop platforms with longevity in order
to foster long-term brand building. For example, Andrex puppies have represented the toilet tissue
in over 40 years of advertising; ‘ASDA price’ is the long-term strapline to the supermarket chain’s
value-led advertising, and ‘The Ultimate Driving Machine’ is BMW’s famous ongoing positioning.
The choice of media obviously influences the content and form of the message. Effective outdoor
displays and short broadcast spot announcements require concise simple messages.
regional issues Magazine and newspaper advertisements can include more detail and long explana-
Versions of a magazine tions. Digital advertising can use links to direct viewers to further information and to offer
or newspaper that differ
across geographic
interactive exchanges. As several different kinds of media offer geographic selectivity,
regions in their advertis- a precise message can be tailored to a particular geographic section of the advertising
ing and editorial content. target. Some magazine and national newspaper publishers produce regional issues:
for a particular issue, the advertisements and editorial content of copies appearing in one
geographic area differ from those appearing in other areas. A clothing manufacturer may decide
to use one message in London and another in the rest of the UK. A company may also choose to
advertise in only a few regions. Such geographic selectivity enables a business to use the same
message in different regions at different times.
copy The messages for most print advertisements depend on the use of copy and artwork.
The verbal portion of an
advertisement. Copy The verbal portion of an advertisement is copy. It includes headlines, sub-
headlines, body copy and the signature (see Figure 17.5).
Sub-headline
Headline
Illustration
Body
copy
Brand
signature
Figure 17.5
Copy and artwork elements of advertisements. This advertisement clearly differentiates between the basic elements of print advertising
When preparing advertising copy, marketers attempt to move the target audience
AIDA
A persuasive sequence through a persuasive sequence called AIDA: attention, interest, desire and action. Con-
used in advertisements: sumers will not visit a store, trial a product or make a purchase of an unfamiliar product
attention, interest, desire unless marketers first grab their attention, gain their interest and make the product
and action. appear desirable. Emotive and persuasive advertising plays a key role in this process.
Not all copy needs be this extensive, however.
The headline is critical because often it is the only part of the copy that people read. It should
attract readers’ attention and create enough interest to make them want to read the body copy.
The sub-headline, if there is one, links the headline to the body copy; sometimes it helps explain
the headline.
Body copy for most advertisements consists of an introductory statement or paragraph, several
explanatory paragraphs and a closing paragraph. Some copy-writers have adopted a pattern or
set of guidelines to develop body copy systematically:
1. identify a specific desire or problem for consumers
2. suggest the good or service as the best way to satisfy that desire or solve that problem
3. state the advantages and benefits of the product
4. indicate why the advertised product is the best for the buyer’s particular situation
5. substantiate the claims and advantages
6. prompt the buyer into action.8
The signature identifies the sponsor of the advertisement. It may contain several elements,
including the company’s trademark, logo, name, address and web-links. The signature should be
designed to be attractive, legible, distinctive and easy to identify in a variety of sizes.
As radio listeners are often not fully ‘tuned in’ mentally, radio copy should be informal and
conversational to attract their attention and achieve greater impact. The radio message is highly
perishable; thus radio copy should consist of short and familiar terms. Its length should not require
a delivery rate exceeding approximately two-and-a-half words per second.
In television copy, the audio material must not overpower the visual material, and vice
versa. However, a television message should make optimal use of the visual capabilities avail-
able. Copy for a television advertisement is initially written in parallel script form. The video is
described in the left column and the audio in the right. When the parallel script is approved, the
copywriter and the artist combine the copy with the visual material through use of a
storyboard
storyboard, which depicts a series of miniature television screens showing the sequence
A series of miniature
television screens or of major scenes in the advertisement. During the creative thinking phase, storyboards
cartoons on a sheet tend to be cartoon sketches. Once an idea is deemed worthy of production, a more
together, used to polished storyboard is produced. Technical personnel use the storyboard as a blueprint
show the sequence when they produce the advertisement.
of major scenes in an
advertisement.
Artwork Artwork consists of the illustration and layout of the advertisement (see
Figure 17.5). Although illustrations are often photographs, they can also be drawings,
artwork graphs, charts or tables. Illustrations are used to attract attention, to encourage the audi-
The illustration and lay- ence to read or listen to the copy, to communicate an idea quickly or to communicate an
out of the advertisement. idea that is difficult to put into words.9 They are especially important because consumers
tend to recall the visual portion of advertisements better than the verbal portions.
The layout of an advertisement is the physical arrangement of the illustration,
illustrations
Photographs, drawings,
headline, sub-headline, body copy and signature. The arrangement of these parts in
graphs, charts or tables Figure 17.6 is only one possible layout. These same elements could be arranged in many
used in advertisement ways. The final layout is the result of several stages of preparation. As it moves through
artwork. these stages, the layout helps people involved in developing the advertising campaign
exchange ideas. It also provides instructions for production personnel.
layout
The physical arrange- Executing the campaign
ment of the illustration,
headline, sub-headline,
The execution of an advertising campaign requires an extensive amount of planning
body copy and signature and10 coordination. Regardless of whether or not an organization uses an advertising
of an advertisement. agency, many people and organizations are involved in the execution of a campaign.
Production companies, directors, video and lighting experts, voice-over actors, research
Figure 17.6
While many advertisements are dominated
by colourful and emotive images, many
business-to-business advertisements
contain extensive detail and illustrations
of data
Source: Image courtesy of O2.
organizations, media houses, companies providing special effects, printers, photo engravers and
commercial artists are just a few of the people and organizations that contribute to a campaign.
Implementation requires detailed schedules to ensure that various phases of the work are done
on time. Advertising management personnel must evaluate the quality of the work and take correc-
tive action when necessary. In some instances, changes have to be made during the campaign so
that it meets campaign objectives more effectively, better satisfies the client managers or responds
to consumer research feedback.
Evaluating the effectiveness of the advertising

There are various ways to evaluate the effectiveness of advertising. They include measuring
achievement of advertising objectives; gauging the effectiveness of copy, illustrations or layouts;
and assessing certain media.11, 12
pre-tests
Advertising can be evaluated before, during and after the campaign. Evaluations per-
Evaluations performed
before an advertising formed before the campaign begins are called pre-tests and usually attempt to evaluate
campaign that attempt to the effectiveness of one or more elements of the message. To pre-test advertisements,
assess the effectiveness marketers sometimes use a consumer focus group, a semi-structured discussion, led
of one or more elements by a moderator, involving actual or potential buyers of the advertised product. Members
of the message.
are asked to judge one or several dimensions of two or more advertisements. Such tests
are based on the belief that consumers are more likely than advertising experts to know
consumer focus group
what will influence them. Teasing out ideas and responses to them via social media is
A semi-structured dis- also common.
cussion, led by a mod- To measure advertising effectiveness during a campaign, marketers usually take
erator, involving actual advantage of ‘enquiries’. In the initial stages of a campaign, an advertiser may use
or potential buyers of several direct response advertisements simultaneously, each containing a coupon, an
advertised products who
are asked to judge one
0800 contact number, a form requesting information or a click through web-link. The
or several dimensions of advertiser records the number of coupons, calls or clicks that are returned from each
the advertisements. type of advertisement. If an advertiser receives 78 528 coupons from advertisement
A, 37 072 coupons from advertisement B and 47 932 coupons from advertisement C,
then advertisement A is judged superior to advertisements B and C. For advertisements that do

not demand action – clicking, coupon returning or dialling an 0800 Freefone number – enquiries
are difficult to monitor.
Evaluation of advertising effectiveness after the campaign is over is called a post-
post-campaign test campaign test or post-test. Advertising objectives often indicate what kind of post-test
The evaluation of adver-
will be appropriate. If an advertiser sets objectives in terms of communication – product
tising effectiveness after
a campaign. awareness, brand awareness or attitude change – then the post-test should measure
changes in one or more of these dimensions. Typically, qualitative marketing research
– focus groups or depth interviews – is used before, during and after a campaign to
monitor shifts in consumers’ perceptions, or quantitative panels evaluate shifts in responses, often
now online. It is hoped that brand awareness will have improved following the running of a particular
advertising campaign. Advertisers sometimes use consumer surveys or experiments to evaluate a
campaign based on communication objectives.
For campaign objectives that are stated in terms of sales, advertisers should determine the
change in sales or market share that can be attributed to the campaign. Unfortunately, such
changes brought about by advertising cannot be measured precisely13 because many factors
independent of advertisements affect a company’s sales and market share. Competitive actions,
government actions, and changes in economic conditions, consumer preferences and weather are
only a few factors that might enhance or diminish a company’s sales or market share. However,
by using data about past and current sales and advertising expenditures, an advertiser can make
gross estimates of the effects of a campaign on sales or market share.
Since consumer surveys and experiments are expensive, and because it is so difficult to deter-
mine the direct effects of advertising on sales, many advertisers evaluate print, television and web
advertisements according to the degree to which consumers can remember them. The post-test
methods based on memory include recognition and recall tests. Such tests are usually performed
by research organizations through consumer surveys (see Table 17.4). If a recognition
recognition test
test is used, individual respondents are shown the actual advertisement and asked
A test in which an
actual advertisement whether they recognize it. If they do, the interviewer asks additional questions to deter-
is shown to individual mine how much of the advertisement each respondent read, heard or viewed. When
respondents, who are recall is evaluated, the respondents are not shown the actual advertisement but instead
then asked whether they are asked about what they have seen or heard recently. Recall can be measured through
recognize it.
either unaided or aided recall methods. In an unaided or spontaneous recall test,
subjects are asked to identify advertisements that they have seen recently, but are given
unaided or sponta- no clues to help them remember. A similar procedure is used in an aided or prompted
neous recall test recall test, except that subjects are shown a list of products, brands, company names
A test in which subjects or trademarks to jog their memory. Several research organizations, such as AC Nielsen
are asked to identify and Gallup, provide research services that test recognition and recall of advertisements.
advertisements that they
The major justification for using recognition and recall methods is that people are more
have seen recently but
are given no clues to likely to buy a product if they can remember an advertisement about it than if they cannot.
help them remember. However, recalling an advertisement does not necessarily lead to buying the product or
brand advertised. For example, most people can remember the zany meercat campaigns
for the comparethemarket.com comparison site, yet not everyone uses this site. Research
aided or prompted shows that the more ‘likeable’ an advertisement is, the more it will influence consumers.
recall test People who enjoy an advertisement are twice as likely to be persuaded that the advertised
A test in which subjects
brand is best. Yet only a small percentage of those who are neutral about the advertise-
are asked to identify
advertisements while ment feel more favourable towards the brand as a result of the advertisement. The type
being shown a list of television programme in which the product is advertised can also affect consumers’
of products, brands, feelings about the advertisement and the product it promotes. Viewers judge advertise-
company names or ments placed in happy programmes as more effective and recall them somewhat better.14
trademarks to jog their
Researchers are also using a sophisticated technique called ‘single source data’
memory.
to help evaluate advertisements. With this technique, individuals’ behaviour is tracked
from television sets to the checkout counter. Tablets are placed in pre-selected homes
and record when the television set is on and which channel is being viewed. At the supermarket
checkout, the individual in the sample household presents an identification card or smartphone
app. The cashier records the purchases by scanner, and the data are sent to the research facility.
Some volunteer consumers even have bar scanners in their larders or fridges, and web cameras
recording their in-home consumption patterns, cross-referenced with their media viewing habits.
These techniques are offering more insight into people’s buying patterns than ever before.
Who develops the advertising campaign?

An advertising campaign may be handled by:
1. an individual or a few people within the company
2. an advertising department within the organization or
3. an advertising agency.
In very small businesses, one or two individuals are responsible for advertising and many other
activities as well. Usually these individuals depend heavily on personnel at local newspapers and
broadcasting stations for copywriting, artwork and advice about scheduling media.
In certain types of large business – especially in larger retail organizations – advertising depart-
ments create and implement advertising campaigns. Depending on the size of the advertising pro-
gramme, an advertising department may consist of a few multi-skilled people or a sizeable number
of specialists, such as copywriters, artists, media buyers, web creators and technical production
coordinators. An advertising department sometimes obtains the services of independent research
organizations and also hires freelance specialists when they are needed for a particular project.
When an organization uses an advertising agency, such as Ogilvy & Mather or JWT, the orga-
nization and the agency usually develop the advertising campaign jointly. How much each party
participates in the campaign’s total development depends on the working relationship between
the client marketers and the agency. Ordinarily, a company relies on the agency for copywriting,
artwork, technical production and formulation of the media plan.15
An advertising agency can assist a business in several ways. An agency, especially a larger one,
supplies the client company with the services of highly skilled specialists - not only copy-writers,
artists and production coordinators, but also media experts, researchers, social media experts and
legal advisers. Agency personnel have often had broad experience in advertising and are usually
more objective than a client’s employees about the organization’s products. Figure 17.7 outlines
Strategy coordination Concept

Production liaison Art direction and
Legal advice copywriting
Client Creative
services
Account
Media
planning
Figure 17.7 Marketing research Planning and buying

A typical advertising Strategy development
agency structure
the structure of a typical advertising agency. Most marketers using an external advertising agency
cite agency creativity and media buying skills as the two main reasons for opting to use an agency
rather than in-company expertise. When an agency is used it is important to carefully coordinate
the activities of the various suppliers providing advertising, public relations, direct mail, sales pro-
motion, web design, mobile marketing, sponsorship and so forth. All output in terms of marketing
communications should reflect the desired brand positioning (see Chapter 8) and the marketing
strategy. Some marketers opt, therefore, to deal with multi-service agencies that offer all aspects
of promotional mix support.
As an agency traditionally receives most of its income from a percentage commission on media
purchases, marketers can obtain some agency services at a low or moderate cost. For example, if
an agency contracts for £400 000 of television time for a client, it typically receives a commission of
£60 000 from the television company. Although the traditional compensation method for agencies
is changing and now includes other factors, the media commission still offsets some costs of using
an agency. Some agencies have broken the mould, being paid by results. Clients pay a bonus
to the agency for meeting targets or receive a payback (refund) if the advertising fails to deliver.16
The difficulty arises when striving to agree the performance criteria and methods for assessment.
Now that advertising has been explored as a potential promotional mix ingredient, it is time to
consider a related ingredient: publicity and its controlling mechanism, public relations.
Publicity and public relations

publicity
Communication in news-
story form about an
Publicity is communication in news-story form about an organization, its products or
organization and/or its both, that is transmitted through a mass medium at no charge; although the publicity
products, which is trans- activity will incur production and personnel costs. Publicity can be presented through a
mitted through a mass variety of vehicles, several of which are examined here. Online is a key outlet, particularly
medium at no charge. the use of social media, as explored in Chapter 19.
Within an organization, publicity is sometimes viewed as part of public relations, which
is a larger and more comprehensive communications function. Public relations is a
public relations
A planned and sustained planned and sustained effort to establish and maintain goodwill and mutual understand-
effort to establish and ing between an organization and its target publics: customers, employees, the media,
maintain goodwill and shareholders, trade bodies, suppliers, government officials and society in general. 17
mutual understanding Most publicity will be targeted at a single stakeholder type, whereas public relations is
between an organization
ongoing communication across all of an organization’s key stakeholder groups. A key
and its target publics.
foundation for effective public relations is the identification of the pertinent stakeholders
or target publics, which are often diverse in nature, requiring different messages and
target publics forms of communication.
An organization’s target For example, core publics for Barclays Bank include customers, potential custom-
audiences: customers, ers, staff and unions, other businesses, suppliers, shareholders, the Treasury, Bank of
employees, the media, England, EU regulators, city analysts and journalists. For the Boy Scouts’ Association,
shareholders, trade bod-
ies, suppliers, govern-
publics include boys(!), the younger Cubs who are destined to become Scouts, the com-
ment officials and society munity, business sponsors, potential Scout leaders, parents, former members whose
in general. views will influence others, teachers, plus local press journalists.
Publicity is the result of various public relations efforts. For example, when Tesco
decided to make a special effort to stock environmentally safe products and pack-
aging, its public relations department sent out press releases to various newspapers,
PR event magazines and television contacts, as well as to its suppliers. The result was publicity in
A public relations event the form of magazine articles, newspaper acknowledgements and television coverage.
concerned with a specific There are three broad categories of public relations (PR):
purpose such as an open
day or VIP visit. 1. The PR event - one-shot ad hoc affairs concerned with a specific purpose, such as
an open day or VIP visit.
2. The PR campaign - a period of PR activity involving several events and techniques,

PR campaign
A period of PR activity but with definite start and end dates.
involving several events he PR programme - ongoing, lengthy-duration, awareness-building or awareness-
3. T
and techniques but with
maintaining multi-technique PR activity.
definite start and end
dates. There is an important distinction between marketing public relations and corpo-
rate public relations. Most large organizations have a corporate affairs function that
liaises with investors, institutional analysts and the press, using the toolkit of public
PR programme
An ongoing,
relations. Most marketers turn to the same toolkit for marketing public relations, in
lengthy-duration, order to promote new products or market-leading developments, maintain aware-
awareness-building or ness of their brands or products, and enhance their reputation with their target
awareness-maintaining customers and marketing channel members. The public relations tools may be the
multi-technique PR same, but the issues and stakeholders differ between marketing public relations and
activity.
corporate public relations.
Marketing
Developments New products
Tests/break-throughs/R&D New customer service
Industry reports Personnel changes
Trade statistics New partners/alliances
Economic reports Awards of contracts/bids
New staff/hires New company policies
New channel partnerships/structures Pricing/payment terms
New markets Mergers and acquisitions
Awards New markets
New orders
Corporate
People Shareholder meetings
Financial updates Endorsements
Visits by VIPs
Ownership changes Accreditations
Accomplishments
Annual celebrations/events 3rd party endorsements
Winners of contests
Conferences and seminars Quality awards
Staff promotions
Exhibitions and open days Slogans and trademarks
Interviews with executives
Awards to employees Industry awards
Awards to suppliers
New buildings/facilities
Investment programmes
Charitable activities
Community campaigns
Community support
Support for 3rd parties
Figure 17.8
Possible topics for publicity releases
Source: Adapted from Albert Wesley Frey, ed., Marketing Handbook, 2nd Edition (New York: Ronald Press, 1965), pp. 19–35. Copyright © 1965. Reprinted by
permission of John Wiley & Sons, Inc.
Publicity and advertising compared

Although publicity and advertising both depend on mass media, they differ in several respects.
Advertising messages tend to be informative or persuasive, whereas publicity is primarily infor-
mative. Advertisements are sometimes designed to have an immediate impact on sales; pub-
licity messages are more subdued. Publicity releases do not identify sponsors; advertisements
do. The sponsor pays for media time or space for advertising, but not for publicity, and there
is therefore no guarantee of inclusion. Communications through publicity are usually included
as part of a television programme or a print story, but advertisements are normally separated
from the broadcast programmes or editorial portions of print media so that the audience or
readers can easily recognize or ignore them. Publicity may have greater credibility than adver-
tising among consumers, because as a news story it may appear more objective. Finally, an
organization can use advertising to repeat the same messages as many times as desired;
publicity is generally not subject to repetition and is rarely news-worthy more than once.
Kinds of publicity
press (news) release There are several types of publicity mechanism.18 The most common is the press
A publicity mechanism, (news) release, which is usually a single page of copy containing up to about 300
usually consisting of a words. A press release, sometimes called a news release, also gives the company’s or
single page of typewrit-
agency’s name, its address and phone number and details of the contact person.19 Car
ten copy.
makers often use press releases to introduce new products. Figure 17.9 is an example
of a press release. A feature article is a longer document (up to 3000 words) that is
feature article usually prepared for a specific publication. A captioned photograph is a photograph
A manuscript longer with a brief description explaining the picture’s content. Captioned photographs are
than a press release (up especially effective for illustrating a new or improved product with highly visible fea-
to 3000 words) that is
tures. Figure 17.8 details possible topics for publicity releases.
usually prepared for a
specific publication. There are several other kinds of publicity. A press conference is a meeting called
to announce a major news event. Media personnel are invited and are usually sup-
plied with written materials, photographs and web-links. In addition, letters to the
captioned photograph editor and editorials are sometimes prepared and sent to newspapers and maga-
A photograph with a brief zines. However, newspaper editors frequently allocate space on their editorial pages
description explaining its to local writers and national columnists. Finally, films and tapes may be distributed
content.
to broadcasting companies in the hope that they will be aired. The broader remit of
public relations also includes training personnel to meet and handle the media (jour-
press conference nalists); arranging interviews; establishing links with VIPs and influential bodies; man-
A meeting called to aging visits, seminars and meetings; and maintaining information flows within the
announce a major news organization. To many, the most important addition to the PR toolkit has been the
event. digital environment for PR, in which a stunt, idea or activity can become the focus of
blogs and tweets - often going viral - whether from client personnel or by consumers.
Although Facebook and Twitter enable rapid consumer-to-consumer sharing of poor
digital environment
for PR experiences of a brand or product, service experience or value for money, which can
A stunt, idea or activity become a PR nightmare for a brand manager under such scrutiny, the digital environ-
can become the focus ment has presented marketers with a host of PR opportunities and a whole new channel
of blogs and tweets, of activity, as explored in the Innovation and Change box, entitled ‘Blogs and tweets in
whether from client per-
PR’. The impact of digital on PR is featured in a subsequent chapter.
sonnel or by consumers.
A marketer’s choice of specific types of publicity depends on considerations that
include the type of information being transmitted, the characteristics of the target audi-
ence, the receptivity of media personnel, the importance of the item to the public and the amount
of information that needs to be presented. Sometimes a marketer uses a single type of publicity
Figure 17.9
An example of a press release, in this case for a student revision aid
Blogs and tweets in PR

Innovation platforms for publicizing its brand and
and change services in ways deemed highly relevant
There is a growing belief that businesses to certain communities and consumers. Its
embracing social media tools to convey their ‘#UKwaspwatch’ site encourages sharing
PR messages are able to communicate com- of problems connected with wasps, to iden-
pelling content rather than spin or hype. The PR industry has tify hotspots for wasps. According to Rentokil’s
for a while persuaded clients to tweet and blog, and is often social media manager, the site was not promoted
behind celebrity tweets endorsing their clients’ brands and heavily but created much chatter. Rentokil repeated the ini-
products. Public relations professionals are experts in estab- tiative, combining it with other activities, including a ‘spring
lishing a tone of voice and content supportive of a brand which cleaning Twitter party’, providing advice on cleaning and pest
will gel comfortably with intended consumers or business control. Rentokil believes there is a fine line between engaging
users. Arguably, such expertise has significant relevance in people and simply boring them with brand messages, so many
ensuring a company’s digital output and presence on social tweets contain no mention whatsoever of Rentokil and any
media are empathetic with intended target audiences. mention of the brand is very subtle. Rentokil encourages blogs
Unfortunately, it is reported that many brands merely post from anyone in the industry or with sensible and relevant opin-
their standard press releases and product news online, without ions, as well as comic enthusiasts in order to brighten up
attempting to think about what messages and content will truly consumers’ days.
inspire intended readers or viewers. Electrolux was one, but Previously, a wasp campaign or spring cleaning initiative
recognized the error of its ways, instead customizing shorter probably would have been the brainchild of the account team
messages truly in the style of Facebook, Flickr or YouTube. The within the public relations agency. Good old-fashioned press
result was that visitor numbers to the Electrolux Design Lab releases and a few highly visible stunts to provide photo
blog trebled, YouTube videos were viewed twice as many times opportunities would have caught the attention of local news-
and the company’s Facebook following saw a hefty ten-fold paper editors and freesheets. Occasionally, local radio and
increase. However, this required a new style of writing, a new regional TV news magazine programmes would have bought
approach to content, and a vision for publicity not previously in, too. Today, the digital environment provides much more
in evidence. This required different people producing material instant direct contact, controlled instead by the client com-
and also trust from those in senior positions that these younger pany’s own staff and digital team. Tweets, blogs and digital
content providers would not damage the brand. events have provided PR with a very different toolkit.
Rentokil, the leading pest eradicator, has harnessed Face- Reference: Rentokil; Innovation Update, Marketing Week, 24 March 2011, pp.
book to promote its services but indirectly, creating smart 28–30; www.rentokil.co.uk, April 2015.
third party
in a promotional mix. In other cases, a marketer may use a variety of publicity mecha-
endorsement nisms, with publicity being the primary ingredient in the promotional mix. Third party
A recommendation from endorsement - for example, from a trade body, VIP or media personality - increases the
an opinion leader or credibility and interest-value of publicity and public relations. This is a recommendation
respected personality - written, verbal or visual - from an opinion leader or respected personality. The use of
used to increase the
credibility of publicity and
apparently impartial endorsement from among the general public, within social media
public relations. communities, is a new yet important form of endorsement. Consumers are increasingly
influenced by the visible support they read on Facebook or Twitter or see on YouTube
around a brand and its activities, but are often unaware that such endorsements and
rave reviews are planted by brands or agencies acting on their behalf.
Uses of publicity
Publicity has a number of uses. It can make people aware of a company’s products, brands or
activities, help a company maintain a certain level of positive public visibility, and enhance a partic-
ular image, such as innovativeness or progressiveness. Companies also try to overcome negative
images through publicity. Some businesses seek publicity for a single purpose and others for
several purposes. It must be remembered that an organization has a number of audiences – cus-
tomers, suppliers, distributors, shareholders, journalists, as well as its internal market of employees
and management. Publicity needs to target all of these publics.
The requirements of a publicity programme

For maximum benefit, a business should create and maintain a systematic, continuous publicity
programme. If this is achieved, there is likely to be a sustained public relations process in place.
A single individual or department within the organization or from its advertising agency or public
relations consultancy should be responsible for managing the programme. Relationships must be
maintained with the media, particularly to facilitate crisis-management public relations. Effective
public relations are impossible without well-developed ongoing contacts with newspaper, television,
web and radio journalists. It is important to establish and maintain good working relationships with
these media personnel. Often, personal contact with editors, reporters and other news personnel
is essential; without their input a company may find it hard to design its publicity programme so
as to facilitate the work of news people. Media personnel reject a great deal of publicity material
because it is poorly written, badly tailored or not newsworthy. To maintain an effective publicity
programme, a company must strive to avoid these flaws. Guidelines and checklists can aid in
this task. Material submitted must match the particular newspaper’s style - for example, in terms
of length, punctuation and layout. Marketers who hire the services of a PR consultancy do so to
‘buy’ the consultancy’s media contacts and its expertise in maintaining an ongoing flow of activity
that appeals to journalists.
Finally, an organization has to evaluate its publicity efforts.20 Usually, the effectiveness of publicity
is measured by the number of press releases actually published or broadcast, or the frequency of
clicks and online searches. To monitor print media and determine which releases are published
and how often, an organization can hire a cuttings service – a business that cuts out, counts and
sends published news releases to client companies. To measure the effectiveness of television
publicity, a company can request that the television company records its name and the dates when
the news item is broadcast, but companies do not always comply. Although some television and
radio tracking services do exist, they are costly. Digital executions are easier to monitor and count
hits, likes or postings.
The assessment of the effectiveness of an organization’s publicity or public relations is of grow-
ing importance (see Chapter 23). Many leading exponents of public relations believe there must
be four facets to an effective PR programme:
1. research into the problem opportunity
2. action which includes assessment and planning
3. communication of key messages to the relevant publics
4. evaluation of the effects of these messages.
A public relations consultancy can be very helpful in achieving these four requirements.
Dealing with unfavourable publicity

Up to this point, publicity has been discussed as a planned ingredient of the promotional
mix. However, companies may have to deal with unfavourable publicity regarding an unsafe
product, an accident, the actions of a dishonest employee or some other negative event.
For example, Toyota had rightly prided itself on the quality of its vehicles and reputation for
reliability. A string of product failures and high visibility media coverage in the US during 2010
severely damaged its reputation, requiring much remedial activity by those handling the com-
pany’s public relations.
Such unfavourable publicity can arise quickly and dramatically. A single negative event that pro-
duces unfavourable publicity can wipe out a company’s favourable image and destroy consumer
attitudes that took years to build through promotional efforts. Moreover, the mass media today can
disseminate information faster and to larger audiences than ever before, and bad news generally
receives a great deal of attention in both the broadcast and social media. Social media enable
the rapid communication of good and bad stories about a brand. Thus the negative publicity sur-
rounding an unfavourable event now reaches more people. By dealing effectively with a negative
situation, an organization can minimize the damage from unfavourable publicity.
To protect an organization’s image, it is important to avoid unfavourable publicity or at least to
lessen its effects. First and foremost, the organization can directly reduce negative incidents and
events through safety programmes, inspections and effective quality control procedures. However,
because organizations obviously cannot eliminate all negative occurrences, they need to establish
policies and procedures for the news coverage of such events. In today’s era of social media-fuelled
comment by consumers and other third parties, this is particularly necessary. These policies and
procedures should aim at reducing negative impact.
In most cases, organizations should expedite news coverage of negative events rather than
try to discourage or block it. The expediting approach not only tends to diminish the fall-out from
negative events but also fosters a positive relationship with media personnel. Such a relationship
is essential if news personnel are to cooperate with a company and broadcast favourable news
stories about it and its affairs. Facts are likely to be reported accurately, but if news coverage is
discouraged, rumours and misinformation may be perpetuated. An unfavourable event can easily
be blown up into a scandal or a tragedy. It can even cause public panic.
Crisis management involves:
crisis management
A process in which a 1. the identification of key target publics for which to provide material or publicity
company responds to
negative events by iden- 2. the need for a well-rehearsed contingency plan and public relations exercise
tifying key targets (pub- 3. t he ability and skills of the organization to report quickly and accurately details of the
lics) for which to provide crisis itself
publicity, developing a
well-rehearsed contin- 4. the provision of immediate access by journalists to information and personnel
gency plan, reporting 5. monitoring of social media chat and coverage, with appropriate interventions.
facts and monitoring.
Above all, the organization must remain in control of the situation and the material
being published or broadcast. See the case study at the end of this chapter for a ‘text-
book’ example of crisis management.
The limitations of using publicity

Free media publicity is a double-edged sword: the financial advantage comes with several draw-
backs. If a company’s messages are to be published or broadcast, media personnel must judge
them newsworthy. Consequently, messages must be timely, interesting and accurate. Many com-
munications simply do not qualify. It may take time and effort to convince media personnel of the
news value of publicity releases. Even a top public relations consultancy achieves a hit rate of only
one out of every four press releases being published in the press.
Although marketers usually encourage media personnel to air a press release at a certain time,
they control neither the content nor the timing of the communication. Media personnel alter the
length and content of publicity releases to fit publishers’ or broadcasters’ requirements, and may
even delete the parts of the message that the business’s marketers deem most important. Further-
more, media personnel use publicity releases in time slots or positions that are most convenient for
them; thus the messages often appear at times or in locations that may not reach the business’s tar-
get audiences. These limitations can be frustrating. Nevertheless, properly managed publicity offers
an organization substantial benefits at a relatively low cost. The commissioning of a professional
public relations consultancy may come at a price, but the benefits are generally very clear as stake-
holders’ perceptions are managed. Compared with advertising, the costs of PR are usually trivial.
This chapter concludes with an overview of sponsorship in marketing, which is an element of
the promotional mix that is increasingly apparent to many consumers and a promotional tool now
used by many organizations.
Sponsorship
Sponsorship is the financial or material support of an event, activity, site, person, orga-
sponsorship
The financial or material nization or product by an unrelated organization or donor. Generally, funds will be made
support of an event, available to the recipient of the sponsorship deal in return for the prominent exposure of
activity, site, person, the sponsor’s name or brands.21 For example, SAP’s logo visibly dominates McLaren’s
organization or product F1 racing cars and Waitrose appears on the England cricket team’s shirts.
by an unrelated organi-
zation or donor.
The increasing popularity of sponsorship
In the 1990s sponsorship in the arts became an established form of funding for individ-
ual performances, tours, whole seasons or exhibitions; indeed, some theatrical companies and
galleries came to depend on it.22 Many orchestras, ballet, opera or theatre companies, museums
and art galleries would not have survived in the face of declining government subsidies for the arts
had it not been for corporate sponsorship. The recent credit crunch has again revealed the role
commercial sponsorship plays in enabling many arts groups to survive. Sports were soon to follow,
as numerous football teams found that gate receipts and pitch advertising revenues were no longer
adequate to cover wage bills and operating costs. While the larger clubs earn eight-figure revenues
from shirt sponsorship by companies such as Samsung, Standard Chartered or Emirates, deals
for as little as £50 000 are not uncommon in the lower leagues; either way, this form of financial
support is becoming essential to guarantee the survival of many clubs.
The popularity of corporate sponsorship has grown dramatically: few leading sports or arts
events are without corporate sponsorship. Sponsors believe there are two key benefits to the
company and its products. First and foremost, media coverage is unbridled. Few spectators at the
Olympics or the World Cup football championships can fail to notice the identities of the leading
sponsors. FIFA has two levels of prime sponsors: adidas, Coca-Cola, Wanda, Gazprom, Hyundai/
Kia, Qatar Airways and Visa are classed as FIFA Partners, while Budweiser, McDonald’s, Vivo,
Hisense and Mengniu were World Cup Sponsors for 2018. To many sports enthusiasts, the leading
competitions become generically known as the Specsavers County Championship, NatWest T20
Trophy, Heineken Cup or Capital One Cup. In equestrian events, the horses’ names often include
the name of the sponsoring company. Visitors to the Royal Shakespeare Company’s performances
are clearly informed of the support given by leading sponsors. Opera singer Montserrat Caballe’s
performance at Birmingham’s prestigious Symphony Hall was made possible largely by sponsor-
ship from the Forward Trust Group, a fact made clear in all promotional material leaflets, advertising
and publicity, and in the concert’s programme.
The second benefit of corporate sponsorship is internal. Many organizations believe that their
sponsorship of events helps improve the morale of their workforce. On one level, high-profile,
brand-building sponsorship, such as Vitality’s involvement with cricket, reassures the workforce
and reaffirms the company’s leading position in its marketplace. On a more human level, spon-
sorship for altruistic projects, such as worthy community causes, helps give employees a ‘warm’,
positive feeling towards their employer. The way in which McDonald’s supports Ronald McDonald
Houses close to children’s hospitals, and its sponsorship of local school events not only helps the
community but also makes its employees feel more positive towards the company.
However, sponsorship is not confined to the promotion and exposure of corporate brands. Indi-
vidual product brands sponsor many ITV, C5 and Sky/Fox programmes. While boards of directors
may like to sponsor major sporting events or the arts, increasingly many marketing managers are
looking for suitable activities to sponsor for individual brands. For example, supermarket operators
and food brands vie to sponsor TV series of leading celebrity chef cookery programmes.
Applications for sponsorship

Sponsorship used to be a tool of public relations and the domain of public relations consultan-
cies. Increasingly, it is a specialist area and a separate component of the promotional mix. Public
relations consultancies still handle many sponsorship deals, but a growing number of specialist
sponsorship advisers now introduce sponsors to appropriate recipients. It should not be thought
that sponsorship is prominent only in the sports and arts worlds. It is an activity of growing impor-
tance in many fields. Universities and colleges seek sponsorship for students, technical equipment,
buildings and even degree programmes. Hospitals receive and welcome the sponsorship of build-
ings, operating theatres and fundraising events. Engineering and scientific research, particularly in
universities and ‘research clubs’, benefit from the sponsorship of research and development, often
from organizations in completely unrelated fields of business.
No matter what the area, if a company believes its brand reputation will be enhanced and its
brand awareness improved by its involvement with an organization or event, sponsorship becomes
an important element in its promotional mix. Sponsorship can be for events or competitions,
equipment or buildings, ideas or research, learning or development, animals or people, commer-
cial or charitable causes, television programmes, products or services, single activities or ongoing
programmes.23
Reputable partnerships
There are ‘ground rules’ to be considered by the prospective sponsor. As with any promotional
activity, the sponsor must ensure that the recipient organization, event or product is recognized by
the sponsor’s own target audience, that it is welcome and acceptable to its target audience, and
that it is reputable and ethical in its dealings. The sponsor does not want to invest its promotional
budget in activities not recognized by its own target market. Reputable partnerships
reputable partnerships
are essential. The sponsor cannot risk becoming involved with an event or organization
Reputable and ethical
dealings between a that has a ‘dodgy’ reputation and unprofessional management; such a situation threat-
recognized, welcome ens the sponsor’s reputation and brands. Consider the effect on a prestigious brand if
and acceptable recipient an athlete sponsored by that brand failed a dope test or was found guilty of cheating.
organization and a spon- The recipient needs to be wary of the donor’s image and reputation.24
soring organization.
Even with careful selection of events or sports stars to sponsor, the sponsor cannot
be guaranteed value for money. During the Euro 2004 football tournament in Portugal,
Pepsi’s millions sponsored England’s David Beckham, Italy’s Francesco Totti and S panish strikers
Raul and Torres. Beckham missed two penalties as England exited at the quarter-final stage,
Totti’s infamous spitting incident led to him making only one tournament appearance, and the two
Spanish stars failed to score a goal, with none of the players’ teams achieving glory. Whether or
not Pepsi felt this particular sponsorship represented value for money was not reported.
Summary
Advertising is a paid form of non-personal communication that is transmitted to consumers through mass media, such as
television, radio, newspapers, magazines, direct mail, public transport vehicles, outdoor displays, ambient advertising and
now the web. Both non-business and business organizations use advertising. Advertising has many uses: to create aware-
ness of products, organizations and causes; to stimulate primary and selective demand; to off-set competitors’ advertising;
to aid sales personnel; to educate the market; to increase uses of a product; to remind and reinforce; to reduce sales
fluctuations.
Marketers use advertising in many ways. Institutional advertising promotes organizational images and ideas, as well as
political issues. When a company promotes its position on a public issue, institutional advertising is referred to as advo-
cacy advertising. The growth of nudge interventions in social marketing has added to the use of this form of advertising.
Product advertising focuses on the uses, features, images and benefits of goods and services. To make people aware of a
new or innovative product’s existence, uses and benefits, marketers rely on pioneer advertising in the introductory stage
to stimulate primary demand for a general product category often referred to as creating category need. Then they switch
to competitive advertising to boost selective demand by promoting a particular brand’s uses, features and advantages that
may not be available in competing brands. Comparative advertising is a form of competitive advertising in which two or
more brands are compared on the basis of one or more product attributes.
Through defensive advertising, a company can sometimes lessen the impact of a competitor’s promotional programme. A
company can also make its own salesforce more effective through advertising designed to support personal selling. A busi-
ness modifying its marketing mix uses advertising to educate the market regarding the changes. To increase market pen-
etration, an advertiser sometimes focuses a campaign on promoting a greater number of uses for the product. Reminder
advertising for an established product enables consumers to know that the product is still around and that it has certain
characteristics, benefits and uses. Marketers may use reinforcement advertising to assure current users of a particular
brand that they have selected the best brand. Marketers also use advertising to smooth out fluctuations in sales.
Although marketers may vary in how they develop advertising campaigns, these should follow a general pattern. First, they
must identify and analyze the advertising target or audience. Second, they should establish what they want the campaign
to accomplish by defining the advertising objectives. The third step is creating the advertising platform, which contains the
basic issues to be presented in the campaign. Fourth, advertisers must decide on the advertising budget: how much money
will be spent on the campaign; they arrive at this decision through the objective and task approach, the percentage of sales
approach, the competition matching approach or the arbitrary approach. Fifth, they must develop the media plan by select-
ing and scheduling the media to be used in the campaign, taking into account the desired reach and frequency as well as
cost comparison indicators. In the sixth step, advertisers use copy, artwork and illustrations to create the message, with
the aid of storyboards and careful layouts, bearing in mind AIDA, which is the persuasive sequence of attention, interest,
desire and action. Regional issues of magazines and newspapers allow messages to be tailored to geographic areas. In the
seventh step, marketers execute their advertising campaign, after extensive planning and coordination. Finally, advertisers
must devise one or more methods for evaluating the effectiveness of the advertisements, including pre-tests, the use of
consumer focus groups, online discussions and panels, direct-response coupons or 0800 freephone contact numbers,
post-campaign tests, recognition tests and unaided (or spontaneous) recall tests or aided (or prompted) recall tests. The
single source data technique uses technology to track buying behaviour and evaluate advertisements.
Advertising campaigns can be developed by personnel within the organization or in conjunction with advertising agencies.
When a campaign is created by the organization’s personnel, it may be developed by only a few people, or it may be the
product of an advertising department within the organization. The use of an advertising agency may be advantageous to a
client company because an agency can provide highly skilled, objective specialists with broad experience in the advertising
field at low to moderate costs to the client company.
Publicity is communication in news-story form about an organization, its products or both, transmitted through a mass
medium at no charge. Generally, publicity is part of the larger and more comprehensive communications function of public
relations. There are three broad categories of public relations: the PR event, the PR campaign and the PR programme. Publicity
is mainly informative and usually more subdued than advertising. There are many types of publicity, including press (news)
releases, feature articles, captioned photographs, press conferences, editorials, films and tapes, blogs and tweets. In addition,
public relations encompasses training managers to handle journalists and publicity, establishing links with influential bodies
and VIPs, managing visits and seminars, and providing information to employees. Third-party endorsement, in which a VIP,
trade body or celebrity publicly endorses a product or a brand, is particularly effective, including social media chatter.
Target publics include consumers, suppliers, distributors, journalists, trade bodies, government officials and shareholders,
as well as employees and managers inside the business, and society in general. Effective public relations depends on the
thorough identification of target publics. To have an effective publicity programme, someone either in the organization or in
the business’s agency must be responsible for creating and maintaining systematic and continuous publicity efforts.
There is an important distinction between corporate PR and marketing PR. While the toolkit is similar, corporate PR focuses
on corporate affairs, while marketing PR addresses product and brand issues. Effective PR programmes require research,
action and communication of key messages to relevant publics, as well as evaluation.
An organization should avoid negative publicity by reducing the number of negative events that result in unfavourable
publicity, or at least lessen their effect. To diminish the impact of unfavourable publicity, an organization should institute
policies and procedures for implementing crisis management - identifying key targets, developing a contingency plan,
providing access for journalists and monitoring social media when negative events do occur. Problems that organizations
confront when seeking publicity include the reluctance of broadcast media personnel to print or broadcast releases and a
lack of control over the timing and content of messages.
Sponsorship is the financial or material support of an event, activity, site, person, organization or product by an unrelated
organization or donor in return for the prominent exposure of the sponsor’s name and brands. An additional benefit can be
to raise the morale of employees within the donor organization. Once the domain of arts and sports, sponsorship applica-
tions are broadening. Universities, colleges, hospitals, and engineering and scientific research institutes also seek sponsor-
ship. There are many corporate sponsors of events or facilities, but increasingly marketing managers are seeking relevant
recipients and sponsorship partners for their individual brands. Sponsorship recipients and donors must be certain of each
other’s ethics, image and reputation. Reputable partnerships are essential.
Important terms
Key links Advertising
The material in this chapter focuses on just some aspects Advertising budget
of marketing communications and ingredients of the pro- Advertising campaign
motional mix, so should be read in conjunction with: Advertising platform
Advertising target audience
●● Chapter 16’s overview of the communications process
Advocacy advertising
and the requisites for effective marketing communica-
AIDA
tions, including integrated marketing communications
Aided or prompted recall test
(IMC).
Arbitrary approach
●● Chapter 18’s examination of personal selling and sales Artwork
management, sales promotion, direct mail and the inter- Captioned photograph
net - the remaining ingredients of the promotional mix. Comparative advertising
●● Chapter 11’s discussion of effective branding, which Competition matching approach
requires associated marketing communications. Competitive advertising
●● Chapter 19’s summary of digital marketing.
Consumer focus group
Copy
Cost comparison indicator 6. What is an advertising platform and how is it used?

Crisis management 7. What factors affect the size of an advertising budget? What
Defensive advertising techniques are used to determine this budget?
Digital environment
8. Describe the steps required in developing a media plan.
Feature article
Frequency 9. What is the role of copy in an advertising message?
Illustrations 10. What role does an advertising agency play in developing an
Institutional advertising advertising campaign?
Layout 11. Discuss several ways to post-test the effectiveness of an
Media plan advertisement.
Objective and task approach
12. What is publicity? How does it differ from advertising?
Percentage of sales approach
Pioneer advertising 13. How do organizations use publicity? Give several examples
Post-campaign test or post-test of press releases that you have observed recently in local
PR campaign media.
PR event 14. What are target publics? Why must they be carefully identi-
PR programme fied and handled by a public relations department?
Press (news) release 15. How should an organization handle negative publicity?
Press conference Identify a recent example of a company that received nega-
Pre-tests tive publicity. Did the company deal with it effectively?
Product advertising
16. Define public relations and highlight its main roles.
Public relations
Publicity 17. Explain the problems and limitations associated with using
Reach public relations. How can some of these limitations be
Recognition test minimized?
Regional issues 18. In what ways has the arrival of social media complicated
Reinforcement advertising life for the PR professional?
Reminder advertising 19. How can sponsorship enhance brand awareness for a spon-
Reputable partnerships soring organization?
Sponsorship
20. What factors must an organization consider before selecting
Storyboard
a sponsor or recipient organization?
Target publics
Third party endorsement
Unaided or spontaneous recall test Recommended readings
Belch, G. and Belch, M., Advertising and Promotion: An Integrated Mar-
Discussion and review questions keting Communications Perspective (McGraw-Hill, 2017).
De Pelsmacker, P., Geuens, M. and van den Bergh, J., Marketing Com-
1. What is the difference between institutional and product
munications: A European Perspective (Pearson, 2017).
advertising? Fenton, W. and Collett, P., The Sponsorship Handbook: Essential Tools,
2. When should advertising be used to stimulate primary Tips and Techniques for Sponsors and Sponsorship Seekers (John
demand? When should advertising be used to stimulate Wiley, 2011).
selective demand? Fill, C. and Turnbull, S., Marketing Communications: Discovery, Creation
and Conversations (Pearson, 2016).
3. What are the major steps in creating an advertising
Scott, D.M., The New Rules of Marketing and PR: How to Use Social
campaign? Media, Online Video, Mobile Applications, Blogs, News Releases, and
4. What is an advertising target audience? How does a Viral Marketing to Reach Buyers Directly (John Wiley, 2017).
marketer analyze the target audience after it has been Shimp, T.A. and Andrews, J.C., Integrated Marketing Communications in
identified? Advertising and Promotion (Cengage, 2013).
Tench, R. and Yeomans, L., Exploring Public Relations: Global Strategic
5. Why is it necessary to define advertising objectives?
Communication (Pearson, 2017).
Web task Classroom tools 2. Think of a brand which has

recently endured negative public-
Log on to Pepsi.com at at www.pepsi ity. As the team tasked to manage
.com or Nike.com at www.nike.com. this situation and to limit damage
Both sites offer a selection of to the brand’s reputation, explore
advertisements to view. In addition, the website pages strive what options are available and recommend a preferred
to advertise the merits of these brands and the specific attri- way to proceed.
butes of these products.
1. What is the advertising platform being adopted by these Applied mini-case

two brands (Pepsi and Nike)?
Many well-known brands vie to sign to be leading sponsors of
2. To what extent are these advertising platforms relevant
major sporting events, such as the Olympics, European Foot-
to the respective target audiences?
ball Championships, FIFA’s World Cup, the Wimbledon Lawn
3. In developing the advertising for Pepsi or Nike, which Tennis Championships, Cricket World Cup, Rugby World Cup
stage of the campaign development process will be most or Darts World Cup. From the producers of drinks, financial
important? Why? services, cars, travel, energy, technology products, these tour-
naments attract a varied mix of sponsors.
Group tasks
Question
1. The arrest of FIFA officials on charges of corruption and As a marketing manager tasked with identifying sponsorship
racketeering caused sponsors of the World Cup and FIFA opportunities for your company and its key brands, what
activities to express disquiet and concern. Why? What would be the selection criteria used for choosing events or
could these sponsors have done to have avoided such a organizations to sponsor and why?
situation?
Textbook pr and a classic then advertising agency, Leo Burnett, had

tale: public relations and the Case study been briefed before the contamination
Perrier crisis scare on the needs of crisis management.
Within hours of the contamination
On 10 February 1990, in North Carolina, USA, announcement, Perrier had set up product
bottles of Perrier were found to be contaminated tests with an independent consultant, Hydro-
with benzene. For the best-selling brand of mineral water in technica, so as to have accurate information to give
the world this meant a huge crisis. ‘Once a critical situation out. The crisis team knew it had to be truthful throughout.
arises the most vital task is to do everything you can to reduce Infoplan immediately set up a telephone information service,
damage to the absolute minimum. We were fortunate that we which dealt with 1700 calls each day from distributors, retail-
had agreed procedures in advance and these procedures were ers and consumers.
followed absolutely,’ stated Perrier spokesperson Wenche Within three days of the crisis breaking, shelves world-
Marshall Foster. ‘From the very beginning we were determined wide had been cleared and all stocks returned to Perrier.
to keep everyone fully informed.’ The company achieved goodwill by moving so decisively. No
Perrier’s crisis team in the UK moved quickly; senior exec- press conferences were given. Instead, the five members
utives of Perrier, its PR agency at the time, Infoplan, and its of the crisis team individually met journalists for in-depth,
publics of its difficulties, tackled the contamination problems

and relaunched the product with new packaging and bottle
sizes clearly to be seen as new stock with a ‘Welcome Back’
promotional campaign.
Within months, Perrier’s market share was climbing back
and shelf space had been regained. The company did not
hide anything, it identified the various audiences to brief and
it tackled its production to ensure that there were no repeat
problems. Consumers, distributors, public health bodies and
the media were made to feel part of Perrier’s solution through
the effective use of PR.
Perrier handled its crisis very efficiently, but never fully
regained its domination of the bottled mineral water market,
the fastest-expanding sector of the beverages market in the
1990s. Perrier’s success had been noted by major beverage
suppliers; the removal of its bottles from shelves and the
contamination scare gave rivals the opportunity to move in.
Despite repackaging, fresh designs and a new advertising
agency - Publicis - Perrier struggled to rekindle its former
glory days and was then acquired by Nestlé.

head-to-head interviews to give precise and clear information
1. How important is it to have an ongoing commitment to
and to minimize poor publicity.
public relations in the event of a crisis?
Perrier risked competitors moving to take advantage of the
crisis, since retailers would not leave shelves empty. Perrier 2. Could Perrier’s competitors have taken more advantage
was the clear brand leader with the only established image of the crisis?
worldwide. Competitors would take time to develop such 3. Did the same publicity message go out to all of Perrier’s
strength, and their stocks were not high. Evian and others publics or target audiences? Why?
had nothing to gain from drawing further attention to Perrier’s
crisis, which was damaging the industry as a whole. Sources: John Tylee, ‘Publicis extends “eau” theme for Perrier blitz’, Campaign,
Perrier’s PR handled the crisis in textbook fashion. With, 19 May 1995, p. 7; Greg Prince, ‘In hot water’, Beverage World, March 1995,
pp. 90–5; ‘Perrier aims to recapture lost young drinkers’, Marketing, 24 March
at the time, 85 per cent of the US and 60 per cent of the UK 1994, p. 1; Marketing Week, 2 March 1990; Personally Speaking, 27 March
market, it had a great deal to lose. The company informed its 1990; Fortune, 23 April 1990; ‘Nestlé’s “world of water”’, www.nestle.com.
Chapter 18
Sales management, sales
promotion, direct mail, direct
marketing and the web
Selling and marketing go hand in hand
Introduction
Objectives As indicated in Chapter 16, personal selling, sales promotion,
direct mail, the internet and direct marketing are possible ingre-
To understand the nature and major
dients in the promotional mix, along with advertising, public
purposes of personal selling.
relations and sponsorship, which were explored in the previous
To learn the basic steps in the per- chapter. Together, they form the marketing communications
sonal selling process. toolkit for marketers and brand managers.
Personal selling is a very widely used ingredient of the pro-
To identify the types of salesforce
motional mix. Sometimes it is a company’s sole promotional
personnel.
tool, although it is generally used in conjunction with other pro-
To gain insight into sales manage- motional mix ingredients. Personal selling is becoming more
ment decisions and activities. professional and sophisticated, with sales personnel at times
acting more as consultants and advisers. Most organizations
To appreciate the role of key
that have a salesforce have separate sales management staff,
account management.
who are responsible for recruiting, training, allocating, motivat-
To become aware of what sales ing, rewarding and monitoring the salesforce; rarely are sales
promotion activities are and how staff the direct responsibility of marketers. However, these sales
they can be used. personnel support the customers identified by marketers in the
target market strategy; they must communicate the agreed
To become familiar with specific
brand positioning and leverage any competitive advantage iden-
sales promotion methods.
tified by the organization’s marketers, and convey the agreed
To understand the role of direct mail customer value propositions. Sales staff also learn about cus-
in the promotional mix. tomer issues and market developments, so they must be linked
with marketers in a company in order to share these market
To be aware of the importance
insights. It is essential that the activities of the salesforce do
of the internet in marketing
not conflict with the marketing strategy. That is why, although
communications.
it is usually a different functional area from Marketing within the
To comprehend the growing role of organization, personal selling is still deemed to be part of the
digital marketing. promotional mix.
Sales promotion, direct mail and the internet also play an
To appreciate direct marketing’s use
important role in the execution of marketing strategies.1 Direct
of the promotional mix.
marketing, a term frequently cited by marketers, is a growing
529
tool. Although, as discussed in Chapter 15, direct marketing is partly an aspect of marketing channel
selection – in this case opting not to utilize some of the services of channel intermediaries – there
are implications for marketers’ promotional strategies as discussed in this chapter. The growth of
digital marketing is huge and alters the rules of engagement for marketers. Digital is touched on in
this chapter, but warrants its own subsequent chapter.
Sampling nappies:
M any markets, such
as fast food, colas
and car rental, appear to
parents’ early exposure
effective and does the job,
the likelihood is high of a
consumer remaining loyal
be dominated by just a few to Pampers to the sampled brand.
major brands. The same is true Product sampling is not
for nappies. As soon as one brand confined to the Bounty Bag. The
innovates with a drier, more comfortable, longer-lasting, eas- long-time rival to Pampers was Hug-
ier to change or more disposable nappy, its rivals will quickly gies, now known for DryNites and Little Swimmers toddler
follow suit. Marketing research reveals that many parents lines. Huggies offered parents free samples of its nappies via
do not switch brands, despite the enticing claims made by television advertisements. A freephone number promised a
competing brands in television advertisements or on-pack. pack of four Huggies free of charge. Kimberly-Clark, the man-
Once they have opted for a particular brand and are familiar ufacturer behind Huggies, offered parents the opportunity to
with its benefits, parents tend to remain loyal. Therefore the trial its Super-Flex line by offering a free pack and money-off
importance of persuading customers to actually trial a new voucher to consumers who called the hotline or logged on to
nappy product is particularly important. the huggiesforfree website. The brand’s ‘Look mum, no leaks’
Most new mums receive a Bounty Bag either from hos- advertising strapline was amended to ‘Look mum, free’ in the
pital or via a health worker. These bags contain information accompanying television campaign. But the move from Hug-
leaflets and trial products for nappy cream, baby wipes, nap- gies was not enough. Sales promotions such as this – giving
pies, baby foods and much more. Generally, only one brand of away samples – are notoriously difficult to execute and to
each product is included, and the major manufacturers vie to fund. The practicalities often require the support of expert
be included. This might be the first ever nappy or baby wipe agencies who focus on sampling and logistical provision.
product tried by a first-time new parent, so if it seems to be Rival Pampers, produced by Procter & Gamble, was
included in the hospital Bounty Bags, so the expensive
television-led sampling drive was Huggies’ attempt to com-
pete in the all-important new-parent product sampling battle
between the two leading brands. Huggies has now withdrawn
from the UK and Irish nappy market in the face of severe
competition from Pampers and retailer own-label brands, to
instead concentrate on DryNites pull-ups for toddlers and Lit-
tle Swimmers for toddlers’ early experiences of swimming
pools and beaches. Market leader Pampers, with 55 per cent
of the nappy market, continues to sample and to be included
in Bounty Bag give-aways to new parents.
References: www.bounty.com/about-bounty/bounty-packs/newborn-pack;
Boots; Birmingham Women’s Hospital; Warwick Hospital; Kimberly-Clark.
T
his chapter examines the purposes of personal selling, its basic steps, the types of sales
people involved in personal selling and how they are selected. It also discusses the major
sales management decisions and activities, which include setting objectives for the sales-
force and determining its size; recruiting, selecting, training, compensating and motivating sales
people; managing sales territories; and controlling sales personnel. The discussion then goes on
Chapter 18 Sales management, sales promotion, direct mail, direct marketing and the web 531
to explore several characteristics of sales promotion, the reasons for using sales promotion and
the sales promotion methods available for use in a promotional mix, as adopted by Procter &
Gamble with its Pampers brand of nappies. Use and types of direct mail are then examined. The
chapter concludes with a brief look at the role of the internet in marketing, digital marketing and
the growing use of direct marketing.
The nature of personal selling and sales

management
Personal selling is the process of informing customers and persuading them to pur-
personal selling
The process of using chase products through personal communication in an exchange situation. For example,
personal communication a salesperson describing the benefits of a Braun shaver to a customer in a Boots store
in an exchange situation is using personal selling. Many readers, particularly those consumers buying online, will
to inform customers and encounter very little personal or face-to-face selling in today’s digital world. However,
persuade them to pur-
most business-to-business transactions depend heavily on the role of personal selling, as
chase products.
described in Chapter 21. Personal selling gives marketers the greatest freedom to adjust a
message to satisfy customers’ information needs. In comparison with all other promotional
methods, personal selling is the most precise, enabling marketers to focus on the most promising
sales prospects. Other promotional mix ingredients are aimed at groups of people, some of whom
may not be prospective customers. A major disadvantage of personal selling is its cost. Generally,
it is the most expensive ingredient in the promotional mix, owing to the associated costs of salaries,
cars and expenses.
Businesses spend more money on personal selling than on any other promotional mix ingre-
dient. Millions of people earn their living through personal selling. In the UK it is estimated that
600 000 people are directly employed as salespeople.2 A selling career can offer high income, a
great deal of freedom, a high level of training and a high level of job satisfaction.3 Unfortunately,
consumers often view personal selling negatively. A study of marketing students’ perceptions of
personal selling showed that approximately 25 per cent of the survey group associated it directly
with door-to-door selling and unwelcome intrusion into households. In addition, 59 per cent of
all students surveyed had a negative impression of personal selling. In the UK, there is a drive to
limit the use of door-to-door selling – a form of personal selling – because of the high numbers of
complaints by householders feeling overly pressured or intimidated. Major businesses, professional
sales associations and academic institutions are making an effort to change the negative stereo-
types associated with sales people.4 Ethical standards of selling practice are a major part of this
enhancement, prompted by EU regulations, government and consumer groups.
Personal selling goals vary from one company to another. However, they usually involve finding
prospects, persuading prospects to buy, and keeping customers satisfied. Identifying potential
buyers who are interested in an organization’s products is critical. As most potential buyers seek
information before they make a purchase, sales people must ascertain prospects’ information
needs and then provide the relevant information. To do so, sales personnel must be well trained,
both in regard to their products and to the selling process in general.5
Salespeople need to be aware of their competitors. They need to monitor new products being
developed, and they should be aware of all competitors’ sales activities in their sales territories.
They must emphasize the advantages that their products provide when their competitors’ products
do not offer the same advantages.6 Sales personnel are a useful source of marketing intelligence,
a fact often ignored by their marketing colleagues.
Few businesses survive solely on profits from one-sale customers. For long-run survival, most
marketers depend on repeat sales. This notion is at the core of relationship marketing, as described
in Chapters 1 and 23. A company has to keep its customers satisfied to obtain repeat pur-
chases. Besides, satisfied customers help attract new ones by telling potential customers about
the organization and its products. Even though the whole organization is responsible for providing
customer satisfaction, much of the burden falls on salespeople. The salesperson is almost always
closer to customers than anyone else in the company and often provides buyers with information
and service after the sale. Such contact not only gives salespeople an opportunity to generate
additional sales, but also offers them a good vantage point from which to evaluate the strengths
and weaknesses of the company’s products and other marketing mix ingredients. Their observa-
tions, if sought, are helpful in developing and maintaining a marketing mix that better satisfies both
customers and the business.
A salesperson may be involved in achieving one or more of the three general goals. In some
organizations:
1. there are people whose sole job is to find prospects (potential new customers)
2. this information is relayed to salespeople, who then contact the prospects
3. after the sale, these same salespeople may do the follow-up work, or a separate team of
employees may have the job of maintaining customer satisfaction and forging an ongoing
relationship.
In many smaller organizations, a single person handles all of these functions: prospect list
eneration, prospect calling and ongoing relationship nurturing. No matter how many personnel
g
are involved, several major sales tasks must be performed to achieve these general goals.
The literature assisting sales management is extensive and tends to focus on the sales
management process:
●● the importance of preparation – understanding the products and prospective customers,
predicting sales and developing systems for recording sales-related data
●● the techniques for introducing the sales personnel to prospective customers, either face-to-face
or via telecommunications or the web
●● the requisites for effective presentations or pitches and written sales proposals
●● the skills required to turn a potential customer’s interest into commitment
●● how to negotiate
●● the skills necessary to capture the order
●● the ability to close the sale (win the order).
Sales personnel not only address prospective customers, they are often involved in managing
ongoing client relationships, and in ensuring repeat orders are won and handled competently.
There are strong links with customer relationship management (CRM) techniques, as described in
Chapters 3 and 7. Personal selling involves direct customer–salesperson contact, but in addition
to face-to-face interaction, personal selling now often benefits from improved telecommunica-
tions, telesales and online interaction. Unlike other forms of promotional activity, personal selling
can customize messages for individual customer prospects and build ongoing relationships with
existing customers. However, the per capita cost of sales personnel is high; technology such as
conference calls, webcasts, email and social media are also used in order to bring down costs of
selling. In this digital age, there are many opportunities for networking and maintaining relationships
remotely. Often, there is no substitute for face-to-face communications in selling, as explored in the
Building Customer Relationships box entitled ‘Not everything is possible digitally’.
Not everything is possible Building customer while such nuances are missed online.
digitally Evidence suggests relationships are built
relationships more effectively face-to-face and that trust
Those with a vested interest in ensur- face-to-face evolves, compared to a business relationship
ing that all marketing does not even- conducted purely digitally. Initial credibility is
tually belong in the digital world would often very difficult to establish in only a virtual
argue that face-to-face is still important, but situation.
they do have long-winded meetings wondering why A few years ago, the European arm of a major US
they had committed so much time to an ineffectual occa- corporation was struggling to win manufacturing com-
sion, or they visit a trade show that has failed to attract the ponent orders from its US-based parent company’s factories,
industry’s big hitters, or upon arriving to meet an important even though Spanish and British plants had the track record,
customer find him or her to be distracted, uncooperative or capabilities and products sought by the US factories. Despite
unavailable. However, all managers can point to ‘light bulb’ the European sites being part of the US corporation, US orders
moments from particular meetings that, had they missed the were being placed with external direct competitors not part
session, a new opportunity would not have been spotted, an of the corporation, instead of in-house with the company’s
aspect of customer dissonance would have gone unnoticed, European operations. The European factories had to treat the
or a ‘deal-breaking’ customer concern could not have been US parent as a semi-interested prospective customer and
explored and sorted out. Webinars, teleconferences, social to manage the creation of a sustainable relationship on this
media fora, all have their moments, but so do face-to-face premise. Telecommunications, webcasts, emails and much
meetings, particularly for sales personnel. As one blogger on linking with the corporation’s intranet helped improve aware-
The Economist website stated, when discussing the role of ness among the Americans of their European colleagues, but
in-person sales events, ‘You can’t share a beer over an email’. still no orders materialized. So a regular stream of Spanish and
Sometimes only face-to-face communication permits both British executives flew in to the US making sales calls. How-
parties in a negotiation or transaction to really appreciate the ever, only when some of these executives based themselves
views of all concerned and find common ground. permanently inside key factories in the American parent com-
When the credit crunch first hit, most organizations pany were effective networks established and trust built up for
grounded their executives, limited use of expense accounts, doing business with the Spanish and British plants. Such sales
cancelled routine conferences and seminar attendance, and prospecting led to these internal customers in the US being
instructed executives not to travel for any ‘non-essential’ meet- managed as key accounts. Although very resource-intensive
ings. The sales of web conferencing kits rocketed! The problem, and expensive, over a few years such activity firmly put the
as research by Cornell University found, is that in-person events Europeans on the map. Today large orders routinely filter
and meetings are better suited for capturing attendees’ atten- through to the European factories. Personal selling, face-to-
tion, inspiring positive emotions and building networks. Digital face relationships and effective key account management all
communications might support already established contacts were integral to this success. Technology plays an important
and relationships or create initial interest, but in many transac- part in maintaining these relationships, particularly confer-
tions, there is no substitute for face-to-face meetings, partic- ence calls, webcasts and email, but face-to-face is essential
ularly in business-to-business situations. Attention is grabbed in order to build and maintain meaningful relationships.
face-to-face because of the variety of stimuli surrounding a References: Margit Weisgal, ‘There will always be a place for face-to-face’, B to B
Magazine, March 2011, www.btobonline.com; Erin Biba, ‘The importance
meeting or live event, compared to one-dimensional online of in-person’, BtoB Magazine, March 2011, www.btobonline.com; Cornell
interaction. Colleagues’ positive endorsement, often through University School of Hotel Administration, March 2011; Lyndon Simkin, May
their body language, fosters satisfactory deals in meetings, 2015 and June 2018.
Elements of the personal selling process

The exact activities involved in the selling process vary from one salesperson to another and differ
for particular selling situations. No two salespeople use exactly the same selling methods. Nonethe-
less, many salespeople either consciously or unconsciously move through a general selling process
as they sell products. This process consists of seven elements, or steps, as depicted in Figure 18.1:
1. prospecting and evaluating opportunities
2. preparing to contact prospects or existing customers
3. approaching the prospect or existing customer
4. making the presentation or sales pitch
5. overcoming objections and reassuring the prospect or customer
6. closing the deal or transaction
7. following up to ensure customer satisfaction and enable repeat business.
Preparing to
Prospecting Approaching
contact Making the
and the prospect
prospects or presentation
evaluating or existing
existing or sales pitch
opportunities customer
customers
Following up to Overcoming
ensure customer Closing the objections and
satisfaction and deal or reassuring the
Figure 18.1 enable repeat transaction prospect or
Elements of personal business customer
selling
Prospecting and evaluating opportunities

Developing a list of potential customers is called prospecting. A salesperson seeks
prospecting
Developing a list of the names of prospects from the company’s sales records, referrals, trade shows,
potential customers. press announcements (of marriages, births, deaths and so on, or new contracts or
product developments in business markets), public records, telephone directories,
trade association directories, telemarketing lists, 7 online searches and many other
sources. Online searches and bought-in telemarketing lists are the most productive. Sales per-
sonnel also use responses from advertisements that encourage interested people to send in
an information request form. Trade shows, seminars and meetings may produce good leads.
Seminars may be targeted at particular types of client, such as solicitors, accountants, the over-
55s or specific business people.
Salespeople sometimes prefer to use referrals – recommendations from customers or third
parties – to find prospects. Obtaining referrals requires that the salesperson has a good relation-
ship with the current customer and so must have performed well before asking the customer for
help. Research shows that one referral is as valuable as 12 cold calls. Also, 80 per cent of clients
are willing to give referrals, but only 20 per cent are ever asked. Sales experts indicate that the
advantages of using referrals are that the resulting sales leads are highly qualified, the sales rates
are higher, initial transactions are larger and the sales cycle shorter.8
After developing the prospect list, a salesperson evaluates whether each prospect is able, willing
and authorized to buy the product. Certain prospects may have a better fit with the company’s
operating ethos, geographical coverage and product specification than others. On the basis of
this evaluation, some prospects may be deleted, while others are deemed acceptable and ranked
according to their desirability or potential.
Preparing to contact prospects or existing customers

Before contacting acceptable prospects, a sales person should find and analyze information about
each prospect’s specific product needs, current use of brands, feelings about available brands, and
personal characteristics. The most successful salespeople are thorough in their preparation. They
prepare by identifying key decision-makers, reviewing account histories and reports, contacting
other clients for information, assessing credit histories and problems, preparing sales presenta-
tions, identifying product needs and obtaining all relevant literature. 9 Being well informed about
a prospect makes a salesperson better equipped to develop a presentation that communicates
precisely with the prospect.
Approaching the prospect or existing customer

approach The approach, the manner in which a salesperson contacts a potential customer, is a
The manner in which a critical step in the sales process. In more than 80 per cent of initial sales calls, the pur-
salesperson contacts a pose is to gather information about the buyer’s needs and objectives. Creating a favour-
potential customer. able impression and building rapport with the prospective client are also important tasks
in the approach, because the prospect’s first impression of the salesperson is usually a
lasting one, with long-run consequences. During the initial visit, the salesperson strives
to develop a relationship rather than just push a product. The sales person may have to call on a
prospect several times before the product is considered.10
One type of approach is based on referrals. The salesperson approaches the prospect and
explains that an acquaintance, an associate or a relative suggested the call. The salesperson who
uses the cold-canvass method calls on potential customers without their prior consent. Repeat
contact is another common approach; when making the contact, the salesperson mentions a prior
meeting. The exact type of approach depends on the salesperson’s preferences, the product being
sold, the business’s resources and the characteristics of the prospect. However, the EU’s new data
compliance regulations, GDPR, present many challenges to cold calling operations and question
whether sales personnel have any legitimacy for making unsought contact.
Making the presentation or sales pitch

During the sales presentation, the salesperson must attract and hold the prospect’s attention in
order to stimulate interest and stir up a desire for the product. The sales person should have the
prospect touch, hold or actually use the product. If possible, the salesperson should demonstrate
the product and get the prospect more involved with it to stimulate greater interest. Audio-visual
materials will be used to enhance the presentation.
During the presentation, the salesperson must not only talk but listen. The sales presentation
gives the salesperson the greatest opportunity to determine the prospect’s specific needs by
listening to questions or comments and observing responses. Even though the salesperson has
planned the presentation in advance, s/he must be able to adjust the message to meet the pros-
pect’s specific information needs.
Overcoming objections and reassuring the prospect or customer

An effective salesperson usually seeks out a prospect’s objections in order to address them. If they
are not apparent, the salesperson cannot deal with them, and they may keep the prospect from
buying. One of the best ways to overcome a prospect’s objections is to anticipate and counter
them before the prospect has an opportunity to raise them. However, this approach can be risky
because the salesperson may mention some objections that the prospect would not have raised.
If possible, the salesperson should handle objections when they arise. They can also be dealt with
at the end of the presentation.
Closing the deal or transaction

closing Closing is the step in the selling process in which the salesperson asks the prospect to
The step in the selling buy the product or products. During the presentation, the salesperson may use a ‘trial
process in which the close’ by asking questions that assume the prospect will buy the product. For example,
salesperson asks the the salesperson might ask the potential customer about financial terms, desired colours
prospect to buy the prod-
or sizes, delivery arrangements or the quantity to be purchased. The reactions to such
uct or products.
questions usually indicate how close the prospect is to buying. A trial close allows pros-
pects to indicate indirectly that they will buy the product without having to say those
sometimes difficult words, ‘I’ll take it’.
A salesperson should try to close at several points during the presentation, because the
prospect may be ready to buy. One closing strategy involves asking the potential customer
to take a trial order. The sales representative should either guarantee a refund if the customer
is not satisfied or make the order a free offer. Often an attempt to close the sale will result in
objections. Thus closing can be an important stimulus that uncovers hidden objections, which
can then be addressed.
eCommerce sales promotion

Innovation consumers money off and enables them
and change to try out the latest P&G products, is one
The web is flooded with eCommerce sales such example. To use the site, consum-
promotions offers, suitable for a wide range ers need a smartphone and must register
of interests, needs and preferences. These to be able to access discounts. As well as
sales promotions include offering customers money off, in offering discounts, the site provides a range of
the form of instant price reductions or discounts against family-oriented blogs and articles on topics ranging
future purchases; or giving percentage discounts, perhaps from a family Christmas survival guide, to tips on weekend
to encourage new customers, reward loyalty of existing cus- games for keeping the family fit, suggestions on how to make
tomers, or to clear seasonal stock. Such offers sometimes a garden safe for pets, and guidance on women’s health and
require consumers to spend over a certain amount, helping healthy eating. Each feature has promotions for P&G products
to boost the size of shopping baskets. Other approaches running alongside it. For example, an article on a Pilates home
include incentivizing consumers through give-away promo- workout for bum, legs and abs is bordered by details of the
tions, which might offer a free gift in return for placing an Venus & Olay Razor and an offer for a free sample of the Venus
order of a certain size, or as a reward for entering an online Snap Razor.
competition; providing free shipping; or giving access to Discounts are claimed on the site through a three-
social promotions, in which consumers are encouraged to step process. Step one involves uploading coupons from
join a shopping community to access further promotions, the website, which remain available for use during a fixed
while at the same time helping to boost retailers’ social time-period; Step two kicks in once users have been out
media engagement. and shopped for the items, at which point they upload
Receipt-scanning programmes have become a popular their receipt by taking a picture and scanning it; Step three
way to offer such discounts. Users are usually required to give involves giving users cashback, which is then transferred
access to personal information to enable providers to gather into their PayPal account.
useful insights about their purchasing habits. Sharing these Users signed up as SuperSavvyMe members can also
data also enables retailers to send tailored offers directly to choose to become Ambassadors, giving them access to a range
those who sign up. P&G’s supersavvyme site, which gives of additional services. These VIP members become part of the
Savvy Circle, enabling them to be among the first to try out new This is an example of sales promotion based on price
P&G products. Access to samples that can be tried and shared incentives, that is aimed directly at consumers. Because the
with family and friends is provided, with Ambassadors being offers are not limited to products and brands that consumers
encouraged to provide feedback about the products. As well usually purchase, this form of sales promotion can generate
as making them feel more engaged with their brands, through interest and boost demand, increasing traffic to retail outlets
this process P&G gains access to useful insights that can help and websites. If consumers like what they try, the businesses
support their product development and marketing. A project behind the promotions hope that they might come back for
blog is set up to accompany the testing of a particular brand, more when the items in question are not on offer. Opportuni-
helping to ensure that Ambassadors are engaged with the prod- ties to reinforce the brands are also created through this kind
uct reviewing process. The website includes a section where of promotion.
Ambassadors can upload their photos and share their impres-
References: blog.storeya.com/2016/09/ecommerce-sales-promotions/; www
sions of the products they have tried. Through this approach .youtube.com/watch?time_continue=61&v=lzLxz8lPZu8; www.supersavvyme.
P&G is able to build a community of real consumers around its co.uk/, July 2018.
brands, with whom other consumers are likely to relate.
Following up to ensure customer satisfaction and enable repeat business

After a successful closing, the salesperson must follow up the sale. In the follow-up stage, the
salesperson should determine whether the order was delivered on time and installed properly, if
installation was required. S/he should contact the customer to learn what problems or questions,
if any, have arisen regarding the product. The follow-up stage can also be used to determine
customers’ future product needs. This step provides both information and ideas that may prove
helpful in selling to other likely customers, and the opportunity to cement relationships with existing
customers. Many companies have specialist departments responsible for this post-sale customer
service and care.
Types of sales people

To develop a salesforce, a company must decide which types of salespeople will best sell and rep-
resent the business’s products. Most companies deploy several types of salespeople. Based on the
functions they perform, salespeople are generally classified as order getters, order takers or sup-
port personnel. Sometimes the same salesperson performs all three sets of tasks. When recruiting
sales personnel, marketers seldom focus on only one type of salesperson: most businesses require
a mix of selling skills. A product’s uses, characteristics, competitive position, complexity, customer
profile, selected marketing channel(s), promotional mix, price and margin influence the kinds and
numbers of sales personnel recruited. Table 18.1 overviews these roles.
Management of the salesforce

The salesforce is directly responsible for generating a business’s primary input: sales revenue. With-
out adequate sales revenue, a business cannot survive for long. A company’s reputation is often
determined by the ethical conduct of its salesforce. On the other hand, the morale and ultimately
the success of a company’s salesforce are determined in large part by adequate compensation
(pay and rewards), room for advancement, sufficient training and management support – all key
areas of sales management. When these elements are not satisfactory, salespeople may leave for
Table 18.1 Key roles in personal selling

Order getters
Order getters are tasked to increase a company’s sales by selling to new customers and by increasing sales to existing customers. This entails
a process of recognizing buyers’ needs, informing prospects and persuading them to try, then buy the product. This is often termed ‘creative
selling’ or business development.
There are two types of order getter: those dealing with current customer sales and those chasing new business sales:
1. Current customer order getters call on people who have already purchased a business’s products. They seek to sell more to existing cus-
tomers and to gain sales leads from these customers so as to contact other customers.
2. New business order getters are crucial for a company’s longer-term survival as all businesses require additional and new customers. These
salespeople locate prospects and convert them into buyers. The business development function is very important in B2B marketing.
The timeshare industry uses various promotional techniques – direct mail, competitions, road shows, free trial offers – to attract potential
buyers to attend seminars or open days at the timeshare site. Once on site, it is up to the new business order getters to explain the concept of
timesharing, demonstrate the facilities and close the deal. Without the involvement of sales personnel, it is unlikely that prospects would sign up
for a timeshare. BMW’s approved used car web service attracts potential buyers, but the deals are often closed by salespeople at the dealerships.
Order takers
Taking orders is a repetitive task that salespeople perform to maintain and perpetuate ongoing relationships with customers. Order takers seek
repeat sales. A major task is to ensure that repeat customers have sufficient quantities of products when and where they are needed. This is par-
ticularly important in many business-to-business markets in which manufacturers depend on components for production of their own products.
Most order takers handle repeat orders for standardized products that are purchased routinely, minimizing the selling effort.11 IT systems increas-
ingly link suppliers with customers, enabling the relationship to be handled remotely and automatically.
There are two types of order taker: inside order takers and field order takers:
1. Inside order takers are located in a business’s call centre or offices, and receive orders by post, fax, email, telephone or online. They do
occasionally deal face-to-face with customers; for example, sales assistants inside retail stores are classified as inside order takers.
2. Field order takers – the field force – are salespeople who travel to customers. Customers often depend on these regular calls to maintain
required inventories and keep abreast of any product modifications, while these field-based order takers rely on such ongoing relationships
and customer loyalty to achieve their sales targets.
Neither inside nor field order takers should be thought of as entirely passive functionaries who simply record orders. In many businesses,
order takers generate the bulk of sales.
Support personnel
Support personnel facilitate the selling function but often do more than just participate in the selling process. Particularly common in business
markets, support personnel locate prospects, educate customers, build goodwill and provide after-sales service. They are very important for
delivering customer service. There are three main categories of support personnel:
1. Missionary salespeople are employed by manufacturers to assist their customers’ selling efforts. For example, pharmaceutical and medical
product manufacturers sell to wholesalers, but employ missionary sales personnel to visit retailers to promote retailers’ orders being placed
with wholesalers.
2. Trade salespeople undertake order taking as well as help trade customers promote, display and stock their products. The major manufacturers
of alcoholic beverages deploy trade salespeople to ensure prominent shelf displays of their products in off-licences and supermarkets. They
restock shelves, obtain more shelf space, set up displays, provide in-store demonstrations, distribute samples and arrange joint promotions.
3. Technical salespeople give technical assistance to current customers. They advise customers on product characteristics, applications,
system designs and installation, as well as health and safety issues. Agrichemicals, chemicals and heavy plant are technically advanced
products requiring technical salespeople to support order getters and marketers. In markets with standardized products and little product
differentiation, marketers may offer superior technical support and customer service as a means of developing a differential advantage
over competitors.
more satisfying jobs elsewhere. It is important to evaluate the input of salespeople because effec-
tive salesforce management helps to determine a company’s success. This section explores nine
general areas of sales management:
1. establishing salesforce objectives
2. determining salesforce size
3. recruiting and selecting sales personnel
4. training sales personnel
5. compensating sales personnel

6. motivating salespeople
7. managing sales territories
8. controlling and evaluating salesforce performance
9. internal marketing.
Establishing salesforce objectives

To manage a salesforce effectively, a sales manager must develop sales objectives. Sales objectives
tell salespeople what they are expected to accomplish during a specified time period. These
objectives give the salesforce direction and purpose and serve as performance standards for the
evaluation and control of sales personnel. In Figure 18.2, Toyota uses advertising to produce leads
and thereby help salespeople meet their sales goals. As with all types of objective, sales objectives
should be stated in precise, measurable terms, and should specify the time period, customer type
and geographic areas involved.
Figure 18.2
Toyota’s car fleet
service illustrates
business-to-business
selling
Source: Image courtesy
of Toyota.
Sales objectives are usually developed for both the total salesforce and each salesperson.
Objectives for the entire force are normally stated in terms of sales volume, market share or profit.
Volume objectives refer to a quantity of money or sales units. For example, the objective for an elec-
tric drill manufacturer’s salesforce might be to sell £6 million worth of drills annually or 600 000 drills
annually. When sales goals are stated in terms of market share, they usually call for an increase in
the proportion of the company’s sales relative to the total number of products sold by all businesses
in that particular industry. When sales objectives are based on profit, they are generally stated in
terms of monetary amounts or in terms of return on investment. Sales objectives, or quotas, for
an individual salesperson are commonly stated in terms of monetary or unit sales volume. Other
bases used for individual sales objectives include average order size, average number of calls per
time period and the ratio of orders to calls.
Determining salesforce size

Deciding how many salespeople to use is important because the size of the salesforce influences
the company’s ability to generate sales and profits. Moreover, salesforce size affects the compen-
sation methods used, salespeople’s morale and overall salesforce management. Salesforce size
must be adjusted from time to time because a company’s marketing plans change, as do markets
and forces in the marketing environment. However, it is dangerous to cut back the size of the sales-
force to increase profits by cutting costs. The sales organization could then lose its strength and
resilience, preventing it from rebounding when growth returns or better market conditions prevail.
The organization that loses capacity through cutbacks may not have the energy to accelerate.12
There are several analytical methods for determining the optimal size of the salesforce. Although
marketing managers may use one of these methods, they normally temper their decisions with a
good deal of subjective judgement.13
Recruiting and selecting sales personnel

To create and maintain an effective salesforce, a sales manager must recruit the right
recruiting
A process by which the type of salespeople. Recruiting is a process by which the sales manager develops a list
sales manager develops of applicants for sales positions. The cost of hiring, training and retaining a sales person
a list of applicants for is soaring; currently, costs in the UK can reach £80 000 or more.14
sales positions. To ensure that the recruiting process results in a pool of qualified salespeople from
which to choose, a sales manager should establish a set of required qualifications before
beginning to recruit. A sales manager generally recruits applicants from several sources:
departments within the business, other companies, employment agencies, educational institutions,
respondents to advertisements and individuals recommended by current employees.
The process of hiring a salesforce varies tremendously from one company to another. One tech-
nique used to determine whether potential candidates will be good salespeople is an assessment
centre. Assessment centres are intense training environments that place candidates in realistic
problem settings in which they must assign priorities to their activities, make decisions and act on
their decisions. Candidates are judged by experienced managers or trained observers. Assessment
centres have proved to be valuable in helping to select good salespeople.15
Recruitment must not be sporadic, it should be a continuous activity aimed at reaching the
best applicants. The selection process should systematically and effectively match applicants’
characteristics and needs with the requirements of specific selling tasks. Finally, the selection
process must ensure that new sales personnel are available where and when they are needed.
Recruitment and selection of salespeople are not one-off decisions. The market and market-
ing environment change, as do an organization’s objectives, resources and marketing strategies.
Maintaining the proper mix of salespeople thus requires the continued attention of the company’s
sales management.
Training sales personnel

Many businesses have formal training programmes; others depend on informal, on-the-job training.
Some systematic training programmes are quite extensive; others are rather short and rudimentary.
Regardless of whether the training programme is complex or simple, its developers must consider
who should be trained, what should be taught and how the training should occur. A sales train-
ing programme can concentrate on the company, on products or on selling methods. Training
programmes often cover all three areas. Sales training may be done in the field, at educational
institutions, in company facilities or in several of these locations.
Rewarding sales personnel

To develop and maintain a highly productive salesforce, a business must formulate and adminis-
ter a compensation or remuneration plan that attracts, motivates and retains the most effective
individuals. The plan should give sales management the desired level of control and provide sales
personnel with an acceptable level of freedom, income and incentive. It should also be flexible,
equitable, easy to administer and easy to understand. Good remuneration programmes facilitate
and encourage the proper treatment of customers.
Even though these requirements appear to be logical and easily satisfied, it is actually quite dif-
ficult to incorporate them all into a simple programme. Some of them will be satisfied, and others
will not. Studies evaluating the impact of financial incentives on sales performance indicate four
general responses, as outlined below:
1. For price-sensitive individuals, an increase in incentives will usually increase their sales efforts,
and a decrease in financial rewards will diminish their efforts.
2. Unresponsive salespeople will sell at the same level regardless of the incentive.
3. Leisure-sensitive salespeople tend to work less when the incentive system is implemented.
4. Income satisfiers normally adjust their performance to match their income goal.
Understanding potential reactions and analyzing the personalities of the salesforce can help
management evaluate whether an incentive programme might work.16 Therefore, in formulating a
compensation or remuneration plan, sales management must strive for a proper balance of free-
dom, income and incentives.
The developer of a compensation or rewards programme must determine the general level of
compensation required and the most desirable method of calculating it. The sales manager may
consider a number of factors, including the salaries of other types of personnel in the business,
competitors’ compensation plans, costs of salesforce turnover and the size of non-salary selling
expenses and perks.
Sales compensation programmes usually reimburse salespeople for their selling expenses,
provide a certain number of fringe benefits such as health insurance, company car and pension
scheme and deliver the required compensation level. To do that, a company may use one or more
of three basic compensation methods:
●● In a straight salary compensation/remuneration plan, salespeople are paid a
specified amount per time period. This sum remains the same until they receive a
straight salary com-
pensation/remunera- pay increase or decrease.
tion plan ●● In a straight commission compensation/remuneration plan, salespeople’s com-
A plan according to
pensation is determined solely on the basis of their sales for a given time period.
which salespeople are
paid a specified amount Commission may be based on a single percentage of sales or on a sliding scale
per time period. involving several sales levels and percentage rates.
●● In a combination compensation/remuneration plan, salespeople are paid a fixed
salary plus a commission based on sales volume. Some combination programmes
straight commission
compensation/remu- require a salesperson to exceed a certain sales level before earning a commission;
neration plan others offer commissions for any level of sales. Car dealers pay their sales personnel
A plan, according to small basic salaries, with sales-linked bonuses making up the bulk of earnings.
which, salespeople are
paid solely on the basis Proper administration of the salesforce compensation programme is crucial for devel-
of their sales for a given oping high morale and productivity among sales personnel. A good salesperson is highly
time period. marketable in today’s workplace, and successful sales managers switch industries on a
regular basis. To maintain an effective compensation programme and retain productive
combination compen-
employees, sales management should periodically review and evaluate the plan and
sation/remuneration make necessary adjustments.
plan
A plan according to
which salespeople are
Motivating salespeople
paid a fixed salary plus A sales manager should develop a systematic approach for motivating the salesforce
a commission based on
to be productive. Motivating should not be viewed as a sporadic activity reserved for
sales volume.
periods of sales decline. Effective salesforce motivation is achieved through an orga-
nized set of activities performed continuously by the company’s sales management. For
example, scheduled sales meetings can motivate salespeople. Periodic sales meetings have four
main functions:
1. recognizing and reinforcing the performance of salespeople

2. sharing sales techniques that are working
3. focusing employees’ efforts on matching the corporate goals and evaluating their progress
towards achieving these goals
4. teaching the sales staff about new products and services.
Although financial compensation is important, a motivational programme must also satisfy
non-financial needs. Sales personnel, like other people, join organizations to satisfy personal needs
and achieve personal goals. A sales manager can use a variety of positive motivational incentives as
well as financial compensation (see Figure 18.3). For example, enjoyable working conditions, power
and authority, job security and an opportunity to excel can be effective motivators. Salespeople
can also be motivated by their company’s efforts to make their job more productive and efficient.
Sales
meetings
Organizational Financial
climate compensation
Sales
personnel
Sales support
Perks
systems
Figure 18.3 Incentive

Motivating salesforce performance programmes
through an organized set of
activities
Sales competitions and other incentive programmes can also be effective motivators. Sales con-
tests can motivate salespeople to focus on increasing sales or new accounts, promoting special
items, achieving greater volume per sales call, covering territories better and increasing activity in
new geographic areas.17 Some companies have found such incentive programmes to be powerful
motivating tools that marketing managers can use to achieve corporate goals. Some organizations
also use negative motivational measures: financial penalties, demotions, even the termination of
employment if targets are not met.
Managing sales territories

The effectiveness of a salesforce that must travel to its customers is influenced to some degree by
sales management’s decisions regarding sales territories. Sales managers deciding on territories
must consider the size and shape of sales territories, and the routing and scheduling of salespeople.
Controlling and evaluating salesforce performance

To control and evaluate salesforce activities properly, sales management needs information. A sales
manager cannot observe the field salesforce daily and so relies on call reports, customer feedback
and invoices. Call reports identify the customers called on and present detailed information about
interaction with those clients. Travelling sales personnel must often file work schedules indicating
where they plan to be during specific future time periods. In-field IT systems help, with software
and GPRS automatically reporting locations, durations of visits, routes, as well as capturing sales
information and customer insight data.18
The dimensions used to measure a salesperson’s performance are determined largely by sales
objectives. These objectives are normally set by the sales manager. If an individual’s sales objec-
tive is stated in terms of sales volume, then that person should be evaluated on the basis of
sales volume generated. Even though a salesperson may be assigned a major objective, s/he is
ordinarily expected to achieve several related objectives as well. Sales managers evaluate many
performance indicators, including average number of calls per day, average sales per customer,
actual sales relative to sales potential, number of new customer orders, average cost per call and
average gross profit per customer.
After evaluating their salesforce, sales managers must take any corrective action needed,
because it is their job to improve the performance of the salesforce. They may have to adjust per-
formance standards, provide additional sales training or try other motivational methods. Corrective
action may demand comprehensive changes in the salesforce.
Many industries, especially technical ones, are monitoring their salesforces and increasing
productivity through the use of mobile broadband and mobile office capabilities. Companies
that have provided their salesforces with the latest technology expect an increase in sales and
productivity to result.
Internal marketing
Chapter 23 explains the importance of internal marketing: the process of ensuring that colleagues
within the organization are familiar with the marketing strategy and appreciate their roles in imple-
menting this strategy and the associated marketing plan. The salesforce is usually pivotal to imple-
menting marketing programmes in order to roll-out a marketing strategy, particularly in business
markets. It is necessary, therefore, to have internal marketing programmes targeted at sales per-
sonnel to orientate them, explain their role, and to outline the intended marketing programmes and
their expected deliverables.
Business development
business development
In most business markets, companies have a business development function, either
The identification, scop- within the sales function or freestanding. Business development is the identifica-
ing, pursuit and engage- tion, scoping, pursuit and engagement of new business opportunities, customers and
ment of new business accounts. It is more than a sales activity, combining as it does much market analysis and
opportunities, customers insight gathering, the shaping of targeting strategy, and the creation of an appropriate
and accounts.
proposition to take to market, in addition to the sales activities just described in this
chapter of Marketing: Concepts and Strategies. In many respects, business develop-
ment as an activity combines sales management and marketing, involving much of the marketing
process described in Chapter 1.
Business development requires effective engagement with new customers and existing custom-
ers, utilizing the sales techniques overviewed here, but analysis and the identification of a target
market strategy, compelling proposition and positioning, along with a well-considered competitive
advantage, are also integral to sound business development and form part of the remit for those
employed in business development. Not surprisingly, many marketing graduates find work as
business development managers.
Key account management

key account
Key account management (KAM) is the process of identifying an organization’s few
management really high-yielding customers and ensuring that these accounts are well-managed both
The process of identi- in terms of looking after these customers and making staff within the organization fully
fying an organization’s appreciate their strategic importance.19 KAM is particularly common in business-to-
few really high-yielding business markets. Most suppliers recognize how financially dependent they are on just
customers and ensuring
that these accounts are
a small minority of their customers. Typically, a company will have many small customers
well-managed both in or business clients, quite a lot of large customers, and only a few really large customers
terms of looking after in terms of the sales volumes and gross margins earned. Losing one of the smaller cus-
these customers and tomers through poor service delivery or inadequate products will not bring the business
making staff within to its knees, but were it to lose one of its very large customer accounts there would be
the organization fully
appreciate their strategic
problems.20
importance. In the UK, any brand being delisted by Tesco or Sainsbury’s would notice a very
large drop in its business and may have to lay off staff and reduce production. Brands
heavily dependent on only a few accounts tend to allocate staff to each major account,
dedicated to maintaining an appropriate relationship. These key account teams often include senior
executives. Unfortunately, few companies can afford to resource all of their accounts in this way,
even though they know that such an approach tailors their activities, increases customer satisfac-
tion, results in repeat orders and builds a barrier to competitors. Instead, they must carefully select
which customers to treat as key accounts. Customers providing large chunks of business or those
big accounts at risk of defecting to a rival supplier are often prioritized.
KAM involves managing key accounts to build mutually beneficial long-term relationships, but
also involves identifying which accounts or customers to treat in this way. It is important to acknowl-
edge that key accounts must be assessed from time to time. Volumes of business and relative
strategic importance will vary over time, so the set of key accounts will need updating.21
Key accounts exist alongside market segmentation. A company will identify market segments,
as explained in Chapter 7; some will be strategically more important and attractive than others. This
will inform the company’s target market strategy selection. Separately, the company will manage
a set of key accounts, most of which will be within priority target market segments, but a few may
be outside these segments. Their level of business and cash generation may force the company to
service them, even though the core target market strategy and bigger marketing programmes are
targeting the prioritized market segments. The dedicated key account team is still able to address
the needs of such key accounts not residing in these segments.
Sales promotion
The nature of sales promotion
As defined in Chapter 16, sales promotion is an activity or material (or both) that
sales promotion
An activity or material
acts as a direct inducement and offers added value or incentive to buy the product to
that acts as a direct resellers, salespeople or consumers.22 The sale probably would have taken place without
inducement and offers the sales promotion activity, but not for a while; the promotion has brought the sale for-
added value to or incen- ward. For example, a consumer loyal to Persil washing powder may purchase a packet
tive to buy the product. every four weeks. If, however, in the third week Tesco or Carrefour has Persil on offer
(discounted) or with an on-pack promotion, the consumer will probably buy a week early
to take advantage of the deal. Sales promotion encompasses all promotional activities
and materials other than personal selling, advertising, publicity and sponsorship. In competitive
markets, where products are very similar, sales promotion provides additional inducements to
encourage purchase.23 Sales promotions are designed to generate short-term sales and goodwill
towards the promoter.24
Sales promotion has grown dramatically in the last 20 years, largely because of the focus of
business on short-term profits and value, and the perceived need for promotional strategies to
produce short-term sales boosts. The recession following the Credit Crunch increased further the
role of sales promotions in many organizations’ marketing communications. Estimates in the UK
suggest that consumer sales promotion is worth £2 billion annually. Include price discounting and
the figure could be £4 billion higher; include trade sales promotion and the total reaches £8 billion.25
One of the most significant changes in expenditures on marketing communications in recent years
has been the transfer of funds usually earmarked for advertising to sales promotion, along with
the growth of digital activities. Fundamental changes in marketing, which have led to a greater
emphasis on sales promotion, mean that specialist sales promotion agencies have increased and
many major advertising agencies have developed sales promotion departments.
An organization often uses sales promotion activities in conjunction with other promo-
ratchet effect
tional efforts to facilitate personal selling, advertising or both.26 Figure 18.4 depicts what
The stepped impact of
using sales promotion is known as the ratchet effect, which is the stepped impact of using sales promotion
and advertising together. (short-term sales brought forward) and advertising (longer-term build-up to generate
sales) together. Sales promotion efforts are not always secondary to other promotional
mix ingredients. Companies sometimes use advertising and personal selling to support
sales promotion activities. For example, marketers frequently use advertising to promote compe-
titions, free samples and special offers. Manufacturers’ sales personnel occasionally administer
sales contests for wholesale or retail sales people. The most effective sales promotion efforts are
closely interrelated with other promotional activities. Therefore, decisions regarding sales promotion
often affect advertising and personal selling decisions and vice versa.
Advertising, then promotion

Promotion alone
150 150
Sales
Sales
100 100
SP SP SP A SP A SP A SP
Time Time
Figure 18.4
The ‘ratchet effect’. Sales promotion (SP) brings forward sales but has an immediate effect. An advertising campaign (A) takes time to take off
and to generate sales, but can switch other brand users and non-users. The ratchet effect has been identified in most consumer and service
markets
Source: From ‘Insights from pricing research’, by W.T. Moran, in Pricing Practices and Strategies edited by E.B. Bailey (New York: The Conference Board,
1978), pp. 7,13. Reproduced with permission from The Conference Board, Inc. copyright © 1978 The Conference Board, Inc.
Sales promotion opportunities and limitations

Sales promotion can increase sales by providing an extra incentive to purchase. There are many
opportunities to motivate consumers, resellers and salespeople to take a desired action. Some
kinds of sales promotion are designed specifically to identify and attract new customers, to intro-
duce a new product and to increase reseller inventories. Some are directed at increasing consumer
demand; still others focus on both resellers and consumers. Regardless of the purpose, marketers
need to ensure that the sales promotion objectives are consistent with the organization’s overall
objectives, as well as with its marketing and communications objectives.27
Although sales promotion can support a brand image, excessive price reduction, such as
discount coupons or two-for-one pack offers, can affect it adversely. Companies must decide
between short-term sales increases and the long-run need for a desired reputation and brand
image.28 Sales promotion has been catching up with advertising in total expenditure; but in the
future, brand advertising may become more important relative to sales promotion. Some compa-
nies that shifted from brand advertising to sales promotion have lost market share, particularly in
consumer markets, where advertising is often essential to maintain awareness and brand
consumer sales recognition. Advertising does not necessarily work better than sales promotion. There
promotion techniques are trade-offs between these two forms of promotion, and the marketing manager must
Techniques that determine the right balance to achieve maximum promotional effectiveness.
e ncourage or stimulate
consumers to visit a
specific retail store or to
try a particular product. Sales promotion methods
Most sales promotion methods can be grouped into the categories of consumer sales
trade sales promotion promotion and trade sales promotion. Consumer sales promotion techniques are
methods pitched at consumers: they encourage or stimulate consumers to visit a specific retail
Techniques that encour- store or to try a particular product. Trade sales promotion methods are aimed at
age wholesalers, retailers
or dealers to carry and
marketing channel intermediaries: they stimulate wholesalers, retailers or dealers to carry
market a producer’s a producer’s products and to market these products aggressively. Figure 18.5 shows
products. how all members of a marketing channel can be engaged in sales promotion activities
with different target audiences and techniques.
(Salesforce (Retail
promotion) promotion)
Manufacturer Salesforce Distributor Consumer
(Trade promotion)
(Consumer promotion)
Initiator of promotion Audience for promotion
Figure 18.5
Uses of sales promotion in the marketing channel. Consumer: coupons, free samples, demonstrations, competitions. Trade (aimed at
wholesalers, retailers, salespeople): sales competitions, free merchandise, POS displays, plus trade shows and conferences
Source: From Advertising and Promotion Management by John R. Rossiter and Larry Percy, The McGraw-Hill Companies Inc. Copyright © 1987 by John
Rossiter and Larry Percy.
Marketers consider a number of factors before deciding which sales promotion methods to
use.29 They must take into account both product characteristics (size, weight, costs, durability,
uses, features and hazards) and target market characteristics (lifestyle, age, sex, income, location,
density, usage rate and shopping patterns). How the product is distributed, and the number and
types of reseller, may determine the type of method used. The competitive and legal environmental
forces may also influence the choice.30
Consumer sales promotion techniques

The principal consumer sales promotion techniques include coupons, demonstrations, frequent-
user incentives, point-of-sale (POS) materials, free samples, money refunds, premiums, price-off
offers and consumer competitions.
coupons Coupons Coupons are used to stimulate consumers to try a new or established
A promotion method product, to increase sales volume quickly, to attract repeat purchasers or to introduce
that reduces the pur- new package sizes or features. Coupons usually reduce the purchase price of an
chase price of an item item. The savings may be deducted from the purchase price or offered as cash. For
in order to stimulate
the best results, coupons should be easy to recognize and state the offer clearly. The
consumers to try a new
or established product, nature of the product – seasonality, maturity, frequency of purchase and so on – is the
to increase sales volume prime consideration in setting up a coupon promotion. Use of coupons has rocketed,
quickly, to attract repeat prompted by the ease of emailing vouchers and using websites to distribute cou-
purchasers or to intro- pons either as incentives for new customers or CRM rewards to existing customers.
duce new package sizes
Coupons messaged to smartphones at a time/place of purchase are very effective in
or features.
securing the purchase.
Several thousand manufacturers distribute coupons, which are used by approximately
80 per cent of all households. One study found that pride and satisfaction from obtaining savings
through the use of coupons and price-consciousness were the most important determinants of
coupon use.31 Coupons are distributed through free-standing inserts (FSIs), print advertising, direct
mail/leaflet drops, in stores and as web downloads. Historically, FSIs have been the dominant
vehicle for coupons.32 However, many websites provide the opportunity to download and print off
coupons, which is fast becoming a preferred execution for marketers. When deciding on the proper
vehicle for their coupons, marketers should consider strategies and objectives, redemption rates,
availability, circulation and exclusivity. The whole coupon distribution and redemption business has
become very competitive. To draw customers to their stores, grocers may double and sometimes
even triple the value of the coupons they bring in.
There are several advantages to using coupons. Print advertisements with coupons are often
more effective than non-promotional advertising in generating brand awareness. Generally, the
larger the coupon’s cash offer, the better the recognition generated. Another advantage is that cou-
pons are a good way to reward present users of the product, win back former users and encourage
purchases in larger quantities. Coupons also enable manufacturers to determine whether the cou-
pons reached the intended target market because they get the coupons back. The advantages of
using electronic coupons over paper coupons include lower cost per redemption, greater targeting
ability, improved data-gathering capabilities and improved experimentation capabilities to determine
optimal face values and expiration cycles.33
However, coupons also have drawbacks. Fraud and mis-redemption are possible, and the
redemption period can be quite lengthy. Table 18.2 illustrates coupon distribution and redemption
rates in the UK. In addition, some experts believe that coupons are losing their value because so
many manufacturers are offering them, and consumers have learned not to buy without some
incentive, whether it be a coupon, a rebate or a refund. There has been a general decline in brand
loyalty among heavy coupon users. In addition, many consumers redeem coupons only for prod-
ucts they normally buy. Studies have shown that about 75 per cent of coupons are redeemed
by people who already use the brand on the coupon. So, as an incentive to use a new brand or
product, coupons have questionable success. Another problem with coupons is that stores often
do not have enough of the coupon item in stock. This situation can generate ill-will towards both
the store and the product.34
Although the use of coupons as a sales promotion technique is expected to grow, marketers’
concerns about their effectiveness could well diminish their appeal. However, coupons will
probably remain a major sales promotion component for stimulating trial of new products,
particularly given the ease with which they can be targeted at specific consumers via CRM
systems and downloaded for ease of use. Coupons will also be used to increase the frequency
of purchase for established products that show sluggish sales. On the other hand, successful,
established products may be reducing their profits if 75 per cent of the coupons are redeemed
by brand-loyal customers.35 As brands seek to demonstrate value to cash-poor consumers
in recession, coupons are very much on the increase, supported by the growth of digital and
mobile couponing.
Table 18.2 UK coupon redemption

Media Average redemption rates (as a proportion of total claims)
Internet 1.4
Direct mail 5.6
Door drop 3.9
Magazines 0.7
Newspapers 0.5
In/on pack 2.5
Consumer event (roadshows, outdoor events, concerts) 2.9
In store 3.5
Voucher booklet 0.9
Other (charity, postcards, parent & baby packs, coupons 1.9
requested by customer application, etc.)
Number of redeemed vouchers and coupons 603 000 000 (up 35%)
Value of vouchers and coupons redeemed £1.7 billion
Sources: Valassis and Letterbox, 2014 and 2015.

*Web coupon redemption is the fastest growing.
**Retailer couponing is driving the overall growth; 84 per cent of supermarket shoppers use coupons.
demonstrations Demonstrations Demonstrations of products at dealers, retailers or trade shows are

Occasions at which man- excellent attention-getters. Manufacturers often use them to show how a product actu-
ufacturers show how a ally works in order to encourage trial use and purchase of the product. As labour costs
product actually works in can be extremely high, demonstrations are not widely used. However, they can be highly
order to encourage trial
effective for promoting certain types of product, such as appliances, cosmetics and
use and purchase of the
product. cars. Cosmetics marketers, such as those for Estée Lauder, sometimes offer potential
customers ‘makeovers’ to demonstrate their products’ benefits and proper application.
Food brands often undertake cooking demonstrations at major sector events or social
frequent user incentives gatherings.
Incentive programmes
that reward customers Frequent user incentives Many companies develop frequent user incentives to
who engage in repeat
purchases.
reward customers who engage in repeat purchases. For example, most major interna-
tional airlines offer a frequent-flier programme through which customers who have flown
a specified number of miles are rewarded with free tickets for additional travel. AirMiles
loyalty card takes this concept further, extending it across many products. Supermarket loyalty cards
A mechanism whereby are another popular incentive; one such is Tesco’s Clubcard. A loyalty card offers dis-
regular customers counts or free merchandise to regular customers. Thus frequent user incentives help
who remain loyal to a
foster customer loyalty to a specific company or group of cooperating companies that
particular company are
rewarded with discounts provides extra incentives for patronage. Frequent user incentives have also been used
or free merchandise. by service businesses, such as car hire companies, hotel chains and credit cards, as
well as by marketers of consumer goods (see Figure 18.6).
An older frequent user incentive is trading stamps. Trading stamps are dispensed
trading stamps in proportion to the amount of a consumer’s purchase, and can be accumulated and
Stamps, dispensed in pro- redeemed for goods. Retailers use trading stamps to attract consumers to specific
portion to the amount of a
consumer’s purchase, that
stores. Stamps are attractive to consumers as long as they do not drive up the price
can be accumulated and of goods and they are effective for many types of retailer. Trading stamps were very
redeemed for goods. popular in the 1960s, but their use as a sales promotion method declined dramatically
in the 1970s.
Figure 18.6
Example of typical online coupons
Source: Screenshot courtesy of
Vouchercloud.com.
point-of-sale (POS) Point-of-sale (pos) materials Point-of-sale (POS) materials include such items as
materials outside signs, window displays, counter pieces, display racks and self-service cartons.
Enhancements designed Innovations in POS displays include sniff teasers, which give off a product’s aroma in
to increase sales and the store as consumers walk within a radius of four feet, in-store televisions and com-
introduce products,
puterized interactive displays, which ask a series of multiple-choice questions and then
such as outside signs,
window displays, counter display information on a screen to help consumers make a product decision. IKEA stores
pieces, display racks and offer interactive monitors on which room layouts and colour combinations may be tested
self-service cartons. prior to purchase. These items, which are often supplied by producers, attract atten-
tion, inform customers and encourage retailers to carry particular products. A retailer is
likely to use point-of-sale materials if they are attractive, informative, well-constructed
and in harmony with the store. With two-thirds of all purchases resulting from in-store decisions,
POS materials can help sustain incremental sales if a brand’s essential components, brand name,
positioning and visual image are the basis of the POS display.36
A survey of retail store managers indicated that almost 90 per cent believed that POS materials
sell products. The retailers surveyed also said that POS is essential for product introductions.
Different forms of display materials are carried by different types of retailer. For example, conve-
nience stores favour window banners and ‘shelf talkers’ (on-the-shelf displays or signs), whereas
chain chemists prefer floor stands and devices that provide samples.37
free samples
Giveaways used to stim- Free samples Free samples of merchandise are used for several reasons: to
ulate trial of a product, stimulate trial of a product, to increase sales volume in the early stages of a product’s
to increase sales volume
in the early stages of
life cycle or to obtain desirable distribution. The sampling programme should be
a product’s life cycle planned as a total event and not merely a giveaway. Sampling is the most expensive
or to obtain desirable of all sales promotion methods; production and distribution through such channels
distribution. as mail delivery, door-to-door delivery, in-store distribution and on-package distri-
bution entail very high costs. In designing a free sample, marketers should consider
factors such as the seasonality of the product, the characteristics of the market and
money refunds
prior advertising. Free samples are not appropriate for mature products and products
A specific amount of
money mailed to cus- with a slow turnover.
tomers who submit proof
of purchase. Money refunds With money refunds, consumers submit proof of purchase and
are mailed a specific amount of money. Usually, manufacturers demand multiple pur-
chases of the product before a consumer can qualify for a refund. This method, used
reward apps primarily to promote trial use of a product, is relatively inexpensive. As money refunds
Provide cash-back
rewards or accumulated
sometimes generate a low response rate, they have tended to have limited impact on
pay-back for future sales. The emergence of reward apps is changing this. These apps, such as QuidCo,
purchases. provide cash-back or accumulated pay-back for future purchases and are becoming
increasingly popular.
One of the problems with money refunds or rebates is that many people perceive the redemp-
tion process as too complicated. Consumers also have negative perceptions of manufacturers’
reasons for offering rebates. They may believe that these are new, untested products or products
that have not sold well. If these perceptions are not changed, rebate offers may degrade the image
and desirability of the product being promoted. If the promotion objective in the rebate offer is to
increase sales, an effort should be made to simplify the redemption process and proof of purchase
requirements.38
premiums
Premiums Premiums are items offered free or at minimum cost as a bonus for pur-
Items offered free or chasing a product. Vidal Sassoon offered a free, on-pack 50ml ‘travel size’ container
at minimum cost as a of shampoo with its 200ml size of Salon Formula shampoo. Kellogg’s offered easy art
bonus for purchasing a books with its Variety Packs. Premiums can attract competitors’ customers, introduce
product. different sizes of established products, add variety to other promotional efforts and stim-
ulate loyalty. Inventiveness is necessary if an offer is to stand out and achieve a significant
number of redemptions – the premium must be matched to both the target audience and
the brands.39 To be effective, premiums must be easily recognizable and desirable. Premiums are
usually distributed through retail outlets or the mail, but they may also be placed on or in packages.
price-off offers Price-off offers Price-off offers give buyers a certain amount off the regular price
A method of encouraging shown on the label or package. Similar to coupons, this method can be a strong incen-
customers to buy a prod- tive for trying the product; it can stimulate product sales, yield short-lived sales increases
uct by offering a certain and promote products out of season. It is an easy method to control and is used fre-
amount off the regular
quently for specific purposes. However, if used on an ongoing basis, it reduces the price
price shown on the label
or package. to customers who would buy at the regular price anyway, and frequent use of price-off
offers may cheapen a product’s image. In addition, the method often requires special
handling by retailers.
consumer contests
Consumer competitions
Consumer contests encourage individuals to com-
Contests designed to pete for prizes based on their analytical or creative skills. This method generates
generate traffic at the traffic at the retail level. Marriott and Hertz co-sponsored a scratchcard contest
retail level in which with a golf theme to boost sales during the slow winter travel season. Contestants
consumers compete for received game cards when they checked in at a Marriott hotel or hired a Hertz car,
prizes based on their
and scratched off spots to see if they had won prizes, such as cars, holidays or golf
analytical or creative skill.
clubs.40 However, marketers should exercise care in setting up such competitions.
Problems or errors may anger consumers or result in legal action. Contestants are
usually more involved in consumer contests than they are in sweepstakes, even though total
participation may be lower. Contests may be used in conjunction with other sales promotion
methods, such as coupons.
The entrants in a consumer sweepstake submit their names for inclusion in a
consumer sweepstake
A method of stimulating draw for prizes. Sweepstakes are used to stimulate sales and, as with contests, are
sales in which consum- sometimes teamed with other sales promotion methods. Sweepstakes are used more
ers submit their names often than consumer contests and tend to attract a greater number of participants.
for inclusion in a draw The cost of a sweepstake is considerably less than the cost of a contest.41 Successful
for prizes.
sweepstakes or contests can generate widespread interest and short-term increases
in sales or market share.
Trade sales promotion methods

Producers use sales promotion methods to encourage resellers, especially retailers and dealers,
to carry their products and promote them effectively. The methods include buy-back allowances,
buying allowances, counts and re-counts, free merchandise, merchandise allowances, cooperative
advertising, dealer listings, premium or push money, sales contests and dealer loaders.
buy-back allowance Buy-back allowance A buy-back allowance is a certain sum of money given to a
A certain sum of money purchaser for each unit bought after an initial deal is over. This method is a secondary
given to a purchaser for incentive in which the total amount of money that resellers can receive is proportional
each unit bought after an to their purchases during an initial trade deal, such as a coupon offer. Buy-back allow-
initial deal is over.
ances foster cooperation during an initial sales promotion effort and stimulate repurchase
afterwards. The main drawback of this method is its expense.
buying allowance Buying allowance A buying allowance is a temporary price reduction to resellers
A temporary price reduc- for purchasing specified quantities of a product. For example, a soap producer might
tion given to resellers give retailers £10 for each case of soap purchased. Such offers may be an incentive to
who purchase specified handle a new product, achieve a temporary price reduction or stimulate the purchase of
quantities of a product.
an item in larger than normal quantities. The buying allowance, which takes the form of
money, yields profits to resellers and is simple and straightforward to use. There are no
restrictions on how resellers use the money, which increases the method’s effectiveness.
count and re-count

Count and re-count The count and re-count promotion method is based on the
A promotion method payment of a specific amount of money for each product unit moved from a reseller’s
based on the payment warehouse in a given time period. Units of a product are counted at the start of the promo-
of a specific amount of tion and again at the end to determine how many have moved from the warehouse. This
money for each product method can reduce retail stock-outs by moving inventory out of warehouses, and can also
unit moved from a
reseller’s warehouse in a
clear distribution channels of obsolete products or packages and reduce warehouse inven-
given time period. tories. The count and re-count method might benefit a producer by decreasing resellers’
inventories, making resellers more likely to place new orders. However, this method is
often difficult to administer and may not appeal to resellers who have small warehouses.
free merchandise Free merchandise Free merchandise is sometimes offered to resellers who pur-
Giveaways sometimes chase a stated quantity of the same or different products. Occasionally, free merchandise
offered to resellers is used as payment for allowances provided through other sales promotion methods. To
who purchase a stated avoid handling and bookkeeping problems, the usual method of giving away merchan-
quantity of the same or
dise is by reducing the invoice.
different products.
Merchandise allowance A merchandise allowance is a manufacturer’s agreement

merchandise to pay resellers certain amounts of money for providing special promotional efforts, such
allowance as advertising or displays. This method is best suited to high-volume, high-profit, easily
A manufacturer’s agree- handled products. One major problem with using merchandise allowances is that some
ment to pay resellers
certain amounts of
retailers or dealers perform their activities at a minimally acceptable level simply to obtain
money for providing spe- the allowances. Before paying retailers or dealers, manufacturers usually verify their
cial promotional efforts, performance. Manufacturers hope that the retailers’ or dealers’ additional promotional
such as advertising or efforts will yield substantial sales increases.
displays.
Cooperative advertising Cooperative advertising is an arrangement whereby a

cooperative manufacturer agrees to pay a certain amount of a retailer’s or dealer’s media costs for
advertising advertising the manufacturer’s products. The amount allowed is usually based on the
An arrangement whereby quantities purchased.
a manufacturer agrees These payments give retailers or dealers additional funds for advertising. They can,
to pay a certain amount
however, put a severe burden on the producer’s advertising budget. Some retailers or
of a retailer’s or dealer’s
media costs for advertis- dealers exploit cooperative advertising programmes by crowding too many products
ing the manufacturer’s into one advertisement. Some retailers or dealers cannot afford to advertise; others
products. can afford it but do not want to advertise. Still others actually put out advertising that
qualifies for an allowance but are not willing to undertake the paperwork required for
reimbursement from producers.42
dealer listing Dealer listing A dealer listing is an advertisement that promotes a product and
An advertisement that identifies the names of participating retailers or dealers who sell it. Dealer listings can
promotes a product and influence retailers or dealers to carry the product, build traffic at the retail level and
identifies the names of encourage consumers to buy the product at participating dealers.
participating retailers or
dealers who sell it.
Premium or push money Premium or push money is used to push a line of goods
by providing additional compensation/remuneration to salespeople. This promotion
premium or push method is appropriate when personal selling is an important part of the marketing effort;
money it is not effective for promoting products that are sold through self-service. Although this
Additional compensation/ method often helps a manufacturer obtain commitment from the salesforce, it can also
remuneration provided to be very expensive.
salespeople in order to
push a line of goods.
Sales competitions Sales competitions are designed to motivate distributors, retail-
ers and sales personnel by recognizing and rewarding outstanding achievements. To be
sales competitions effective, this method must be equitable for all sales personnel involved. One advantage
A way to motivate distrib- of the method is that it can achieve participation at all levels of distribution. However, the
utors, retailers and sales results are temporary and prizes are usually expensive.
personnel by recognizing
and rewarding outstand-
ing achievements. Dealer loaders Dealer loaders are gifts to a retailer or dealer, who purchases a
specified quantity of merchandise. Often dealer loaders are used to obtain special dis-
play efforts from retailers by offering essential display parts as premiums. For example,
dealer loaders a manufacturer might design a display that includes a sterling silver tray as a major
A gift to a retailer or component and then give the tray to the retailer. Marketers use dealer loaders to obtain
dealer who purchases new distributors and push larger quantities of goods.
a specified quantity of
merchandise.
Direct mail
direct mail
Printed advertising Direct mail and telephone selling are part of the direct marketing category described
material delivered to a in Chapter 16. Direct mail is the delivery to the target’s home or work address of
prospective customer’s
or donor’s home or work
printed advertising material to contact prospective customers or donors. The use
address. of direct mail to contact prospective customers and to solicit interest in products or
services is not new.43 Advertising agencies, public relations consultancies and, in
particular, sales promotions houses have been using mailshots for several decades.
With approximately six per cent of all promotional budgets in consumer goods and services, its
own professional bodies and trade associations, and the growing sophistication of consumer
databases, the direct mail industry believes it warrants recognition as a separate element of
the promotional mix alongside advertising, sales promotion, personal selling, publicity/public
relations and sponsorship.44
The uses of direct mail

Direct mail is not confined to consumers; it is an important promotional activity in many business-
to-business markets. Direct mail delivers the promotional message and sometimes the product
through the postal service, private delivery businesses and the web. Direct mail is used to create
brand awareness and stimulate product adoption.45 There is also growth of direct mail via email
addresses, but the internet is addressed separately in this chapter. Throughout Europe, direct mail
is widely used to generate orders, pre-sell prior to a sales call, qualify prospects for a sales call,
screen out non-prospects, follow up a sale, announce special sales and localized selling initia-
tives, and raise funds for charities and non-profit organizations. In the UK, the average household
receives 166 items of direct mail each year. GDPR data protection regulations place limits on
sending out unsolicited materials to people’s web browsers, but anonymised postal drops do not
contravene the regulations, so an increase in the use of direct mail is anticipated.
Attention-seeking flashes
Direct mail packages must prompt the recipient to open them, rather than treat them
junk mail
as junk mail, which is unwanted mail often binned unread by uninterested recipients.
Unwanted mail often
binned unread by unin- ‘Prize inside’, ‘Your opportunity to win’, ‘Not a circular’, ‘Important documentation
terested recipients. enclosed’ are just some of the popular headers, or flashes, printed prominently on the
address labels to gain the recipients’ attention. In some markets, these are sufficient at
least to persuade the recipient to open the package. However, with the boom in direct
flashes mail and the growing adverse reaction to junk mail, persuasive phrases are often not
Headers printed on a
enough. Packaging design is becoming more important in enticing recipients, through
direct mail package
to gain the recipient’s attractive or unusual shapes and designs, to examine the details and contents of the
attention. direct mailshot.
The package
The direct mail package is more than just the envelope. Often it is a mix of mailing
direct mail package
A mix of mailing
envelope, covering or explanatory letter, circular, response device and return device.
envelope, covering or The mailing envelope has to overcome the recipients’ inertia, often through catchy
explanatory letter, circu- flashes and design flair. The letter needs to be personalized and clear, to appeal
lar, response device and to the beliefs and lifestyle of the recipients, and to elicit interest in the product or
return device. service in question. The circular contains the service or product details and specifi-
cations: colour, sizes, capabilities, prices, photographs or illustrations, guarantees
and endorsements from satisfied customers or personalities. The circular is the pri-
mary selling tool in the pack and often takes the form of a booklet, broadsheet, jumbo folder,
brochure or flyer. The response device is typically an order form, which must be legally correct,
must repeat the selling message and product benefits, must be simple to read and fill out,
and comprehensive in the information requested. Alternatively, the response device can be
an 0800 freefone telephone number, credit card hotline or web-link. The return device is any
mechanism that enables the recipient to respond with a request for information or an order
or donation. It can be an information request form, order form or payment slip, and is usually
accompanied by a pre-printed and often pre-paid return envelope.
Mailing lists
mailing lists Eighty per cent of direct mail is opened; 63 per cent is partially read; less still leads
Directories of suitable, to an order or donation. Depending on the scale of the targeted audience, however,
relevant recipients or the costs are relatively low: that is, of design, printing, postage, and the purchase or
targets. compilation of mailing lists – directories of suitable, relevant recipients or targets.
To be effective, appropriate targeting of direct mail is essential. Mailing lists must
be as up to date as possible. There is a rule of thumb in the industry that a third of
addresses on a list change each year owing to deaths and relocations. Within a year or two
a list can be obsolete. Internal lists are those compiled in-house from customer addresses,
account details and records of enquiries. External lists are produced by list brokers or mailing
houses and are bought or rented at commercial rates.
The suppliers of these external lists often undertake the complete direct mail operation for
clients, from identification of recipients and compilation of lists to production of printed material,
postage and even receipt of response devices. External lists can either be addresses of product
category customers, including those of competing businesses if available, or general lists of targets
with apparently suitable demographic profiles and lifestyles. Many of the leading geodemographic
databases, such as ACORN and MOSAIC, were originally developed to assist in the targeting of
direct mail.
Figure 18.7
Direct mail is familiar to most
consumers and many business
customers
Copy writing
Targeting does not stop with the acquisition of a mailing list. The printed and product material
included in the direct mail package must be written, designed and produced to appeal to the
targets. The material should be prepared by people who understand the emotions and
copy writing
The creation and word-
attitudes of prospective customers. Copy writing, the creation and wording of the
ing of the promotional promotional message, is an important skill in the promotional mix, especially in the pro-
message. duction of direct mail. The text has to appeal to the target audience; sell the product;
reassure the reader; be informative, clear and concise; and lead to a positive response.
The strengths and weaknesses of direct mail

There are many advantages associated with direct mail. The medium offers a wide variety of styles
and formats – more than offered by a radio or press advertisement, for example. The package can
be personalized and customized. Often it will be received and read alone, not in competition with
other promotions from other products and services. Extensive and detailed information can be
included – much more than with advertising – and product samples may be integral to the direct
mail package. Marketing research and database management can lead to accurate targeting of
direct mail. Sending material directly to people’s homes and workplaces can hit targets otherwise
inaccessible to promotional activity.
The primary disadvantage is the growing consumer view that direct mail is ‘junk mail’ that should be
consigned to the dustbin without even being opened (see Figure 18.7). If used on a large scale, direct
mail can prove costly; perhaps less so than a salesforce or television advertising, but more expensive
than many public relations activities and some local or trade advertising. Direct mail packages and
campaigns need to be updated to remain fresh in the fight against the junk mail image. In many coun-
tries, the paucity of up-to-date mailing lists increases the cost of direct mail, reduces response rates
and adds to consumer dislike of the concept of unsolicited direct selling through the post.
For organizations as diverse as retailer Marks & Spencer, financial services group American
Express, catalogue retailer Lands’ End, charity Oxfam, consumer goods manufacturer Unilever, or
British Airways, direct mail is an important, everyday component of the promotional mix. Whether it
is on behalf of starving people in less developed countries, double glazing for windows, fast food or
book clubs, direct mail is familiar to consumers in most countries. For office supplies, maintenance
services, security, computing products and components, in business markets direct mail is another
important promotional tool, often supporting trade advertising and personal selling campaigns.
The internet and digital marketing

Only a few years ago mainly computer buffs had accessed the internet – a network of
internet
A network of computer computer networks stretching across the world, linking computers of different types and
networks stretching sharing information on a regular basis – and mostly for online discussions or searches for
across the world, linking information. Although these are still popular activities, the information superhighway is a
computers of different major focus of attention for marketers of consumer goods, services, charities, industrial
types and sharing
products and business marketing. As more and more businesses harness the power of
information.
the web and millions of households daily subscribe to internet services, the opportunities
for interacting with prospective and current customers are immense. By the mid-1990s
companies as diverse as Ford, Sony and JCB were providing product and company details on their
web pages. Now, most companies and non-profit organizations – small or large – have websites
and web links on their advertising, direct mail or brochures, often to facilitate much more than
information sharing. eMarketing is a major revenue stream in most organizations and an important
weapon in the armoury of marketing communications. As explored in Chapter 1, the growth of
social media is probably the most exciting recent development in marketing per se.
A website is a coherent document readable by a web browser, containing simple text
website
A coherent document
or complex hypermedia presentations. At first, these sites tended to be for information
readable by a web purposes rather than overtly promotional tools or selling opportunities. BMW was one
browser, containing of the first businesses to spot the opportunity for selling on the web, creating a directory
simple text or com- of used cars available from its network of independent dealerships. A major hindrance
plex hypermedia to online sales and marketing of consumer goods and services was consumer concern
presentations.
about the security of making purchases online. Web hosts and credit card companies
had to invest in technology that allowed scrambling and coding of confidential credit
card or bank account information before consumers were prepared to make online pur-
chases. Today PayPal and other secure payment systems are routine for customers of all types
of products and services.
The massive increase in eCommerce – the use of the internet for commercial trans-
eCommerce
actions – has led to greater use of the web by marketers, as described in Chapters 3 and
The use of the inter-
net for commercial 19. As more and more households connect to the internet through increasing numbers
transactions. of connections, worldwide confidence in using this medium for transactions has grown.
This is not uniform across all consumers. Just as with any product (see Chapter 16),
there are innovators, early adopters and the early majority, while others are resistant
to this way of conducting business, or simply do not have the equipment, expertise or available
resources to hook up. Nevertheless, older consumers, the less affluent and the less educated now
are accessing the web. Smartphones, broadband and 24/7 mobile marketing have led to a surge
in eCommerce. As an ingredient in the promotional mix, there is no doubt that the internet is of
huge importance. Due to growing global acceptance of the web, eMarketing is hugely important
for exploiting global markets and international opportunities.
The internet enables frequent and customized changes of messages targeted at specific
consumers. If linked to email access or social media, it also enables the consumer to have
ready access to the site host, leading to an ongoing and evolving relationship between mar-
keter and customer.
Internal marketing has also befriended the web, with intranets – in-company inter-
intranets
Internal, in-company net networks – facilitating routine communications, fostering group communications,
internet networks for providing uniform computer applications, distributing the latest software, or informing
routine communica- colleagues of marketing developments and new product launches.
tions, fostering group There is a clear process for developing a website, which includes:
communications, pro-
viding uniform computer 1. the planning of the site’s goals
applications, distributing
the latest software, or 2. analysis of the required content
informing colleagues 3. examination of rival sites
of marketing develop-
ments and new product 4. design and build of the site
launches. 5. implementation using hypertext mark-up language (HTML)
6. o
ngoing development to ensure that, once up and running, the site reflects user views
and is updated regularly.
To be effective, a website must contain information perceived relevant and interesting by a
company’s targeted customers. The pages of the site need to be stylish and eye-catching but
also easy to interpret. Website branding and imagery should be consistent with the brand posi-
tioning of existing products, the product’s packaging and other promotional mix executions such
as advertising and sales promotion materials. The website’s ethos must not contradict the work
of the rest of the marketing mix or the product’s heritage. The information on the website should
be updated regularly and accurately, and tailored carefully to reflect the buying behaviour of the
targeted customer. As with any marketing activity, the website needs to be designed to be mem-
orable and distinctive.
Far from being a minor task, marketers have realized that website design is a specialized activity
that requires the skills of a qualified web master and the careful design of material to reflect the
characteristics of the product, the brand and of the intended consumer. The findings presented in
Table 18.3 summarize a survey of UK consumers, revealing their likes and dislikes of a selection
of well-known brands’ websites. The survey revealed the overriding importance to consumers of
Table 18.3 Likes and dislikes of websites

Pros Key issues Cons
Clarity Interaction Entry page without guidance/menu
Non-fussy Obvious and easy navigation Confusing
Eye-catching Topical content Assumes product knowledge
Quick loading Relationship building Not user-led
Search facility Search engine compliant Dull
Cohesion with brand/MarComms First time user/experienced user-friendly Out-of-date content
Motivational Security of use/payment Frustrating
The ‘right’ information Three clicks to the desired information No language options
‘3 clicks’ from everything Links with popular social media No search facility
Pop-up menus Unclear navigation
Animated links Must register to access
Rapid printing Uncertain payment security
No registration
Search engine compliant
Use of key words
interaction, obvious and easy navigation, topical content, relationship-building tools,

search engine optimi-
zation (SEO) search engine compliance, ease of use for the first-time user, user friendliness for expe-
The management of rienced users and security of use/payment. The web has enabled the huge growth of
search engine behaviour digital marketing, as explained in the next chapter.
so as to increase a An important facet of digital marketing is search engine optimization or management,
brand’s rankings in
whereby marketers seek to ensure that a Google search includes their brand or company
search engine organic
result listings on search in its leading selections. Agencies and consultants often provide support to marketers in
engine results pages this respect. Search engine optimization (SEO) is the process of improving the visibility
(SERPs) for particular key of a website/web page via unpaid ‘organic’ or ‘algorithmic’ search results. This is import-
words and phrases. ant because the earlier or higher ranked on the search results page a brand or company
appears, and the more frequently it appears in the search results list, the more visitors or
potential customers it is receiving. As a web-based marketing strategy, SEO assesses how
digital marketing
The use of technology- search engines work, what people search for, the actual search terms typed into search
led channels of com- engines and which search engines are preferred by their targeted audience.
munication and selling
to manage customer
interaction and provide Digital marketing, mobile and social media
customer experience in a
digitally connected envi-
ronment: a value-adding
Digital marketing tools and techniques are used by marketers to improve their prop-
website and interrelated osition to customers and overall competitiveness, with a value-adding website and
digital marketing tech- interrelated digital marketing techniques to drive traffic, conversion, positive experience
niques to drive traffic, and referrals. These techniques include website, online public relations, email, blogs/
conversion, positive microblogs/vlogs, social networks, discussion fora, podcasts, wikis and search engine
experience and referrals.
management to ensure preferential web search, as well as mobile platforms.46
To marketers, there is also a downside from the growth of digital marketing. While
digital provides marketers with many new options for grabbing the attention of potential
customers and maintaining relationships with existing ones, it offers consumers far greater infor-
mation availability and instantly the views of fellow consumers, pundits and experts. It also encour-
ages ‘trash-talking’ and attacks on a brand. Digital has removed much of the control marketers
previously had over what is communicated about their brands and products. Nevertheless, digital
is arguably one of the most exciting changes faced by marketers in decades:
1. Communicate to millions of potential and existing customers across geographies, or with only
a single customer one-to-one.
2. Instantly update propositions and messages to flag new developments or reflect market
challenges.
3. Respond immediately to a competitor’s move and altered marketing mix.
4. Attract new interest while cementing relationships with existing customers.
5. Address multiple audiences and stakeholders rather than only one (as is often the case with
other marketing communications).
6. Tap into numerous networks and influencing bodies.
Mobile marketing is an important and stretching development of digital marketing.
mobile marketing
Engaging users of wire-
A more traditional definition of mobile marketing was marketing activity in a moving
less devices with time manner or encountered by consumers on the move, such as moving advertising boards
and location sensitive, at sports events or stations. However, increasingly mobile marketing stands for mar-
personalized information keting via a mobile device, such as a smartphone or tablet, to provide customers with
that promotes goods, time and location-sensitive, personalized information that promotes goods, services and
services and ideas, via
apps, messaging, web-
ideas (see Chapter 3). Leading digital exponent Dave Chaffey states that it is ‘engag-
sites and social media ing users of wireless devices through apps, messaging, websites and social media
communications. communications’. Many brand managers currently are launching apps and developing
interactive websites suitable for smartphones and laptops on the move. Technology now
permits ready and immediate access to customers wherever they are, whenever and irrespective
of whatever they are doing. Search for a holiday while on a train, order a grocery delivery when
sitting in a café, identify a restaurant and seek endorsements when a meeting breaks up, bet on
the next horse race while listening to a seminar speaker, review peers’ impressions of the new
iPhone while examining one in a store, or join in a topical discussion about poor patient service at
a local hospital … the possibilities provided by anywhere/anytime communication are endless and
most attractive to marketers.
Social media and networks are posing perhaps the biggest challenge to marketers from the
digital era. Twitter, Facebook, Digg, MySpace, LinkedIn and YouTube are now very familiar to most
consumers, but as explained in Chapter 1, they have radically shifted the boundaries for marketers
and consumers. They have taken a great deal of communication about brands and products out of
the hands of marketers and placed the power to create and convey such messages in the hands
of consumers. These consumers may share their bad experiences and negative views with each
other, not just provide positive endorsements.
social media Social media incorporates the online technology and methods through which people
The online technology can share content, personal opinions, swap different perspectives and insights, using
and methods through text, images, audio and video. Social networking sites such as Facebook are one form
which people can share
content, personal opin-
of social media; others include wikis, video sharing such as YouTube, photo sharing on
ions, swap different per- sites like Flickr, news aggregators typified by Digg, social bookmarking, online gaming and
spectives and insights, micro-blogging on presence apps such as Twitter. Social media postings rarely can be
using text, images, controlled by a brand manager, but they should be monitored and often may be influenced.
audio and video, such Find out what others think about brand X, sound off about a recent in-store customer
as Twitter, Facebook or
YouTube.
service shocker, praise a great experience, collaboratively with friends decide where to
socialize that evening, co-purchase or define product options with trusted colleagues,
or while at the point of purchase in a store check with network contacts whether to
complete the purchase . . . so much is possible for consumers via social media networks. However,
so much more information is available to consumers to possibly jeopardize a marketer’s best laid
plans. There is little doubt that social media have altered the buying behaviours of consumers
(see Chapter 5). The web, digital marketing and social media impact on marketing far beyond the
promotional mix, which is why they are featured throughout Marketing: Concepts and Strategies.
Interactive marketing is a popular term within the realms of digital marketing, but
interactive marketing
is an ongoing dialogue it goes beyond the digital domain. Most agencies and major IT companies undertake
with a customer, har- aspects of this work. Traditional direct marketing agencies are also major players in the
nessing CRM, the web interactive field. The web has facilitated much of the growth of interactive marketing,
and other direct mar- but it is not only an online phenomenon. Interactive marketing engages in a dialogue
keting tools to develop a
with a customer, building up insight and buying behaviour knowledge over time, so that
relationship.
each subsequent communication can better be tailored to a buyer’s requirements and
behaviours. Amazon’s use of its customer data to shape subsequent offers and product
suggestions is an example of this. Clearly IT plays an important part in this process, requiring CRM
systems and often harnessing the immediacy of the web in communications and transactions, but
most of the direct marketing tools outlined in this chapter are also part of the toolkit.
Direct marketing
So far, this chapter has examined personal selling, sales promotion, direct mail and the internet. To
conclude, the chapter turns to direct marketing. First used in the 1960s, until its recent rebirth and
surge in popularity, direct marketing described the most common direct marketing approaches:
direct mail and mail order. Now, direct marketing encompasses all the communications tools
that enable a marketer to deal directly with targeted customers: direct mail, telemarketing, direct
response television advertising, door-to-door/personal selling, the web, mobile marketing and
some applications of social media. Increasingly marketers are utilizing the direct marketing toolkit
to do more than simply generate sales, although sales generation remains the foremost
direct marketing
A decision by a compa- task for direct marketers.47
ny’s marketers to select Direct marketing is a decision by a company’s marketers to:
a marketing channel
that avoids dependence 1. select a marketing channel that avoids dependence on marketing channel
on marketing channel intermediaries
intermediaries and to
2. focus marketing communications activity on promotional mix ingredients that deal
focus marketing commu-
nications activity on pro- directly with targeted customers.
motional mix ingredients
The American Direct Marketing Association defines direct marketing as ‘an interactive
that deal directly with
targeted customers. system of marketing which uses one or more ‘advertising’ media to effect a measur-
able response and/or transaction at any location’. This definition raises some important
aspects, as outlined below:
●● Direct marketing is an interactive system. Advertising communicates via a mass medium such
as television or the press. Direct marketing contacts targeted consumers directly, can tailor mes-
sages to the individual and solicits direct feedback. This interactive one-to-one communication
is essential to the definition of direct marketing.
●● The American Direct Marketing Association’s definition uses the term ‘advertising’; this really
should be communication48 in its broader sense, as direct marketing utilizes personal selling,
direct mail, technology – telephone, fax and the web – plus direct response advertising contain-
ing coupon response or freephone elements.
●● Most ingredients of the promotional mix, particularly advertising and public relations, find it
difficult to accurately measure responses and effectiveness. This is not the case with direct
marketing: the interactive nature of the communication enables individual consumer responses
to be tracked and counted.
●● Direct marketers do not necessarily utilize retail outlets, wholesale depots or industrial distrib-
utors. They do not depend on potential customers visiting their own retail outlet or depot: they
can contact consumers at home or at work via direct mail, telephone or fax, and via web links.
Direct marketing evolved from those mail-order businesses – Littlewoods, GUS, Grattan – that
developed catalogues and mailshots to customers in order to sell directly from their warehouses,
negating the need for retail outlets and showrooms.49 They were joined by a diverse mix of busi-
nesses – from factory outlets to machine tool companies to specialist food producers – which
wished to sell directly to consumers. In order to achieve these aims, these businesses had to
devise marketing communications tools that attracted sufficient numbers of the right types of cus-
tomer who would choose to deal directly with them, rather than buying from the more traditional
marketing intermediaries in the marketing channel. The agents, brokers, dealers, distributors,
wholesalers and retailers were cut out of the choice of distribution channel. Although mail order
sales declined in the 1980s, towards the end of that decade the major operators revitalized their
fortunes and were joined by mail-order operations from major retailers such as Marks & Spencer
with its home furnishings catalogue and the Next Directory. Ubiquitous telephone access has
helped facilitate mail-order operations and the rapid growth in online access has provided a further
growth spurt.
Direct marketing is now adopted by a host of businesses, ranging from fast-moving consumer
goods companies and business marketers to charities and even government departments.50 It is
growing, but this is partly a reflection of the large number of promotional mix ingredients direct
marketing includes,51 such as direct mail, tele-selling and the web. Various factors have contrib-
uted to this growth, as detailed in Figure 18.8. A desire by marketers to identify alternative media
and promotional tools, the need to improve targeting of potential customers, improvements in
marketing data and databases, advances in technology and systems – permitting cost-effective
direct and interactive contact with certain types of consumers – all have encouraged the growth
of direct marketing.
Declining effectiveness of
traditional media
Economic factors
Increasing media costs
Diminishing audiences
Clutter
Proliferation of media
Movements in Need for better
technology targeting
The rise of the database Changes in
Improvements in capacity marketing
Growth
Analytical systems behaviour
in direct
Desk-top publishing Advent of
marketing
Developments in sophisticated
telephone technology consumers
The information Role of
superhighway technology
Figure 18.8 Changes in market

Catalysts of change information
behind the growth of Electronic point-of-sale
direct marketing Smart cards
Source: From Exploring More sophisticated
Direct Marketing by Lisa consumer research
O’Malley, Maurice Pat-
Evolution of the market
terson and Martin Evans,
p. 9, copyright © 1998 information industry
Cengage Learning (EMEA) Service provision
Ltd.
In terms of the promotional mix, direct marketing has several key implications, as follows:
●● Direct mail is on the increase: 83 per cent of the largest 1500 UK companies expect to deploy
more direct mail, with the bulk focusing on prospecting for sales rather than responding to direct
response advertising requests for brochures or catalogues.
●● Telemarketing has grown and will continue to do so as more businesses turn to the direct mar-
keting toolkit aided by advances in automated call centres.
●● Personal selling has suffered in the past from poorly identified sales targeting, but better geo-
demographic targeting and improved analysis of direct marketing responses are enabling more
focused use of personal selling.
●● Door-to-door selling and leaflet dropping are also on the increase, and are visible forms of direct
marketing encountered by most householders.
●● In 1989, direct response advertising containing a call for action within the advertisement either
by coupon or telephone accounted for less than a fifth of advertising revenue. Now the figure
is closer to a third as marketers increasingly jump on the direct marketing ‘bandwagon’, and
as the growth in satellite and cable television channels enables more direct response television
advertising.
●● The most obvious implication is for use of the internet to communicate with current and pro-
spective customers. As more and more consumers hook up to the web either at home, work or
particularly while on the move, the opportunity is growing for marketers to communicate directly
with consumers with increasingly bespoke messages anytime and anywhere. And they are!
The highest coupon redemption came during the earlier phase of the 1990s. During this time
more than 7.2 billion coupons were being redeemed in the USA. However, by 2006 only 2.5 billion
coupons were redeemed. In the last couple of years, though, couponing has increased. The core
driver of this growth has been new media, such as websites, emails, mobile phones, etc. However,
online couponing represents only one per cent of total couponing distribution around the world.
The recent rise in couponing stems also from the credit crunch, as brands seek to provide value
to customers.
It is important to remember, however, that as with all marketing propositions and promotional
mix executions to be welcomed by targeted customers and effective in terms of generating
sales, the deployment of any direct marketing campaign must strive to reflect targeted customer
behaviour, needs and perceptions; provide a plausible proposition that is clearly differentiated from
competitors’ propositions; and match an organization’s corporate goals and trading philosophy.
Direct marketing is not a substitute for marketing practice per se, nor for the traditional promotional
mix. Direct marketing is an increasingly popular deployment of marketing. It stems from certain
marketers’ strategic choices in terms of marketing channel and the selection of which promotional
mix tactics will best facilitate contact with prospective customers.
Summary
Personal selling is the process of informing customers and persuading them to purchase products through personal com-
munication in an exchange situation. It is the most precise promotional method, but also the most expensive. The three
general purposes of personal selling are finding prospects, convincing them to buy and keeping customers satisfied. It is
particularly important in business-to-business relationships.
The specialist area of sales management focuses on the importance of preparation, the techniques for introducing sales
personnel to prospective customers, the requisites for effective presentations and written proposals, the skills required to
turn a potential customer’s interest into commitment, how to negotiate, the skills necessary to capture an order, and the
ability to close the sale.
Many salespeople either consciously or unconsciously move through a general selling process as they sell products. In
prospecting, the salesperson develops a list of potential customers. Before contacting acceptable prospects, the sales-
person prepares by finding and analyzing information about the prospects and their needs. The approach is the manner in
which a salesperson contacts a potential customer. During the sales presentation, the salesperson must attract and hold
the prospect’s attention to stimulate interest and desire for the product. If possible, the salesperson should handle a pros-
pect’s objections when they arise. Closing is the step in the selling process in which the salesperson asks the prospect to
buy the product or products. After a successful closing, the salesperson must follow up the sale.
In developing a salesforce, a company must decide which types of salespeople will sell the company’s products most
effectively. The three classifications of salespeople are order getters, order takers and support personnel. Current customer
order getters deal with people who have already purchased a business’s products. New business order getters locate
prospects and convert them into buyers. Order takers seek repeat sales and fall into two categories: inside order takers
and field order takers. Sales support personnel facilitate the selling function, but their duties usually extend beyond making
sales. The three types of support personnel are missionary, trade and technical salespeople.
The effectiveness of salesforce management is an important determinant of a company’s success because the salesforce
is directly responsible for generating a business’s sales revenue. The major decision areas and activities on which sales
managers must focus are establishing salesforce objectives, determining salesforce size, recruiting and selecting sales
personnel, training sales personnel, compensating/remunerating sales personnel, motivating salespeople, managing sales
territories, and controlling and evaluating salesforce performance.
Sales objectives should be stated in precise, measurable terms and should specify the time period, customer type and
geographic areas involved. The size of the salesforce must be adjusted from time to time because a business’s marketing
plans change, as do markets and forces in the marketing environment.
The task of recruiting and selecting sales personnel involves attracting and choosing the right type of salespeople to main-
tain an effective salesforce. When developing a training programme, managers must consider a variety of dimensions, such
as who should be trained, what should be taught and how the training should occur. Rewarding salespeople involves for-
mulating and administering a compensation/remuneration plan that attracts, motivates and holds the right types of sales-
people for the business. Motivation of salespeople should allow the company to attain high productivity. Managing sales
territories, another aspect of salesforce management, focuses on such aspects as the size and shape of sales territories,
and the routing and scheduling of salespeople. To control and evaluate salesforce performance, the sales manager must
use information obtained through sales personnel’s call reports, customer feedback and invoices.
Marketers must ensure their sales colleagues are fully conversant with their strategies and marketing plans, and that
sales staff appreciate their role within the execution of marketing programmes. Internal marketing is very important in this
respect. Not all customers are worth the same: some matter much more than others strategically and in terms of the vol-
ume of business or financial returns likely. Very important and large customers are deemed to be key accounts, particularly
in business-to-business markets. Key account management is the process for effectively servicing and satisfying these
accounts, to ensure mutually satisfactory ongoing relationships and volumes of business.
Sales promotion is an activity or material (or both) that acts as a direct inducement and offers added value to, or incen-
tive to, buy the product to resellers, salespeople or consumers. The ratchet effect is the stepped impact of using sales
promotion and advertising together. Marketers use sales promotion to increase sales, to identify and attract new cus-
tomers, to introduce a new product and to increase reseller inventories. Sales promotion methods fall into two general
categories: consumer and trade. Consumer sales promotion techniques encourage consumers to buy from specific retail
stores, websites or dealerships or to try a specific product. These techniques include coupons, demonstrations, frequent
user incentives – such as loyalty cards or trading stamps – point-of-sale (POS) materials, free samples, money refunds,
rewards apps, premiums, price-off offers, and consumer contests and sweepstakes. Trade sales promotion methods stim-
ulate wholesalers, retailers or dealers to carry a producer’s products and to market those products aggressively. These
techniques include buy-back allowances, buying allowances, counts and re-counts, free merchandise, merchandise allow-
ances, cooperative advertising, dealer listings, premium or push money, sales competitions and dealer loaders.
Direct mail uses the postal service to contact prospective customers or donors, and to solicit interest in products or ser-
vices. The main problem facing the direct mail industry is the growing adverse reaction to it as junk mail. Nevertheless,
direct mail is widely used for consumer goods and services, as well as in business marketing. Increasingly, it is also
important to non-profit organizations and charitable fundraising. Direct mail must be designed carefully, with an attention-
seeking flash, good copy writing and a well-constructed direct mail package. Mailing lists quickly become obsolete, and
good database management is essential for the effective targeting of direct mailshots.
The internet is no longer just for computer buffs. Most businesses now have websites and recognize the potential for
eCommerce. Scrambling and coding of credit card information have helped build consumer confidence in online pur-
chase transactions. Websites are clearly flagged on much television and print advertising. In-company internet networks
– intranets – are enabling the rapid dissemination of routine communications, group communications, uniform computer
applications, the latest software and information about product developments, and are assisting with internal marketing.
Enabling frequent updating of messages, individually targeted communications and sales ordering, the web now features
in most businesses’ promotional mixes.
To be popular with consumers, research reveals that websites must offer interaction, obvious and easy navigation, topical
content, relationship-building tools, search engine compliance, ease of use for first-time users and user-friendliness to
experienced users, and security of use/payment. They should link to social media sites.
Digital marketing tools and techniques are used by marketers to improve their proposition to customers and overall com-
petitiveness, with a value adding website and interrelated digital marketing techniques to drive traffic, conversion, positive
experience and referrals. These techniques include website, online public relations, email, blogs/microblogs/vlogs, social
networks, online discussion fora, podcasts, wikis and search engine management. An important aspect of digital is mobile
marketing, which engages users of wireless devices 24/7 with time and location sensitive, personalized information pro-
moting goods, services and ideas, via apps, messaging, websites and social media communications. For consumers, the
most visible change enabled by the digital era is the emergence of social media such as Twitter, Facebook or YouTube,
which permits so much sharing of material, perspectives and insights between consumers.
Direct marketing is a decision to do without marketing channel intermediaries and to focus most promotional resources on
activities that deal directly with targeted customers, such as personal selling, telemarketing and direct mail. Now adopted
by consumer goods producers, services, business companies, charities and even government departments, direct market-
ing has recently enjoyed rapid growth. This is likely to continue, with more direct mail, automated call centres, personal
selling, door-to-door selling and leaflet dropping, direct response television advertising and use of the internet with its
associated technologies to contact potential customers. Direct marketing must be tailored to suit the behaviour and expec-
tations of the target audience, while reflecting existing branding and other promotional mix designs.
Digital marketing
Key links Direct mail
Direct mail package
This chapter has explored various aspects of the promo- Direct marketing
tional mix, but not all. It has also examined the use of the eCommerce
web in marketing from the perspective of marketing com- Flashes
munications. Related chapters, therefore, include: Free merchandise
●● Chapter 16, on the role of marketing communications Free samples
and the ingredients of the promotional mix. Frequent user incentives
Interactive marketing
●● Chapter 17, on the use of advertising, public relations
Internet
and sponsorship in the promotional mix.
Intranet
●● Chapter 19, on digital marketing. Junk mail
Key account management
Loyalty card
Important terms Mailing lists
Approach Merchandise allowance
Business development Mobile marketing
Buy-back allowance Money refunds
Buying allowance Personal selling
Closing Point-of-sale (POS) materials
Combination compensation/remuneration plan Premium or push money
Consumer contests Premiums
Consumer sales promotion techniques Price-off offers
Consumer sweepstakes Prospecting
Cooperative advertising Ratchet effect
Copy writing Recruiting
Count and re-count Reward apps
Coupons Sales competition
Dealer listing Sales promotion
Dealer loader Search engine optimization (SEO)
Demonstrations Social media
Straight commission compensation/remuneration plan 15. For each of the following, identify and describe three
Straight salary compensation/remuneration plan techniques and give several examples:
Trade sales promotion methods a. consumer sales promotion techniques, and
Trading stamps b. trade sales promotion methods.
Website
16. What types of sales promotion methods have you observed
recently?
Discussion and review questions 17. How does direct mail gain the interest of its recipients?
1. What is personal selling? How does personal selling differ 18. What are the problems facing users of direct mail?
from other types of promotional activity? 19. Marketers initially viewed the internet primarily as a means
2. What are the primary purposes of personal selling? to disseminate product and manufacturer information. What
technological advances had to be made before the internet
3. Identify the elements of the personal selling process. Must
could be used for selling opportunities?
a salesperson include all of these elements when selling a
product to a customer? Why or why not? 20. What are the essential requirements for a website likely to
appeal to targeted consumers?
4. How does a salesperson find and evaluate prospects? Do
you find any of these methods ethically questionable? 21. Why is mobile marketing exciting many brand managers?
5. Are order getters more aggressive or creative than order 22. Discuss the ways social media pose challenges to marketers?
takers? Why or why not? 23. In what ways is direct marketing an ‘interactive’ system?
6. Identify several characteristics of effective sales objectives. Which marketing channel intermediaries are bypassed due
to the nature of this system?
7. How should a sales manager establish criteria for selecting
sales personnel? What are the general characteristics of a
good sales person?
8. What major issues or questions should be considered when
Belch, G. and Belch, M., Advertising and Promotion: An Integrated Mar-
developing a salesforce training programme?
keting Communications Perspective (McGraw-Hill, 2017).
9. Explain the major advantages and disadvantages of the Chaffey, D. and Smith, P.R., Digital Marketing Excellence: Planning, Opti-
three basic methods of compensating salespeople. In gen- mizing and Integrating Online Marketing (Routledge, 2017).
eral, which method do you prefer? Why? Chaffey, D. and Ellis-Chadwick, F., Digital Marketing: Strategy, Imple-
10. How does a sales manager who cannot be with each sales- mentation and Practice (Pearson, 2018).
Jobber, D. and Lancaster, G., Selling and Sales Management (Pearson,
person in the field on a daily basis control the performance
2015).
of sales personnel?
Johnston, M.W. and Marshall, G.W., Sales Force Management: Leader-
11. What is key account management? ship, Innovation, Technology (Routledge, 2016).
12. How does key account management work alongside market Ryan, D., Understanding Digital Marketing: Marketing Strategies for
segmentation? Engaging the Digital Generation (Kogan Page, 2016).
Shimp, T.A. and Andrews, J.C., Integrated Marketing Communications in
13. What is sales promotion? Why is it used? Advertising and Promotion (Cengage, 2013).
14. Does sales promotion work well in isolation from the other Tapp, A., Whitten, I. and Housden, M., Principles of Direct, Database and
promotional mix elements? Digital Marketing (Pearson, 2014).
Thomas, B. and Housden, M., Direct and Digital Marketing in Practice
(Bloomsbury, 2017).
Web task Classroom tools 2. Whether via your letter box or

in-box, consider how much direct
Consider any one of your favourite marketing comes your way each
brands. Log on to its website. week. Which types of product or
1. In what ways is this site finding out information about service tend to dominate? How attracted to this direct
you and your product needs? marketing are you and why?
2. To what extent does the information presented help
inform you of the brand’s attributes and enable you to Applied mini-case
experience the brand?
Many medium-sized business-to-business companies employ
3. How would you modify this website to improve its func- small salesforces, attend trade shows and seminars that pres-
tionality? Why? ent their category of products and attract relevant business
customers, develop limited advertising, construct websites,
Group tasks direct mail their sales prospects and use publicity whenever
they have anything worth publicising.
1. Wander around your local supermarket. Look for the
‘price-offs’, ‘two for one’ or meal deals, bundling of Question
products wrapped together, and coupon-off promotions.
As a new marketing manager in such a business, faced with
Consider the pros and cons to the brands in question of
a limited budget, how would you determine which aspects of
these forms of sales promotion.
the promotional mix should be utilized?
A marketing classic – ever, putting its then top-priced £130 vac-

promoting free flights and Case study uum cleaner ahead of its £100 model and
making its £380 washing machine more
how Hoover came unstuck popular than its £300 model.
In November 1992, a Daily Record story,
Retailers and manufacturers have frequently
‘Hoover’s flight shocker’, started the trou-
negotiated with carriers to offer free travel or
ble. This story alleged that none of the airlines
holidays to boost sales as a sales promotion. The holiday
Hoover claimed was involved in the US deal had any
industry has welcomed the opportunity to use excess capacity
knowledge of the scheme and that Hoover had yet to reserve
and increase demand in such co-marketing initiatives. It was
a single airline seat. The article also stated that the sales
not too surprising when, back in 1992, consumer electronics
promotion company behind the offer was £500 000 in debt.
giant Hoover joined the ranks of manufacturers offering free
In response, Hoover launched a major damage limitation
trips in order to stimulate demand for its white goods, first by
exercise, including full-page adverts assuring people that
offering free tickets to Europe with purchases of more than
there was no mystery, the offer was genuine and that free
£100, then by extending the promotion to include free tickets
flights were available. Hoover’s problems did not end there,
to the USA. What was not predictable was the adverse public-
however. Media attention increased, as did stories of dis-
ity the scheme brought for Hoover.
gruntled consumers.
The second promotion was supported by a high-profile £1
From BBC consumer affairs programme Watchdog to the
million television campaign. The offer included two free flights
House of Commons, questions were asked about the ethics
to either Orlando or New York for every Hoover purchase over
of the deal and the apparently unfair treatment of hundreds of
£100, with an additional £60 towards car hire and accommo-
annoyed consumers who, having purchased a Hoover product
dation for purchases over £300. Hoover claimed that the tick-
and received their vouchers, had actually attempted to claim
ets into Europe had constituted its most successful promotion
their prizes. Many potential holidaymakers could not get first
or even second choices of dates or destination. Many were US parent, Maytag Corp., had bought Britain’s Hoover for
refused their choices so often that Hoover’s promotions com- US$320 million in 1989. In 1995, Maytag sold its European
pany refused to permit any travel! Over 70 MPs demanded operation to an Italian company at a loss of US$135 million.
a Parliamentary investigation. Eventually, the Office of Fair The free flights promotion was, as described in many news-
Trading regulator was brought in to investigate. papers, ‘a fiasco’, damaging not just this type of promotional
Hoover, today under different ownership, had intended activity but, more severely, the Hoover brand name and even
neither to mislead nor to disappoint its customers, but the the viability of the company. High-profile court cases pursued
promotion nevertheless severely affected the company’s rep- by disgruntled consumers only made matters worse. Well over
utation. Circumstances combined in several well-publicised two decades later, consumers and retailers still remember this
cases to make a deteriorating situation even worse for the disastrous marketing communications campaign.
company. What began as a sales-boosting, attention-getting Hoover today is a different and unrelated company and its
sales promotion rapidly turned into a damaging public rela- management has no links with this classic tale of how import-
tions nightmare for Hoover. Key directors were dismissed and ant it is to micro-manage every aspect of a campaign, whether
the US parent company had to shell out millions of pounds to based on a sales promotion, digital, traditional advertising or
meet travellers’ demands for their prizes. Some 12 months any aspect of the promotional mix.
later, disputes had still to be settled. Sources: Clare Sambrook, ‘Do free flights really build brands?’, Marketing,
15 October 1992, p. 11; Mat Toor, ‘Hoover retaliates over flights offer’, Marketing,
3 December 1992, p. 3; Robert Dwek, ‘Hoover extends its free flights deal’,
Marketing, 29 October 1992, p. 16; BBC and ITN television news broadcasts,
March and April 1993; Chris Knight, ‘Direct route’, Marketing Week, 8 September
1995, pp. 58–9; Marcia Berss, ‘Whirlpool’s bloody nose’, Forbes, 11 March 1996,
pp. 90–2.
NB: The Hoover company today is a different business, with

ownership, management, marketing campaigns and products
unrelated to the Hoover described in this case.

1. How damaging to the Hoover name and reputation was
this sales promotion campaign?
2. How could Hoover have avoided these problems?
3. How, in the light of this promotional disaster, should
Hoover have utilized the public relations toolkit to over-
come the adverse publicity?
Chapter 19
Digital marketing
Everything is now instantly accessible anytime and anywhere
Introduction
Objectives Not too long ago, to find out about a product a consumer had
to visit a store or send off for a brochure. To compare options
To explore how digital has impacted
required many such visits and requests. Not so today, thanks
on consumer behaviour and
to Google, Yahoo! or Bing searches, the views of other con-
decision-making.
sumers on social media, the options suggested by comparison
To appreciate the new requirements websites, or the large number of online communities only too
of understanding search engine willing to share their views of products or services. A decade
management and content mar- ago, to access online information or make online purchases,
keting, types of digital media and consumers would have been at home tethered to a PC or at
multi-screen marketing. work using an office-based desktop. This is no longer true, with
smart TVs, tablets, smartphones, wi-fi and mobile broadband
To examine the all-important issue
enabling consumers to compare their options, find reviews, see
of social media strategy.
the opinions of friends and colleagues, make purchases and
To appreciate the growing role of post their own reviews on the move just about anytime and
mobile marketing. anywhere a smartphone or broadband signal can be transmit-
ted. Companies such as John Lewis or Tesco have been quick
To recognize the change to public
to seize these opportunities, but must work hard to follow their
relations brought about with online
customers across new and multiple channels.
public relations.
This digital era is exciting for marketers, providing immediate
To consider the way in which digital two-way interaction with consumers, the opportunity for tailored
is driving innovation. offerings, data capture and much smarter management of cus-
tomers. However, the digital era poses many challenges. How
To understand the challenges of
to ensure Google directs consumers to the marketer’s brand
turning big data into meaningful
rather than elsewhere? Whether to be online only or to juggle
insights.
operating multiple channels? If the latter, how to manage the
To explore the requirements for same consumer across channels, as their buying behaviour
organizations in deciding on a mul- fluctuates during the day or week? How to encourage social
tiple channel-to-market strategy. media chatter to be favourably inclined? How in a digital envi-
ronment to build a relationship remotely? How to make a brand
relevant in a digital space? These are just some of the head-
aches facing a marketing manager today.
567
Following the shopper

T wenty years ago, if a
John Lewis customer
wanted to view products,
across channels
across these varied cus-
tomer touchpoints. John
Lewis was one of the first
consider alternatives or make traditional retailing giants to
a purchase, s/he had to travel to harness the power of the web,
a store. Purchasing from the depart- initially with a standalone online
ment store retailer had been this way for over a century. operation, personnel, systems and
Fifteen years ago, an alternative option emerged. Customers style of customer interaction. Today John Lewis strives to
could use a desktop at home or at work to review options provide a seamlessly linked experience for its customers and
and make a purchase, with John Lewis’s delivery vans has ensured its internal operations are appropriately con-
bringing the ordered products to shoppers’ homes. Now, in verged to provide a consistent John Lewis brand experience.
addition to both of these options, smartphones or tablets For the first time at Christmas in 2014, click and collect
permit John Lewis shoppers to connect with their favourite sales overtook home delivery for John Lewis. Online takings
department store brand anywhere at any time, thanks to the grew by 19 per cent, representing 36 per cent of trade. The
John Lewis app and mobile marketing. Their orders will be click and collect delivery option accounted for 56 per cent of
delivered to their selected location, or they can opt to collect these rapidly increasing online orders. Since then, its popular-
their purchases in-store. Not just inside John Lewis’s depart- ity has continued to grow, reflecting overall growth in online
ment stores, but also at branches of the retailer’s sister busi- sales. This change of consumer behaviour means John Lewis
ness, Waitrose, which is letting its supermarkets be customer must manage its multiple channels as a cohesive set, to pro-
collection points for John Lewis merchandise. There are vide the consumer with a satisfying experience across the
far more Waitrose branches across the country than there company’s operations.
are John Lewis department stores, so this click and col- However, John Lewis is also pressing ahead with plans to
lect option is preferred by many customers who previously grow its store numbers from 51 currently. Some customers
struggled to visit a distant John Lewis store. The company is still prefer to buy in-store. Others opt to mix it up, purchas-
practicing multi-channel marketing and embracing the latest ing online and in-store. For others, stores are still a ‘shop
technology in communicating with its customers. window’, while for many they are a pick-up point for online
There may be some customers of John Lewis who only purchases. Retaining a physical shop presence is seen by
ever buy in-store and some who only buy online, but many John Lewis’s management as key to winning internet custom-
John Lewis customers interact with the company through a ers, so that they can browse products in-store before placing
mix of store visits, desktop connections and while on the move orders or use stores as locations for picking up their click and
via their smartphones. John Lewis is aware of this, so man- collect purchases.
ages its multiple channels to provide consistent branding, a The importance of online shopping is illustrated by Black
uniform customer experience and one set of core brand values Friday. John Lewis said the standout event of its whole trad-
ing year had been the success of its Black Friday promotions.
Relatively new to the UK, so-called Black Friday involves sig-
nificantly aggressive online price discounting by most online
retailers striving to pull forward Christmas purchases and
gain sales from store-based retailers. Black Friday for John
Lewis resulted in record sales during that week at the end
of November.
Sources: ‘John Lewis: Click and collect service overtakes home delivery
as online sales grow 19%’, by Antonia Molloy, The Independent, 5 Janu-
ary 2015; ‘Black Friday surge pushes John Lewis sales to record levels’,
Andrea Felsted, ft.com, 5 January 2015; ‘John Lewis delivers “extremely
strong” performance with sales up 13.3%’, Tiffany Holland, Retail Week,
8 March 2013; www.johnlewispartnership.co.uk/financials/weekly-figures/
john-lewis.html (accessed 5 March 2015); www.johnlewis.com; John Lewis
Press Office May 2018.
Chapter 19 Digital marketing 569
T
his chapter will explore how digital has impacted on consumer behaviour and decision-
making; the new requirements of understanding search engine management and content
marketing; types of digital media and multi-screen marketing; the all-important issue of
social media strategy; the exciting options provided by mobile marketing; email marketing and
online public relations; the way in which digital is driving innovation like never before; turning big
data into meaningful insights; and, the challenges for organizations in deciding on a channel-to-
market strategy, addressing multiple channels and restructuring their operations to manage these
choices.1
Digital marketing
digital marketing According to the Digital Marketing Institute, digital marketing is the use of digital
The use of channels to promote or market products and services to consumers and businesses. It
technology-led channels makes use of computers, smartphones and tablets; websites, emails and apps, as well
of communication and as some non-web-based channels such as TV, radio and SMS messaging, to engage
selling to manage cus-
with consumers and business customers. As will be explained, social media is a core
tomer interaction and
provide customer expe- component of the digital environment. Marketers strive to manage the digital brand
rience in a digitally-con- experience across these devices and channels. Many opt for a multi-channel strategy,
nected environment. bringing on stream digital channels alongside their traditional channels of distribution
and touchpoints with customers, but some companies are digital-only operations. Geo-
graphic trading barriers largely do not apply in the digital world, changing the competitive
digital channels landscape for long-established players. Digital marketing is the use of technology-led
Different forms of digital
media used for online
channels of communication and selling to manage customer interaction and provide
marketing and delivery. customer experience in a digitally-connected environment.
The range of channels There are five principal benefits to marketers of digital marketing. (1) Digital provides
continues to expand additional options for marketing communications, as internet viewing, web searches and
requiring organizations Google become routinized behaviour; (2) digital gives marketers more direct and diverse
to develop multi-channel
or now omni-channel
channel possibilities, with many companies developing multi-channel strategies and
strategies. some new entrants trading only online; (3) digital enables marketers to capture greater
insights into consumers with immediacy and two-way interaction as never before, with
extensive profiling of customer histories and behaviours; (4) digital explodes the ways in
digital brand which marketers build relationships, with far more direct and frequent interactions and
community the bespoke tailoring of information, deals and propositions; (5) digital provides access
A group of consumers,
to customers 24/7 as never before has been possible, wherever they are and whenever
observers or advocates
focused on a particular they want to connect.
brand, using social media Digital has provided significant opportunities and new options for marketers, but
to share admiration for there are many downsides and complications to address.2 Five of the biggest are:
their favoured brand. (1) the diminishing control over a brand’s messages and its perceptions, as social
media facilitates greater consumer-to-consumer comment; (2) data overload, as the
digital environment and online marketing capture huge amounts of often live con-
sumer insight; (3) privacy concerns, as consumers start to realize how much is known about
their whereabouts, interests, purchasing, viewership, networks and lifestyles; (4) the breakdown
of trust, as a consumer quickly learns via social media chatter that her favourite brand or retailer
has just offered someone else a better deal; and (5) the requirement for a whole host of new
skills and agency partners. Digital is certainly exciting and offers far more options for market-
ers as they endeavour to attract and retain customers, but the downsides are significant, too.
Worse, in some businesses, leaderships have created digital teams who are separate to the
marketing function. This is a development which has the potential to reduce the impact of mar-
keting and its ability to develop customer insight, create value propositions, manage customer
relationships and use brands consistently.
Changing behaviours in a or Live Nation continue to offer upgrades,

connected world behind-the-scenes tours, meal-inclusive
Topical insight deals, travel-deals or accommodation
Those wanting to see their favourite packages. If travel or hotel accommodation
band perform live in the 1980s had a very is booked, those providers in turn contact
one-way, simple and at arm’s length rela- customers with their own transfer deals, room
tionship with the promotor and venue. To find upgrades, food and beverage offers, and so forth.
out about their band’s tour dates they had no access to Customers might be sent weather outlook information,
social media or websites. Instead, concert-goers had to buy a recommendations for sightseeing, travel warnings or revised
weekly edition of the New Musical Express or Melody Maker timings for the show, along with downloadable apps.
to see tour date announcements. To acquire tickets, they sent Once the show itself is under way, not only fans post pho-
off a cheque or Postal Order to the promotor or venue, with a tos or video clips online, but so do representatives working for
stamped addressed envelope for the despatch of their tickets, the artist performing, the venue or on behalf of the companies
and then waited! Or they queued at the venue’s box office, if promoting the tour. Even those performing take shots and post
they happened to live close by. And then silence… there would online. Reviews of the show are now instantly available, after
be no further communication or involvement with the promotor, each song let alone at the end of the show’s curtain call or
band or venue until turning up on the date of the performance. encore. In the hours after the performance or on the day fol-
If anyone booked a hotel for the night in question, they did so lowing check-out from the concert hotel, concert-goers are
over the phone and had no follow-up interaction whatsoever bombarded with requests to post reviews or rate their experi-
with the hotel or booking agent until checking in. ence, so that they help in the ongoing promotion of the artist,
Life has certainly moved on. Today, rolling 24-hour news, promotor, venue or hotel.
ticketing and fan websites, email alerts from bookings agen- This ongoing interaction is part of these organizations’
cies, social media announcements from promotors, ticket customer relationship management processes, enabled by
agencies and venues, along with online chatter amongst mobile marketing apps, the use of smartphones, tablets on
fans, alert users to the tour dates being announced and tick- computers, social media and email, and the databases devel-
ets going on sale. Purchases might be made by phone, but oped by booking agencies, venues, hotels and transport oper-
invariably today are made online, whether by web search or ators. The communications are tailored and personalized for
through an app on a smartphone. Often tickets are printed off the individual customer. They are all part of managing the cus-
at home or stored electronically on smartphones. The buy- tomer’s experience. The aims are to enhance this experience
ing experience does not end there, however. Once tickets are and solicit future purchasing. All enabled by digital marketing
acquired, many promotors or agencies such as Ticketmaster in a connected world.
Changing consumer behaviour

The customer decision-making process – as explored in Chapters 5 and 6 of Marketing: Concepts
and Strategies – is need recognition, information search, comparison of options, selection of
the one to acquire, purchase, consumption, reflection and post-purchase evaluation. Marketers
traditionally focused on the information search part of the process to ensure their messages
were found, relevant and attractive, and on the purchase phase to make certain the marketing
mix aided ease of purchase and satisfaction with the nature of the transaction. Marketers also
tried, via marketing communications, to create or prompt a customer’s need for a product or
service. Certain aspects of relationship marketing and customer experience management also
sought to manage post-purchase evaluation in order to nurture repeat buying and some degree
of purchasing loyalty.
Each stage of this buying decision-making process has been impacted by digital. Information
search is often led online with web searches, posted review comments/ratings and social media
gossip shaping so much of consumer decision-making. The purchase stage is no longer constrained
to an in-store or direct mail interaction. Globally, just under two billion web users last year made
purchases online, with sales online increasing at 20% per annum. In countries such as the UK and
USA, the proportion is much higher, with eight out of ten consumers now making purchases online.
Customer data are analyzed so that brands prompt consumers directly in order to create cate-
gory need and to trigger the desire to make a particular purchase. How often have you
responded to a pop-up advertisement on your browser from a favoured supplier or been
pop-up ads
Pop-ups are online prompted, when in a company’s web pages, to purchase offers tailored to your previous
advertisements which purchasing? Brands even help to manage the post-purchase evaluation, by seeking s urvey
pop up in new browser responses to satisfaction audits and asking directly for feedback to be posted online.
windows, designed to Companies traditionally viewed two occasions as ‘moments of truth’. The first was
attract web traffic or
at the point of purchase, when a customer committed to a specific choice of a brand.
capture contact details.
Pop-under advertise- The second was subsequently when the customer used or consumed the product s/he
ments open under the had purchased, at which point possible verdicts on the decision were positive, negative
active window unseen by or neutral. The web has changed this situation in three ways. First, often consumers
a user until the covering research their options at home before arriving at the point of purchase, whether that is
window is closed.
in-store or online. Second, even at the point of purchase, online comparisons, research
and price checking take place. With the advent of smartphones, this can be in-store,
too. Following use or consumption, online discussion and feedback not only influence
a consumer’s subsequent purchasing but share views with a multitude of other consumers and
shape their thinking, too. Success for marketers now involves ensuring a positive outcome at all of
these stages. Arguably the post-purchase evaluation is now hugely impactful on a brand’s perfor-
mance, as word-of-mouth is shared via social media. Traditional buying behaviour decision-making
should be re-appraised, so that this digital pathway is included and addressed with the marketing
mix. In particular, this means managers must seek to have their brand’s reviews found digitally but
also foster positive discussion online about their proposition. Mobile marketing, online video and
social media discussion are today integral aspects of the communications mix.
Applying digital marketing

Search engine management
Consumers surf the web for an interesting offer or to review a favoured brand (see
Figure 19.1). Are the websites suggested by their search engine, whether Google, Bing,
pay per click Yahoo!, Ask, randomly generated, in order of popularity or as a result of significant effort
Text ads that are dis- by brand managers and their digital partners? Inevitably, the pecking order in the browser
played on the search is a result of manipulation by brand teams and a host of other parties, many of whom
engine results page when have discovered ways to financially benefit from providing such control of consumers’
specific key phrases are
options. For some marketers, there might be the option to create a revenue stream
entered by the search
user. The advertiser pays via charging for clicks per view to see an advertisement or link. The manipulation goes
when the site visitor beyond merely depicting such lists in a certain order. Our browsers seem to understand
clicks on the advert. our tastes and interests even before we enter a search, with banner advertisements
depicting the brands we apparently favour and suggested links prompting us to look at
brands with which we already have a relationship. This uncanny ‘sixth sense’ of our com-
search engine puter or smartphone is not of course by chance. Google analytics and web behaviour
optimization
The management of
analysis understand each of us very well so as to provide us with tailored choices.
search engine behaviour Google looks at many factors to determine whether a page features high up in its
so as to increase a search lists; how many people view a site, for how long, whether they return, how long
brand’s rankings in the pages take to load, the click-throughs or pay per click ads and sharing of comment
search engine organic on social media. To many consumers, this is appealing as it saves time and provides
result listings on search
engine results pages
information that is pertinent. Others resent this intrusion and manipulation of their infor-
(SERPs) for particular mation search and short-listing of apparent options. Nevertheless, search engine
key-words and phrases. optimization (SEO) is the crux of digital marketing. Large companies now recruit experts
in digital marketing and search engine optimation, while smaller businesses turn for help
Figure 19.1
Search engine management: Web Touch Solutions Limited is one of many agencies offering help with digital marketing and search engine
optimization
to the large number of digital agencies to have been established in recent years. Not to consider
SEO as an important activity is risking the viability of a marketing strategy.
Content marketing
Once a Google search has directed the consumer to a particular brand’s web pages, it is important
the right content is quickly and easily available. The brand has a strategy, target market selection and
brand positioning. This proposition has appealed to the consumer searching for it or should hook the
consumer about to be directed to the brand for the first time because of the list popping up in the
browser. The website should convey a tone, look and ethos reflecting the brand in other channels
and its intended target market strategy. The customer insights and market segmentation outcomes
already in place should inform the content of the web experience. If particular offers are available
through the brand’s marketing mix, particularly if they are being promoted through other advertising
media, the visitor to the web page should readily find this information. Awareness of competitors
should also be reflected in these pages, to ensure differentiators are well to the fore.
content marketing A very important aspect of content marketing is to insert key phrases likely to be part
The creation of relevant of a Google search on each page. Google provides a Keyword Planner tool to assist
and interesting text, marketers in selected appropriate terms. Marketers must understand the type of content
audio, video and rich
their customers wish to consume. This will vary whether they are at home, in-store, on
media content to engage
specific customers in the move or at work. Mobile marketing has added further complexity for marketers.
order to create brand
awareness and sales. Types of media
Traditional marketing pushed messages to consumers through broadcast (TV, cinema and
key phrases
radio) and print (press and magazines), one-way from brand to consumer. Digital media
The combination of
keywords used to log a not only provide additional options, but these channels often are two-way, permitting a dia-
query in a search engine. logue, immediacy and the ability to tailor marketing messages one-to-one. The challenge
Key phrase analysis is the for marketers is to juggle this growing mix of media options, some of which are paid, owned
identification and selection and earned. However, Forrester Research has suggested that marketers need to move on
of relevant keywords and
from thinking about paid, owned and earned digital channels to instead explore the reach,
phrases to leverage SEO
and search marketing. depth and relationship channels evident at different stages of the life cycle; regardless
of whether those channels are digital or traditional, or whether they are earned, owned
or paid. Research analyst Forrester suggests RaDaR: Reach channels, Depth channels
and Relationship channels (see Figure 19.2). Most customers open to discovering new products
and services rely on mass-reach channels such as TV adverts, search engines and word-of-mouth.
When they want to explore products in more detail, they use depth channels such as brands’ websites
and retail stores: the same channels they use when making eventual purchases. When they want to
engage with their favourite brands, they use relationship channels, such as signing up for email lists
or loyalty programmes, or ‘liking’ a brand on Facebook.
h
ac
Re co ver
Dis
Exp
lore
D e pth
Eng
age
Buy
Re
lat
ion
hip
s
Depth channels: tell a brand’s story. Its website, new audiences or directly driving sales. Instead, they are
stores and salespeople serve a common purpose: to give about staying in touch with the brand’s biggest fans and
customers and prospects the details they are seeking loyal users.
when they explore a product or brand, and to guide them Reach channels: put a brand into the consideration
to a purchase. set. Word-of-mouth and unbranded searches are the two
Relationship channels: serve existing customers. channels customers use most to discover products, followed
Most of the people who sign up for a brand’s m
ailing lists by traditional channels such as TV adverts and in-store
or follow the brand in social media are existing and sat- displays. The reason for using these tools is to encourage
isfied customers. These channels are not about attracting customers to explore the offering in greater depth.
Figure 19.2
Types of media in the digital era
Source: Adapted from blogs.forrester.com/nate_elliott/13-01-24-introducing_the_marketing_radar, June 2015.
Multi-screen marketing
Marketing used to be rather one-dimensional and invariably one-way. Poster campaigns gave
way to TV commercials, which were superseded by web banner advertisements. Most advertising
media were one-direction, from a brand to a customer, but not vice-versa. In today’s digital envi-
ronment, brands communicate with consumers, consumers with brands and discussion groups,
so that consumers share opinions with each other, too. A TV screen, cinema screen, computer
monitor or the screen of a mobile device? Increasingly there is no choice between these options,
as advertisers opt for all of them within a campaign. Perhaps alarmingly for those of a certain gen-
eration, many consumers in practice are interacting with multiple screens simultaneously: viewing
TV, checking their phone and surfing online on a tablet all at once. On average, today’s consumers
change the device that they are using 21 times per hour while at home, with much shorter atten-
tion spans than traditional TV advertising was designed to accommodate. Microsoft has identified
different behaviours in terms of digital advertising, depending on whether the motive is social,
entertainment or productive, as depicted in Figure 19.2.
Marketers are aware of these behaviours, increasingly using one medium to guide a consumer
to another medium for further information or to start a dialogue. Integrated marketing commu-
nications was conceptualized in order to encourage marketers to join-up their activities across
advertising, direct mail, sales promotions, publicity and personal selling, packaging and branding,
but now must contend with interactive media and simultaneous multi-channel communication.
While certainly challenging, this fast-evolving situation is also very exciting for brand teams as they
devise their marketing programmes.
Social media strategy

Facebook is perhaps the most well-known example of social media, but there are numerous digital
platforms encouraging sharing of information, views and discussion. Worldwide, Facebook now
has an incredible 2.2 billion active monthly users. In the USA, 70% of the population now has an
active social media account with one of the major networks. By 2021 it is predicted that a third of
the earth’s population will have a social media account, fuelled by huge uptake in China and India.
The use of digital messaging apps has underpinned this growth. WhatsApp has 1.5 billion users,
Facebook Messenger has 1.3 billion, WeChat has just under one billion, QQ Mobile 783 million,
Viber 260 million and Snapchat has 255 million. Skype, with its narrow focus, now has 300 million
active users. Seventy-five per cent of online adults use Facebook. In the US, Facebook users
average 16 minutes per hour hooked up online, while Australians spend 14 minutes and Britons
13 minutes.
Not only youngsters are active with social media: 45 per cent of internet users aged over
65 now use Facebook. Forty-seven per cent of Americans cite Facebook as their number one
influence on their purchasing decisions. Seventy-five per cent of marketers now use Facebook to
gain new customers and 35 per cent use Twitter to generate leads. Ninety-three per cent of mar-
keters turn to social media to win business. Sixty-one per cent of US consumers state they have
made a purchase based on a blog posting and 81 per cent say they trust blogs. Seventy-seven
per cent of internet users read blogs. Small businesses with blogs generate 126 per cent more
leads than rivals failing to post blogs. Seventy per cent of consumers now learn about brands
through their online articles rather than traditional forms of broadcast and print advertising. The
average buyer consults 11 online reviews before purchasing. Ninety-two per cent of companies
turn to social media platforms to recruit staff, with LinkedIn used by over 90 per cent. LinkedIn
claims to power 50 per cent of world hires. Not only are these statistics mind-blowing in terms
of revealing the impact of social media, they also indicate the fast-changing nature of marketing.
Social media pose a significant threat to marketers, who previously enjoyed the control of
messages and opinions about their brands. Today, consumers learn more from each other and
various third parties online than they do directly from brands. Leading social media sites include:
●● Facebook, with over 2.2 billion active users
●● YouTube, the second most searched site in the world, now owned by the first, Google, with
1.5 billion active users
●● WhatsApp, with 1.5 billion active users
●● Instagram for image and video sharing via smartphones and tablets, with 813 million active users
●● Tumblr, with 794 million users
●● LinkedIn for business users and networks of professionals, with 260 million users
●● Twitter, with 330 million users
●● Reddit, with 330 million users
●● Snapchat, with 255 million users.
Globally, other significant networks include QQ, QZone, Sina Weibo, Baidu Tieba and Viber.
Social media marketing enables a brand to interact with consumers on their terms,
Social media
marketing
where they feel comfortable and secure.3 These sites are very valuable for learning about
The process of gaining their behaviours and views, for testing out new marketing ideas, and for suggesting neg-
website traffic or social atives about competing brands (see Figure 19.3 which suggests some digital advertising
mentions through social behaviours). Sales leads are generated, product demonstrations can be shared and brand
media sites, by creating reputations managed. Digital online brand communities increasingly are important for
content attracting the
attention of readers who
marketers, as explained in Chapter 11 of Marketing: Concepts and Strategies. Effective
will share these through campaigns recognize that content needs to be worth sharing through its creativity, humour
their social networks. or story-telling. Social media channels are not sales channels and marketers must beware
of antagonizing cynical consumers who will be quick to voice and share their displeasure.
It is important for marketers to monitor social media chatter in case their brand is receiving
negative comment or a rival brand is faring much better or worse.
Investigative Social
Content grazing Quantum
spider-webbing spider-webbing
Relaxation/
Dominant Relaxation/ entertainment,
Social/enjoyment Shopping/tasks
activity entertainment alongside shopping
and tasks
Most
common Efficiency, location
Seeking detail and
reason Habit, distraction Connect with others change, better user
depth
for multi- experience
screening
Prime Morning, noon and Morning, afternoon,

Morning and evening Evening and night
day-parts evening evening
Work,
on-the-
Work, on-the-go, home Home Home Work and on-the-go
go or
home
Recognition, vitality, Power, recognition,
Enjoyment, conviviality,
Dominant Control: ‘I’m in control enjoyment: ‘I want to vitality and security:
belonging: ‘Adding a
need- of my moment—whether satisfy my curiosity; ‘I’m on top of things;
social element makes me
states (by it’s a task or a quick bit going deep on a topic is and it feels good to use
feel like I’m part of
index) of fun.’ an enjoyable way to tech to get things done
a community.’
spend my down time.’ well.’
Figure 19.3
Digital advertising behaviours
Source: Cross Screen Engagement, Microsoft Advertising (2013).
An important aspect of social media for marketers is finding out… learning about consumers,
competitors, changing consumer behaviour and attitudes, or how their own brand or proposition
is viewed. Many marketing teams now routinely monitor social media chatter or pay agencies to
do so. They glean many important market, customer and competitor insights this way. Marketers
may also test out their hunches, trial new product or proposition ideas, tweak pricing and suggest
how a product or service plays to consumers’ needs. By listening to reactions – the chat on social
media – they instantly have their hunches validated or contradicted. This has meant trialling ideas,
testing marketing campaigns and fine-tuning marketing mix ingredients has become much faster
and two-way with consumers. Some companies also plant views about competitors in order to help
validate their assumptions about a rival’s strengths and weaknesses. It is important to remember
that competitors may well be doing the same and that apparent consumers expressing their opin-
ions on social media in fact might be third parties in the pay of a competitor deliberately distorting
opinions in order to derail a rival brand’s strategy.
Mobile marketing
Think about your own web browsing behaviour. Is it predominantly at home, in the office or on-the-
move? Is it tied to a PC or more flexible and largely smartphone or tablet-based? Or a mix? (See
Figure 19.4) More than likely it is a mix of behaviours, increasingly making use of mobile broadband
and 4G smartphones to keep you connected to Google – and thereby to your brands – anywhere
and anytime. Of a global population of 7.6 billion, there are 5.1 billion mobile users and 2.96 billion
active mobile social media accounts. Just over a half of all internet traffic is now on a handheld
mobile device, adding three per cent share per annum against desktops.
This change of behaviour forces marketers to ensure their websites are optimized
mobile marketing for mobile usage, yet Adobe estimates that many marketers have not done this. Google
Marketing to encourage says that over half of searches now are from tablets and smartphones. Consumers do
consumer engagement not only search: they make purchases on the move, too. Google Analytics enables a
anywhere or anytime
while on or using a
marketer to see visitors, their locations and the devices they are using. If a mobile visitor
mobile device, such as to a website is lingering much more briefly than a desktop-based visitor, it implies the
a smartphone or tablet, brand’s website is not set up to match the needs and expectations of the mobile user.
and heavily dependent Content and page size must be responsive and alter to reflect the consumer’s device
on mobile apps which and operating system. For mobile marketing advertisements and headline messag-
provide users with infor-
mation, entertainment
ing should be simplified but no less eye-catching than for desktops. Some brands will
and location-based need to specify the geographic areas they serve and ensure they are flagged by Google
services. Places and Google Local. Marketers need to ensure they have a mobile channel that is
fit for purpose.
Figure 19.4
Marketing anytime/anywhere Connected for work, socializing or making p urchases, today’s consumers are targets for marketers anytime
and anywhere in the era of mobile marketing.
Email marketing
Instagram, Snapchat, Facebook and Flickr may have superseded email for a generation of younger
or more technology-savvy consumers, but email is still an important part of the digital armoury. Email
is used to deliver offers, communicate brand building messages and direct relationship-building
information to customers, prospects and target audiences.
For every £1 invested in email marketing, the return is £40 of business. However,
email marketing
The use of email to
there are problems to address. Users’ spam protection is an issue, blocking much traffic.
deliver offers, brand Dedicated email marketing service providers, such as GetResponse.com, iChamp or
building messages and Mailchimp have arrangements with the major ISPs, to increase the likelihood of emails
relationship-building being received successfully and not blocked. A major issue now is the use of unsolicited
information to custom- email, which more than likely falls foul of the EU’s data protection regulations introduced in
ers, prospects and target
audiences.
2018. Unless someone is registered with a brand or provider and has agreed in advance
to receive information, it is difficult to justify emailing them within the new regulations. It
might be possible to argue that doing so is legitimate because contacting them is a neces-
sary and routine aspect of running that business. For example, universities might argue that emailing
former students as part of alumni networking is such a case, even if some ex-students have not
sought such emailing or contact. If a brand oversteps the rules there are now very hefty fines to face.
Many brands encourage subscription to newsletters, but it is better to send out topical reports or
white papers with links to YouTube videos cross-promoting these highlights. As with any marketing
activity, the target selection should relate to the overall target segment strategy and positioning to
ensure the messages are well-honed and deemed to be of interest.4
Big data insights

Innovation available to explore the data, the analytics
and change capability within research teams, and the
A few years ago, a piece of research exam- interactive/iterative nature of online rela-
ining the general public’s attitudes towards tionships, all combined to provide a whole
sustainable clothing collected data from less new approach to undertaking this study.
than one hundred respondents. A mix of one-to-one intercept Social media provided the opportunity to
interviews in a shopping mall, following on from a set of focus establish online discussion fora, ongoing and able
groups, provided the researchers with their insights. The meth- to probe emerging themes. Twitter outputs from thousands
odology for this data collection was deemed perfectly ade- of users identified those interested in sustainability and green
quate and the sampling of those involved in the data collection clothing, following their threads to hone in on those most
had been carefully constructed to ensure a cross-section of engaged with this topic as well as revealing individuals act-
views was attained. Nevertheless, the findings were based on ing as thought leaders. These influencers also were contacted
a small sub-set of the general public and only enquired once and invited to participate in online discussion groups and also
at a single point in time about their views, with no opportunity to be Skype interviewed one-to-one. The Twitter posts were
to follow-up on interesting themes or assess over time whether tracked over a six-year period. In addition, the researchers
their views were borne out in the reality of their behaviours. were able to post their own propositions and thoughts, teas-
A recent study exploring the same topic accessed the ing out responses and instigating debates specifically focused
views of tens of thousands of consumers, monitored their around their research hypotheses and questions. Separately, a
changing views and behaviours over a long period, and large number of consumers volunteered to track their clothing
tracked their actual purchasing and consumption during this use and purchases, using wearables. The growing number of
period. The research cost less to undertake than its prede- app-based wearable digital products, used to monitor life-style
cessor some years before, despite the significantly enhanced issues such as healthier eating and fitness, permitted research-
sample size, data collection and analysis. The change makers to gain consumption data. The business of seeking cus-
ing this possible was a combination of developments in the tomer insight and understanding the implications for brands has
digital era. The ability to capture data from large numbers been revolutionized, due to new technologies, the web, social
in a big data-driven era, the computing power and models media and big data.
Online public relations

The requirements for effective public relations remain as described in Chapter 17 of Marketing: Con-
cepts and Strategies, but the arena has altered dramatically along with the nature of the engagement,
leading to a need for online public relations. The role of PR has not changed: audiences
online public relations
Web-based communica-
still require messaging with well-crafted and newsworthy stories, reputations must be
tion and interaction with managed and crises responded to. However, social media has radically altered the rules,
an organization’s publics, while the web provides a first contact point of reference for many seeking information
stakeholders and target about a brand or market development. Previously brands pushed out their messages
audiences in order to through their marketing communications, but increasingly consumers and other inter-
manage reputation, cre-
ate awareness and build
ested parties pull the insights they require, as and when needed, from web searches and
relationships. via social media discussions. Marketers have had to adapt their use of public relations
accordingly. A real advantage of the digital era is the immediacy of coverage and the scale
of the networking which is feasible. This assists the PR executive no matter the remit and
is particularly helpful when managing crises or negative publicity.
Driving innovation
monetizing
Companies’ leadership teams have observed others monetizing digitally-collected data
The ability to generate and making significant returns on their online operations, so have striven to encourage
revenue through a their organizations to innovate and try new ways of doing business online. For most
website, blog or data. companies, the challenge has been to establish multi-channel operations and to follow
Monetization can be from their customers across these various channels. However, digital has enabled start-ups to
affiliate programmes,
eCommerce, premium
enter markets previously out of reach because of the barriers to entry in terms of estab-
content, advertising or lishing distribution and being accessible to intended customers. This has encouraged a
commercializing data, spirit of innovation, as web-only businesses have come to many markets, offering greater
online communities and choice to consumers, often across international boundaries. Even in more traditional
customer insight. businesses, the digital era has engendered a wave of new thinking in terms of products
and services, partnerships to bring them to market, communications, creating ongoing
relationships and in building the brand. The area of customer insight in a big data envi-
crowdsourcing
The task of outsourcing ronment has been particularly productive in terms of new thinking.
to a large group of peo- The digital environment has encouraged businesses to collaborate with others, share
ple or a community via insights and involve customers and partners more in product or service co-creation. The
the internet for funding need to involve technology-savvy experts, analytics and app developers is also a driver for
a task usually performed
this new set of behaviours. Companies are recognizing that they can work globally with
by the company itself,
such as product testing. smart-thinkers able to bring creativity and new ideas to their businesses. Harnessing the
energy and reach of social media, crowdsourcing and more routinized collaborations is
the base of a steep learning curve for many organizations, but one deemed worthwhile by
‘internet of things’ so many of today’s successful, fast-moving and more innovative companies. Even long-term
The network of physi- marketing-led corporations are seeking to harness this energy. Procter & Gamble is one such
cal objects or ‘things’
example, via its open innovation platform for collaborating with external developers (www.
embedded with electron-
ics, software, sensors pgconnectdevelop.com/home/pg_open_innovation.html). No doubt the clumsily labelled
and connectivity to ‘internet of things’ will provide a new wave of innovation and activity for marketers, as more
enable greater value and and more household appliances and gadgets communicate to each other and with remote
service by exchanging third parties, sharing data and providing new insights into the behaviours of consumers.5
data with the manufac-
turer, operator and/or
other connected devices.
Big data and analytics
Big data
At its inception, digital brought marketers additional means for creating a marketing
mix, providing additional options for channels to market and for communications with
consumers or business customers. One of the biggest benefits to marketers initially was
rather overlooked. Owing to the two-way dialogue permitted with consumers and the
big data
Data that are too large, often real-time interaction facilitated by digital communication, along with the visibility
numerous, complex and of ongoing relationships with consumers which build up a history of purchasing, their
frequent for conventional search behaviour and opinions expressed, arguably one of the biggest benefits for
data tools to capture, marketers from digital is the wealth of data and customer insights routinely available to
store, manage and
an organization. Commonly referred to as big data, this wealth of topical information
analyze. Open source plat-
forms enable organizations provides the ability to learn so much almost instantly in a way never before possible for
to extract real time value marketers.6 Witness how Google and Facebook capture the profiles and behaviours of
from the huge volumes of their users for their own purposes, but also commercially for third parties. This changing
data being produced. environment has required the need for analytics and experts in sifting through these huge
amounts of data in order to identify genuine, directional and helpful market and customer
market insight insights. Many companies simply feel overwhelmed and are struggling to harness this
Learning about consum- potential. Digital agencies and the leading analytics consultancies have stepped into
ers, competitors and this void to provide support to marketers, while many companies have created digital
market trends to identify
strategic direction and
insight teams, either within the traditional marketing function or as a separate resource.
improve returns. The wealth of data now collected via digital marketing and social media has
altered how many activities for marketers are undertaken. For example, Chapter 7
explained how much faster and cheaper market segmentation assessments are,
marketing analytics
The processes and
while Chapter 9 explored some of the changes in marketing research. One of the
technologies that enable consequences for marketers has been the growth of personnel who are expert in
marketers to evaluate the marketing insight and marketing analytics – either in-house or from external
success of their market- partners and agencies – in order to monitor and explore the wealth of market, con-
ing initiatives by measur- sumer and competitor data to identify key marketing insights and emerging trends,
ing performance across
all channels and activities
and to assess the performance of the increasingly dynamic and wide-ranging set of
using important business marketing activities.
metrics such as ROI.
Marketing analytics and performance
conversion rates
According to SAS, marketing analytics comprises the processes and technologies that
The proportion of visitors
who go on to complete enable marketers to evaluate the success of their marketing initiatives by measuring
a defined action, such performance (e.g. blogging versus social media versus channel communications), using
as register, complete an important business metrics, such as ROI. It is a huge growth area within the field of mar-
inquiry form or make a keting. Traditionally, marketing has struggled to measure performance and to quantify
purchase.
its contribution to an organization from its marketing programmes. Digital marketing and
the emergence of marketing analytics are changing this situation.7, 8
bounce rate Digital marketing provides a host of metrics, from counting visits to a site, time spent
The number of visitors on a site or page, where the viewer moved to, whether a purchase or request for contact
who quickly/immediately
leave without dwelling or
was made, and so forth. Some of the most popular metrics for online marketing include:
clicking-through to other ●● Conversion rates: the proportion of visitors who go on to complete a defined action,
content.
such as register, complete an inquiry form or make a purchase.:
●● Page views: the number of pages viewed by a visitor to a website.
click-through rate
The number of visitors ●● Absolute unique visitors: the number of individuals who visited a site over a given
who click onto to find out time period.
more and who engage
●● New versus returning visitors: the number of returning visitors, which is an assess-
more fully with a site.
ment requiring cookies to be activated and good analytics.
●● Bounce rate: the number of visitors who quickly/immediately leave without dwelling
abandonment rate
Those visitors who do or clicking through to other content.
not bounce straight away ●● Click-through rate: the number of visitors who click on to find out more and who
from a site, but who ulti- engage more fully with a site.
mately fail to convert to
the hoped-for outcome. ●● Abandonment rate: those visitors who do not bounce straight away from a site, but
who ultimately fail to convert to the hoped-for outcome.
●● Cost per conversion: a calculation of the total cost of advertising divided by the
cost per conversion
Calculation of the total total number of conversions generated from the campaign.
cost of advertising divided
Forbes says that many companies still lack analytics staff. Research company Gart-
by the total number of
conversions generated ner predicts there will be over four million big data-related analytics posts created in the
from the campaign. next two years. Harvard Business Review goes as far as to say that the role of the data
scientist is set to be one of the sexiest there is in corporate life. Certainly, such roles now
exist in many companies.
Companies must use the wealth of intelligence emerging via digital activities and evaluate their
online marketing activities alongside their more traditional marketing activities. This requires market
insight analysts to sift through huge volumes of marketing data, in order to identify patterns and genu-
ine insights with which to direct marketing strategy and align marketing programmes. To assess perfor-
mance, analytics experts are required, defining metrics, collecting appropriate data, creating the ability
to analyze and report the implications, and encouraging leadership teams to embrace the findings.
Managing multiple channels

When asked about their biggest challenges in today’s environment, leadership teams of companies
cite social responsibility, sustainability and privacy concerns with data amongst their leading con-
cerns. Invariably top of the list, however, are managing customers in the face of increasingly domi-
nant social media-led consumer-to-consumer communication, identifying key insights from among
the huge volume of big data, and managing customer experience across channels. Multi-channel
management is proving to be a big challenge in many companies.
As has been explained, digital has enabled some new entrants to emerge in markets without a
physical or store/depot-based presence. For many established players, digital has enabled a new
channel to market to increase customer numbers and seek greater share of their spending. While
this has been viewed eagerly as providing the potential for growth in sales and market share, the
addition of a channel is not without its drawbacks. Marketers must manage costs prudently and
be flexible enough to modify their behaviours to accommodate new business models and ways of
engaging with their customers. They must seek to provide a joined-up brand strategy, market seg-
mentation and customer experience across these channels. There is only now a growing realization
that often the same customer buys online as well as in-store, so having standalone operations and
separate management teams for each route to market is unlikely to provide an optimum joined-up
customer experience for many of a company’s customers.
Omni-channel marketing has emerged in the literature recently as an extension
omni-channel
marketing of the multi-channel concept.9 Multi-channel refers to using many channels, while omni
Multi-channel marketing refers to using ‘all’, providing a seamless customer experience through all available
utilizing all available channels, such as in-store, mobile internet devices, computers, television, radio, direct
channels to offer cus- mail, catalogues and any other touchpoints with consumers or business customers.
tomers a seamless brand
Customers must be tracked across all channels, with a focus on providing a joined-up
experience across a
company’s channels. brand experience. Merchandise, promotions and marketing communications are not
channel-specific. The physical store often becomes an extension of the supply chain in
which purchases may be collected in the store, but are researched or enacted through
other channels, such as the ‘click and collect’ option now offered by many retailers.
Summary
This chapter has defined the nature of digital marketing and examined how digital has impacted on consumer behaviour
and decision-making; the new requirements of understanding search engine management and content marketing, types
of digital media and multi-screen marketing; the all-important issue of social media strategy; the exciting options provided
by mobile marketing; email marketing and online public relations; the way in which digital is driving innovation like never
before; turning big data into meaningful insights; and the challenges for organizations in deciding on a channel-to-market
strategy, addressing multiple channels and restructuring their operations to manage these choices.
Digital marketing is the use of technology-led channels of communication and selling to manage customer interaction and
provide customer experience in a digitally-connected environment. Search engine optimization (SEO) is the management
of search engine behaviour to increase a brand’s rankings in search engine organic result listings on search engine results
pages (SERPs) for particular keywords and phrases. Pay per click (PPC) is one form of monetizing the digital journey: text ads
that are displayed on the search engine results page when specific key phrases are entered by the search user result in rev-
enue, with the advertiser paying when the site visitor clicks on the advertisement. Key phrases are required in order to com-
ply with search engine behaviours. Key phrases are the combination of keywords used to log a query in a search engine. Key
phrase analysis is the identification and selection of relevant keywords and phrases to leverage SEO and search marketing.
Content marketing is important in digital marketing, involving the creation of relevant and interesting text, audio, video and
rich media content to engage specific customers in order to create brand awareness and sales. Social media’s popularity
seems to have unlimited bounds. Social media marketing involves the process of gaining website traffic or social mentions
through social media sites, by creating content attracting attention of readers who will share these through their social net-
works. A digital brand community is a group of consumers, observers or advocates focused on a particular brand, who use
social media to share admiration for their favoured brand.
Mobile marketing presents so many possibilities for marketers, but also many challenges. Mobile marketing encourages
consumer engagement anywhere or anytime while using a mobile device, such as a smartphone or tablet. It is heavily
dependent on mobile apps, which provide users with information, entertainment and location-based services. Email
marketing should not be overlooked. This is the use of email to deliver offers, brand-building messages and relationship-
building information to customers, prospects and target audiences. Web-based communication and interaction with an
organization’s publics, stakeholders and target audiences in order to manage reputation, create awareness and build
relationships reveal that most public relations activity is undertaken digitally in online public relations.
Monetization is the ability to generate revenue through a website, blog or data capture. Monetization can be from affiliate
programmes, eCommerce, premium content, advertising, online communities or data capture and customer insight. Digital
marketing has led to many innovations. Crowdsourcing is the task of outsourcing to a large group of people or a community
via the internet for funding a task usually performed by the company itself. One of the latest breakthroughs is the internet of
things, which is a network of physical objects or ‘things’ embedded with electronics, software, sensors and connectivity, to
enable greater value and service by exchanging data with the manufacturer, operator and/or other connected devices.
Big data are too large, numerous, complex and frequent for conventional data tools to capture, store, manage and analyze.
Open source platforms enable organizations to extract real time value from the huge volumes of data being produced. Big
data and greater analytics power are transforming many of marketing’s issues. One of the consequences for marketers has
been the growth of experts in marketing insight and marketing analytics in order to monitor and explore the wealth of mar-
ket, consumer and competitor data to identify key marketing insights and emerging trends, and to assess the performance
of the increasingly dynamic and wide-ranging set of marketing activities with increasingly sophisticated analytics. There
are many metrics deployed to examine the performance of online marketing activity, including conversion rates, bounce
rate, click-through rates, abandonment rate and cost per conversion.
Digital channels involve different forms of digital media for online marketing and delivery. For many companies, these
digital channels are additional to the traditional channels to market, such as depots or retail stores. The range of channels
continues to expand, requiring organizations to develop multi-channel or now omni-channel strategies. Omni-channel mar-
keting is multi-channel marketing utilizing all available channels, to offer customers a seamless brand experience across a
company’s channels.
The difficulty of spotting the true insights amongst the growing wealth of big data in the digital era, growing consumer-
to-consumer social-media inspired interaction and managing multiple channels, are some of the biggest concerns facing
companies today. These are the topics causing leadership teams sleepless nights.
There are five principal benefits of digital marketing: (1) digital provides additional options for marketing communications;
(2) digital gives marketers more direct and diverse channel possibilities; (3) digital enables marketers to capture greater
insights into consumers with immediacy and two-way interaction; (4) digital explodes the ways in which marketers build
relationships, with far more direct and frequent interactions and the bespoke tailoring of information, deals and propo-
sitions; and (5) digital provides access to customers wherever they are and whenever they want to connect. There are
many downsides and complications to address, including (1) the diminishing control over a brand’s messages owing to
greater consumer-to-consumer comment through social media; (2) data overload, as the digital environment provides
huge amounts of consumer insight; (3) privacy concerns, as consumers start to realize how much is known about their
whereabouts, interests, purchasing, viewership, networks and lifestyles; (4) the breakdown of trust, as consumers realize
they are treated differently from a brand’s other customers; and (5) the requirement for a whole host of new skills and
agency partners.
Pop-up ads
Key links Search engine optimization (SEO)
Social media marketing
This chapter has explored the rudiments of digital market- The ‘internet of things’
ing. It should be read in conjunction with:
●● Chapter 14’s overview of marketing channels.

●● Chapters 16 and 18 in Part Three’s examination of
marketing communications. 1. Define what is meant by the term digital marketing.
●● Chapter 9’s coverage of marketing research. 2. What are the main benefits for marketers of adopting digital
marketing?
●● Chapter 7’s explanation of market segmentation and
customer relationship management. 3. What are some of the biggest challenges and concerns
associated with the growth of digital marketing?
4. Considering examples of your choice, outline some of the
Important terms changes to the consumer buying decision-making process
Abandonment rate brought about by digital?
Big data 5. What is search engine optimization (SEO) and why is it
Bounce rate important?
Click-through rate 6. Explain what is meant by content marketing.
Content marketing
7. In what ways have media options changed with the advent
Conversion rates
of digital?
Cost per conversion
Crowdsourcing 8. What is meant by multi-screen marketing?
Digital brand community 9. What is the impact of social media on marketing?
Digital channels 10. In what ways do consumers embrace social media to
Digital marketing influence their own product choices and those of others?
Email marketing
11. How do marketers use social media to test out ideas and
Key phrase
research their hunches?
Market insight
Marketing analytics 12. In what ways has the growth of consumer-to-consumer
Mobile marketing communication in a digital world altered the nature of
Monetization marketing?
Omni-channel marketing 13. In what ways has mobile marketing been a game-changer?
Online public relations 14. Using examples of your choice, consider how well-known
Pay per click (PPC) brands are embracing mobile marketing.
15. What is meant by email marketing? For what purposes is it Recommended readings
most useful?
Bradley, D., Getting Digital Right (Kindle, Amazon, 2015).
16. Why has public relations largely transferred to a digital Chaffey, D. and Smith, P.R., Digital Marketing Excellence: Planning, Opti-
environment? mizing and Integrating Online Marketing (Routledge, 2017).
17. What are some of the latest innovations being driven by Chaffey, D. and Ellis-Chadwick, F., Digital Marketing Strategy, Implemen-
digital and social media? tation and Practice (Pearson, 2018).
Kawasaki, G. and Fitzpatrick, P., The Art of Social Media: Power Tips for
18. What is meant by the term big data? In what ways are big Power Users (Portfolio Penguin, 2014).
data altering marketing practices? Pont, S., Digital State: How The Internet Is Changing Everything (Kogan
19. Why are marketing analytics now so important? Page, 2013).
Ryan, D., Understanding Digital Marketing: Marketing Strategies for
20. In what ways are online marketing activities measured?
Engaging the Digital Generation (Kogan Page, 2016).
21. What is meant by omni-marketing? Smith, N., Successful Digital Marketing in a Week (Teach Yourself Books,
22. Why is multi-channel management such an important 2016).
aspect of marketing strategy? Thomas, B. and Housden, M., Direct and Digital Marketing in Practice
(Bloomsbury, 2017).
Tuten, T. and Solomon, M., Social Media Marketing (Sage, 2017).
Web task Classroom tools behind these two retailers’ initial

decisions: to avoid the web and to
From a desktop, log on to the web- quickly harness online selling.
site of one of your favourite retail-
ers, whose stores you also regularly visit. Select a product
category and search for product options to buy. Do not make Applied mini-case
any purchases, though! Now do the same with the selected The BBC is a large public service media organization broad-
retailer, but accessing it this time from your smartphone. casting TV and radio programming, supported with extensive
Were there any differences in terms of your browsing online material. Unlike other broadcasters and news organi-
experience, the ease with which you found and reviewed zations, the BBC does not force viewers or listeners to pay
options, and how the brand was portrayed across both directly for its programming. However, its charter to operate
modes of access? Which online browsing route did you insists that the BBC is widely accessible, politically neutral
prefer and why? In what ways are the brand experiences and morally responsible. The BBC has also always encouraged
provided by your selected retailer in-store and online feedback and sought interaction with its audiences, as with
consistent? its comment, complain and contribute web section. There is
a pattern of embracing new media channels and ways for
Group tasks communicating with its audiences.
1. Think about how you use your smartphone and for what Question
purposes. What products and services interact with you
via your smartphone? To what extent have these brands Spend a few minutes on www.bbc.co.uk. Consider the
entered your life 24/7? ways with which this predominantly TV and radio pro-
gramme broadcaster is integrating its online operation and
2. Iconic department store retailer Selfridges for many
embracing the growth of digital. In what ways is this website
years resisted having an on-line selling operation,
seeking to ascertain the needs and expectations of its key
whereas rival store operator John Lewis was quick to
audiences?
harness the digital channel. Brainstorm the reasons
Digital and university time spent as a student. Universities’ mar-

choices Case study keting budgets focused primarily on printed
materials, some public relations and the
Not too many years ago, students reading management of open days or roadshows.
Marketing: Concepts and Strategies would have ‘I blogged my thoughts and soon realized I was
selected their universities based on reviewing wrong. So pleased I found out before being there!’
printed prospectuses and brochures, the PR-led stories in var- ‘My teachers were really helpful, but recent leavers
ious newspapers and magazines which suggest which univer- already studying there gave me the real views I needed to
sity is good for whatever degree, supported perhaps with the decide. Facebook made the difference.’
experience of a university visit or open day. Teachers, parents ‘The Times Guide told me which universities to consider for my
and friends might have voiced some opinions, based on their subject. But visiting made all the difference. Then I was down to two
choices. So contacting people I knew there made my mind up.’
own limited insights, experiences of selecting universities or
Views of teachers, school Send for printed prospectuses Visit a handful of u niversities Apply through the
careers advisors and parents for a limited number of for open day visits and applications system to those
to create a shortlist universities and colleges departmental talks shortlisted/visited
The subsequent emergence of published guides and rankings added some degree
of third party endorsement and provided reference points but for decades the
process above was how sixth formers selected their university
‘Once I had decided it, I posted “my” uni online. So glad I did. I Brochures are still produced, PR is important and open
didn’t go there. Came here instead. Wouldn’t have done if friends days take up much of the marketing and recruitment budget
hadn’t steered me away.’ for most universities, but it is the access to universities, the
‘I couldn’t travel from my country to open days in the UK, views of current and past students, and third-party reviews
so social media with people already in the UK really helped. And
made possible in a digital era which provide applicants with
some universities don’t show you much online. But others do.
invaluable insight, shaping their decision-making and eventual
Some even let you talk to current students.’
‘Need a job. Views of companies matter a lot. Googled these
purchasing.
and these helped make my mind up.’ The process has changed in terms of how interested
sixth formers and potential post-graduates are managed.
These quotes, taken from a recent student survey, reveal Universities are investing in complex customer relationship
how much has changed from the process described above. management (CRM) systems to manage recruitment and to
The information sources in particular are far more diverse and, develop ongoing relationships with interested applicants, so
of course, accessed online. The ongoing use of peer views as to ensure their eventual arrival at the start of term. These
throughout the selection process is a departure, too. This is systems depend on social media and online relationships.
also enabled by social media.
Today, prospective students have so many more sources Questions for discussion
of information, many of which the individual university can-
Think about your own decision-making when selecting your
not control. There are ratings sites online suggesting which
degree course and institution:
courses are well-regarded across many criteria; current
students blog and post views online of their experiences; 1. Which were the information sources you found most use-
candidates can take 360-degree virtual tours of campuses, ful and which you trusted?
accommodation blocks, lecture theatres and entertainments; 2. How should university admissions staff utilize digital
and social media allow applicants to seek the views of their marketing to help the selection and admissions journey
peers and current students. Those from far afield who are of interested candidates?
unable to attend an open day are provided with online access 3. To what extent does the arrival of digital marketing help
to tutors and current student cohorts. or hinder in the marketing of degree programmes?
Chapter 20
Pricing
Pricing causes many arguments amongst senior management teams
because it makes or breaks the business model and generally is hugely
important to the customer
Introduction
Objectives price
To a buyer, price is the value placed
on what is exchanged.1 Something
Price is the value placed
To understand the characteristics on what is exchanged. of value – usually buying power – is
and role of price. The buyer exchanges exchanged for satisfaction or util-
buying power – which ity. In most marketing situations,
To be aware of the differences depends on the buyer’s the price is very evident and buyer
between price and non-price income, credit and
and seller are aware of the amount
competition. wealth – for satisfaction
or utility. of value each must give up to com-
To explore key factors that affect plete the exchange.2 As described in
pricing decisions. Chapter 3, buying power depends on
a buyer’s income, credit and wealth. As buyers have limited
To examine different pricing
resources, they must weigh up the usefulness of a product
objectives.
or the satisfaction derived from it against its cost to decide
To consider issues unique to the whether the exchange is worthwhile.
pricing of products for business financial price
Financial price is most usually the
Financial price is
markets. the basis of market basis of market exchanges. This
exchanges – the quan- can be used to quantify almost any-
To analyze the concept of eco-
tified value of what is thing of value that is exchanged,
nomic value to the customer. exchanged. However, including ideas, services, rights and
To understand the eight major price does not always
goods. Thus, the financial value of a
involve a financial
stages of the process used to exchange; barter, the Paris penthouse might be two million
establish prices. trading of products, is the euros. Yet price does not always have
oldest form of exchange. to have a financial basis. Barter, the
To learn about demand for a prod-
trading of products, is the oldest form
uct and to analyze the relation-
of exchange.
ships between demand, costs and
Price impacts strongly on how businesses fare competi-
profits.
tively, so marketers need to give careful consideration to pricing
To explore the selection of a pricing issues. Set the wrong price and marketers might be responsi-
strategy and to understand how to ble for causing cashflow problems and even insolvency. Price
determine a specific price. is critical to the marketing mix because it affects directly how
much revenue is generated. As it can be changed very quickly,
price is more flexible than other marketing mix elements. Busi-
nesses must avoid seeing price purely in terms of setting mon-
etary price points. Due to the psychological impact of price on
customers, price also has a symbolic value. A broader view of
585
pricing is therefore needed which takes into account issues such as target customers’ perceptions
of value for money and requirements for easy payment terms.
There are essential stages for establishing prices, which involve taking into consideration a wide
range of factors. Economic conditions, internal strategy targets and goals, fluctuations in market
growth and levels of competition all affect the price that customers are prepared to pay. Careful
judgement is needed to ensure that these factors are taken into consideration when setting prices
so that customers believe they are getting reasonable value for money.
What price for a great

H ow do you price an
experience? This is
the challenge for Red
day out?
Food and Drink, Flying,
Couples, Days and Nights
Out, Hot Air Ballooning;
Letter Days, a business set and occasions, such as for
up in 1989 to offer customers a Mother’s Day, Valentine’s Day,
range of gift experiences designed to Weddings, Birthdays and Holidays.
satisfy every taste. As the company’s website reveals (www. Considerable variety lies behind these
redletterdays.co.uk) many different experiences and treats, headings. Perhaps your parents are tempted by the wine
offered at a range or price points, are available. Targeting con- tasting, or your best friend has yearned to skydive or enjoy
sumers and business clients alike, those seeking a relaxing, the thrills of white water rafting. Maybe arts and crafts are
exciting, indulgent experience can find an option that appeals, your passion and you fancy trying your hand at making silver
for themselves, or for a ‘different’ gift for friends and family, or jewellery, sugar-craft or pottery. All of these and many more
for business rewards to colleagues or customers. activities are on offer.
The experiences are organized according to a number of The Food and Drink gifts category gives a flavour of this
categories, including Football Fanatics, Beer Lovers, Nature diversity, including the following options: Afternoon Tea, Dining
Lovers, Radical Relaxers, Driving, Pampering, Short Breaks, Out, Luxury Dining, Cooking Courses, Chocolate, Sushi, Wine
Tasting, Vineyard Tours, Beer Tasting, Brewery Tours, Cider
Tasting, Cocktails and Mixology, Bubbles, and so on.
Gifts are categorized by occasion, by demographics and
even by personality types. Those buying an experience as a
gift who are unsure what their loved ones might enjoy, can
buy safe in the knowledge that an unwanted gift choice may
be exchanged for others in the range, or instead opt for gift
vouchers from £20−£1000. In setting the price of these
gift packs and deciding for which experiences they can be
swapped, Red Letter Days is making a judgement about the
value that customers attach to indulging themselves or others
and spending time in a new and interesting way.
References: www.redletterdays.co.uk (accessed 3 May 2018); Red Letter Days
marketing materials in-store.
A
ll companies, irrespective of whether their products are costly or cheap, use price along with
other elements of the marketing mix to distinguish their products from competitive brands.
Pricing is a crucial element in the marketing mix. However, as this chapter’s ‘opener’ clearly
illustrates, a variety of factors impact upon pricing decisions. The range of factors that affect pricing
are considered later in this chapter.
This chapter begins by explaining what is meant by price and considers its importance to market-
ing practitioners. It then explores pricing objectives and the various factors affecting pricing decisions.
Chapter 20 Pricing 587
The notion of perceived value for money is considered next. The chapter then examines pricing in
business markets and the concept of economic value to the customer, concluding by overviewing
the essential stages for establishing prices.
The characteristics and role of price

Terms used to describe price
Price is expressed differently in various exchanges. For instance, insurance companies charge a
premium to holidaymakers requiring protection against the cost of illness or injury. A police officer
who stops a motorist for speeding writes a ticket that requires a fine to be paid. In London, a
congestion charge is levied on motorists travelling in central areas. An accountant charges a fee,
and a fare is charged for travelling by plane, railway or taxi. A toll is sometimes charged for the
use of motorways or bridges. Rent is paid for the use of equipment or for a flat. An estate agent
receives a commission on the sale of a property. A deposit is made to reserve merchandise. A tip
helps pay waitresses or waiters for their services. Interest is charged for loans, and taxes are paid
for government services. The value of many products is called price.
Although price may be expressed in a variety of ways, it is important to remember that
the purpose of this concept is to quantify and express the value of the items in a marketing
exchange . . . something is offered to someone in exchange for a payment of some kind.3
The importance of price to marketers

As pointed out in Chapter 12, developing a product may be a lengthy process. It takes time to plan
promotion and to communicate benefits. Distribution usually requires a long-term commitment to
dealers who will handle the product. Often price and customer service levels are the only aspects
of the marketing mix that a marketer can change quickly to respond to changes in demand or to
the actions of competitors. However, as customers may be alienated by significant price changes,
this does not mean that price is flexible in all situations.
Price is also a key element in the marketing mix because it relates directly to the generation of
total revenue.4 The price achieved might ‘make’ or ‘break’ a company. The following equation is
an important one for the entire organization:
Profits 5 total revenues 2 total costs
or
Profits 5 (price 3 quantities sold) 2 total costs
Prices can have a dramatic impact on a company’s profits. Price affects the profit equation in
several ways. It directly influences the equation because it is a major component. It has an indirect
impact because it can be a major determinant of the quantities sold. As will be explained, for many
products an increase in price leads to a reduction of numbers sold. Even more indirectly, price
influences total costs through its impact on quantities sold. Consequently, even a relatively small
reduction in prices can cause profits to fall, sometimes dramatically. The relationship illustrates the
difficulties faced by businesses attempting to build a differential advantage based on low prices.
Marketers need to be fully aware of these stark relationships when setting prices, and the knock-on
ramifications for their organization’s financial stability and corporate objectives.
As price has a psychological impact on customers, marketers can use it symbolically. By raising
a price, they can emphasize the quality of a product and try to increase the status associated with
its ownership. The declining fortunes of Chivas Regal Scotch whisky were reversed following a sub-
stantial price rise! Lowering a price can also have a dramatic impact on demand, attracting bargain-
hunting customers who are prepared to spend extra time and effort to save a small amount.
Price and non-price competition

A product offering can compete on either a price or a non-price basis. The choice will affect not
only pricing decisions and activities but also those associated with other marketing mix decision
variables.
Price competition
price competition When price competition is used, a marketer emphasizes price as an issue, and
A policy whereby a mar- matches or beats competitors’ prices. Budget airline easyJet engages in price com-
keter emphasizes price
petition and stresses its low prices in its advertisements. To compete effectively on a
as an issue and matches
or beats the prices of price basis, a company should be the low-cost producer of the product. If all companies
competitors. producing goods in an industry charge the same, the company with the lowest costs is
the most profitable. Companies that stress low price as a key element in the marketing
mix tend to produce standardized products. For example, suppliers of fuel oils use price
competition. Sellers using this approach may be prepared and able to change prices frequently,
particularly in response to competitors altering their prices. The postal service and UPS or DHL
engage in direct price competition in their pricing of overnight express-delivery services.
Price competition gives a marketer flexibility (see Figure 20.1). Prices can be altered to account
for changes in the company’s costs or in demand for the product, or when competitors cut prices.
However, a major drawback of price competition is that competitors may also have the flexibility
to adjust their prices to match or beat another company’s price cuts. If so, a price war may result.
Furthermore, if a user of price competition is forced to raise prices, competing companies may
decide not to do the same. The supermarket giants sometimes seem to be locked into a spiral of
price competition. Waitrose has one thousand popular lines visibly price-aligned in-store on-fixture
to Tesco, often perceived to provide lower prices compared to upmarket Waitrose. Companies
such as Procter & Gamble have attempted to strengthen consumer loyalty by cutting the prices of
key brands permanently. The first two categories to benefit were the core markets of washing-up
liquids, such as Fairy Liquid, and disposable nappies, such as Pampers.
Figure 20.1
Retailers’ prominent use of ‘sales’ is a well-
known example of price competition
non-price competition Non-price competition

A policy in which a seller
In non-price competition, a seller elects not to focus on price but instead emphasizes
elects not to focus on
price but to emphasize distinctive product features, service, product quality, promotion, packaging or other
other factors instead. factors to distinguish the product from competing brands, for example Figure 20.2.
Organizations that use non-price competition aim to increase unit sales in other ways.
For example, Louis Vuitton stresses the exclusivity, quality and fashionability of its handbags,
rather than competitive price. A company can use non-price competition to build customer loyalty
towards its brand. If customers prefer a brand or store because of non-price issues, they may not
easily be lured away by competing offers. Indeed, such customers might become confused or irri-
tated if price cuts are offered. Buyers of Dior clothing, handbags or cosmetics enjoy the exclusivity
associated with the high price. The implication is that price is not the most durable factor in terms
of maintaining customer loyalty. However, when price is the primary reason that customers buy a
particular brand, the competition can attract such customers through price cuts.
Non-price competition is workable under the right conditions. A company must be able to dis-
tinguish its brand through unique product features, higher quality, customer service, promotion,
packaging and the like (see Figure 20.2). The brand’s distinguishing features should be difficult, if
not impossible, for a competitor to copy. Buyers must not only be able to perceive these distin-
guishing characteristics but must also view them as desirable. Finally, the organization must pro-
mote the distinguishing characteristics of the brand extensively in order to establish its superiority
and to set it apart from competitors in the minds of buyers.
Figure 20.2
Although priced to be competitive
with rival brands, Olay both emo-
tionally and functionally promotes
product benefits
Many European companies put less emphasis on price than do their American counterparts.
They look for a competitive edge by concentrating on promotion, research and development,
marketing research and marketing channel considerations. In a study of pricing strategy, many
companies stated specifically that they emphasize research and development and technological
superiority; competition based on price was seldom a major marketing consideration.5
A marketer attempting to compete on a non-price basis must still consider competitors’ prices.
The business must be aware of competitors’ prices and will probably price its brand near, or slightly
above, competing brands. As an example, Sony sells flat screen televisions and Blu-ray players in a
highly competitive market and charges higher prices than many other manufacturers for them. Sony
can achieve this because its emphasis on high product quality distinguishes it from its competitors
and allows it to set higher prices.
Factors affecting pricing decisions

Pricing decisions are affected by many factors. Often, there is considerable uncertainty about
reactions to price on the part of buyers, channel members, competitors and others. Price is also
an important consideration in marketing planning, market analysis and sales forecasting. It is a
major issue when assessing a brand’s positioning relative to competing brands. Most factors that
affect pricing decisions can be grouped into one of the nine categories shown in Figure 20.3. This
section explores how each of these nine groups of factors enters into price decision-making.
Organizational Pricing Other

and marketing Costs marketing mix
objectives
objectives variables
Pricing
decisions
Channel Buyers’ Legal and Perceived

member Competition regulatory value for
perceptions
expectations issues money
Figure 20.3
Factors that affect pricing decisions
Organizational and marketing objectives

Marketers should set prices that are consistent with the organization’s goals and mission. For
example, skincare brands such as Sensai and Shiseido are positioned at the luxury end of the
market, are sold through exclusive outlets and have high price tags to match. Marketers in these
organizations know that discounting prices on these brands would not be in line with the overall
organizational goal.
Decision-makers should also make pricing decisions that are compatible with the organization’s
marketing objectives. Say, for instance, that one of a producer’s marketing objectives is a 12 per cent
increase in unit sales by the end of the next year. Assuming that buyers are price sensitive, increas-
ing the price or setting a price above the average market price would not be in line with the com-
pany’s sales objective. A case in point: Vauxhall has introduced high-performance, well-specified
model variants to the top of each of its model ranges – for example, the Viva Rocks at £11 940,
the £24 940 Astra Ultimate and the £34 000 Insignia GSi. Such prices ensure that these particular
models have only limited appeal. GM’s stated objective, however, is to be market leader in terms
of sales volume. The company, therefore, is careful to price the great majority of its cars in line with
the price expectations of the bulk of the car buying public and fleet operators – far below these
£12 000 Viva and £34 000 Astra Ultimate levels.
Pricing objectives
Pricing objectives are overall goals that describe what a company wants to achieve
pricing objectives
Overall goals that through its pricing efforts. The type of pricing objective a marketer uses will have con-
describe what a company siderable bearing on the determination of prices.6 Marketers often use multiple pricing
wants to achieve through objectives, including those that emphasize survival, profit, return on investment, market
its pricing efforts. share, cash flow, status quo or product quality (see Table 20.1). Thus a market share
pricing objective usually causes a company to price a product below competing brands
of similar quality to attract competitors’ customers to the company’s brand. This type of
pricing can lead to lower profits, but may be used temporarily in the hope of gaining market share.
By contrast, a cash flow pricing objective may involve setting a relatively high price, which can place
the product at a competitive disadvantage. Paradoxically, a cash flow pricing objective sometimes
results in a low price sustained in the long term. However, this type of objective is more likely to
be addressed by using temporary price reductions, such as sales, refunds and special discounts.
Table 20.1 Different types of pricing objectives

Survival
A fundamental pricing objective is survival. Most businesses will tolerate difficulties such as short-run losses and internal upheaval if they are
necessary for survival. Because price is a flexible and convenient variable to adjust, it is sometimes used to increase sales volume to levels that
match the company’s expenses.
Profit
Although businesses often claim they aim to maximize profits, in practice this objective is difficult to measure. As a result, profit objectives tend
to be set at satisfactory levels. Specific profit objectives may be stated in terms of actual monetary amounts or in terms of percentage change
relative to previous profits.
Return on investment
Pricing to attain a specified rate of return on the company’s investment is a profit-related pricing objective. Most pricing objectives based on
return on investment (ROI) are achieved by trial and error, because not all cost and revenue data needed to project the return on investment are
available when prices are set.
Market share
Many companies establish pricing objectives to maintain or increase a product’s market share in relation to total industry sales. For example, car
companies such as Volkswagen have been known to cut prices on existing models when introducing new ones, to boost share of the car market.
Maintaining or increasing market share need not depend on growth in industry sales. A company can increase its market share even though
sales for the total industry are decreasing. On the other hand, if the overall market is growing, a business’s sales volume may actually increase
as its market share decreases.
Cash flow
Some companies set prices to recover cash as fast as possible, especially when a short product life cycle (PLC) is anticipated or the capital spent
to develop products needs to be recovered quickly. However, the use of cash flow and recovery as an objective oversimplifies the value of price
in contributing to profits. A disadvantage of this pricing objective could be high prices, which might allow competitors with lower prices to gain a
large share of the market.
Status quo
In some cases, a business may be in a favourable position and may simply wish to maintain the status quo. Such objectives can focus on main-
taining a certain market share, meeting (but not beating) competitors’ prices, achieving price stability or maintaining a favourable public image.
Such an approach can reduce a company’s risks by helping to stabilize demand for its products. The use of status quo pricing objectives some-
times leads to a climate of non-price competition in an industry.
Product quality
A company might have the objective of product quality leadership in the industry. For example, the construction equipment manufacturer JCB
aims to be ranked as one of the leading companies in its industry in terms of product quality and customer satisfaction. This normally dictates a
relatively high price to cover the high product quality and/or the high cost of research and development.
As pricing objectives influence decisions in most functional areas – including finance, account-
ing and production – the objectives must be consistent with the company’s overall mission and
purpose (see Chapter 2). Insurance is an area where pricing is a major concern. As competition
has intensified, insurance executives have realized that their products must be priced to meet both
short-term profit goals and long-term strategic objectives. Changes in the pricing objectives that
companies use can occur for various reasons. For example, the objective of return on investment
may be used less as managers and marketers in diversified companies stress the creation of share-
holder value. When shareholder value is used as a performance objective, strategies – including
those involving price – are evaluated according to their impact on the value investors perceive in
the company.7
Costs
Obviously, costs must be an issue when establishing price. A business may temporarily sell prod-
ucts below cost to match the competition, to generate cash flow or even to increase market share;
but in the long run it cannot survive by adopting this approach. A marketer should be careful to
analyze all costs so that they can be included in the total costing for a product. Marketers must
also take into account the costs that a particular product shares with other products in the product
line, particularly the costs of research and development, production and distribution. Services are
especially subject to cost sharing. For example, the costs of a bank building are spread over the
costs of all services the bank offers.8 Most marketers view a product’s cost as a minimum, or floor,
below which the product cannot be priced.
Other marketing mix variables

All marketing mix variables are closely interrelated. Pricing decisions can influence decisions and
activities associated with product and quality, place/distribution, promotion and customer service
variables. A product’s price frequently affects the demand for the item. A high price, for instance,
may result in low unit sales, which in turn may lead to higher production costs per unit. Conversely,
lower per-unit production costs may result from a low price. For many products, buyers associate
better product quality with a higher price and poorer product quality with a low price. This per-
ceived price-quality relationship influences customers’ overall image of products or brands. Thus
consumers may be prepared to pay a high price for Rayban sunglasses because they believe they
are a high-status quality item.
Pricing decisions influence the number of competing brands in a product category. When a
company introduces a product, sets a relatively high price and achieves high unit sales, competitors
may be attracted to this product category. If a company fixes a low price, the low profit margin may
be unattractive to potential competition.
The price of a product is linked to several dimensions of its distribution. Premium-priced prod-
ucts are often marketed through selective or exclusive distribution; lower-priced products in the
same product category may be sold through intensive distribution. For example, Montblanc pens
are distributed through selective distribution and Bic pens through intensive distribution. The way
in which a product is stored and transported may also be associated with its price. As Figure 20.4
shows, when deciding about a product’s price, a producer must consider the profit margins of
marketing channel members, such as wholesalers and retailers. This way, channel members can
be adequately rewarded for the functions they perform.
The way a product is promoted can be affected by its price. Bargain prices are often included in
advertisements, whereas premium prices are less likely to be mentioned. However, the exclusivity
associated with a premium price is sometimes included in advertisements for upmarket items,
such as luxury holidays or high-status sound systems. Higher-priced products are more likely to
require personal selling efforts than lower-priced ones. Indeed, there may be an expectation that
a high price is accompanied by enhanced levels of customer service. A customer may purchase
an inexpensive watch in a self-service environment but hesitate to buy an expensive watch in the
same store, even if it is available there.
Procurement costs
Research and product
Manufacturer’s value chain

development
Production costs
Selling, distribution and

promotion expenses
Price received by
Manufacturer margin
manufacturer
Buying costs and

overheads
Reseller (wholesaler/retailer) value chain
Stockholding costs
Selling and distribution

expenses
Promotion expenses
Price paid by
Figure 20.4 Reseller margin
customer
Wholesaler and retailer consider-
ations when developing price
The price structure can affect a salesperson’s relationship with customers. A complex pricing
structure takes longer to explain to customers, is more likely to confuse the buyer and may cause
misunderstandings that result in long-term customer dissatisfaction. For example, the pricing
structure used by many hotels is complex and can confuse potential guests.
Channel member expectations

When making price decisions, a producer must consider what distribution channel members (such
as wholesalers, online retailers and dealers) expect. A channel member certainly expects to receive
a profit for the functions performed. The amount of profit expected depends on the amount of
time and resources expended, and on an assessment of what would be gained by handling a
competing product instead.
Channel members often expect producers to provide discounts for large orders and quick pay-
ment. Discounts are discussed later in this chapter. At times, resellers expect producers to provide
support activities, such as sales training, online customer support, repair services, cooperative
advertising, sales promotions and perhaps a programme for returning unsold merchandise to the
producer. These support activities clearly incur costs, so a producer must consider these costs
when determining prices.
Buyers’ perceptions
When making pricing decisions, marketers should be concerned with two vital questions:
1. How will customers interpret prices and respond to them? Interpretation in this context refers
to what the price means or what it communicates to customers. Does the price mean ‘high
quality’ or ‘low quality’, or ‘great deal’, ‘fair price’ or ‘rip-off’?
2. How will customers respond to the price? Customer response refers to whether the price
will move customers closer to the purchase of the product and the degree to which the price
enhances their satisfaction with the purchase experience and with the product after purchase.
Customers’ interpretation of and response to a price are to some degree determined by their
assessment of what they receive compared with what they give up to make the purchase. In
evaluating what they receive, customers will consider product attributes, benefits, advantages,
disadvantages, the probability of using the product and possibly the status associated with the
product. In assessing the cost of the product, customers will consider its price, the amount of time
and effort required to obtain the product and perhaps the resources required to maintain or use
the product after purchase.
At times, customers interpret a higher price as higher product quality. They are especially likely
to make this price–quality association when they cannot judge the quality of the product them-
selves. This is not always the case: whether price is equated with quality depends on the types of
customer and product involved. Obviously, marketers relying on customers making a price–quality
association, who are providing moderate or low-quality products at high prices, will be unable to
build long-term customer relationships.
When interpreting and responding to prices, how do customers determine if the price is too
high, too low or about right? In general, they compare prices with internal or external reference
prices. An internal reference price is a price developed in the buyer’s mind through
internal reference
price
experience with the product. It is a belief that a product should cost approximately a
A price developed in the certain amount. As consumers, previous experiences provide internal reference prices
buyer’s mind through for a number of products. For example, most consumers have a reasonable idea of how
experience with the much to pay for a can of soft drink, a loaf of bread or a litre of milk. When there is less
product. experience, consumers rely more heavily on external reference prices.9 An external
reference price is a comparison price provided by others, such as retailers or manu-
facturers.10 Customers’ perceptions of prices are also influenced by their expectations
external reference
price about future price increases, by what they paid for the product recently, and by what
A comparison price pro- they would like to pay for the product. Other factors affecting customers’ perception of
vided by others. whether the price is right include time or financial constraints, the costs associated with
searching for lower-priced products, and expectations that products will go on sale.
Buyers’ perceptions of a product relative to competing products may allow a business
to set a price that differs significantly from rivals’ prices. If the product is deemed superior to most
of the competition, a premium price may be feasible. However, even products with superior quality
can be over-priced. Strong brand loyalty sometimes provides the opportunity to charge a premium
price. On the other hand, if buyers view a product less than favourably – though not extremely
negatively – a lower price may generate sales.
In the context of price, buyers can be characterized according to their degree of value conscious-
ness, price consciousness and prestige-sensitivity. Marketers who understand these characteristics
are better able to set pricing objectives and policies. Value-conscious consumers are
value-conscious
consumers concerned about both the price and the quality of a product. Recent economic difficul-
Those concerned about ties have altered the purchasing habits of many consumers and business customers,
price and quality of a with many more placing value-for-money high on their list of key customer values when
product. making purchasing decisions. Price-conscious consumers strive to pay low prices.
Prestige-sensitive consumers focus on purchasing products that signify prominence
price-conscious and status. For example, the Porsche Cayenne, one of the highest-priced sports utility
consumers vehicles ever marketed, created record sales and profits for Porsche. Only 18 per cent
Those striving to pay low of Cayenne buyers had previously owned a Porsche; many of the rest were attracted
prices. to the vehicle by the prestige associated with the Porsche name. On the other hand,
some consumers vary in their degree of value, price and prestige consciousness. In
prestige-sensitive some segments, consumers are still ‘trading up’ to more status-conscious products
consumers despite the credit crunch and economic turmoil of recent years: this occurs with cars,
Individuals drawn to electrical appliances, entertainment systems, restaurants and even pet food. This trend
products that signify has benefited companies such as Starbucks and BMW, which can charge premium
prominence and status.
prices for high-quality, prestige products.
Competition
A marketer needs to know competitors’ prices so that a company can adjust its own prices accord-
ingly.11 This does not mean that a company will necessarily match competitors’ prices; it may set
its price above or below theirs. It is also important for marketers to assess how competitors will
respond to price adjustments. Will they change their prices (some may not) and, if so, will they
raise or lower them? For example, when satellite or cable entertainment providers stress their keen
pricing, competitors often do the same.
Chapter 3 describes several types of competitive market structure that impact upon price set-
ting. When a company operates as a monopoly and is unregulated, it can set whatever prices the
market will bear. However, the company may avoid adopting the highest possible pricing for fear of
inviting government regulation or because it wants to penetrate a market by using a lower price. If
the monopoly is regulated, it normally has less pricing flexibility; the regulatory body lets it set prices
that generate a reasonable but not excessive return. A government-owned monopoly may price
products below cost to make them accessible to people who could not otherwise afford them.
However, government-owned monopolies sometimes charge higher prices to control demand.
In an oligopoly, only a few sellers operate, and there are high barriers to competitive entry. A
business in such an industry – for example, telecommunications, pharmaceuticals or steel – can
raise its price, hoping that its competitors will do the same. Very little can be gained through price
cuts because other companies are likely to follow suit when an organization cuts its price to gain
a competitive edge.
A market structure characterized by monopolistic competition means numerous sellers with dif-
ferentiated product offerings. The products are differentiated by physical characteristics, features,
quality and brand image. The distinguishing characteristics of its product may allow a company to set
a different price from its competitors. However, businesses engaged in a monopolistic competitive
market structure are likely to practice non-price competition, as discussed earlier in this chapter.
Under conditions of perfect competition, there are many sellers. Buyers view all sellers’ prod-
ucts as the same. All companies sell their products at the going market price and so there is no
flexibility in setting prices.
Legal and regulatory issues

At times, government action sways marketers’ pricing decisions. To curb inflation, the govern-
ment may invoke price controls, ‘freeze’ prices at certain levels or determine the rates at which
prices can be increased. Following the privatization of public utilities, the UK government set
up regulatory bodies such as Ofwat for water, Ofgem for gas and electricity, and Ofcom for
the communications industry, which police pricing and billing, often establishing maximum and
minimum charges.
Many regulations and laws affect pricing decisions and activities. Not only must marketers refrain
from fixing prices, they must also develop independent pricing policies and set prices in ways that
do not involve collusion. Over the years, legislation has been established to safeguard consumers
and businesses from pricing sharp practices. In the UK, the Competition and Markets Authority has
taken over from the Competition Commission to prevent the creation of monopolistic situations.
The consumer is protected by the Trade Descriptions Act, the Fair Trading Act, the Consumer
Protection Act and many others. All countries have similar legislation, and the European Union
legislates to protect consumers within the community.
Perceived value
Most discussions about pricing revolve around the actual monetary value – the
perceived value for
money price – to be charged for the good or service. However, the perceived value for
The benefit consumers money to consumers is also vital. This is the benefit consumers see as inherent in
perceive to be inherent a product or service, weighed against the price demanded. Sometimes, particularly
in a product or service, in consumer markets, these benefits are real and measurable, in other cases they
weighed against the
are more psychological. For instance, interest-free credit, maintenance contracts
price demanded.
and extended warranties are all features that may affect a consumer’s perception of
value for money. Consumers will not pay more than they value the benefit inherent
in a product or service. Consumers balance the price demanded, typically in monetary terms,
against the anticipated level of use and satisfaction to be gained from buying and using the
specific product. This assessment is influenced by the consumers’ previous experience of
the brand and similar products, the perceived quality of the product in question, its brand
image, purpose, anticipated usage, overall appeal and the nature of competing offers. These
emotive issues are often difficult to quantify, but through qualitative marketing research, most
businesses are able to assess their target market’s views of value.
Pricing for business markets

As explored in Chapter 6, business markets consist of individuals and businesses that purchase
products for resale, for use in their own operations or for producing other products. Establishing
prices for this category of business-to-business buyer sometimes differs from setting prices for
consumers. Differences in the size of purchases, geographic factors and transport considerations
require sellers to adjust prices. This section discusses several issues unique to the pricing of indus-
trial products and business markets, including discounts, geographic pricing, transfer pricing and
price discrimination. The section concludes by considering the concept of economic value to the
customer (EVC).
Price discounting
Producers commonly provide intermediaries with discounts from list prices. Although there are
many types of discount, they usually fall into one of five categories (see Table 20.2)12:
1. trade
2. quantity
3. cash discounts
4. seasonal discounts
5. allowances.
Table 20.2 Discounts used for business markets

Type Reason for use Practical examples
Trade To attract and keep resellers by compensating them for certain Hairdressers receive a discount for shampoos, hair
(functional) functions, such as transportation, warehousing, selling and pro- dyes and other hair products from manufacturers of
viding credit these items
Quantity To encourage customers to buy large quantities and, in the case Large chains of tyre and exhaust outlets purchase
of cumulative discounts, to encourage customer loyalty parts at lower prices than individually-owned outlets
Cash To reduce expenses associated with accounts receivable by Companies operating in business markets often offer
encouraging prompt payment a discount for prompt payment
Seasonal To allow resources to be used more efficiently by stimulating Hotels in large cities offer companies discounted
sales during off-peak periods accommodation for sales and other conferences
during off-peak periods
Allowance For trade-in allowances, the buyer is assisted in making the pur- Companies such as Nestlé or Masterfoods pay pro-
chase by getting money back on used equipment; for promotional motional allowances to supermarkets for setting up
allowances, dealers are able to participate in advertising and and maintaining end-of-aisle displays to push their
sales support programmes products
trade or functional Trade discounts A reduction off the list price given by a producer to an intermediary
A reduction off the list
for performing certain functions is called a trade or functional discount. The functions
price given by a producer
to an intermediary for perfor which intermediaries are compensated may include selling, transporting, storing,
forming certain functions. final processing and perhaps providing credit services. The level of discount can vary
considerably from one industry to another.
quantity discounts
Quantity discounts Reductions from the list price that reflect the economies of pur-
Reductions off the list
price that reflect the chasing in large quantities are called quantity discounts. Cost savings usually occur
economies of purchasing in four areas. Fewer but larger orders reduce per-unit selling costs; fixed costs, such as
in large quantities. invoicing, remain the same or go down; raw materials’ costs are lower, because quantity
discounts may be available; longer production runs mean no increases in holding costs.13
In addition, a large purchase may shift some of the storage, finance and risk-taking
cumulative discounts
Quantity discounts
functions to the buyer.
aggregated over a stated Quantity discounts can be either cumulative or non-cumulative. Cumulative dis-
period of time. counts are aggregated over a stated period of time. Purchases of £10 000 (€14 000)
in a three-month period, for example, might entitle the buyer to a five per cent, or £500
(€700), rebate. Such discounts are supposed to reflect economies in selling and encour-
non-cumulative
age the buyer to purchase from one seller. Non-cumulative discounts are one-off
discounts
One-off quantity discounts. reductions in prices based on the number of units purchased, the monetary value of the
order or the product mix purchased.
cash discount Cash discounts A cash discount, or simple price reduction, is given for prompt pay-
A simple price reduction
ment or payment in cash. A policy to encourage prompt payment is a popular practice
given to a buyer for
prompt payment or pay- in setting prices. For example, ‘2/10 net 30’ means that a two per cent discount will be
ment in cash. allowed if the account is paid within 10 days. However, if the buyer does not pay within
the 10-day period, the entire balance is due within 30 days without a discount. If the
account is not paid within 30 days, interest may be charged.
seasonal discount
A price reduction given
to buyers who purchase Seasonal discounts A price reduction given to buyers who purchase goods or ser-
goods or services out of vices out of season is a seasonal discount. These discounts let the seller maintain
season. steadier production during the year. For example, hotels in holiday resorts offer seasonal
discounts for business customers at times of year when the weather is poor.
allowance Allowances Another type of reduction from the list price is an allowance – a con-
A concession in price to cession in price to achieve a desired goal. Trade-in allowances are price reductions
achieve a desired goal. granted for handing in a used item when purchasing a new one. This type of allowance
is popular in the aircraft industry. Another example is promotional allowances, which are
geographic pricing
price reductions granted to dealers for participating in advertising and sales support
involves reductions for programmes intended to increase sales.
transport or other costs
associated with the
physical distance between Geographic pricing
the buyer and the seller.
Geographic pricing involves reductions for transport costs or other costs associated
with the physical distance between the buyer and the seller. Prices may be quoted
FOB factory price as being FOB (free-on-board) factory or destination. An FOB factory price indicates
of the merchandise at the price of the merchandise at the factory before it is loaded on to the carrier
the factory before it is vehicle; it thus excludes transport costs. The buyer must pay for shipping. An FOB
loaded on to the carrier
vehicle, which must be
destination price means the producer absorbs the costs of shipping the merchan-
paid by the buyer. dise to customers.
To avoid the problems involved in charging different prices to each customer, uni-
form geographic pricing, sometimes called postage stamp pricing, may be used. The
FOB destination price
same price is charged to all customers regardless of geographic location, and the price
indicates that the
producer absorbs is based on average shipping costs for all customers. Petrol, paper products and office
the costs of shipping equipment are often priced on a uniform basis.
the merchandise. Zone prices are regional prices that take advantage of a uniform pricing system;
prices are adjusted for major geographic zones as the transport costs increase. For
uniform geographic example, the prices of a manufacturer located in the northern French town of Lille may
pricing be higher for buyers in the south of France than for buyers in Paris.
in which the same price Base point pricing is a geographic pricing policy that includes the price at the fac-
is charged to all custom- tory, plus freight charges from the base point nearest the buyer. This policy, which is now
ers regardless of location.
rarely used, can result in all buyers paying freight charges from one location, regardless
of where the product was manufactured!
zone prices When the seller absorbs all or part of the actual freight costs, freight absorption
Regional prices that take pricing is being used. The seller might choose this method because it wishes to do
advantage of a uniform business with a particular customer or to get more business; more business will cause
pricing system.
the average cost to fall and counterbalance the extra freight cost. This strategy is
used to improve market penetration and to retain a hold in an increasingly competitive
base point pricing market.
A pricing policy that
includes the price at
the factory, plus freight
charges from the base
Transfer pricing
point nearest the buyer. When one unit in a company sells a product to another unit within the same company,
transfer pricing occurs. The price is determined by one of the following methods:
freight absorption ●● Actual full cost – calculated by dividing all fixed and variable expenses for a period
pricing
A pricing policy in which
into the number of units produced.
the seller absorbs all or ●● Standard full cost – calculated on what it would cost to produce the goods at full
part of the actual freight plant capacity.
costs.
●● Cost plus investment – calculated as full cost, plus the cost of a portion of the selling
unit’s assets used for internal needs.
transfer pricing
●● Market-based cost – calculated at the market price less a small discount to reflect
The type of pricing used
when one business unit in the lack of sales effort and other expenses.
a company sells a prod-
uct to another unit within The choice of transfer pricing method depends on the company’s management
the same company. strategy and the nature of the units’ interaction. The company might initially choose to
determine price by the actual full cost method, but later move to an alternative method.14
Price discrimination
price discrimination A policy of price discrimination results in different prices being charged to give a
A policy in which differ- group of buyers a competitive edge. Some forms of price discrimination are illegal
ent prices are charged in
in the EU. Price differentiation is a form of market segmentation that companies use
order to give a particular
group of buyers a com- to provide a marketing mix that satisfies different segments. Since different market
petitive edge. segments perceive the value of a particular product differently, depending on the
product’s importance and value to the business buyer, marketers may charge different
prices to different market segments. Price discrimination can also be used to modify
demand patterns, support sales of other products, dispose of obsolete goods or excessive
inventories, fill excess production capacity and respond to competitors’ activities in particular
markets.15
Various conditions must be satisfied for price discrimination to be feasible. It must be possible
to segment the market and the costs associated with doing so must not exceed the additional
revenue generated. The practice should not break the law or breed customer discontent. Finally,
the segment that is charged the higher price should not be vulnerable to competitor attack.16
Economic value to the customer

The relationship between price and profitability was considered briefly at the start of this chapter.
It is already clear that the ability to charge a higher price can have a major impact on profitability.
It is also apparent that in order to achieve higher prices, businesses must be able to offer the
Business-to-business Marketing cut the start-up costs for a compa-

pricing using EVC analysis tools and rable panel press to £10 000 and
reduced post-purchase costs to
techniques £105 000. This means that the total
Analyzing economic value to the cus-
tomer (EVC) is a useful aid to setting costs for the press are £35 000 less
prices for business-to-business orga- than those for the market leader.
nizations. This example concerns the The result is that Company A’s
pricing of panel presses, which are press offers the customer an EVC of
supplied to the car parts business. The analysis focuses on £210 000 less £115 000, which equals £95 000. Assuming that
the market leader and two other competitors. Company A charged a purchase price of £95 000 for the panel
The analysis begins by considering a reference product press, the customer would face total life-cycle costs that were
against which the costs of competing products are compared. equivalent to the market leading product. If, however, Company
In this case, the market leader is used as the reference A decided to offer the panel press at a purchase price of only
product. In this example, a car parts company buying the panel £80 000, the lower life-cycle costs of the product would give the
press from the market leader would expect to pay the follow- customer a considerable financial incentive to buy.
ing costs. The purchase price of the press is £60 000. Start-up Consider the position of a second competitor, Company
costs, such as installation charges, staff training and lost pro- B, with similar start-up and post-purchase costs to the mar-
duction during installation, are £20 000, and post-purchase ket leader. This company has, through certain technological
costs, including operating costs such as labour, servicing/ advances, increased the rate at which the press can be oper-
maintenance and power, are £130 000. ated, potentially increasing productivity and therefore revenue
This means that, over its life cycle, the panel press will cost for the customer. As a result, the press has the potential to
the car parts company a total of £210 000. offer an additional £50 000 profit contribution over the presses
Companies competing with the market leader present the of the market leader and Company A. The EVC associated with
customer with a different profile of costs. Company A has, by this is £110 000, because this is the highest price the cus-
incorporating a number of new design features, managed to tomer may be expected to pay.
customer some kind of differential advantage. In business markets, this advantage must usually
be measurable in economic terms because businesses are driven by the need to reduce costs
and increase revenue. Thus a manufacturer of switch gears may be prepared to change to a more
expensive supplier of fork-lift trucks if the products supplied have lower running costs. The concept
of economic value to the customer encapsulates this notion and is a useful aid to determining
prices in business markets. The underlying principle of economic value to the customer (EVC)
is that a premium price can be charged while still offering the customer better value than
economic value to the
the competition.
customer (EVC)
The underlying principle There are various reasons why a costly product may provide good economic value
that a premium price can to the customer, including lower set-up or running costs, the provision of superior ser-
be charged while still vicing or other after-sales support, or a better warranty deal. It is even possible that
offering the customer the life of the product may be longer or that its productivity may be greater than that
better value than the
of lower-priced alternatives. Whatever the reason behind the value on offer, if EVC is
competition.
to be demonstrated, the initial high price of the product must be justified by an overall
lower lifetime cost. The Marketing Tools and Techniques box above provides a worked
example of how EVC works in practice.
Stages for establishing prices

When going through the stages for establishing prices, marketers must be able to grasp target
customers’ evaluation of price and perceived value for money, as well as understand market trends
and competitors’ pricing moves.17 The economics of pricing-demand curves and price elasticity,
plus the relationship in the market in question between demand, costs and profits must also be
addressed. The marketer must ultimately choose from a variety of pricing approaches and specific
pricing strategies. The remainder of this chapter reviews the eight stages for establishing prices
in greater depth (Figure 20.5). The final section explains that, in operational situations, marketers
must take a broader look at pricing concerns and exercise pragmatism in determining the price
element of the marketing mix.
Assessment of
Analysis of
Selection target market’s
Determination demand, cost
of pricing evaluation of
of demand and profit
objectives price and its
relationships
ability to pay
Determination Selection of Selection Evaluation of

of a specific a pricing of a basis for competitors’
price strategy pricing prices
Figure 20.5
Stages for establishing
prices
Stage 1: Selection of pricing objectives

Pricing objectives must be stated explicitly because they form the basis for decisions about other
stages of pricing.18 The statement of pricing objectives should include the time within which the
objectives are to be accomplished. Marketers must set pricing objectives that are consistent with
the company’s overall and marketing objectives. Inconsistent objectives cause internal conflicts
and confusion, and can prevent the business from achieving its overall goals.
Businesses normally have multiple pricing objectives, some short term and others long term.
For example, the pricing objective of gaining market share is normally short term in that it often
requires products to be priced lower than competitors’ prices. Pricing objectives are typically
altered over time.
Stage 2: Assessing the target market’s evaluation of price and its ability to buy
The degree to which price is a significant issue for buyers depends on the type of product, the type
of target market and the purchase situation. For example, most buyers are more sensitive to fuel
prices than to the cost of a new passport. With respect to the type of target market, the price of an
airline ticket is much more important to a tourist than to a business traveller. The purchase situation
also has a major impact. Thus visitors to concert venues and sporting arenas may be prepared to
pay inflated prices for canned drinks and food, which is something they would not tolerate from
their local supermarket. Assessing the target market’s evaluation of price helps a marketer to judge
how much emphasis to place on price.
Stage 3: Determining demand

Determining the demand for a product is the responsibility of marketing managers, who are aided in
this task by marketing researchers and forecasters. Marketing research and forecasting techniques
yield estimates of sales potential or the quantity of a product that could be sold during a specific
period. Chapter 22 describes such techniques as surveys, time series analysis, correlation methods
and market tests. These estimates are helpful in establishing the relationship between a product’s
price and the quantity demanded.
The demand curve For most products, the quantity demanded goes up as the price goes
down, and goes down as the price goes up. Thus there is an inverse relationship between price
and quantity demanded. Figure 20.6 illustrates the effect of one variable – price – on the quantity
demanded. The classic demand curve (D1) is a graph of the quantity of products
demand curve expected to be sold at various prices, if other factors remain constant.19 It illustrates that
A graph of the quantity as price falls, the quantity demanded usually increases. An improvement in elements
of products expected to
be sold at various prices,
of the marketing mix may cause a shift to, say, demand curve D2. In such a case, an
if other factors remain increased quantity (Q2) will be sold at the same price (P). For example, if a manufacturer
constant. of engine oil improves the quality of its product, customers may be prepared to pay more
for it because they do not need to change it as frequently.
P
Price
Figure 20.6
Demand curve illustrating the
price-quantity relationship and an D2
increase in demand
Source: Reprinted with permission
from Dictionary of Marketing Terms
D1
by Peter D. Bennett, ed., 1988, p. 54,
Q1 Q2
published by the American Marketing
Association. Quantity
P3
P2
Price
P1
Figure 20.7
Demand curve illustrating the relationship Q1 Q2
between price and quantity for prestige
products Quantity
There are many types of demand, and not all conform to the classic demand curve. Prestige
products, such as designer jewellery, fragrances and exclusive holidays seem to sell better at high
prices than at low ones because their cost makes buyers feel superior.
The demand curve in Figure 20.7 shows the relationship between price and quantity for prestige
products. Demand is greater, not less, at higher prices. For a certain price range – from P1 to P2
– the quantity demanded (Q1 ) goes up to Q2. If the price of a product goes too high, the quantity
demanded goes down. When the price is raised from P2 to P3 , quantity demanded goes back
down from Q2 to Q1.
Demand fluctuations Changes in buyers’ needs, variations in the effectiveness of other mar-
keting mix variables, the presence of substitutes and dynamic environmental factors can influence
demand. Internet search engines, restaurants and utility companies experience large fluctuations in
demand daily. Holiday companies, fireworks suppliers and swimming pool sellers also face demand
fluctuations because of the seasonal nature of these items. The demand for smartphones, tablets
and online banking services has changed significantly in recent years. In some cases, demand
fluctuations are predictable and in others they are not.
Gauging price elasticity of demand The discussion so far has considered how marketers
identify the target market’s evaluation of price and its ability to purchase, and how they examine
whether price is related inversely or directly to quantity sold. The next stage in the process is to
gauge price elasticity of demand. Price elasticity of demand provides a measure of
price elasticity of
demand
the sensitivity of demand to changes in price. It is the percentage change in quantity
A measure of the sen- demanded relative to a given percentage change in price (see Figure 20.8).20 The per-
sitivity of demand to centage change in quantity demanded caused by a percentage change in price is much
changes in price. greater for elastic demand than for inelastic demand. For products such as electricity,
medicines and cigarettes, demand is relatively inelastic. When price is increased, say
from P1 to P2 , quantity demanded goes down only a little, from Q1 to Q2. For products
such as movie tickets, demand is relatively elastic. When price rises sharply, from P1 to P2 , quantity
demanded goes down a great deal, from Q1 to Q2.
Electricity Movie tickets
P2 P´2
Elastic
demand
Price
Price
Figure 20.8 P1 P´1
Elasticity of demand
Source: Reprinted with
permission from Dictio-
nary of Marketing Terms
Inelastic
by Peter D. Bennett, ed., demand
1988, p. 54, published Q2 Q1 Q'2 Q'1
by the American Market-
ing Association. Quantity Quantity
Understanding the price elasticity of demand makes it easier for marketers to set a price. By
analyzing total revenues as prices change, marketers can determine whether a product is ‘price
elastic’. Total revenue is price times quantity: thus 10 000 rolls of wallpaper sold in one year at
a price of £10 (€14) per roll equals £100 000 (€140 000) of total revenue. If demand is elastic, a
change in price causes an opposite change in total revenue – an increase in price will decrease
total revenue, and a decrease in price will increase total revenue. An inelastic demand results in
a change in the same direction in total revenue – an increase in price will increase total revenue,
and a decrease in price will decrease total revenue. The following formula determines the price
elasticity of demand:
% change in quantity demanded

Price elasticity of demand 5
% change in price
For example, if demand falls by eight per cent when a seller raises the price by two per cent,
the price elasticity of demand is −4 (the negative sign indicating the inverse relationship between
price and demand). If demand falls by two per cent when price is increased by four per cent, then
elasticity is half. The less elastic the demand, the more beneficial it is for the seller to raise the price.
Products for which substitutes are not readily available and for which consumers have strong needs
(for example, electricity or petrol) usually have inelastic demand.
Marketers cannot base prices solely on elasticity considerations. They must also examine the
costs associated with different volumes and see what happens to profits.
Stage 4: Analysis of demand, cost and profit relationships

fixed costs This section explores the relationships between demand, costs and profits. There are
Those costs that do not
two approaches to understanding demand, cost and profit relationships: marginal anal-
vary with changes in the
number of units pro- ysis and break-even analysis.
duced or sold.
Marginal analysis Marginal analysis considers what happens to a company’s costs
and revenues when production (or sales volume) is changed by one unit. Both produc-
average fixed cost tion costs and revenues must be evaluated. To determine the costs of production, it is
The fixed cost per unit
necessary to distinguish between several types of cost. Fixed costs do not vary with
produced, calculated
by dividing fixed costs changes in the number of units produced or sold. The cost of renting a hairdressing
by the number of units salon does not change if an extra hairdresser is recruited or more appointments are
produced. scheduled. Average fixed cost, the fixed cost per unit (or haircut) produced, is calcu-
lated by dividing fixed costs by the number of units produced.
Variable costs vary directly with changes in the number of units produced or ser-
variable costs
Those costs that vary vices delivered. The wages for additional hairdressers and the cost of extra shampoos
directly with changes and hair dyes are extra. Variable costs are usually constant per unit – that is, twice
in the number of units as many hairdressers and twice as many hair products produce twice the amount of
produced or sold. haircuts and others treatments. Average variable cost, the variable cost per unit pro-
duced, is calculated by dividing the variable costs by the number of units produced.
Total cost is the sum of average fixed costs and average variable costs multiplied
average variable cost
The variable cost per by the quantity produced. The average total cost is the sum of the average fixed cost
unit produced, calculated and the average variable cost. Marginal cost (MC) is the extra cost a company incurs
by dividing the variable when it produces one more unit of a product. Table 20.3 illustrates various costs and their
costs by the number of relationships. Notice that the average fixed cost declines as the output increases. The
units produced.
average variable cost follows a U-shape, as does the average total cost. Being that the
average total cost continues to fall after the average variable cost begins to rise, its lowest
total cost
point is at a higher level of output than that of the average variable cost. The average total
The sum of average fixed cost is lowest at five units at a cost of £22, whereas the average variable cost is lowest
costs and average vari- at three units at a cost of £11.67. As shown in Figure 20.9, marginal cost equals average
able costs multiplied by total cost at the latter’s lowest level. In Table 20.3 this occurs between five and six units
the quantity produced. of production. Average total cost decreases as long as the marginal cost is less than the
average total cost, and it increases when marginal cost rises above average total cost.
Table 20.3 Costs and their relationships

1 2 3 4 5 6 7
Quantity Fixed cost Average fixed cost Average Average total cost Total cost Marginal
(2) ÷ (1) variable cost (3) + (4) (5) × (1) cost
1 £40 £40.00 £20.00 £60.00 £60
2 40 20.00 15.00 35.00 70 £10
3 40 13.33 11.67 25.00 75 5
4 40 10.00 12.50 22.50 90 15
5 40 8.00 14.00 22.00 110 20
6 40 6.67 16.67 23.33 140 30
7 40 5.71 20.00 25.71 180 40
Average
Marginal cost total cost
Money (£)
Figure 20.9
Typical marginal cost and average
cost relationships Quantity
average total cost

The sum of the average Marginal revenue (MR) is the change in total revenue that occurs when a com-
fixed cost and the aver- pany sells an additional unit of a product. Figure 20.10 depicts marginal revenue and
age variable cost. a demand curve. Most businesses in Europe face downwards-sloping demand curves
for their products. In other words, they must lower their prices to sell additional units.
Price
Demand (average revenue)
Figure 20.10
Marginal revenue
Typical marginal revenue and
demand (average revenue)
relationships Quantity
This situation means that each additional product sold provides the business with less
marginal cost (MC)
The extra cost a com- revenue than the previous unit sold. MR then becomes less than average revenue, as
pany incurs when it Figure 20.10 shows. Eventually, MR reaches zero, and the sale of additional units merely
produces one more unit hurts the company.
of a product. However, before the company can determine whether a unit makes a profit, it must
know its cost, as well as its revenue, because profit equals revenue minus cost. If
MR is a unit’s addition to revenue and MC is a unit’s addition to cost, then MR minus
marginal revenue (MR)
The change in total rev- MC tells whether the unit is profitable or not. Table 20.4 illustrates the relationships
enue that occurs when a between price, quantity sold, total revenue, marginal revenue, marginal cost and total
company sells an addi- cost. It indicates where maximum profits are possible at various combinations of price
tional unit of a product. and cost.
Table 20.4 Marginal analysis: method of obtaining maximum profit-producing price

1 2 3 4 5 6 7
Price Quantity sold Total revenue (1) × (2) Marginal revenue Marginal cost Total cost Profit (3)-(6)
£57.00 1 £57 £57 £– £60 £−3
55.00 2 110 53 10 70 40
40.00 3 120 10 5 75 45
33.75* 4 135 15 15 90 45
30.00 5 150 15 20 110 40
27.00 6 162 12 30 140 22
25.00 7 175 13 40 180 −5
Profit is maximized where MC 5 MR (see Table 20.4). In this table MC 5 MR at four units. The
best price, therefore, is £33.75 and the profit is £45. Up to this point, the additional revenue gen-
erated from an extra unit of sale exceeds the additional total cost. Beyond this point, the additional
cost of another unit sold exceeds the additional revenue generated, and profits decrease. If the
price was based on minimum average total cost, £22 (Table 20.3), it would result in less profit:
only £40 (Table 20.4) or five units at a price of £30 versus £45 for four units at a price of £33.75.
Marginal cost
Average cost
Money (£)
P
Average revenue
Figure 20.11 (demand)
Combining the
marginal cost and Marginal revenue
marginal revenue
concepts for optimal
profit Q
Graphically combining Figures 20.9 and 20.10 into Figure 20.11 shows that any unit for which
MR exceeds MC adds to a company’s profits, and any unit for which MC exceeds MR sub-
tracts from a company’s profits. The company should produce at the point where MR equals MC,
because this is the most profitable level of production.
This discussion of marginal analysis may give the false impression that pricing can be highly
precise. If revenue (demand) and cost (supply) remained constant, then prices could be set for
maximum profits. In practice, however, cost and revenue change frequently. The competitive tac-
tics of other companies or government action can quickly undermine a company’s expectations
of revenue. Thus marginal analysis is only a model from which to work. It offers little help in pricing
new products before costs and revenues are established. However, when setting the prices of
existing products, most marketers can benefit by understanding the relationship between marginal
cost and marginal revenue.
break-even point Break-even analysis

The point at which the costs of producing a product equal the
The point at which the revenue made from selling the product is the break-even point. If a hairdressing salon
costs of producing a has total annual costs of £150 000 and in the same year sells £150 000 worth of haircuts
product equal the reve- and treatments, then the business has broken even: no profits, no losses.
nue made from selling
Figure 20.12 illustrates the relationships of costs, revenue, profits and losses involved
the product.
in determining the break-even point. Knowing the number of units necessary to break
even is important in setting the price. If a product priced at £100 per unit has an average
variable cost of £60 per unit, then the contribution to fixed costs is £40. If total fixed costs are
£120 000, here is the way to determine the break-even point in units:
fixed costs
Break-even point 5
per unit contribution to fixed costs
fixed costs
5
price 2 variable costs
£120 000
5
£40
53000 units
To calculate the break-even point in terms of cash sales volume, multiply the break-even point
in units by the price per unit. In the preceding example, the break-even point in terms of cash sales
volume is 3000 (units) times £100 or £300 000.
Total revenue
Total cost
Profits
Money (£)
Break-even point
Total variable costs
Losses Fixed costs
Figure 20.12
Determining the
break-even point Units of production (quantity)
To use break-even analysis effectively, a marketer should determine the break-even point for each
of several alternative prices. This allows the effects on total revenue, total cost and the break-even
point for each price under consideration to be assessed. Although this analysis may not tell the mar-
keter exactly what price to charge, it will identify price alternatives that should definitely be avoided.
Break-even analysis is simple and straightforward. It does assume, however, that the quantity
demanded is basically fixed (inelastic) and that the major task in setting prices is to recover costs. It
focuses more on how to break even than on how to achieve a pricing objective, such as percentage
of market share or return on investment. Nonetheless, marketing managers can use this concept
to determine whether a product will achieve at least a break-even volume. In other words, it is
easier to answer the question, ‘Will we sell at least the minimum volume needed to break even?’
than the question ‘What volume of sales can we expect?’
Stage 5: Evaluation of competitors’ prices

The prices marketers set will be influenced by competitors’ pricing strategies. Marketers are bet-
ter able to establish prices when they know the prices charged for competing brands. Learning
competitors’ prices is a regular function of marketing research. Many supermarkets and depart-
ment stores systematically gather data on prices to support claims they make to customers
about the price of their products. Price comparison websites such as www.moneysupermarket.
com or www.comparethemarket.com have also made information on prices readily accessible
to customers.
Finding out what prices competitors are charging is not always easy, especially in producer
and reseller markets. Even if a marketer has access to price lists, these may not reflect the actual
prices at which competitive products are sold because those prices may be established through
negotiation.
Marketers in an industry in which non-price competition prevails need competitive price infor-
mation to ensure that their company’s prices are the same as those of competitors. Sometimes
a company’s prices are designed to be slightly above competitors’ prices to give its products an
exclusive image. Alternatively, another company may use price as a competitive tool and attempt
to set its prices below those of competitors. Aldi, Poundland, Kia and TK Maxx, for example, have
all acquired market share through aggressive competitive prices.
basis for pricing Stage 6: Selecting a basis for pricing

Structures the calculation
of the actual price. After evaluating competitors’ prices, a marketer must choose a basis for pricing to
structure the calculation of the actual price. The nature of a product, its sales volume or
the amount of product the company carries will determine how prices are calculated. For example,
a procedure for pricing the thousands of products in a supermarket must be simpler and more
direct than that for calculating the price of a limited-edition crystal giftware item.
cost-based pricing Cost-based pricing In cost-based pricing, a monetary amount or percentage is

A pricing approach added to the cost of a product. The method thus involves calculations of desired mar-
whereby a monetary
amount or percentage
gins or profit margins. Cost-based pricing does not necessarily take into account the
is added to the cost of a economic aspects of supply and demand, nor does it necessarily relate to a specific
product. pricing approach or ensure the attainment of pricing objectives. However, it is simple
and easy to implement. Two common cost-based approaches are cost plus pricing and
mark-up pricing.
cost plus pricing In cost plus pricing, the seller’s costs are determined and the price is then set
A pricing approach based
by adding a specified amount or percentage of the cost to the seller’s costs. Cost
on adding a specified
amount or percentage to plus pricing is appropriate when production costs are difficult to predict or production
the seller’s cost after that takes a long time. The government frequently uses pricing oriented to costs in granting
cost is determined. defence contracts. The approach can be problematic because some costs are difficult
to determine. In periods of rapid inflation, cost plus pricing is popular, especially as the
raw materials used may fluctuate in price.
mark-up pricing
Retailers commonly use mark-up pricing, where a price is derived by adding a pre-
A pricing approach
whereby a product’s determined percentage of the cost, called mark-up, to the cost of the product. Although
price is derived by the percentage mark-up in a retail store varies for different categories (35 per cent of cost
adding a predetermined for hardware items, 100 per cent of cost for a greeting card or 300 per cent for wines),
percentage of the cost, the same percentage is often used to determine the price of items within a single product
called mark-up, to the
category, and may be standardized across an industry. Using a rigid percentage mark-up
cost of the product.
reduces pricing to a routine task that can be performed quickly. Mark-up can be stated
as a percentage of the cost or as a percentage of the selling price.
The following example illustrates how percentage mark-ups are determined and points out the
differences between the two methods. Assume that a retailer purchases a tin of mushrooms at
45p, adds 15p to the cost and then prices the mushrooms at 60p:
mark - up 15 1
Mark - up as a percentage of cost 5 5 5 33 %
cost 45 3
mark - up 15
Mark - up as a percentage of selling price 5 5 5 25%
selling price 60
An average percentage mark-up on cost may be as high as 100 per cent or more for
jewellery or as low as 20 per cent for this textbook.
demand-based pricing
A pricing approach
based on the level of Demand-based pricing A pricing approach based on the level of demand for a prod-
demand for a product, uct is demand-based pricing. This approach results in a high price when demand for
resulting in a high price a product is strong and a low price when demand is weak. Pricing of leisure amenities
when demand is strong
often operates on this basis, with higher prices when demand is highest at weekends
and a low price when
demand is weak. and during peak holiday periods. The amounts of a product that consumers will demand
at different prices are estimated and the price that generates the highest total revenue is
selected. Compared with cost-based pricing, demand-based pricing places a company
competition-based in a better position to gain higher profits.
pricing
A pricing approach Competition-based pricing In using competition-based pricing, an organization
whereby a business
considers costs and rev-
considers costs and revenue as secondary to competitors’ prices. This approach is
enue to be secondary to important if competing products are almost homogeneous and the company is servicing
competitors’ prices. markets in which price is the key variable of the marketing strategy.21 A business that
uses competition-based pricing may choose to be below competitors’ prices, above
competitors’ prices or at the same level. These firms need to be aware that online price
marketing-oriented
pricing comparison websites are making it easier than ever for consumers to compare prices,
A pricing approach as the Topical Insight box explains. The price of domestic electricity is determined using
whereby a company competition-oriented pricing. Competition-based pricing should help attain a pricing
takes into account a wide objective to increase sales or market share.
range of factors includ-
ing marketing strategy,
competition, value to the Marketing-oriented pricing More complex than cost- or competition-oriented pric-
customer, price–quality ing, marketing-oriented pricing takes account of external factors as seen by the
relationships, explicability, customer and experienced by channel members, in addition to internal cost and per-
costs, product line pricing, formance drivers.
negotiating margins, polit-
The price set must reflect the product’s marketing strategy: its target market profile,
ical factors and effect on
distributors/retailers. brand positioning and sales targets. The price point – the actual ticket or displayed price
– must also be in harmony with the other marketing mix ingredients. For example, an
The rise of the price first-year cost, line rental fees, delivery
comparison website and connection charges. Hotel site
Topical insight Trivago, while offering the price compari-
Shifting shopping patterns have resulted sons that consumers expect, also includes
in an explosion of internet purchasing, as customer rankings of the different booking
consumers seek the convenience of shopping websites and of the locations and accommo-
at a time, place and manner of their choosing. dation it features. For example, hotels are rated
The opportunity to compare price and choose the most cost- according to location, facilities, décor, quality of the bed,
effective options is an attractive feature for many of these bedroom, bathroom, food and staff. So, while price is import-
value-conscious shoppers. A rapid growth in price comparison ant, it seems that other dimensions are important in shaping
websites, such as GoCompare.com and uswitch.co.uk, has perceived consumer value.
fuelled this need. However, some sites have been criticized for misleading
Price comparison websites first emerged in 1999, when consumers. In 2014 the UK Financial Conduct Authority pub-
two sites were launched: MoneySuperMarket.com, which lished a critical report about insurance price comparison web-
focused on mortgages and Kelkoo.fr, specializing in retailing. sites which suggested that: (i) websites did not always provide
Since that time, the market has expanded dramatically, as product information in a clear and consistent manner; (ii) there
reflected in the fortunes of these first entrants. While Money- was a lack of clarity in some cases about the role of the web-
SuperMarket.com has extended beyond financial offerings to sites, including their involvement in distributing the products
include a wide range of products and services; Kelkoo.fr now or services that they covered; and (iii) some websites were
operates in 22 countries, including Brazil and the US, with not complying with their regulatory obligations. Meanwhile,
recent launches in Mexico and Russia. UK consumer group Which? has argued that more regulation
The number of websites has grown dramatically in recent is needed, after its research showed that consumers are not
years. These include a plethora of generalist sites, such as always treated fairly by these sites.
gocompare.com and moneysavingexpert.com; as well as References: BBC Business News, ‘Price comparison sites should be regulated,
Which? says’, 24 March 2012, www.bbc.co.uk/news/business-17492343
more specialist ones focusing on particular product groups, (accessed March 2015); Financial Conduct Authority, Thematic Review:
such as hotelscomparison.com for hotels, pintprice.com for Webcredible, ‘Future comparisons: Price comparison websites in the gen-
beer prices around the world, and mysupermarket.co.uk for eral insurance sector’, July 2014, www.fca.org.uk/publication/thematic-
reviews/tr14-11.pdf (accessed March 2015); Webcredible.com, ‘What’s
the weekly food shop. next for price comparison websites?’ August 2009, www.webcredible.com/
Although the main aim of price comparison websites is to files/2014/3798/4253/price-comparison-report-2009.pdf (accessed March
identify the best deals for consumers, many go much further 2015); www.marketingdonut.co.uk/market-research/market-analysis/a-
guide-to-price-comparison-websites; Kelkoo.fr, June, 2018; GoCompare.com,
than reporting the basic price. In its comparison of broad- uSwitch.com, MoneySuperMarket.com, hotelscomparison.com, pintprice.com,
band offers, MoneySuperMarket.com provides details of total moneysavingexpert.com and Trivago.co.uk, May 2018.
exclusive private dental practice will fail if its facilities are poor. Marketers must be aware
pricing strategy
An approach to influ- of competing products’ prices and their own product’s value as perceived by the targeted
encing and determining customer. The customer has to be receptive to the determined price. This customer-
pricing decisions. focused view is also reflected in two other criteria: the price–quality relationship of the
product and the explicability of the finalized prices. Just how plausible to the customer
is the recommended price? If the product is part of a range, its price point will affect the
differential pricing
A pricing strategy involv-
other product lines on offer, and the whole range must be priced to avoid an individual
ing charging different product harming the achieved price and image of related lines. While a business must
prices to different buyers ensure that its costs of production, distribution and marketing are covered, it also has
for the same quality and to recognize that its dealers and distributors must make an adequate margin on units
quantity of product. sold and set its prices to its distribution channel partners accordingly. These channel
members and the ultimate customer may expect to negotiate over price – very common
product line pricing in business-to-business markets – so the price must be set to permit such negotiating
Establishing and adjusting and discounting. Trade and government regulations may affect the flexibility a business
prices of multiple prod- has in establishing prices. For example, EU anti-dumping laws forbid businesses from
ucts within a product line. selling products in the EU at lower than cost price.22
psychological pricing
Stage 7: Selection of a pricing strategy
A pricing strategy A pricing strategy is an approach designed to influence and determine pricing deci-
designed to encourage
purchases that are based
sions. Pricing strategies help marketers to solve the practical problems of establish-
on emotional rather than ing prices. Differential pricing means charging different prices according to different
rational responses. buyers for the same quality and quantity of a product. New product pricing involves
strategies that are geared to dealing with pricing of new products. Product line pricing
means establishing and adjusting the prices of multiple products within a product line.
professional pricing Psychological pricing aims to encourage consumers to buy based on their emotional
Pricing used by people
who have great skill or
responses to price. Professional pricing is used by people who have great skill or
experience in a particular experience in a particular field or activity. In promotional pricing, the pricing relates to
field or activity. a short-term promotion of a particular product. The most common pricing strategies
are described in Table 20.5.
Table 20.5 Common pricing strategies

Differential pricing
Involves changing different prices to different buyers for the same quality and quantity of a product. For example, red roses are more expensive
on Valentine’s Day than at other times.
●● Negotiated pricing
Common in some industries, occurs when the final price is established through bargaining between seller and customer. E.g.: consumers
commonly negotiate prices for houses or second-hand goods.
●● Secondary market pricing
Setting one price for the primary target market and a different one for others. Price in the secondary market may be lower. E.g.: some restau-
rants offer ‘early-bird’ prices.
●● Periodic discounting
Temporary reduction of prices on a systematic basis. E.g.: fashion retailers have annual sales in January and July, while car dealers offer
discounts on current models when the next year’s models are introduced.
●● Random discounting
Alleviates the problems of periodic discounting by temporarily reducing prices on an unsystematic basis. Customers cannot predict when
price reductions will occur. Useful way of attracting new customers.
New product pricing
Setting the right base price for a new product is critical. The base price is easily adjusted and can be set high to recover development costs
quickly. When marketers set base prices, they consider how the market will develop and what the effects will be of competitors entering. Some-
times prices will be set to discourage competitive entry. Two strategies can be used.
●● Price skimming
Charging the highest possible price that buyers who most desire the product will pay. This ‘pioneer approach’ is the most flexible introductory base
price. Demand tends to be inelastic in the introductory stage of the PLC. E.g.: tablet computers. This approach generates much needed initial cash
flows to help off-set sizeable developmental costs, but can attract competitors who see the high prices as meaning the market is lucrative.
(Continued )
●● Penetration pricing
Setting a price below the prices of competing brands in order to penetrate a market, produce large unit sales volumes and rapidly gain market
share. Penetration pricing is popular even for well-known products. This approach is less flexible than price skimming, but sometimes firms use it
having first skimmed the market at a higher price. The approach is particularly appropriate when demand is highly elastic.
Product line pricing
Involves pricing a whole line of items rather than setting prices for individual items separately. The aim is to maximize profits for the entire line,
rather than focusing on the profitability of a single product.
●● Captive pricing
The basic product in a line is priced low, while the price of items needed to operate or enhance it may be higher. E.g.: printers are relatively
cheap, but the cartridges are often priced relatively high.
●● Premium pricing
Often used when there are several versions of the same product. The highest quality or ‘best’ products are given the highest prices, while
others are priced to appeal to price-sensitive shoppers or to those who seek product-specific features. E.g.: beer and ice cream.
●● Bait pricing
To attract customers a low price may be set on one item in the product line with the intention of selling higher priced items too. E.g.: a com-
puter retailer might advertise its lowest price model, hoping to attract customers who may then purchase a more expensive version.
●● Price lining
A limited number of prices is set for selected groups or lines. The assumption is that demand is inelastic for some groups of products. If prices
are attractive, customers will not react to slight changes in price. E.g.: a fashion retailer that has dresses priced at £30 (€42), £50 (€70) and
£70 (€98) may not attract many more sales if the prices are dropped by £2 or £3. The demand curve looks like a series of steps.
Psychological pricing
Encourages purchases based on emotional rather than rational responses. Customers are influenced to perceive the price to be more attractive.
●● Reference pricing
Involves pricing a product at a moderate level and positioning it next to a more expensive brand. It is intended customers will use the higher
price as an external reference price and compare the moderately priced brand favourably.
●● Bundle pricing
Involves packaging together two or more products, usually complementary ones, at a single price. The single price is usually below the com-
bined prices for the items. E.g.: some computer manufacturers bundle together a computer, software and internet service.
●● Multiple unit pricing
Occurs when two or more identical products are packaged together and sold for a single price, usually at a lower per-unit price. Customers
benefit from cost savings and convenience. E.g.: twin packs of soap, four packs of lightbulbs and six packs of beer.
●● Everyday low prices (EDLP)
Reduces the use of frequent short-term price reductions, by setting a low price on a consistent basis rather than setting higher prices and
frequently discounting. Prices are set far enough below competitors’ prices to make customers confident they are receiving a fair price. E.g.:
Walmart and Asda use this approach.
●● Odd/even pricing
Ending the price with certain numbers is assumed to influence buyers’ perceptions. Odd pricing assumes that more of a product will be sold
at £99.95 than at £100. The notion is that customers will think that the product is a bargain at £99, plus a few pence. Even prices are used to
give a product an exclusive, high-quality or upmarket image. E.g.: a premium silk tie may retail at £50 rather than £49.95.
●● Customary pricing
Certain goods are sometimes priced on the basis of tradition. E.g.: for many years UK public telephones were geared to use 2p and 10p
coins. BT initially dealt with rising costs by allowing less call time for the same money.
●● Prestige pricing
Prices are set at an artificially high level to provide prestige or a quality image. E.g.: the quality of service provided by an exclusive beauty
salon is sometimes associated with price.
Promotional pricing
Price is an ingredient in the marketing mix that is often coordinated with promotion. Sometimes the two are interrelated so that the pricing approach
is promotion oriented. Promotional pricing is a pricing approach whereby pricing is related to the short-term promotion of a particular product.
●● Price leaders
Products sold below usual mark-up or near cost; used most often in supermarkets and department stores to attract customers by giving low
prices on just a few items. Once in store, it is hoped they will also buy higher priced items.
●● Special event pricing
Advertised ‘sales’ or price cutting linked to a season, event or holiday to increase sales volume. E.g.: if the pricing objective is survival, spe-
cial sales may help to generate much needed operating capital.
●● Comparison discounting
Setting the price at a particular level so that it is simultaneously compared with a higher price. The higher price may be the previous product
price or a manufacturer’s suggested retail price. Consumers are becoming more suspicious of this approach.
Professional pricing
Used by those who have great skill or experience in a particular area. Some professionals, for example lawyers and some estate agents, who
provide such products feel that their fees (prices) should not relate directly to their time and involvement, instead charging a standard fee.
Many countries have legislation controlling the use of misleading pricing, which may
promotional pricing
Pricing related to the intentionally confuse or dupe consumers. The UK Consumer Protection Act 1987, which
short-term promotion of makes it illegal to mislead customers about the price at which products or services are
a particular product. offered for sale, is typical. This act contains a code of practice that, although not legally
binding, encourages companies to offer explanations whenever price comparisons or
reductions are made.
misleading pricing
Pricing policies that
intentionally confuse or Stage 8: Determining a specific price
dupe consumers.
The basis for pricing and pricing strategies should direct and structure the selection
of a final price. This means that marketers should establish pricing objectives; know
something about the target market; and determine demand, price elasticity, costs and competitive
factors. In addition to these economic factors, the manner in which pricing is used in the marketing
mix will affect the final price.
Although a systematic approach to pricing is suggested here, in practice prices may be set by
trial and error or after only limited planning. Later on, marketers determine whether the revenue
minus costs yields a profit. This approach to pricing is not recommended, because unsuitable
price levels are often set.
Another issue is that the external trading environment can change quickly and constantly, con-
sumers are relatively fickle and revise their expectations, market developments alter the pattern of
the market, and competitors continually modify their marketing mix . . . a price-cutting campaign,
a new model launch, a high-profile advertising campaign or, perhaps, a customer service initiative.
In the absence of government price controls, pricing remains a flexible and convenient way
to adjust the marketing mix. In most situations, prices can be adjusted quickly – in a matter of
minutes or over a few days. The other components of the marketing mix do not have this flexibility
or freedom.
In the context of the marketing mix, price can generally be altered relatively quickly, especially
when compared with the time and resources required to launch a new product, modify a channel
of distribution, improve customer service or create and run a new advertising campaign. Even in
this context, however, the shrewd marketer should endeavour to minimize price cutting and dis-
counting. In most cases the only short-term beneficiary of a price war is the consumer. Indeed,
the business, its distributors, the brand or the long-term flexibility of the marketing mix may suffer
as a consequence. Although marketers must never lose sight of the ‘economics’ of pricing, there
must be a sensible trade-off, or ‘pricing balance’, between economic analysis and pragmatism.
Summary
Price is the value placed on what is exchanged. The buyer exchanges buying power – which depends on the buyer’s
income, credit and wealth – for satisfaction or utility. Financial price is the basis of market exchanges – the quantified
value of what is exchanged. However, price does not always involve a financial exchange; barter, the trading of products, is
the oldest form of exchange.
Price is a key element in the marketing mix because it relates directly to the generation of total revenue. The profit factor
can be determined mathematically by first multiplying price by quantities sold to calculate total revenues and then sub-
tracting total costs. Price is often the only variable in the marketing mix that can be adjusted quickly and easily to respond
to changes in the external environment.
A product offering can compete on either a price or a non-price basis. Price competition emphasizes price as the product
differential. Prices fluctuate frequently, and sellers must respond to competitors changing their prices. Non-price compe-
tition emphasizes product differentiation through distinctive product features, services, product quality or other factors.
Establishing brand loyalty by using non-price competition works best when the product can be physically differentiated and
these distinguishing characteristics are viewed as desirable.
Pricing objectives are overall goals that describe what a company wants to achieve through its pricing efforts. The most
fundamental pricing objective is the business’s survival. Price can easily be adjusted to increase sales volume to levels
that match the company’s expenses. Profit objectives, which are usually stated in terms of actual monetary amounts or
percentage change, are normally set at a satisfactory level rather than at a level designed for profit maximization. Pricing
for return on investment (ROI) sets a specified rate of return as its objective. A pricing objective to maintain or increase
market share is established in relation to total industry sales. Other types of pricing objective include cash flow, status quo
and product quality.
Nine factors affect pricing decisions:
(1) organizational and marketing objectives, (2) pricing objectives, (3) costs, (4) other marketing mix variables, (5) channel
member expectations, (6) buyers’ perceptions, (7) competition, (8) legal and regulatory issues, and (9) perceived value for
money. Thus pricing decisions should be consistent with the organization’s goals and mission. Pricing objectives heavily
influence price-setting decisions.
When interpreting and responding to prices, customers compare prices with internal or external reference prices. An
internal reference price is a price developed in the buyer’s mind through experience with the product. When there is less
experience, consumers rely more heavily on external reference prices. An external reference price is a comparison price
provided by others, such as retailers, manufacturers or competing products. In the context of price, buyers can be char-
acterized according to their degree of value consciousness, price consciousness and prestige-sensitivity. Value-conscious
consumers are concerned about both the price and the quality of a product. Price-conscious consumers strive to pay low
prices. Prestige-sensitive consumers focus on purchasing products that signify prominence and status.
Most marketers view a product’s cost as the floor below which a product cannot be priced. Due to the interrelationship of
the marketing mix variables, price can affect product, promotion, place/distribution and service-level decisions. The reve-
nue that channel members expect for the functions they perform must also be considered when making price decisions.
Buyers’ perceptions of price vary so a marketer needs to be aware of these issues when determining the price. Knowledge
of the prices charged for competing brands is essential so that a company can adjust its prices relative to those of compet-
itors. Government regulations and legislation can also influence pricing decisions through laws to enhance competition and
by invoking price controls – for example, to curb inflation.
Perceived value for money is an important consideration when setting prices. Consumers do not regard price purely as
the monetary value being demanded in exchange for a good or a service. The quality of the item, its brand image, pur-
pose, usage and overall appeal – along with the consumer’s previous experiences and certain tangible benefits such as
interest-free credit and warranties – dictate the consumer’s view of value for money.
Unlike consumers, industrial or business buyers purchase products to use in their own operations or for producing other
products. When adjusting prices, business sellers take into consideration the size of the purchase, geographic factors and
transport requirements. Producers commonly provide trade or functional discounts off list prices to intermediaries. The five
categories of discount include (1) trade, (2) quantity, (3) cash discounts, (4) seasonal discounts, and (5) allowances.
Geographic pricing involves reductions for transport costs or other costs associated with the physical distance between the
buyer and the seller. An FOB factory price means that the buyer pays for shipping from the factory; an FOB destination price
means that the producer pays for shipping the merchandise. When the seller charges a fixed average cost for transport, the
practice is known as uniform geographic pricing. Zone prices take advantage of a uniform pricing system adjusted for major
geographic zones as the transport costs increase. Base point pricing involves prices being adjusted for shipping expenses
incurred by the seller from the base point nearest the buyer. A seller who absorbs all or part of the freight costs is using freight
absorption pricing. Transfer pricing occurs when one company unit sells a product to another unit within the same company.
When a price discrimination policy is adopted, different prices are charged in order to give a group of buyers a competitive
edge. In some countries, price differentials are legal only in circumstances where competition is not damaged.
The concept of economic value to the customer (EVC) is sometimes used in business markets to aid price setting. The
underlying principle is that a premium price can be charged while still offering better value than the competition.
The eight stages in the process of establishing prices are: (1) selecting pricing objectives; (2) assessing the target market’s
evaluation of price and its ability to buy; (3) determining demand; (4) analyzing demand, cost and profit relationships; (5)
evaluating competitors’ prices; (6) selecting a basis for pricing; (7) developing a pricing strategy; and (8) determining a
specific price.
The first stage, selecting pricing objectives, is critical because pricing objectives are the foundation on which the decisions
of subsequent stages are based. The second stage in establishing prices is an assessment of the target market’s evalua-
tion of price and its ability to buy. This shows how much emphasis to place on price and may help determine how far above
the competition prices can be set.
In the third stage, a business must determine the demand for its product. The classic demand curve is a graph of the quan-
tity of products expected to be sold at various prices, if other factors are held constant. It illustrates that, as price falls, the
quantity demanded usually increases. However, for prestige products, there is a direct positive relationship between price
and quantity demanded: up to a certain point demand increases as price increases. Next, price elasticity of demand – the
percentage change in quantity demanded relative to a given percentage change in price – must be determined.
Analysis of demand, cost and profit relationships – the fourth stage of the process – can be accomplished through mar-
ginal analysis or break-even analysis. Marginal analysis considers what happens to a company’s costs and revenues when
production (or sales volume) is changed by one unit. Fixed costs do not vary with changes in the number of units produced
or sold; average fixed cost is the fixed cost per unit produced. Variable costs vary directly with changes in the number of
units produced or sold. Average variable cost is the variable cost per unit produced. Total cost is the sum of average fixed
costs and average variable costs multiplied by the quantity produced. Average total cost is the sum of the average fixed
cost and average variable cost. The optimum price is the point at which marginal cost (MC) equals marginal revenue (MR).
Marginal analysis offers little help in pricing new products before costs and revenues are established. Break-even analysis
involves determining the number of units necessary to break even. The point at which the costs of producing a product
equal the revenue made from selling the product is the break-even point.
A pricing strategy is an approach designed to achieve pricing and marketing objectives. The most common pricing strat-
egies are differential pricing, new product pricing, product line pricing, psychological pricing, professional pricing and
promotional pricing. The three major dimensions on which prices can be based are cost, demand and competition. In using
cost-based pricing, a company determines price by adding a monetary amount or percentage to the cost of the product.
Two common cost-based pricing approaches are cost plus pricing and mark-up pricing.
Demand-based pricing is based on the level of demand for a product and requires marketers to estimate the amounts of
a product that buyers will demand at different prices. Demand-based pricing results in a high price when demand for a
product is strong and a low price when demand is weak. In the case of competition-based pricing, costs and revenues are
secondary to competitors’ prices.
Competition-based pricing and cost approaches may be combined to arrive at the price levels necessary to generate a
profit. Marketing-oriented pricing involves a company taking account of a wide range of factors including marketing strat-
egy, competition, value to the customer, price-quality relationships, explicability, costs, product line pricing, negotiating
margins, political factors and the effect on distributors/retailers.
A pricing strategy is an approach designed to influence and determine pricing decisions. Using differential pricing involves
charging different prices for the same quality or quantity of product. Negotiated pricing, secondary market discounting,
periodic discounting and random discounting are forms of differential pricing. Two strategies used in new product pricing
are price skimming and penetration pricing. With price skimming, a company charges the highest price that buyers who
most desire the product will pay. Penetration pricing sets a price below the prices of competing brands in order to pene-
trate the market and produce a larger unit sales volume.
Product line pricing establishes and adjusts the prices of multiple products within a product line. This strategy can include
captive pricing, premium pricing, bait pricing and price lining. Psychological pricing encourages purchases that are based
on emotional rather than rational responses. Examples of this approach include reference pricing, bundle pricing, multiple-
unit pricing, everyday low prices (EDLP) and odd/even pricing. Marketers try to influence buyers’ perceptions of the prices
of the product by ending the price with certain numbers. Customary pricing is based on traditional prices. With prestige
pricing, prices are set at an artificially high level to project a quality image. Professional pricing is used by people who have
great skill or experience in a particular field. Promotional pricing is a pricing approach in which pricing is related to the
short-term promotion of a particular product. Price leaders, special event pricing and comparison discounting are examples
of promotional pricing.
Misleading pricing – in which consumers are intentionally misled about the true cost or value of a product or service – is
increasingly monitored and tackled through consumer protection legislation. The basis for a price and the pricing strategy
should direct and structure the selection of a final price. For the most part, pricing remains a flexible and convenient way to
adjust the marketing mix.
Competition-based pricing
Key links Cost plus pricing
Cost-based pricing
●● Price impacts strongly on how businesses fare com- Cumulative discounts
petitively. The concepts of competitive strategy and Demand curve
the competitive environment are explored in Chapters Demand-based pricing
2 and 3. Differential pricing
Economic value to the customer (EVC)
●● Price is a key element of the marketing mix, because
External reference price
it directly affects how much revenue is generated.
Financial price
Understanding pricing concepts is critical to the
Fixed costs
development of effective marketing programmes, as
FOB destination price
discussed in Part Three.
FOB factory price
●● Pricing impacts significantly on a brand’s positioning, Freight absorption pricing
as described in Chapter 8. Geographic pricing
Internal reference price
Marginal cost
Marginal revenue
Important terms
Marketing-oriented pricing
Allowance Mark-up pricing
Average fixed cost Misleading pricing
Average total cost Non-cumulative discounts
Average variable cost Non-price competition
Base point pricing Perceived value for money
Basis for pricing Prestige-sensitive consumers
Break-even point Price
Cash discount Price competition
Price discrimination 11. Identify the eight stages that make up the process of estab-
Price elasticity of demand lishing prices.
Price-conscious consumers 12. Why do most demand curves demonstrate an inverse rela-
Pricing objectives tionship between price and quantity?
Pricing strategy
13. List the characteristics of products that have inelastic
Product line pricing
demand. Give several examples of such products.
Professional pricing
Promotional pricing 14. Explain why optimum profits should occur when marginal
Psychological pricing cost equals marginal revenue.
Quantity discounts 15. The Chambers Company has just gathered estimates in
Seasonal discount preparation for a break-even analysis for a new product.
Total cost Variable costs are £7 per unit. The additional plant will cost
Trade or functional discount £48 000. The new product will be charged £18 000 a year
Transfer pricing for its share of general overheads. Advertising expenditure
Uniform geographic pricing will be £80 000, and £55 000 will be spent on distribution.
Value-conscious consumers If the product sells for £12, what is the break-even point in
Variable costs units? What is the break-even point in sales volume?
Zone prices 16. For what types of product would a pioneer price skimming
approach be most appropriate? For what types of product
would penetration pricing be more effective?
17. Why do consumers associate price with quality? When
1. Why are pricing decisions so important to a business? should prestige pricing be used?
2. Compare and contrast price and non-price competition. 18. What factors must be taken into consideration when adopt-
Describe the conditions under which each form works ing a marketing-oriented approach to pricing?
better.
3. How does a pricing objective of return on investment (ROI)
differ from a pricing objective to increase market share? Recommended readings
4. Why is it crucial to consider both marketing objectives and Cram, T., Smarter Pricing (FT/Prentice-Hall, 2006).
pricing objectives when making pricing decisions? Harvard Business Review, Harvard Business Review on Pricing (Harvard
5. In what ways do other marketing mix variables affect pric- Business Press, 2008).
Hill, P., Pricing for Profit: How to Develop a Powerful Pricing Strategy for
ing decisions?
Your Business (Kogan Page, 2013).
6. What types of expectation may channel members have Jensen, M., Setting Profitable Prices: A Step-by-step Guide to Pricing
about producers’ prices, and how do these expectations Strategy (John Wiley, 2013).
affect pricing decisions? MacDivitt, H. and Wilkinson, M., Value-Based Pricing: Drive Sales and
7. How do legal and regulatory forces influence pricing Boost Your Bottom Line by Creating, Communicating and Capturing
Customer Value (McGraw-Hill Professional, 2011).
decisions?
Nagle, T. and Muller, G., The Strategy and Tactics of Pricing (Routledge,
8. Why must marketers consider consumers’ perceptions of 2017).
value for money when setting prices? Paczkowski, W.R., Pricing Analytics: Models and Advanced Quantitative
9. What is the difference between a price discount and price Techniques for Product Pricing (Routledge, 2018).
discrimination? Smith, T., Pricing Strategy: Setting Price Levels, Managing Price Dis-
counts and Establishing Price Structures (South-Western, 2011).
10. Why is the concept of EVC (economic value to the customer)
important when setting prices in business-to-business
markets?

Whether interested in buying a used Consumers can pay just 20 pence
or a new car, buying it outright, on to write with a disposable biro, yet
credit terms or by leasing, www. fancy fountain pens have become
buyacar.co.uk offers car buyers a comprehensive website. a common sight in the hands of influential businesspeople
Take a look at this online retailer at: www.buyacar.co.uk. or celebrities. Such pens have high price tags and are much
more difficult to maintain than ballpoints, felt-tip pens or
1. Find the lowest-priced new Audi A1 available today and
roller-ball pens. However, recent sales figures indicate that
list its features.
the semi-obsolete fountain pen is making a comeback as the
2. If you wanted to purchase this Audi, what is the lowest writing instrument of choice for status-minded individuals. Of
monthly payment you could make and what would it cost the premium-priced fountain pens, those produced by Mont-
if you were to buy this model outright? blanc are probably the most prestigious. Named after the high-
3. Compare and contrast the relative benefits of leasing and est mountain in Europe, these German-made fountain pens
buying this car outright. cost from about £100 to £5000 (for a solid gold one). Certain
designs are £8000. The most popular model costs about £450.
Prestige pricing has worked well for Montblanc, placing the
Group tasks pen in the same category as Rolex watches, BMW cars and
Gucci luggage.
1. When Apple launched its smartwatch, how would the
price for this innovative product have been established?
Question
2. Marketers drop prices with ease but struggle to raise
prices. Are there examples of products or brands which A company competing in the same sector as Montblanc has
have successfully achieved significant price rises? asked you to prepare a report explaining the factors that influ-
Explore what had to be put in place in order to achieve ence the pricing decisions they should make for a new range
such a price rise. of pens. What areas should your report include?
Order just about anything One hallmark of Amazon’s pricing is

from Amazon at a reasonable Case study its long-running offer of free delivery. For
UK shoppers, many items can be delivered
price free to UK addresses under the so-called
Super Saver Delivery. Free of charge delivery
Online retail pioneer Amazon.com has built is available for orders providing the spend on
a profitable $178 billion business employing eligible items is £20 or more or £10 for books.
560 000 by paying close attention to pricing details. Founded This gives some shoppers an incentive to keep
as a web-based bookstore with discount prices, Amazon spending until they reach the £20 threshold. Free shipping
has since expanded into dozens of product categories and has helped Amazon build sales over the years, but it has also
countries. The company never stops investing in technology added to the company’s costs and cut into profits. The com-
to upgrade its sites, systems and offerings. Although hefty pany’s Amazon Prime customers, who sign up for a range of
hi-tech costs are a drag on profit margins, they are essential to benefits for a modest annual fee, also enjoy free delivery ben-
Amazon’s strategy of attracting customers, and keeping them efits and access to streaming of media. There are many deliv-
loyal by making the shopping experience easy, fast and fun. ery options, each incurring different costs . . . Free Delivery,
these books was considerably higher. The situation changed

in early 2010, when Apple debuted its iPad tablet computer.
Apple trumpeted the iPad’s capabilities as an eBook reader
and made deals with publishers to carry downloadable digital
content. Under pressure from the publishers and faced with
a new level of competition from Apple’s much-anticipated
device, Amazon took a step back from its digital discounting.
It listened to the publishers and raised the retail price of
many digital best-sellers. However, today some books are
available free and many others are offered at a few pounds
or less via the bestseller list.
Today, Kindle customers can buy and instantly download
more than 5.5 million books. ‘Our vision is to have every book
One-Day Delivery, Priority Delivery, Standard Delivery/Stan-
that has ever been in print available in less than 60 seconds,’
dard Pickup, Express Delivery, Same-Day (Evening Delivery),
says Amazon founder Jeff Bezos. The Kindle has become Ama-
Nominated Day Delivery for Small Items, Nominated Day Deliv-
zon’s best-selling product and dramatically increased sales
ery for Large Items and Expedited Delivery (see www.amazon.
of electronic books, magazines and similar products. In fact,
co.uk/gp/help/customer/display.html?nodeId=202016280).
sales of books in digital format have been outselling those in
Amazon is earning significant profits from serving as an
printed format since 2012, when Amazon reported that eBook
online storefront for other marketers and businesses to sell
downloads outstripped the physical units it sells. Multiply the
their products. Every time a customer buys something from
savings in shipping costs alone, and it is easy to see why
a seller participating in the Amazon Marketplace, Amazon
Amazon has put so much emphasis on electronic delivery of
collects a fee. The margins are especially attractive in this
books and other content.
fast-growing part of the business because Amazon does not
Looking ahead, Amazon will continue to pay close attention
pay to buy or store any inventory, and the costs of posting
to the pricing of rival gadgets and the way digital content is
items for other sellers is extremely low now that the electronic
being priced. Although now the undisputed leader in electronic
storefront is up and running.
book sales, that market share is likely to erode little by little
All-digital products like electronic books, music, movies
as more customers are offered the opportunity to buy and
and games are lucrative because they entail no inventory or
download more books from additional sources.
shipping costs. This is why Amazon has moved aggressively
into digital content and related products. Its popular Kindle,
first introduced in 2007, is an eBook reader that wirelessly Questions for discussion
connects to the internet so customers can download an elec-
1. Are Amazon’s delivery costs variable or fixed? How is the
tronic book, newspaper or magazine in seconds. Initially, Ama-
company’s profitability likely to be affected if Amazon
zon priced the Kindle higher than the Sony Reader, its main
stopped offering free delivery?
competitor at the time. Despite the high price, demand out-
stripped supply for a time and Amazon struggled to increase 2. Why would publishers be so concerned about the dif-
output. As other retailers have offered their own eBook read- ference in price between a hard cover best-seller and
ers and sales of tablet computers have offered an alterna- the digital version? Explain your answer in terms of this
tive means to read eBooks, Amazon has lowered the price chapter’s pricing concepts.
and poured on the promotion to keep up the Kindle’s sales 3. Do you think Amazon should be concerned about losing
momentum. market share in e-book retailing? What are the implica-
The Kindle also created a controversy over eBook pric- tions for its pricing decisions?
ing. When Amazon first launched the Kindle, it priced best-
Sources: www.amazon.co.uk/gp/feature.html?ie=UTF8&docId=1000351073;
selling eBooks at less than £10 each, with a few priced even March 2015; www.amazon.co.uk/gp/help/customer/display.html?nodeId
lower. Publishers fumed, because the hard cover price of =201015970, March 2015; www.amazon.co.uk, June 2018.
Chapter 21
Modifying the marketing
mix for business markets,
services and in international
marketing
The fundamental principles of marketing apply to all applications, but there
are important differences for business markets, the marketing of services
and tackling global markets
Introduction
Objectives The core ingredients of the marketing mix – the marketer’s tacti-
cal toolkit – have been examined in detail throughout Part Three
To recognize that in many situations
of Marketing: Concepts and Strategies. While these chapters
the basic marketing mix requires
have broadly covered consumer, business, service and not-for-
modification.
profit markets, there inevitably has been some bias towards
To examine the nature of the mar- the marketing of consumer goods. In part this reflects the ori-
keting mix for business markets. gins of marketing as a discipline and the plethora of consumer
brands and their coverage in the media. It has also been deliber-
To understand the more com-
ate . . . all readers of this text, as consumers themselves, will be
plex and extended marketing mix
familiar with many of the products and services featured so far.
required for services.
Marketing is marketing, and the overall approach outlined
To recognize how marketers in this text and presented in Chapter 1 holds true across con-
involved with global marketing sumer, business, services and not-for-profit markets. However,
modify the marketing mix to reflect it is important to acknowledge that the marketing of services
separate markets. and business products is moderately different from the market-
ing of consumer goods. This chapter highlights these variations
in marketing practice. Those companies involved in international
marketing, trading across national borders and cultures, are
also faced with additional issues that have an impact on their
marketing activity.
619
S wiss-based Suchard
had been gearing up
for global markets since
Global brands
Through its many
acquisitions, mainstream
international brands such
the late 1960s, by developing as Milka and Toblerone
global brands, such as Milka and were taken into these new
Toblerone, and undertaking a number markets by Suchard. The com-
of strategically important acquisitions. In taking over other pany also gained locally-based pro-
European confectionery companies, such as Du Lac (Italy), duction and the capability to supply existing national brands
Pavlides (Greece), Terry’s (UK), Csemege (Hungary), Kaunas alongside those international ‘best sellers’. This successful
(Lithuania), Olza (Poland) and Republika (Bulgaria), Suchard growth strategy did not pass unnoticed.
became a major force in the highly competitive confection- American rival Kraft Foods desired global expansion and
ery market. In the UK, Terry’s of York was a significant brand, acquired Suchard a few years ago, establishing distribution and
though relatively small next to the mighty Cadbury’s and retail channels in areas where it was not traditionally strong. This
Rowntree’s. While Suchard was busy acquiring Terry’s, Swiss also helped Kraft to develop its own global brands alongside
rival Nestlé purchased Rowntree’s. smaller local products. More recently, Kraft took over the large and
successful UK-based Cadbury and has just merged with Heinz.
By acquiring Cadbury, Kraft became the world’s second
largest food business with revenues close to $50 billion. Kraft
Foods then split into two companies, leaving its global brands
in a new company, Mondeleˉz International. Mondeleˉz is one
of the world’s largest snacks companies, with net revenues of
approximately $26 billion, over 80 000 employees, and sales
in 160 countries. Mondeleˉz is a world leader in biscuits, choc-
olate, gum, candy and powdered beverages: No. 1 globally in
biscuits and candy, and No. 2 in chocolate and gum. Mondeleˉz
markets a host of well-known food and confectionary brands,
including Oreo, TUC, Peek Freans, Milka, Toblerone, Trident,
Hall’s, Jacobs, Green & Black’s and Cadbury.
References: www.kraftfoodsgroup.com, June 2018; Jacob Suchard archives;
www.mondelezinternational.com, June 2018.
T
here are some differences in the characteristics of the respective markets and the use of
the marketing toolkit for consumer, business and service products. These are evident in the
practices of business marketers, and more so in the activities of those responsible for the
marketing of services. This chapter presents a summary of some of the most important, if at times
subtle, variations in marketing business products and marketing services. The chapter concludes
by suggesting how international marketing requires consideration of additional issues in formulating
a marketing mix, as necessary for the global brands of Mondeleˉ z. It is important that you have read
Chapters 4, 6 and 13 before starting this chapter.
Characteristics of business marketing mixes

As with consumer marketers, business-to-business marketers must create a marketing mix that
satisfies the business customers and clients in the target market. In many respects, the gen-
eral concepts and methods involved in developing a business marketing mix are similar to those
used in consumer product marketing. However, business customers tend to be less flexible than
Chapter 21 Modifying the Marketing Mix for Business Markets 621
consumers. In this section, the focus is on the features of business marketing mixes. Each of the
main components in a business marketing mix is examined: product, place/distribution, promotion,
price and people.
Product
After selecting a target market (see Chapters 7 and 8), the business marketer has to decide how
to compete. Production-oriented managers may fail to understand the need to develop a distinct
appeal for their product to give it a differential advantage. Positioning the product (discussed in
Chapters 8 and 11) is necessary to serve a market successfully, whether it is consumer or busi-
ness.1 The approach and tools for creating a target market strategy, brand positioning, customer
value proposition and competitive advantage are no different for business products than consumer
goods. However, the approach to customer engagement and retention is often different.
Compared with consumer marketing mixes, the product ingredients of business marketing
mixes often include a greater emphasis on services, both before and after a sale. Business services,
including on-time delivery, quality control, custom design and help in specifying product require-
ments, a comprehensive parts distribution system and post-delivery support, may be important
components of the augmented product.
As explained in Chapter 6, in many business markets there may be only a few customers:
for example, component suppliers selling to automotive producers have only a handful of key
accounts. In such situations, failure to satisfy customers or to anticipate their evolving require-
ments is even more important than in most consumer markets, where alienation of an individual
consumer is unlikely to bring a company to its knees. The ability to look after business customers
is of paramount importance to business marketers. However, this might involve satisfying many
different parties (see Chapter 6).
Before making a sale, business marketers provide potential customers with technical advice
regarding product specifications, installation and applications (see Figure 21.1). Many business
marketers depend heavily on long-term customer relationships that perpetuate sizeable repeat
purchases.2 Therefore, business marketers also make a considerable effort to provide services after
the sale. As business customers must have products available when needed, on-time delivery is
another service included in the product component of many business marketing mixes. A business
marketer unable to provide on-time delivery cannot expect the marketing mix to satisfy business
customers. Availability of parts or supplies must also be included in the product mixes of many
business marketers in order to prevent costly production delays. The business marketer that
Figure 21.1
A trade fashion show
is targeted at fashion
buyers from businesses
viewing the new season’s
collections.
includes availability of parts within the product component has a competitive edge over one that
fails to offer this service. Furthermore, customers whose average purchases are large often desire
credit; thus some business marketers include credit services in their product mixes. When planning
and developing a business product mix, a business marketer of component parts and semi-finished
products must realize that a customer may decide to make the items instead of buying them.
Frequently, business products – particularly industrial products – must conform to standard
technical specifications that business customers want. So business marketers often concentrate
on functional product features, rather than on marketing considerations. This has important implica-
tions for business salespeople. Rather than concentrating just on selling activities, they must often
assume the role of consultants, seeking to solve their customers’ problems and influencing the
writing of specifications.3 For example, salespeople for computer hardware often act as consultants
for software as well as the basic computer kit. Most customers now expect this level of service.
Since most business products are rarely sold through self-service – there are exceptions, such
as office supplies – the major considerations in package design are protection and logistical ease.
There is less emphasis on packaging as a promotional device, unlike in consumer markets.
Research on business customer complaints indicates that such buyers usually complain when
they encounter problems with product quality or delivery time. On the other hand, consumers’ com-
plaints refer to other problems, such as customer service and pricing. This type of buyer feedback
allows business marketers to gauge marketing performance. It is important that business marketers
respond to valid complaints because the success of most business products depends on repeat
purchases. Buyer complaints serve a useful purpose; many companies facilitate this feedback by
providing customer service departments and call centres for their business customers.
If a business marketer is in a mature market, growth comes from attracting market share from
a competitor. Alternatively, a company can look at new applications or uses for its products.
JCB dominates the backhoe digger market in Europe, but economic recession, which resulted in
reduced construction of buildings and infrastructure, negatively impacted on its key customers.
JCB looked to stimulate its sales levels by instead targeting products currently offered by niche
rivals. The company used its existing skills and facilities to design an innovative range of very safe,
single-arm skid-steer machines. These nimble, compact ‘mini-diggers’ are now on most building
sites and in the hire market, proving very successful for JCB. Bringing user safety and environmen-
tal concerns to the fore, they lend themselves particularly well to buyer needs for smaller construc-
tion equipment in Germany and Scandinavia. JCB’s success, managed by a well-qualified team of
business marketers, stems from winning sales from its competitors, seeking new applications for
its products and designing innovative products.
Place/distribution
The place/distribution ingredient in business marketing mixes differs from that for consumer prod-
ucts with respect to the types of channel used, the kinds of intermediaries available, and the trans-
port, storage and inventory policies. Nonetheless, the primary objective of the physical distribution
of business products, and particularly industrial products, is to ensure that the right products are
available when and where needed.
Types of channel Distribution channels tend to be shorter for business products than for con-
sumer products. Figure 21.2 shows the four commonly used business-to-business distribution
channels that were described in Chapter 14. Although direct distribution channels, in
direct distribution which products are sold directly from producers to users, are not always utilized in the
channels distribution of many consumer products (retailers intervene), they are the most widely used
Distribution channels in
which products are sold
for business products. More than half of all business products are sold through direct
directly from producers channels (channel E in Figure 21.2). Business buyers like to communicate directly with
to users. producers, especially when expensive or technically complex products are involved. For
this reason, business buyers prefer to purchase expensive and highly complex mainframes
E F G H
Agents Agents
Business Business
distributors distributors
Figure 21.2
Typical marketing
Business Business Business Business
channels for busi-
ness markets (see buyers buyers buyers buyers
Chapter 14)
and servers directly from the producers. In these circumstances, a business customer wants the
technical assistance and personal assurances that only a producer can provide.
A second business distribution channel involves a business distributor to facilitate
business distributor
exchanges between the producer and customer (channel F in Figure 21.2). A business
An independent busi-
ness that takes title to distributor is an independent business that takes title to products and carries inven-
products and carries tories. Such distributors are merchant wholesalers; they assume possession and own-
inventories. ership of goods, as well as the risks associated with ownership. Business distributors
usually sell standardized items, such as maintenance supplies, production tools and
small operating equipment. Some carry a wide variety of product lines; others specialize
in one or a small number of lines. Distributors can be used most effectively when a product has
broad market appeal, is easily stocked and serviced, is sold in small quantities and is needed
rapidly to avoid high losses, such as a part for an assembly line machine.4
Business distributors or dealers offer sellers several advantages. They can perform the required
selling activities in local markets at relatively low cost to a manufacturer, and they can reduce a pro-
ducer’s financial burden by providing their customers with credit services. As business distributors
usually maintain close relationships with their customers, they are aware of local needs and can
pass on market information to producers. By holding adequate inventories in their local markets,
these distributors reduce the producers’ capital requirements.
There are several disadvantages to using business distributors. They may be difficult to con-
trol because they are independent companies. Though they often stock competing brands, a
producer cannot depend on them to sell a specific brand aggressively. Furthermore, distributors
maintain inventories, for which they incur numerous expenses; consequently, they are less likely to
handle bulky items or items that are slow sellers relative to profit margin, need specialized facilities
or require extraordinary selling efforts. In some cases, distributors lack the technical knowledge
necessary to sell and service certain business items.
In the third business distribution channel (channel G in Figure 21.2), a manufacturer’s agent is
employed. As described in Chapter 14, a manufacturer’s agent or representative is an independent
business person who sells complementary products from several producers in assigned territories
and is compensated through commission. Unlike a distributor, a manufacturer’s agent does not
acquire title to the products and usually does not take possession. Acting as a salesperson on
behalf of the producers, a manufacturer’s agent has no latitude, or very little, in negotiating prices
or sales terms.
Using manufacturers’ agents can benefit a business marketer. These agents usually possess
considerable technical and market information and have an established set of customers. For a
business seller with highly seasonal demand, a manufacturer’s agent can be an asset because the
seller does not have to support a year-round salesforce. The fact that manufacturers’ agents are
paid on a commission basis may also make them an economical alternative for a company that
has extremely limited resources and cannot afford a full-time salesforce.
The use of manufacturers’ agents is not problem-free. Even though straight commissions may
be cheaper for a business seller, the seller may have little control over manufacturers’ agents. Due
to the compensation method, manufacturers’ agents generally want to concentrate on their larger
accounts. They are often reluctant to spend adequate time following up sales, to put forward
special selling efforts or to provide sellers with market information when such activities reduce the
amount of productive selling time. As they rarely maintain inventories, manufacturers’ agents have
a limited ability to provide customers quickly with parts or repair services.
The fourth business-to-business distribution channel (channel H in Figure 21.2) has both a
manufacturer’s agent and a distributor between the producer and the business customer. This
channel may be appropriate when the business marketer wishes to cover a large geographic area
but maintains no salesforce because demand is highly seasonal or because the company cannot
afford one. This type of channel can also be useful for a business marketer who wants to enter a
new geographic market without expanding the company’s existing salesforce.
Choosing appropriate channels So far, this discussion has implied that all channels are equally
available and that a business can select the most desirable option. However, in a number of cases,
only one or perhaps two channels are available for the distribution of certain types of product. In
other circumstances several channels may be used simultaneously. For example, many business
products that are available through traditional channels involving agents and industrial distribu-
tors can also be purchased direct via the manufacturer’s website.5 An important issue in channel
selection is the manner in which particular products are normally purchased. If customers ordinarily
buy certain types of product directly from producers, it is unlikely that channels with intermediaries
will be effective. Other dimensions that should be considered are the product’s cost and physical
characteristics, the costs of using various channels, the amount of technical assistance customers
need, the size of product and parts inventory needed in local markets, and the channels selected
by competitors in order to be close to customers and provide a good customer experience.
Physical distribution decisions regarding transport, storage and inventory control are especially
important for business marketers. Some raw materials and other industrial products may require
special handling; for example, toxic chemicals used in the manufacture of some products must be
shipped, stored and disposed of properly to ensure that they do not harm people or the environ-
ment. In addition, the continuity of most business-to-business buyer–seller relationships depends
on the seller having the right products available when and where the customer needs them.
This requirement is so important that business marketers must sometimes make a considerable
investment in order processing systems, materials handling equipment, warehousing facilities and
inventory control systems. For example, without high stocks and a quickly responsive distribution
system, rivals may gain an edge.
Many business purchasers are moving away from traditional marketing exchange relationships
in which the buyer purchases primarily on the basis of price from multiple suppliers and towards
more tightly knit, relational exchanges, which are long lasting, less price-driven agreements
between manufacturers and suppliers.6 Strategic partnerships and tier 1 suppliers are terms often
used for such relationships. Just-in-time inventory management systems provided the rationale
that underlies these types of relationship. In order to reduce inventory costs and to eliminate
waste, buyers purchase new stock just before it is needed in the manufacturing process. To
make this system effective, they must share a great deal of information with their suppliers,
since these relationships are collaborative. Indeed, suppliers are often treated now as strategic
partners. They may even cooperate in co-creating business strategies and product development
plans. For example, a major IT services deal won by Fujitsu will require the contributions of many
big partners, whose inputs will have shaped the winning bid and without whom the customer
would not have selected Fujitsu.
Promotion (marketing communications)

The combination of promotional efforts used in business marketing mixes generally differs from
those for consumer products, especially convenience goods. The differences are evident in the
emphasis on various promotional mix ingredients (MarComms) and the activities performed in
connection with each promotional mix ingredient.
personal selling Personal selling For several reasons, most business-to-business marketers rely on
The task of informing personal selling, informing and persuading customers to purchase through personal
and persuading custom- communication to a much greater extent than do consumer product marketers. Since a
ers to purchase through business seller often has fewer customers, personal contact with each customer is more
personal communication.
feasible. Many business clients expect personalized service and come to depend on their
supplier’s personnel. This is one of the reasons why key account management is so
key account
important in many business markets. Key account management is the dedicated and
management close support for individual business customers whose volume of business is significant
Dedicated and close sup- and warrants one-to-one handling. Some business products have technical features that
port for individual busi- are too numerous or too complex to explain through non-personal forms of promotion.
ness customers whose Moreover, business purchases are frequently high in value, and must be suited to the job
volume of business is
significant and warrants
and available where and when needed; thus business buyers want reinforcement and
one-to-one handling. personal assurances from sales personnel. As business marketers depend on repeat pur-
chases, sales personnel must follow-up sales to make certain that customers know how to
use the purchased items effectively, as well as to ensure that the products work properly.
Salespeople need to perform the role of educators, showing buyers clearly how the product
fits their needs. When the purchase of a product is critical to the future profitability of the business
buyer, buying decision-makers gather extensive amounts of information about all alternative prod-
ucts and possible suppliers. To deal with such buyers successfully, the seller must have a highly
trained salesforce that is knowledgeable not only about its own company’s products but also about
competitors’ offerings. Besides, if sales representatives offer thorough and reliable information,
they can reduce the buyer’s uncertainty, as well as differentiate their company’s product from the
competition. Finally, the gathering of information lengthens the decision-making process. Thus it is
important for salespeople to be patient; to avoid pressuring their clients as they make important,
new and complex decisions; and to continue providing information to their prospects throughout
the entire process.7 The business development role is very important in business markets.
Telemarketing Due to the escalating costs of advertising and personal selling, telemarketing –
the creative use of the telephone to enhance the salesperson’s function – is on the increase. Some
of the activities in telemarketing include freefone 0800 phone lines, personal sales workstations,
and call centres assisted by data terminals that take orders, check stock and order status, and
provide shipping and invoicing information.
Although not all business sales personnel perform the same sales activities, they can generally
be grouped into the following categories, as described in Chapter 18: technical, missionary and
trade or inside order takers. An inside order taker could use telemarketing effectively. Regardless of
how sales personnel are classified, business selling activities differ from consumer sales efforts. As
business sellers are frequently asked for technical advice about product specifications and uses,
they often need technical backgrounds and are more likely to have them than consumer sales
personnel. Compared with typical buyer–seller relationships in consumer product sales, the interde-
pendence that develops between business buyers and sellers is likely to be stronger. Sellers count
on buyers to purchase their particular products, and buyers rely on sellers to provide information,
products and related services when and where needed, as well as good deals. Although business
sales people do market their products aggressively, they almost never use ‘hard sell’ tactics or
behave unethically because of their role as technical consultants and the interdependence between
buyers and sellers. Web-based selling has supplemented call centres and personal selling, sup-
ported with good databases and CRM systems.
Advertising Advertising is emphasized less in business sales than in consumer transactions,

although it is still very important and now makes good use of web-based opportunities to com-
municate deals and new product introductions. Some of the reasons given earlier for the impor-
tance of personal selling in business promotional mixes explain why, compared with consumer
goods, straightforward advertising is not the dominant ingredient of the promotional mix. However,
advertising often supplements personal selling efforts (see Figure 21.3). Although the cost of a
business-to-business sales call is high and continues to rise, advertisements that allow sales per-
sonnel to perform more efficiently and effectively are worthwhile for business marketers. Advertising
can make business customers aware of new products and brands; inform buyers about general
product features, representatives and organizations; and isolate promising prospects by providing
enquiry forms or the addresses and phone numbers of company representatives.
Figure 21.3
This advert from the NFU focuses on the
details and benefits of membership for
farming businesses.
Source: NFU
As much of the demand for most business products is derived demand (for example, demand
for construction equipment stems from consumer demand for more new houses, which in turn
prompts building companies to require more plant and equipment), marketers can sometimes
stimulate demand for their products by stimulating consumer demand. So, a business marketer
occasionally sponsors an advertisement promoting the products sold by the marketer’s customers.
Print media When selecting advertising media, business marketers primarily choose to be online,
but many still often use print media, such as trade publications and direct mail. They seldom use the
traditional broadcast medium of TV, but many businesses utilize radio spots. Trade publications and
direct mail reach precise groups of business customers and avoid wasted circulation. In addition,
they are best suited to advertising messages that present numerous details and complex product
information, which are frequently the types of message that business advertisers wish to convey.
Many such publications can now be delivered online and may be more interactive with potential
clients than previously.
Compared with consumer product advertisements, business and particularly industrial adver-
tisements are usually less persuasive and more likely to contain a large amount of copy and detail.
In contrast, marketers that advertise to reach ultimate consumers sometimes avoid extensive
advertising copy because consumers are reluctant to read it. Whereas consumers desire emotional,
attention-grabbing messages in advertising, business advertisers believe that purchasers with any
interest in their products will search for information and read long messages.
Sales promotion Sales promotion activities often play a significant role in business-to-business
promotional mixes. They encompass such efforts as catalogues, trade shows and trade sales
promotion methods, including merchandise allowances, buy-back allowances, displays, sales con-
tests and the other methods discussed in Chapter 18. Business marketers go to great lengths and
considerable expense to provide catalogues that describe their products to customers. Customers
refer to various sellers’ catalogues to determine specifications, terms of sale, delivery times and
other information about products. Catalogues, now often available online, help buyers to decide
which suppliers to contact.
Trade shows Trade shows can be effective vehicles for making many customer contacts in a
short time. One study found that business marketers allocate 25 per cent of their annual promo-
tional budgets to trade shows, in order to communicate with their current and potential customers,
promote their corporate image, introduce new products, meet key account executives, develop
mailing lists, identify sales prospects and find out what their competitors are doing. Although trade
shows take second place to personal selling, they rank for many sectors above print advertising in
influencing business purchases, particularly as the business buyers reach the stages in the buying
process of need recognition and supplier evaluation (see Chapter 6). Most organizations have key
trade shows, conferences or seminars in which they participate each year.
Other types of promotion The way in which business marketers use publicity in their promotional
mixes may not be much different from the way in which marketers of consumer products use it. As
described in Chapter 17, more companies are incorporating public relations automatically into their
promotional mixes, particularly with the growth of online discussions, networking and social media.
There has been significant use made in recent years of the internet by business marketers, both to
promote a company’s products and services, and also to help manage ongoing relationships with
business customers. Indeed, in many markets, companies failing to develop effective websites and
digital marketing capability are now at a significant competitive disadvantage. The use of social
media to engage with business customers and to build ongoing relationships is a big growth area.
Price
Compared with consumer product marketers, business marketers face many more price constraints
from legal and economic forces. With respect to economic forces, an individual business-to-
business company’s demand is often highly elastic, requiring the company to approximate com-
petitors’ prices. This condition often results in non-price competition and a considerable amount
of price stability (see Chapter 20).
Today’s route to sustainable competitive advantage lies in offering customers something that
the competition does not offer – something that helps them increase their productivity and prof-
itability or which helps them build stronger relationships with their customers. Most companies
achieve high market share not by offering low prices but by offering their customers superior value,
product quality and customer service. Many customers are willing to pay higher prices for quality
products.8 Companies such as Caterpillar, IBM and 3M have shown that a value-added-based
strategy can win a commanding lead over competition. Such companies emphasize the highest
quality products at slightly higher prices. Value is a trade-off between price and quality, so a value-
based proposition is often not a low-price proposition. Of course, some companies do focus on
offering low prices and undercutting their rivals, particularly in commodity-like markets in which
product differentiation is difficult to achieve. Best practice, though, would indicate that marketers
should avoid emphasizing low prices in their market mixes unless either the target market in ques-
tion contains customers who mainly buy on the basis of low price alone, or marketers’ attempts
to achieve product or service differentiation have failed.
Many business-to-business companies are devoting increased resources to training, so that
their personnel are better qualified and more willing to provide full customer service. Corporate
image, reliability and flexibility in production and delivery, technical innovation and well-executed
promotional activity also present opportunities to create a differential advantage. Price used to be
the basis for differentiation in many business markets, notably in numerous industrial markets, but
price can be reduced only so far if companies are to remain viable. Although the cost to acquire a
product is still important, in most markets companies have attempted to move away from a selling
proposition based purely on low price. They have realized that value is not necessarily equal to a
low price. Service, reliability, payment terms, image and design are just a few factors in addition to
price that influence many sales. Value, not low price, is often the deciding factor for many business
customers.
Although there are various ways to determine the prices of business products, the three most
common are administered pricing, bid pricing and negotiated pricing.
administered pricing
Administered pricing With administered pricing, the seller determines the price
A pricing method in or series of prices for a product and the customer pays that specified price. Market-
which the seller deter- ers who use this approach may employ a one-price policy in which all buyers pay the
mines the price for a same price, or they may set a series of prices that are determined by one or more
product and the cus- discounts. In some cases, list prices are posted on a price sheet or in a catalogue.
tomer pays the specified
price.
The list price is a beginning point from which trade, quantity and cash discounts are
deducted. Thus the actual (net) price a business customer pays is the list price less the
discount(s). When a list price is used, the business marketer sometimes specifies the
price in terms of list price times a multiplier. For example, the price of an item might be quoted
as ‘list price x .78’, which means the buyer can purchase the product at 78 per cent of the list
price. Simply changing the multiplier lets the seller revise prices without having to issue new
catalogues or price sheets.
bid pricing
Bid pricing
With bid pricing, prices are determined through sealed or open bids.
Determination of prices When a buyer uses sealed bids, selected sellers are notified that they are to submit
through sealed or open their bids by a certain date. Normally, the lowest bidder is awarded the contract, as long
bids submitted by the as the buyer believes that the company is able to supply the specified products when
seller to the buyer. and where needed. In an open bidding approach, several but not all sellers are asked
to submit bids. In contrast to sealed bidding, the amounts of the bids are made public.
Finally, a business purchaser sometimes uses negotiated bids. Under this arrangement,
the customer seeks bids from a number of sellers and screens the bids. Then the customer nego-
tiates the price and terms of sale with the most favourable bidders, until either a final transaction
is consummated or negotiations are terminated with all sellers.
Sometimes a buyer will either be seeking component parts to be used in production for several
years or custom-built equipment to be purchased currently and through future contracts. In such
instances, a business seller may submit an initial, less profitable bid to win follow-on (subsequent)
contracts. The seller that wins the initial contract is often substantially favoured in the competition
for follow-on contracts. In such a bidding situation, a business marketer must determine how low
the initial bid should be, the probability of winning a follow-on contract and what combination of
bid prices on both the initial and the follow-on contract will yield an acceptable profit.9
negotiated pricing Negotiated pricing For certain types of business market, a seller’s pricing compo-
Determination of prices nent may have to allow for negotiated pricing. That is, even when there are stated list
through negotiations prices and discount structures, negotiations may determine the actual price a business
between the seller and customer pays. Negotiated pricing can benefit both seller and buyer because price
the buyer.
negotiations frequently lead to discussions of product specifications, applications and
perhaps product substitutions. Such negotiations may give the seller an opportunity to
provide the customer with technical assistance and perhaps sell a product that better
fits the customer’s requirements; the final product choice might also be more profitable for the
seller. The buyer benefits by gaining more information about the array of products and terms of
sale available and may acquire a more suitable product at a lower price.
Some business marketers sell in markets in which only one of these general pricing approaches
prevails. Such marketers can simplify the price components of their marketing mixes. However,
a number of business marketers sell to a wide variety of business customers and must maintain
considerable flexibility in pricing.
People
This chapter has already emphasized the importance of people in the marketing of business prod-
ucts. The role of personal selling is especially important in many business markets, particularly
those in which the purchase is deemed risky because of its size, value or complexity. For many
technologically advanced products, the need to have face-to-face explanation and guidance is
fundamental to the customers’ perceived level of satisfaction. The development of long-
relationships
term relationships – regular, interactive, ongoing contacts with business customers
Regular, ongoing
contacts between – is increasingly a driving factor in the development of marketing mixes for businesses
businesses and their supplying other businesses. This links with the practice of key account management.
customers. Where products are high value or complex, customers often expect such relationships.
Even in commodity markets – for example, basic components, computer consumables
or the provision of energy – relationships are seen as a means of maintaining contact
with customers, ensuring reorders and enabling a supplying business to differentiate itself through
customer service rather than price alone. More attention is being given to the effective recruitment,
training and motivation of personnel who are often in regular contact with a business’s immediate
customers, typically other businesses in the marketing channel.
Amending the marketing mix for services

The original marketing mix defined by McCarthy and popularized by Kotler included the now well-
known ‘4Ps’ of product, promotion (marketing communications), price and place (distribution/chan-
nels). Most authors now mention an additional ingredient of the marketing mix: people. Originally
suggested by services marketers who acknowledged that consumers often view the personnel pro-
viding a service as part and parcel of the service ‘product’ being offered, the people aspect of the mar-
keting mix has become an accepted part of most businesses’ marketing programmes, and not only
for organizations marketing services. However, the nature of services, as described in Chapter 13,
has led marketers to further adapt the marketing mix.10 The intangibility of service products,
extended marketing inseparability of production and consumption, perishability and heterogeneity – which are
mix for services the key characteristics of services – force the marketing mix to be amended in two ways:
Besides the traditional
‘4Ps’ of product, promo- 1. The traditional 4Ps of product, promotion, price and place/distribution have some
tion, price and place/dis- important extra dimensions unique to the marketing of services.
tribution, the additional
‘3Ps’ of people, physical 2. The marketing mix is itself modified to include the additional core ingredients of pro-
evidence and process. cess, physical evidence (ambience) and people, thereby creating the ‘7Ps’ of what
is termed the extended marketing mix for services.11
Figure 21.4 presents this revised marketing mix for services, as highlighted in the Marketing
Tools and Techniques example below. This section examines in more detail the amendments
required when determining a marketing mix for services, commencing with the traditional 4Ps,
before reviewing the additional ingredients of the extended marketing mix.12
Product Promotion
People Price
Physical Place/
evidence distribution
(ambience)
Process
Figure 21.4
Product
Goods can be defined in terms of their physical attributes, but services, because of
intangibility their intangibility – that is, their inability to be perceived by the senses or be stockpiled
A characteristic of in advance of consumption – cannot. It is often difficult for consumers to understand
services, which lack service offerings and to evaluate possible service alternatives. Gas and electricity com-
physical attributes and
panies, for example, offer schemes to spread bill payments and to assist the finan-
cannot be perceived by
the senses. cially disadvantaged, plus several methods for making payments. These services are
explained in the companies’ advertisements. What is the utility or satisfaction consumers
gain from energy providers? There are many, but they are more ambiguous or subjective
than the benefits consumers gain from a Kindle eReader or a Sony PlayStation. The same is true
of an accountancy service, medical appointment, a day-out excursion, a module at university, or
any other service.
There may also be tangibles, such as facilities, employees or communications, associated with
a service. These tangible elements help form a part of the product and are often the only aspects
of a service that can be viewed prior to purchase. Consequently, marketers must pay close atten-
tion to associated tangibles and make sure that they are consistent with the selected image of the
service product.13 For example, consumers perceive public transport at night as plagued by crime
and therefore hesitate to use it. Improvements in the physical appearance of tube stations and
reductions in the time between trains are tangible cues that consumers can use to judge public
transport services.
The service product is often equated with the service provider. For example, the
service provider
A person who offers a bank clerk or the hairdresser becomes synonymous with the service a bank or a beauty
service, such as a doctor, salon provides and with their brands. As consumers tend to view services in terms of
bank clerk or hairdresser. service personnel and because personnel are inconsistent in their behaviour, it is imper-
ative that service providers are effective in selecting, training, motivating and controlling
those staff members that come into contact with customers.
Delivering executive Marketing its budget and the selected execu-

training and change tools and tives to participate? Therefore who to
aim to influence and to reassure in
management consultancy techniques the pitch? What would be the expec-
tations of these participants? Who
A major logistics company decided to
and what would influence their decision?
invest in middle and senior management
Did they have preferred suppliers in mind? What would be
training in order to enhance their capabilities, create an excit-
required to deliver an effective programme? Did the supplier
ing opportunity for career development amongst its executives,
have these capabilities and personnel in place? Were they
improve the company’s reputation as an ‘employer of choice’,
more financially viable allocated to other projects? Which
but also to add to the small number of senior executives cur-
competitors had been asked to tender? What would their mer-
rently able to create a strategy and plan out its execution.
its and deficiencies be? How would they be perceived by the
In order to achieve this mix of goals, the logistics company
logistics company? Who did the supplier know in other orga-
needed a supplier of training which not only understood how to
nizations and inside the potential client company who could
train managers in various skills, but which could also enthuse
shed light on these issues? What resource would need to be
participants and motivate them to want to alter the culture
allocated to creating the response to the bid and making the
within the business.
presentation? Would the outlay be worthwhile? What would be
The Strategy and Human Resource Directors jointly iden-
the odds for successfully winning the contract?
tified a short-list of potential providers. This list was based
The strategic marketing process deployed had to help
on their own previous experiences, the evidence from online
assess these issues and determine the way forward. The
searches of providers of these services, the views of certain
resulting proposition had to reflect the logistics company’s
colleagues within their company and the endorsements within
needs, expectations and buying behaviour. The supplier’s pro-
their professional networks of executives from other companies.
posed marketing mix had to address the client’s invitation to
The selected four potential providers each received an invitation
tender, the programme’s needs and decision-making criteria
to tender, had the opportunity to meet the company’s executives
within the client.
for a fact-finding half-day, and then had to submit a proposal.
This B2B proposal for delivering this service would involve
Two candidate suppliers were then invited to make formal pitch
much more than the traditional ‘4Ps’ of the marketing mix,
presentations to the logistics company’s leadership.
requiring people, process and physical evidence components,
For the suppliers receiving the invitation to tender, the wel-
too. Central to a successful bid would be the supplier’s brand
come opportunity also posed many headaches. Was the work
reputation, service delivery record and perceived quality. Far
already lined up for a preferred candidate? Had the logistics
more nebulous than a high-tech gadget for consumers, new
company properly thought about its requirements? Was the
model of car or branded insurance policy, the marketers of this
required budget in place or still to be sought by the Strategy
training and consulting service had to add significantly to the
and HR Directors? Who would make the decision about final
toolkit applied in many B2C product markets.
content of the training and change management programme,
After testing many variables, the Strategic Planning Institute (SPI) in the USA developed an
extensive database on the impact of various business strategies on profits. The Institute found
that ‘relative perceived product quality’ is the single most important factor in determining long-term
profitability. In fact, because there are generally no objective measures to evaluate the quality of
professional services (medical care, legal services and so forth), the customer is actually purchasing
confidence in the service provider.14 The strength or weakness of the service provided
often affects consumers’ perceptions of service product quality. The consumer’s
service product
perception of the quality of service s/he receives is a fundamental driver of both cus-
quality
The consumer’s per- tomer satisfaction and marketing performance, as explained in Chapter 13. Service
ception of the quality of quality delivery is viewed as being of paramount importance to marketers of services
service s/he receives. and failure to execute such delivery to customers’ satisfaction can permit competitors
to make significant inroads.
Since services are performances rather than tangible goods, the concept of service quality is dif-
ficult to grasp. Price, quality and value are important considerations of consumer choice and buying
behaviour for both goods and services.15 It should be noted that it is not objective quality that matters,
but the consumer’s subjective perceptions of quality. Instead of quality meaning conformity to a set
of specifications – which frequently determine levels of product quality – service quality is defined by
customers.16 Moreover, quality is frequently determined through a comparison: in the case of services,
by contrasting what the consumer expected of a service with his or her actual experience.17
Service providers and service consumers may have quite different views of what constitutes
service quality. Consumers frequently enter service exchanges with a set of predetermined expec-
tations. Whether a consumer’s actual experiences exceed, match or fall below these expectations
will have a great effect on future relationships between the consumer and the service provider, even
determining whether there will be any ongoing relationship whatsoever! To improve service quality, a
service provider must adjust its own behaviour to be consistent with consumers’ expectations or to
re-educate consumers so that their expectations will parallel the service levels that can be achieved.18
A study of doctor–patient relationships proposed that when professional service exceeds client
expectations, a true person-to-person bonding relationship develops. However, the research also
revealed that what doctors viewed as being quality service was not necessarily what patients per-
ceived as quality service. Although interaction with the doctor was the primary determinant of the
overall service evaluation, patients made judgements about the entire service experience, includ-
ing factors such as ease of access to the facility; the appearance and behaviour of receptionists,
nurses and technicians; the décor and cleanliness; and even the appearance of the building.19
Other product concepts discussed in Chapters 10–12 are also relevant here. Management must
make decisions regarding the product mix, positioning, branding and new product development of
services. It can make better decisions if it analyzes the organization’s service products in terms of
complexity and variability. Complexity is determined by the number of steps required
complexity
In services marketing, the
to perform a service. Variability reflects the amount of diversity allowed in each step of
number of steps required service provision. In a highly variable service, every step in performing the service may
to perform a service. be unique, whereas in cases of low variability, every performance of the service is stan-
dardized.20 For example, services provided by doctors are both complex and variable.
Patient treatment may involve many steps, and the doctor has considerable discretion
variability in shaping treatment for each individual patient. In general, to decrease costs and widen
The amount of diversity
the potential market, and to better control quality, service providers seek to limit both
allowed in each step of
service provision. complexity and variability.
An examination of the complete service delivery process, including the number of
steps and decisions, enables marketers to plot their service products on a complexity/
variability grid, such as the one in Figure 21.5. The position of a service on the grid has implications
High complexity
Specialist General
Low practitioner High
variability variability
Outpatient
clinic Health Maintenance
X-ray lab
Organization (HMO)
Low complexity
Figure 21.5
Complexity/variability grid for medical services
Source: Adapted, developed and reprinted with permission from the American Marketing Association Faculty Consortium on Services Marketing by Lynn
Shostack, Texas A&M University, 7–11 July 1985, published by the American Marketing Association.
Table 21.1 Effects of shifting positions on the complexity/variability grid

Downgrading complexity/variability Upgrading complexity/variability
Standardizes the service Increases costs
Requires strict operating controls Indicates higher margin/lower volume strategy
Generally widens potential market Personalizes the service
Lowers costs Generally narrows potential market
Indicates lower margin/higher volume strategy Makes quality more difficult to control
Can alienate existing markets Creates differentiation
Source: Adapted, developed and reprinted with permission from American Marketing Association Faculty Consortium on Ser-
vices Marketing by Lynn Shostack, Texas A&M University, 7–11 July 1985, published by the American Marketing Association.
for its positioning in the market. Furthermore, any alterations in the service delivery process that
shift the position of the service on the complexity/variability grid have an impact on the positioning
of the service in the marketplace. Table 21.1 details the effects of such changes. When structuring
the service delivery system, marketers should consider the organization’s marketing goals and
target market.
Promotion (marketing communications)

As intangible-dominant products, services are not easily promoted. The intangible is difficult to
depict in advertising, whether the medium is print or broadcast. Service advertising should thus
emphasize tangible cues that will help consumers understand and evaluate the service. The cues
may be the physical facilities in which the service is performed or some relevant tangible object
that symbolizes the service itself.21 For example, restaurants may emphasize their physical facilities:
clean, elegant, casual and so on, to provide clues as to the quality or nature of the service. One
well known hotel brand regularly features its bed and mattresses in TV advertising, to imply that
guests will enjoy a really good night’s sleep at its hotels. Service providers may also focus their
advertising on the characteristics they believe customers want from their services; such as speed
of service, state-of-the-art systems, or – as in the case of bank first direct – the opportunity to talk
to a person rather than deal with an automated call centre. The symbols, catch lines and imagery
common to most financial organizations reflect the increasing importance of branding in services.22
Differentiation between rival services is difficult, as is effective promotion. Branding is important to
al products or services, but in particular helps to distinguish competing services and to provide a
platform for promotional activity.23
To be successful, organizations must not only maximize the difference between the value of
the service to the customer and the cost of providing it; they must also design the service with
employees in mind. Contact personnel are critical to the perception of quality service. They must
be provided with sufficient tools and knowledge to furnish the type of service the customer desires.
As service industries are information-driven, they can often substitute knowledgeable and highly
trained personnel for the capital assets used in more product-oriented businesses.24
Thus employees in a service organization are an important secondary audience for service
advertising. Variability in service quality, which arises from the labour-intensive nature of many
services, is a problem for service marketers, because consumers often associate the service
with the service-providing personnel. Advertising and strong branding can have a positive effect
on customer-contact personnel, shaping employees’ perceptions of the company, their jobs and
how management expects them to perform.25 For example, British Airways’ famous strapline on its
advertising throughout the 1980s and 1990s, ‘The world’s favourite airline’, was designed not just
to remind air travellers that more people flew with BA than with any other airline but also to develop
a sense of pride among BA’s flight and ground personnel. Bank first direct reminds employees that
it is the most recommended bank peer-to-peer by consumers, so that they desire to provide great
service and recognize the risks to the brand’s reputation of not doing so. Staff in a McDonald’s
know that their service delivery underpins the company’s brand, and their performance is visible
to each of them through their star rating badges.
Personal selling is potentially powerful in services because this form of promotion lets consum-
ers and sales people interact. When consumers enter into a service transaction, they must as a
general rule interact with the service organization’s employees. Customer contact personnel can
be trained to use this opportunity to reduce customer uncertainty, give reassurance, reduce dis-
sonance and promote the reputation of the organization.26 Once again, the proper management
of customer-contact personnel is important.
Although consumer service organizations have the opportunity to interact with actual cus-
tomers and those potential customers who contact them, they have little opportunity to go out
into the field and solicit business from all potential consumers. The very large number of potential
customers and the high cost per sales call rule out such efforts. On the other hand, marketers
of business services, like the marketers of business goods, are dealing with a much more limited
target market and may find personal selling the most effective way of reaching their customers.
Sales promotions, such as competitions, are feasible for service providers, but other types of
promotion are more difficult to implement. How does an organization display a service? How does
it provide a free sample without giving away the whole service? A complimentary visit to a health
club or a free skiing lesson could possibly be considered a free sample to entice a consumer into
purchasing a membership or taking lessons. Although the role of publicity and the implementation
of a public relations campaign do not differ significantly in the goods and service sectors, service
marketers appear to rely on publicity much more than goods marketers do.27 They require good
reviews and recommendations. Customers are receptive to stories of good and bad service, and
public relations is highly cost effective (see Chapter 16). The role of social media is therefore of
growing significance.
Consumers tend to value word-of-mouth communications more than company-sponsored
communications. This preference is probably true for all products, but especially for services,
because they are experiential in nature. For this reason, service organizations should attempt to
stimulate word-of-mouth communications.28 They can do so by encouraging consumers to tell
their friends about satisfactory performance. For example, many businesses display prominent
signs urging customers to tell their friends if they like the service and to tell the business if they
do not. Some service providers, such as hairdressers, give their regular customers discounts or
free services for encouraging friends to come in for a haircut. Word-of-mouth can be simulated
through communications messages that feature a testimonial – for example, television advertise-
ments showing consumers who vouch for the benefits of a service a particular organization offers.
Famous personalities tweeting about a meal or health spa, medical treatment or trip away, will have
tremendous impact on their Twitter followers, just as your Facebook comments about a night out
or holiday will help shape the reputations of the brands whose services you consumed and have
now reported on. Or, as illustrated in the Topical Insight example below for NHS Choices, humour
or hard-hitting self-interest messages might achieve buy-in. Social media discussions, comparison
websites and online ratings have impacted significantly on the perceptions of quality and relevance
for many service providers. Consider whose opinions you value when selecting a holiday destina-
tion and choosing a hotel or airline.
It is important to point out that the promotional activities of most professional service providers,
such as doctors, lawyers and accountants, are severely limited. Until relatively recently, all these
professionals were prohibited by law from advertising. Although these restrictions have now been
lifted in many countries, there are still many obstacles to be overcome. Professionals need to
become familiar with developing advertising appropriate to their services, while consumers also
need to adjust to seeing such service providers advertise. In many countries, lawyers are being
forced to consider advertising, both because many potential clients do not know that they need
legal services and because there is an over-supply of lawyers. Consumers want more information
Targeting self-centred ●● S topping smoking lets you breathe more

easily
teenagers Topical insight ●● Stopping smoking gives you more energy
Many smokers know the health conse- ●● Ditch the cigarettes and feel less stressed
quences of their decision to smoke. How- ●● Quitting leads to better sex
ever, the desire to chill-out, feel the buzz, ●● Stopping smoking improves fertility
look cool, fit in with friends, relieve boredom, enjoy the taste ●● Stopping smoking improves smell and taste
or whatever is their motivation, outweighs the health risks.
●● Stop smoking for younger-looking skin
Those responsible for combatting smoking and persuading
●● Ex-smokers have whiter teeth and sweeter breath
users to quit have limited resources and recognize increas-
ingly that many hardened smokers will continue to puff away ●● Quit smoking to live longer
irrespective of health warnings, changes to how products are ●● A smoke-free home protects your loved ones
packaged and displayed, limits imposed on where smoking is
There are some powerful reasons for not smoking included
permitted and tax-led price rises. So attention has been given
in the above campaign message, which are carefully con-
to ‘catching them young’, either to encourage teenagers and
ceived to touch emotions driving teenagers. Way beyond
students already smoking to stop or to pre-empt teens from
‘smoking causes cancer’, which to many teenagers seems
ever starting. This target market has been identified as hav-
a long shot and way off being a threat. Perhaps flagging sex
ing significant potential for success. As a result, the National
appeal, damage to the planet and financial ruin will nudge a
Health Service in the UK has tailored a set of messages
behavioural change in some teenage smokers.
towards this target audience through its NHS Choices website.
The younger you start smoking, the more damage your body will suffer
when you get older. Here are ten reasons to quit: Source: www.nhs.uk/live-well/quit-smoking/, April 2018.
about legal services, and lawyers have a very poor public image.29 On the other hand, doctors and
dentists are more sceptical about the impact of advertising on their image and business. Despite
the trend towards professional services advertising, the professions themselves exert pressure on
their members to advertise or promote only in a limited way because such activities are still viewed
as somewhat risqué.
Price
Price plays both an economic and a psychological role in the service sector, just as it does with
physical goods. However, the psychological role of price in respect to services is magnified; after all,
consumers must rely on price as the sole indicator of service quality when other quality indicators
are absent. In its economic role, price determines revenue and influences profits. Knowing the real
costs of each service provided is vital to sound pricing decisions (see Chapter 20).
Services may also be bundled together and then sold for a single price. For example, a hotel
may offer a room-only rate, but will also offer meal-inclusive or spa-inclusive rates, whereby the
combined price of room + meals or room + spa is much less than were consumers to purchase
these services/amenities separately, so they seem to be better value. Service bundling is a practical
strategy, because in many types of services there is a high ratio of fixed to variable costs and high
cost sharing among service offerings. Moreover, the demand for certain services is often interde-
pendent. For example, banks offer packages of banking services – current and savings accounts
and credit lines that become active when customers overdraw their other accounts. Price bundling
may help service marketers cross-sell to their current customers or acquire new customers. The
policy of price leaders may also be used by discounting the price of one service product when
the customer purchases another service at full price.30 Visitors to a safari park may be offered
discounted entry to the adjacent fairground and amusements or for their next visit.
Service intangibility may also complicate the setting of prices. When pricing physical goods,
management can look to the cost of production as an indicator of price, but it is often difficult to
determine the cost of service provision and thus identify a minimum price. Price competition is
severe in many service areas characterized by standardization. Once market segmentation and
specialized services are directed to specific markets, with specific targeted prices set, next comes
comparative pricing as the service becomes fairly standardized. Price competition is quite common
in the hotel and leisure sectors, banking and insurance.
Many services, especially professional services, are situation-specific. Neither the service pro-
vider nor the consumer may know the extent of the service prior to production and consumption.
As the cost is not known beforehand, price is difficult to set. Even so, many service providers
attempt to use cost-plus pricing. Others set prices according to the competition or market demand.
Pricing of services can also help smooth out fluctuations in demand. Given the perishability
of service products, this is an important function. A higher price may be used to deter or off-set
demand during peak periods, and a lower price may be used to stimulate demand during slack
periods. Railways offer cheap day returns and savers to minimize sales declines in slack periods.
Airlines rely heavily on price to help smooth out demand, as do many other operations, such as
pubs and entertainment clubs, cinemas, resorts and hotels.
Place/distribution
In the service context, distribution is making services available to prospective users. Marketing
intermediaries are the entities between the actual service provider and the consumer that make the
service more available and more convenient to use.31 For example, insurance brokers provide the
direct customer contact on behalf of the large insurance companies whose products they broker.
Indirect distribution of services may be made possible by a tangible representation or a facilitating
good, for example, a bank credit card.32 However, almost by definition, many services are limited to
direct channels of distribution, being produced and consumed simultaneously. In high-contact ser-
vices in particular, service providers and consumers cannot be separated. In low-contact services,
however, service providers may be separated from customers by intermediaries. Dry cleaners, for
example, generally maintain strategically located retail stores as drop-off centres, and these stores
may be independent or company-owned. Consumers go to the branch to initiate and terminate
service, but the actual cleaning service may be performed at a different location. The separation
is possible because the service is directed towards the consumer’s physical possessions and the
consumer is not required to be present during delivery.
Other service industries are developing unique ways to distribute their services. To make it
more convenient for consumers to obtain their services, hotels and car hire companies have long
been using intermediaries in the form of travel agencies and now online bookings services such as
Bookings.com or Superbreak. In financial services marketing, electronic product delivery channels
such as automatic cash dispensers and electronic funds transfer systems provide customers with
financial services in a more widespread and convenient manner. Consumers no longer have to go
to their bank for routine transactions; they can now receive service from the nearest cash dispenser
in a shopping centre or transport terminus, or conduct transactions via smartphone apps, tele-
banking, text or at home on a computer. Indeed, HSBC’s first direct banking operation is managed
entirely through telecommunications – phone or web – as there is no bank branch network.
Process
The acts of purchasing and consumption are important in all markets – consumer, business-to-
business or service. The direct involvement of consumers in the production of most services and the
perishability of these services, place greater emphasis on the process of the transaction for services.
Most services, be they health, tourism, education, financial or public sector, require the client to be
present when ordering and consuming the service. Compared with the consumption of consumer
goods, such as a camera or coat which may be used many times with similar results, a service experi-
ence is very transitory. Often, this sharpens the consumer’s awareness of the service product, the staff
providing the service and the associated service quality delivery experience. The manner in which the
service is processed becomes part of the customer’s experience. Marketers must treat process as
part of the marketing mix, and ensure that they adequately specify, control and manage the process.
Friendliness of staff, their effectiveness and flows of information affect the customer’s perception
of the service product offer. Appointment or queuing systems become part of the service. Cus-
tomers must comprehend how to order and then consume the service. The required process and
the consumer’s role should be ‘transparently obvious’ and readily understood. Ease or difficulty of
payment can enhance or spoil the consumption of a service. The operationalization of the service
must be proficient and discernible. In addition to tasty food, diners in a TGI Friday’s or Pizza Express
expect prompt service, informative menus, no waiting and no delays in paying their bills at the
conclusion of their meals. These are operational issues that directly affect customer perceptions
and satisfaction – they are important aspects of the marketing of services.33
Physical evidence (ambience)

The environment in which a service is offered and consumed is central to the consumer’s under-
standing of the service, and to the enjoyment or satisfaction. Certain services, such as weighty
financial matters or health consultations, may need to be delivered in a suitably respectful setting,
whereas a children’s birthday treat would be better in a relaxed and informal facility designed to
put children and their parents at their ease. The ‘feel’ of the service product is very much part of
the service offer. The physical evidence, ambience or setting must be designed to reflect target
customer expectations, reflect the branding and selected brand positioning (see Chapter 8), and
facilitate the smooth delivery of the service. Whether in a restaurant, hospital, sports club or bank,
the appearance and ambience matter. Layout, décor, upkeep, noise and aroma, general ease of
access and use all become part of the service product. Even tyre depots have recognized this
aspect of the extended marketing mix for services, providing comfortable customer waiting areas
with seating, drinks machines, TV and newspapers. In services, marketers devote much attention
to creating distinctive brand positionings and to delivering customer satisfaction. The physical evi-
dence linked to a particular service can play a major role in establishing the service’s branding and
in delivering customer satisfaction. Inappropriate selection of the physical evidence for a service
may ruin the intended experience for the targeted customers.
People
The nature of most services requires direct interaction between the consumer and personnel repre-
senting the service provider’s organization. In many services, customers interact with one another,
and the organization’s staff also interact with one another. This level of human involvement must
be given maximum attention if customers are to maximize their use of the service and ultimately
their satisfaction.34
Employee selection, training and motivation are central considerations. A restaurant may have a
superb operation, but if the chef or waiters become demoralized and unmotivated, they will begin
to deliver low-quality meals and inefficient service, possibly with a lousy attitude, resulting in a
poor product from the consumer’s point of view. Operational staff often help ‘produce’ the service
product, sell it and assist in its consumption. Many service businesses are totally dependent on
their personnel, as Leo Burnett, founder of the international advertising agency that bears his name,
summed up: ‘Every evening all our assets go down the elevator’ – without the agency’s creative
people and media experts, the business has few marketing assets and nothing particularly tangible.
Most well-run services businesses devote as much time and resources to managing their cus-
tomer contact personnel as to creating the service product being offered to customers. Without
them, service quality delivery will be perceived as poor by dissatisfied customers. This requires
formal audits of customers’ perceptions of the abilities, attitudes and appropriateness of service
delivery personnel, comparative benchmarking against competitors, plus evaluations of staff atti-
tudes towards their ability to deliver the services. Without this attention to maintaining service
delivery levels, the remainder of the marketing mix ingredients are unlikely to guarantee customer
satisfaction. Marketers must devote some of their time to managing service delivery personnel.
Ultimately, they are the face of the brand.
Strategic adaptation of marketing mixes for

international markets
As explained in Chapter 4, marketing in non-domestic markets requires an understanding of the
marketing environment, culture and local business practices, along with a specifically devised
strategy.35 Once a company determines overseas market potential and understands the envi-
ronment away from its domestic market, it develops and adapts its marketing mix(es). Creating
and maintaining the marketing mix are the final steps in developing the international marketing
strategy. Only if foreign marketing opportunities justify the risk will a company go to the expense
of adapting the marketing mix. Of course, in some situations new products are developed for a
specific country, as in the case of Coca-Cola’s range of alcopops in Japan. In these cases, there
is no existing marketing mix, so new marketing programmes must be designed, with significant
budgetary implications.
Product and promotion (marcomms)

As Figure 21.6 shows, there are five possible strategies for adapting product and promotion across
national boundaries:
1. keep product and promotion the same worldwide

2. adapt promotion only
3. adapt product only
4. adapt both product and promotion
5. invent new products.36
Product issues
Product Product New product

unchanged adaption development
Product and
(MarComms) issues
Same promotion Product only

promotion are the same is adapted Product
Promotion
globally invention/
Figure 21.6 innovation/
International product and new product
Promotion Product and development
promotion strategies Altered
only is promotion process
Source: Updated and adapted from promotion
Warren Keegan’s work on global
adapted are adapted
marketing management.
Keep product and promotion (marcomms) the same worldwide This strategy attempts to
use in the foreign country the product and promotion developed for the home market. This is an
approach that seems desirable wherever possible because it eliminates the expenses of mar-
keting research and product redevelopment. American companies PepsiCo and Coca-Cola use
this approach in marketing their soft drinks. Although both translate promotional messages into
the language of a particular country, they market the same products and promotional messages
around the world. Despite certain inherent risks that stem from cultural differences in interpretation,
exporting branding and advertising does provide the efficiency of international standardization or
globalization. As the following examples imply, however, not all brands/products are suitable for
export in their existing forms:
●● Zit fizzy drink (Greece)
●● Bum’s biscuits (Sweden)
●● Krapp toilet paper (Sweden)
●● Grand Dick red wine (France)
●● Sor Bits mints (Denmark).37
Global advertising embraces the same concept as global marketing, discussed in Chapter 4.
An advertiser can reduce costs significantly by running the same advertisement worldwide.
Adapt promotion (marcomms) only This strategy leaves the product basically unchanged but
modifies its promotion. For example, McDonald’s provides relatively similar core products through-
out the world but may modify the media for its advertising messages. This approach may be
necessary because of language, legal or cultural differences associated with the advertising copy.
If a well-known local TV personality or sports star is used to represent a brand in one country, the
same person and advertisement may have little applicability elsewhere. Many big global brands
have used the face of cricket legend Sachin Tendulkar in India, but could not utilize his images
in countries such as Germany, Sweden or Russia, where cricket is not followed. Promotional
adaptation is a low-cost modification compared with the costs of redeveloping engineering and
production, and physically changing products.
Generally, the strategy of adapting only promotion infuses advertising with the culture of the
people who will be exposed to the marketing communications activity (see Figure 21.7). Often,
promotion combines thinking globally and acting locally. At company headquarters, a basic global
marketing strategy is developed, but promotion is modified to fit each market’s needs, often using
locally-based advertising agencies.
Adapt product only The basic assumption in modifying a product without changing its promo-
tion is that the product will serve the same function under different conditions of use. Soap and
washing powder manufacturers have adapted their products to local water conditions and washing
equipment without changing their promotions. Household appliances have also been altered to
use different power voltages.
A product may have to be adjusted for legal reasons. Japan, for example, has some of the most
stringent vehicle emissions requirements in the world. Cars produced elsewhere that do not meet
set emissions standards cannot be marketed in Japan. Sometimes, products must be adjusted to
overcome social and cultural obstacles. American Jell-O introduced a powdered jelly mix that failed
in Britain because consumers were used to buying jelly in cube form. Resistance to a product is
frequently based on attitudes and ignorance about the nature of new technology. It is often easier
to change the product than to overcome technological, social or cultural bias.
Adapt both product and promotion (marcomms) When a product serves a new function or is
used differently in a foreign market, then both the product and its promotion need to be altered.
For example, when Procter & Gamble marketed its Cheer washing powder in Japan, it promoted
Figure 21.7
Adapting promotion across national boundaries
Source: The Trademark PERRIER is reproduced with the kind permission of the trademark owner, Nestlé waters.
the product as being effective in all temperatures. However, most Japanese wash clothes in cold
water and do not care about all-temperature washing. Moreover, the Japanese often add a lot of
fabric softener to the wash, and Cheer did not produce many suds under such conditions. Procter
& Gamble thus reformulated Cheer so that it would not be affected by the addition of fabric softener
and changed the promotion to emphasize ‘superior’ cleaning in cold water. Cheer then became
one of Procter & Gamble’s most successful products in Japan. Adaptation of both product and
promotion is the most expensive strategy discussed so far, but it should be considered if the foreign
market appears large enough and competitively attractive.
Invent new products This strategy is selected when existing products cannot meet the needs
of a non-domestic market. General Motors developed an all-purpose jeep-like motor vehicle that
can be assembled in developing nations by mechanics with no special training. The vehicle was
designed to operate under varied conditions; it had standardized parts and was inexpensive.
Colgate-Palmolive developed an inexpensive, all-plastic, hand-powered washing machine that had
the tumbling action of a modern automatic machine. The product, marketed in less developed
countries, was invented for households without electricity. Strategies that involve the invention
of products are often the most costly, but the pay-back can be great. The clockwork radio was
designed as a low-cost but effective educational medium for poor regions of southern Africa. It
proved a success in this context, but surprisingly also in the US and developed economies, where
it took on cult status and sold for a high price as an upmarket and trendy status symbol.
Place/distribution and pricing

Decisions about the distribution system and pricing policies are important in developing an inter-
national marketing mix. Figure 21.8 illustrates different approaches to these decisions.
Distribution
No effort to
establish new Establish new
marketing channels marketing channels
1 Same price 3 Establish new

Do not
policies; no control channels and use
change
over distribution same price policies
Price policies
price
policies
2 Price policies 4 Develop new

Change changed for international channels and change
Figure 21.8 price markets; no control price policies
Strategies for interna- policies over distribution
tional distribution and
pricing
Distribution A company can sell its product to an intermediary, or it can develop new interna-
tional marketing channels. Some service companies, such as DHL or Barclays, need to develop
their own distribution systems owing to the nature of their products and operations. However,
many products – such as hotel bookings, package holidays or insurance products – are distributed
through intermediaries and brokers. A company must consider distribution both between countries
and within the foreign country. The chapter’s opener reveals how confectionery giants Suchard
and Kraft acquired local companies in order to gain both ready-made production facilities and the
acquired companies’ distribution networks.
In determining distribution alternatives, the existence of retailers and wholesalers that can per-
form marketing functions between and within countries is one major factor. If a country has a seg-
mented retail structure consisting primarily of one-person shops or street sellers, it may be difficult
to develop new marketing channels for products such as packaged goods and prepared foods.
Quite often in less developed countries, certain channels of distribution are character-
ethnodomination ized by ethnodomination. Ethnodomination occurs when an ethnic group occupies a
This occurs when an majority position within a marketing channel. Indians, for example, own approximately
ethnic group occupies a 90 per cent of the cotton gins in Uganda; the Hausa tribe in Nigeria dominates the trade
majority position within a
marketing channel.
in kola nuts, cattle and housing; and Chinese merchants dominate the rice economy in
Thailand. Marketers must be sensitive to ethnodomination and must recognize that the
ethnic groups operate in sub-cultures with a unique social and economic organization.38
If the product being sold across national boundaries requires service and information, then
control of the distribution process is desirable. Caterpillar, for example, sells more than half its
construction and earthmoving equipment outside its native USA. Because it must provide services
and replacement parts, Caterpillar has established its own dealers in foreign markets. Regional
sales offices and technical experts are also available to support local dealers. A manufacturer of
paint brushes, on the other hand, would be more concerned about agents, wholesalers or man-
ufacturers of paint that would facilitate the product’s exposure in a foreign market. Control over
the distribution process would not be so important or be cost-effective for that product because
services and replacement parts are not needed.
Research suggests that international companies use independently-owned marketing channels
when they market in countries perceived to be highly dissimilar to their home markets. However,
when they market complex products, they develop vertically integrated marketing channels to gain
control of distribution. To manage the distribution process from manufacturer to customer contact
requires an expert salesforce that must be trained specifically to sell the company’s products.
When products are unique or highly differentiated from those of current competitors, international
companies also tend to design and establish vertically integrated channels.39
It is crucial to realize that a country’s political instability can jeopardize the distribution of goods.
For example, the move to alter ruling bodies in much of North Africa and the oil producing nations
in the Gulf impacts on trade, but also how international brands are able to service their markets in
this region. Thus it must be re-emphasized how important it is to monitor the environment when
engaging in international marketing (see Chapter 4). Companies that market products in unstable
regions may need to develop alternative plans to allow for sudden unrest or hostility, and to ensure
that the distribution of their products is not jeopardized. The UK’s Brexit – exit from the EU – is
viewed by many global brands as destabilizing.
It is important to have the ‘right’ product or service to appeal to the target market in an interna-
tional market. However, a significant impediment to effective international marketing is distribution.
It is not always easy to grasp how marketing channels operate in an alien territory.40 Companies
setting up in Russia find the channels, bureaucracy and corruption difficult to manage. It is never
easy to identify the most suitable channel members and players with which to do business, or to
find those that should be permitted to sell a company’s products.
Pricing The domestic and non-domestic prices of products are usually different. For example,
the prices charged for Disney DVDs in the UK, Germany and Spain will all vary, as well as being dif-
ferent from US prices. The increased costs of transport, supplies, taxes, tariffs and other expenses
necessary to adjust a company’s operations to international marketing can raise prices. A key deci-
sion is whether the basic pricing policy will change (as discussed in Chapter 20). If it is a company’s
policy not to allocate fixed costs to non-domestic sales, then lower foreign prices could result.
It has been common practice for EU countries to sell off foodstuffs and pharmaceuticals at
knock-down prices to eastern European and African states respectively. This kind of sale of prod-
ucts in non-domestic markets or vice versa at lower prices than those charged in domestic markets
(when all the costs have not been allocated or when surplus products are sold) is called
dumping
The sale of products in dumping. Dumping is illegal in some countries if it damages domestic companies and
non-domestic markets at workers.
lower prices than those A cost-plus approach to international pricing is probably the most common method
charged in domestic used because of the compounding number of costs necessary to move products from
markets, when all costs
their country of origin. Of course, as the discussion of pricing policies in Chapter 20
are not allocated or when
surplus products are sold. points out, understanding consumer demand and the competitive environment is a
necessary step in selecting a price. . . witness recent issues for the euro.
The price charged in other countries is also a function of foreign currency exchange
rates. Fluctuations in the international monetary market can change the prices charged across
national boundaries on a daily basis. There has been a trend towards greater fluctuation (or float) in
world money markets. For example, a sudden variation in the exchange rate, which occurs when
a nation devalues its currency, can have wide-ranging effects on consumer prices.
There are also pricing issues that stem from transfer pricing practices and the prob-
transfer pricing lems of parallel imports. Transfer pricing is the price charged between profit centres,
The price charged
between profit centres,
for example a manufacturing company and its foreign subsidiary. Company policies
for example between a can force subsidiaries to sell products at higher prices than the local competition, even
manufacturing company though the true costs of their manufacture may be no different. The manufacturer tries to
and its foreign subsidiary make a profit even from its ‘internal’ customer – its own subsidiary.41 Parallel imports
– that is, goods exported from low-price to high-price countries – are an increasing prob-
lem. For example, French and Belgian beer producers export to the UK at set price lev-
parallel imports
els, but consumers and small independent retailers cross by car ferry to Calais and stock
Goods that are imported
through ‘non-official’ up with similar brands at much lower prices than those the manufacturers ‘officially’ offer
channels from low-price to UK customers. Many well-known fmcg brands are available in other countries at lower
to high-price countries. prices, encouraging a grey market of unofficial export/import by third parties able to
source lower priced merchandise on behalf of their clients and take a percentage of the
saving in return. In recent years, since Trump’s election in the USA, there has been a
grey market
growth in the imposition of trade tariffs, which artificially inflate the prices of imported
Unofficial export/import
by third parties able products. Marketers need to be aware of tariffs when deciding whether to engage with
to source lower priced a country, given the imposition of a tariff might leave their product highly uncompetitive.
merchandise on behalf There are also important price ramifications to consider, stemming from product or
of their clients and take a brand positioning and any differences between countries. For example, in the UK Stella
percentage of the saving
Artois beer was marketed as ‘reassuringly expensive’, whereas in its native Belgium it
in return.
was more of a commodity, mass-market brand competing against brands such as Duval
or the specialist Trappist monk beers. Pricing, in any market, must reflect the brand
trade tariffs positioning adopted and the expectations of the selected target market.42
A tax imposed by a
Government on all prod-
ucts in a category not People
produced domestically,
which may leave a
Great importance is now attached to the people ingredient of the marketing mix. The
product priced too high nature of many business-to-business markets and the form of most service products
to be competitive against often lead businesses to determine formally the role of people within their marketing
domestic rivals. mixes. In the context of international marketing, the people ingredient is also very import-
ant. Chapter 4 highlighted how marketers performing across national boundaries must
be aware of often striking differences, country by country or region by region, in the
marketing environment. Often, cultural and social forces are the most varied and also the most dif-
ficult for marketers based in another country and culture to understand. Without people – partners,
agents, advisors, staff – well-versed in the localized practices of marketing channels, consumers,
competitors and regulators, it is unlikely that a marketing strategy will be executed successfully.
Companies must deploy people with the ‘right’ skills to address such issues from their own
ranks or from third parties in the territories under scrutiny; it is common to recruit consultants,
agents or advisers to help in building up an understanding of cultural and interpersonal consid-

erations in a non-domestic market or to hire a sales manager with local experience. Channel
members are very important in supplying localized knowledge of such issues. Having personnel
who understand the nuances of an international market is a fundamental requirement for effective
marketing, but so is the need for those personnel with the cultural and local knowledge to be able
to implement a marketing mix, which itself may well have been modified to reflect the nuances of
the relevant marketing environment.
Summary
This chapter explains why and how the marketing mix must be manipulated differently for business markets, services mar-
keting and international markets.
Business marketing is a set of activities directed at facilitating and expediting exchanges of business products and ser-
vices with customers in business-to-business markets. Like marketers of consumer products, business marketers must
develop a marketing mix that satisfies the needs of customers in the business target market. The product component
frequently emphasizes services, which are often of primary interest to business customers. Business products must meet
certain standard specifications that business users require and there tends to be less flexibility than in consumer markets.
The distribution of business products differs from that of consumer products in the types of channel used, the kinds of
intermediary available, and the transport, storage and inventory policies. A direct distribution channel, in which products
are sold directly from producers to users, is quite common in business marketing. Also used are channels containing
manufacturers’ agents, business distributors, or both agents and distributors. Channels are chosen on the basis of several
variables, including availability and the typical mode of purchase for a product.
Personal selling is a primary ingredient of the promotional component in business marketing mixes. Key account manage-
ment is often deployed. Sales personnel may act as technical advisers both before and after a sale. Advertising is some-
times used to supplement personal selling efforts, but it is not generally as emotive in nature as in consumer marketing.
Business marketers generally use print and online advertisements containing more information but less persuasive content
than consumer advertisements. Other promotional activities include catalogues, trade shows and the web. Effective CRM
systems and online selling are important for many business marketers.
The price component for business marketing mixes is influenced by legal and economic forces to a greater extent than it is
for consumer marketing mixes. Administered, bid and negotiated pricing are additional possibilities in many business mar-
kets. Pricing may be affected by competitors’ prices, as well as by the type of customer who buys the product. Increasingly,
though price is still important, many companies are seeking new ways of creating a differential advantage. Value for money
is important in most markets, but low price is not usually an effective competitive advantage except in the very short term.
Flexibility and reliability in production and delivery can be differentiating factors, as can technical innovation, personnel and
customer service, promotional activity and even payment terms. People, important in the context of personal selling, are
also often required to establish ongoing long-term relationships with key customers.
The basic marketing mix is augmented for services through the addition of people, physical evidence (ambience) and
the process of transaction in order to produce the ‘7Ps’ or the extended marketing mix for services. When developing a
marketing mix for services, several aspects deserve special consideration. Regarding product, service offerings are often
difficult for customers to understand and evaluate. The tangibles associated with a service may be the only visible aspect
of the service, and marketers must manage these scarce tangibles with care. Because services are often viewed in terms
of the service providers, service providers must select, train, motivate and control employees carefully, particularly to
guarantee service product quality and service delivery. Consumers determine the quality of services subjectively, often by
contrasting what was expected of a service with the actual experience. Service providers need to meet these expectations
or re-educate consumers. Service quality delivery is very important for marketers of services to manage effectively. Service
marketers are selling long-term relationships as well as performance. It is important to understand the complexity of the
service product and to seek to limit its variability.
Promoting services is problematic because of their intangibility. Advertising may stress the tangibles associated with the
service or use some relevant tangible object. Branding is used to distinguish competing services. Personnel in direct con-
tact with customers should be considered an important secondary audience for advertising and brand messaging. Personal
selling is very powerful in service organizations because customers must interact with personnel. The publicity component
of the promotional mix is vital to many service organizations. Because customers value word-of-mouth communications,
messages should attempt to stimulate or simulate word-of-mouth. Social media and endorsement by consumers are par-
ticularly important for service reputation. Many professional service providers are severely restricted in their use of promo-
tional activities by their regulators.
Price plays three major roles in the service sector. It plays a psychological role by indicating quality, and an economic role
by determining revenues; price is also a way to help smooth out fluctuations in demand.
Service distribution channels are typically direct because of simultaneous production and consumption. However, innova-
tive approaches such as drop-off points, intermediaries and electronic distribution/eBusiness are developing.
International marketing requires careful planning. Marketing activities performed across national boundaries are usually
significantly different from domestic marketing activities. International marketers must have a profound awareness of the
foreign environment, of social and cultural differences, and of different business practices. The international marketing
strategy is ordinarily adjusted to meet the needs and desires of markets across national boundaries.
After a country’s environment has been analyzed, opportunities identified and an entry strategy determined, marketers
must develop a marketing mix and decide whether to adapt product or promotion. There are five possible strategies for
adapting product and promotion across national boundaries: (1) keep product and promotion the same worldwide; (2)
adapt promotion only; (3) adapt product only; (4) adapt both product and promotion; (5) invent new products. Foreign distri-
bution channels are nearly always different from domestic ones. Identifying and understanding channels in foreign markets
are not easy tasks. Distribution channels can become a major impediment in international marketing. The allocation of
costs, transport considerations or the costs of doing business in foreign markets will affect pricing. Transfer pricing, parallel
imports and the grey market are important considerations, as are the regulations pertaining to dumping and trade tariffs.
It is also necessary to set pricing levels that reflect the nuances of a product’s brand positioning in a particular market: the
same brand may occupy distinctly different positionings in separate territories.
3. Why do business marketers rely on personal selling more

Key links than consumer products’ marketers?
4. Why would a business marketer spend resources on adver-
This chapter has summarized some of the ways in which
tising aimed at stimulating consumer demand?
marketers must modify the marketing mix in order to serve
business markets, market services or reflect the require- 5. Compare three methods of determining the price of busi-
ments of international markets. Before reading this chap- ness products.
ter, it is important to have first read: 6. Why must a competitive advantage be based on more than
just low prices?
●● Chapter 4, on international marketing and
globalization. 7. Discuss the role of promotion (MarComms) in services
marketing.
●● Chapter 6, on business markets and business buying
behaviour. 8. Why are social media and consumer-to-consumer commu-
nications so important in the success of services?
●● Chapter 13, on the marketing of services.
9. What additional elements must be included in the market-
There is also related information in Chapter 20, on pricing mix for services? Why?
ing decisions.
10. Why is it difficult to create and maintain a differential
advantage in many service businesses?
11. Why do the marketers of services place so much emphasis
on the people ingredient of the marketing mix?
Important terms
12. What are the principal choices a company can make when
Administered pricing manipulating the marketing mix for international markets?
Bid pricing
13. How and why can the place/distribution ingredient of the
Business distributor
marketing mix cause problems for international marketers?
Complexity
Direct distribution channels 14. What additional factors determine a company’s pricing
Dumping policy in foreign markets?
Ethnodomination
Extended marketing mix for services
Grey market
Intangibility Brennan, R., Canning, L. and McDowell, R., Business-to-Business
Key account management Marketing (Sage, 2017).
Negotiated pricing Kenyon, A., Doole, I. and Lowe, R., International Marketing Strategy
Parallel imports (Cengage, 2016).
Personal selling Ellis, N., Business-to-Business Marketing: Relationships, Networks and
Strategies (OUP, 2010).
Relationships
Ghauri, P. and Cateora, P., International Marketing (McGraw-Hill, 2014).
Service product quality
Hakansson, H., Ford, D., Gadd, L.-E. and Snehota, I., Managing Business
Service provider Relationships (Wiley, 2013).
Trade tariff Hutt, M.D. and Speh, T.W., Business Marketing Management: B2B
Transfer pricing (Cengage, 2013).
Variability Keegan, W.J. and Green, M.C., Global Marketing Management (Pearson,
2016).
Kotabe, M. and Helsen, K., International Marketing Management (John
Discussion and review questions Wiley, 2014).
Palmer, A., Principles of Services Marketing (McGraw-Hill, 2014).
1. How do business-to-business marketing mixes differ from
Wirtz, J. and Lovelock, C.H., Services Marketing: People, Technology
those of consumer products?
Strategy (World Scientific Publishing Company, 2016).
2. What are the major advantages and disadvantages of using Zeithaml, V., Bitner, M., Wilson, A. and Gremler, D., Services Marketing:
distributors for business marketing? Integrating Customer Focus Across The Firm (McGraw-Hill, 2016).
Web task Classroom tools And we make vehicles that are sold
and serviced in more than 140
Log on to BUPA’s website. This countries all over the world.
provider of healthcare and health Our strategy revolves around
insurance targets both consumers satisfied and productive customers
and business clients. Look at the information BUPA provides and in this, we’re supported by over 2300 dealerships and work-
for Individuals (consumers), for Business (corporate clients), shops. Trucks constitute our main product selection, but we also
for Intermediaries (brokers/advisors) and for Healthcare Pro- provide aftermarket products and service, as well as specific
fessionals (service providers): www.bupa.co.uk. offers.
www.volvotrucks.com/trucks/global/en-gb/Pages/home.aspx
1. What are the key BUPA service products offered to pri-
For most of the major players in the truck market, four
vate consumers and to business clients?
major trends are dictating current marketing strategies.
2. How are BUPA’s messages about its products tailored to There is the emergence of global competition from pro-
reflect the different needs and buying behaviour of its ducers in China and Asia-Pacific. A move away from diesel
consumers, business clients, intermediaries and health- powertrains to hybrids and EVs to address environmental
care professionals? and regulatory pressures. The decline in new vehicle sales
is leading to an increased focus on the aftermarket. This
Group tasks market for replacement parts, tyres, fuels and lubricants is
more stable and offers some degree of cushioning against
1. In Switzerland McDonald’s retails wines and beers, the more extreme fluctuations in demand for new vehicles.
in Portugal ice-creams, and in Hong Kong platters for There is a trend for hauliers and large companies with their
sharing. Consider why an apparently uniform global own transport fleets, away from purchasing new vehicles
brand such as McDonald’s encourages such localized outright. There has been a switch to leasing and contract
variations. hire, whereby the truck manufacturer ultimately retains own-
2. Consider how and why the marketing varies for BMW ership of the vehicle and has to offload the vehicles when
cars and BMW car servicing. they are returned by the haulier.
Source: Volvo Trucks.
Applied mini-case
Question
Volvo Trucks is part of Volvo Group, which produces buses and
coaches, marine engines, construction equipment and trucks. As sales of new trucks fluctuate and marketers increasingly
It is the division that handles the importing, manufacturing, focus on offering financing packages and aftermarket care,
sales and marketing, and after-sales support for all Volvo what are the key skills marketers must deploy in this evolving
heavy goods vehicles. The company’s website states: sector?
Total Solutions Provider . . .
Volvo Trucks is the second-largest heavy-duty truck brand in the
world. More than 95% of the trucks we build are over 16 tonnes.
Tata’s Nano evolving to an official. That’s exactly what Tata did,

electric vehicle (ev)? Case study using expertise gained from its years
of marketing trucks, cars and buses for
How can a car sell for less than £2000? markets in India, Europe, South America,
That’s the price Tata Motors set for its Southeast Asia and the Middle East. The
Nano, a four-door and four-seat sub- 330-horsepower engine of the original
compact designed specifically for India, Nano reached a top speed of about 80
when it was introduced in 2009. Launches in Sri Lanka and miles per hour. Thanks to low cost parts and manufacturing,
Nepal followed in 2011. With a rear-mounted motor, this tiny the cost of each engine was only about £600. In contrast, an
car initially included absolutely no extras – no radio, no reclining engine made in the West can be twice as much. By shaving
seats, certainly no aircon or electric windows. What the Nano the cost of each part and component, streamlining assembly
did have, however, was an ultra-low price tag. And that is what methods, and offering only a stripped-down basic model, Tata
made it very attractive to millions of potential buyers in India. was able to achieve its low-price goal.
Now ‘someone who never even dreamed of a car finds it within
reach’, explained Tata’s CEO. The model range became more What’s driving the market?
extensive, with various engine options and specifications, but
still retailed at between 140 000 to 210 000 Indian rupees India’s healthy economy is propelling millions of consumers
(£2000 to £3000). The newest Tata Nano GenX, with automated into the middle class and accelerating demand for affordable
manual transmission (AMT), is India’s most fuel-efficient petrol transportation. As many as 65 million people currently drive
car with best in class features, retailing at around £3500. small motor scooters in India, often carrying family members
Racing to develop and market the world’s cheapest car on the back. Some of these drivers will be able to trade up to
was a challenge, even for a car manufacturer with as much a new car if the price is right. Small wonder that Tata designed
experience as Mumbai-based Tata, which is India’s largest its Nano with four doors to appeal to buyers who often have
automaker and owner of Jaguar and Land Rover in the UK. The family members and friends riding along. If Tata attracts young
company began working on the Nano in 2003, with the goal first-time buyers with a low-priced model and maintains their
of creating a functional yet eye-pleasing design that would fit loyalty as they trade up to higher priced cars in the years
buyers’ lifestyles and tight budgets and at the same time be ahead, the company profits in the long term.
profitable to manufacture and sell. The most essential ingredi-
ent was keeping costs in line to keep the car ultra-affordable. Competition on the roads of india
Low price, low costs Competition is fierce at the low end of the car market. Maruti
Suzuki India, which sells small cars starting at about £3300,
The first step in developing the Nano was to establish an is the market leader. With its nationwide service network, high
upper level for the car’s price: roughly one lakh (100 000 brand recognition and new production facilities, Maruti Suzuki
Indian rupees), the equivalent of less than £1400. To sell a is a formidable competitor. Other rivals are also expanding to
car at this price, ‘you have to cut costs on everything – seats, take advantage of this fast-growing segment of the market.
materials, components, the whole package’, explained a Tata Hyundai India opened a global centre for small car manufac-
turing. Volkswagen’s Skoda division offers the low-priced Fabia
model, among others. Toyota designed a no-frills car for India
and other emerging nations. Honda has plants in India.
Environmental and safety concerns
As enthusiastic as Tata and other car manufacturers may be

about marketing millions of tiny cars with tiny price tags, the
car has generated both environmental and safety concerns.
Some critics fear that broadening the base of car ownership
will only add to the pollution problems in India’s largest cities.
Where national and local regulations do not require anti- have found creative ways of containing costs to keep models
pollution devices, manufacturers are unlikely to install them ultra-affordable. However, with increased competition, devel-
because of the added costs. As a result of social and political oping environmental pressures and rapidly changing customer
pressure, Tata is now going ahead with electric vehicle designs expectations, Tata’s marketers face many challenges as they
to replace the Nano. strive for continued market share growth.
Safety is an issue because more cars on the road mean
more traffic congestion and more opportunity for accidents. Questions for discussion
Cars made by Tata and its competitors comply with all of
1. Explain which factors seem to have the greatest influ-
India’s safety standards, but those standards do not require
ence on Tata’s decision about pricing of its Nano.
equipment such as air bags and antilock brakes. Safety advo-
cates worry that people travelling in the smallest and lightest 2. Assess the level of competition in India’s car industry.
cars will be more vulnerable to serious injury if involved in a What are the implications for Tata’s marketing?
traffic accident. For now, the automakers are moving ahead 3. Why must Tata pay close attention to legal and regulatory
as they monitor the issues and stay alert for possible changes changes when planning and pricing future models?
in government regulations.
Sources: www.tatamotors.com/about-us/company-profile.php, March 2015;
Tata has a long history of good marketing management www.rediff.com/business/slide-show/slide-show-1-auto-7-awesome-small-
and above-average profitability. Being based in India gives cars-coming-soon-to-india/20140318.htm#3, March 2015; nano.tatamotors.
Tata the advantage of being close to its customers and com/, July 2018; www.thenewsminute.com/article/nano-verge-being-shelved-
tata-motors-shifts-focus-electric-vehicles-84293, July 6 2018.
understanding their needs. Tata’s engineers and designers
Part three postscript Explain the importance of branding and

packaging
Having identified marketing opportunities to pursue,
●● Recognize the importance of brands and brand
a business should recommend a marketing strategy
equity.
that involves selecting the target market, determining
the required positioning and developing a competi- ●● Understand the types and benefits of brands and
tive advantage. For the recommended target market how to select, name, protect and licence them.
strategy to be implemented, a marketing mix must be ●● Understand the concepts of brand loyalty, brand
developed. The marketing mix centres on the ‘5Ps’ advocacy and brand communities.
of product, people, place/distribution, promotion and ●● Appreciate the best practice guidelines for creat-
pricing decisions. ing strong brands.
Part Three of Marketing: Concepts and Strategies
●● Understand the roles of brand attributes,
has examined the marketing mix, commencing with
brand values and brand personality in brand
the product and people ingredients of the marketing
development.
mix, the integral issues of branding, packaging and
customer service, as well as the important concepts ●● Understand the changing nature of branding in
of the product life cycle and the management of prod- the digital era.
uct portfolios. Part Three has addressed the nature of ●● Understand the role of branding at the corporate
marketing channels, wholesalers and distributors, the level and in reputation management.
physical distribution of products and services, plus ●● Be aware of the major packaging functions and
some aspects of retail marketing. A thorough over- packaging design considerations.
view followed of the elements of promotion – mar-
●● Consider the ways in which packaging is used in
keting communications – and how the promotional
marketing strategies.
mix fits into marketing strategy. The concept of inte-
grated marketing communications (IMC) has also ●● Understand the functions of labelling and the
been explored. The impact of digital marketing was legal issues associated with labelling.
assessed next, exploring the implications for channel
selection and marketing communications, attaining Outline the requirements for developing products
customer and market insight, as well as the growth of and managing product portfolios
consumer-to-consumer communications and social
●● Become aware of organizational alternatives for
media. This was followed by an explanation of the
managing products.
principal concepts of pricing and the setting of prices.
The final chapter in Part Three explored the manip- ●● Understand how organizations develop a product
ulation of the marketing mix to cater for business idea into a commercial product.
markets, the marketing of services and marketing in ●● Understand the importance and role of product
international markets. development in the marketing mix.
Before progressing, readers should be confident ●● Understand the management of products during
that they are now able to do the following: the various stages of a product’s life cycle.
●● Be aware of how existing products can be
Describe the basic product decisions modified.
●● Know how marketers define products. ●● Know how product deletion can be used to
●● Define product levels. improve product mixes.
●● Understand how to classify products. ●● Understand tools for the strategic planning of
●● Become familiar with the concepts of product product or market portfolios.
item, product line and product mix.
●● Understand the concept of product life cycle. Understand the special requirements for the
●● Understand the types of organizational structure marketing of services
used to manage products. ●● Understand the nature and characteristics of
●● Grasp the importance of the levels of a product in services.
determining a competitive edge. ●● Classify services.
Part three MARKETING PROGRAMMES 651
●● Understand the development of marketing strate- ●● Appreciate the importance of inventory manage-
gies for services. ment and the development of adequate assort-
●● Understand the problems involved in developing ments of products for target markets.
a differential advantage in services. ●● Have insight into different transportation methods
●● Understand the concept of service quality. and how they are selected and coordinated.
●● Explore the concept of marketing in non-profit
situations. Explain the role of promotion and marketing
●● Understand the development of marketing strate- communications
gies in non-profit organizations. ●● Understand the role of promotion in the market-
●● Describe methods for controlling non-profit mar- ing mix.
keting activities. ●● Understand the process of communication.
●● Understand the product adoption process and its
Explain the concept of the marketing channel implications for promotional efforts.
●● Understand the marketing channel concept and ●● Understand the aims of promotion.
the nature of marketing channels. ●● Know the elements of the promotional mix.
●● Discuss the functions of marketing channels. ●● Appreciate the nature of integrated marketing
●● Understand different types of channel. communications (IMC).
●● Understand channel integration and levels of ●● Have an overview of the major methods of
market coverage. promotion.
●● Understand the selection of distribution channels ●● Explore the factors that influence the selection of
and the emergence of direct marketing. promotional mix ingredients.
●● Understand the impact of multi-channel ●● Appreciate the role of marketing communications.
management.
●● Understand the behavioural aspects of channels, Describe the use of advertising, publicity and
especially the concepts of cooperation, relation- sponsorship
ship building, conflict and leadership.
●● Understand the nature and uses of advertising.
●● Understand legal issues in channel management.
●● Be aware of the major steps involved in develop-
ing an advertising campaign.
Describe the functions of channel players and ●● Know who is responsible for developing advertis-
physical distribution management ing campaigns.
●● Understand the nature of wholesaling in its ●● Have an understanding of publicity and public
broadest forms in the marketing channel. relations.
●● Understand channel members that facilitate ●● Understand the nature and uses of sponsorship.
wholesaling and distribution.
●● Understand the purpose and function of retailing
Describe the use of personal selling, sales
in the marketing channel.
promotion, direct mail, direct marketing, the web
●● Describe and distinguish retail locations, major
and digital marketing
store types and non-store retailing.
●● Understand the nature and major purposes of
●● Understand how physical distribution activities
personal selling.
are integrated into marketing channels and overall
●● Know the basic steps in the personal selling
marketing strategies, and to examine physical
process.
distribution objectives.
●● Identify the types of salesforce personnel.
●● Know about order processing, materials handling
and different types of warehousing and their ●● Have insight into sales management decisions
functions. and activities.
●● Appreciate the role of key account management. Outline the central concepts of pricing
●● Be aware of what sales promotion activities are ●● Understand the characteristics and role of price.
and how they can be used. ●● Be aware of the differences between price and
●● Be familiar with specific sales promotion methods. non-price competition.
●● Understand the role of direct mail in the promo- ●● Understand key factors that affect pricing
tional mix. decisions.
●● Appreciate direct marketing’s use of the promo- ●● Understand different pricing objectives.
tional mix. ●● Understand issues unique to the pricing of prod-
●● Be aware of the importance of the web in mar- ucts for business markets.
keting communications. ●● Analyze the concept of economic value to the
●● Comprehend the growing role of digital marketing. customer.
●● Understand the eight major stages of the process
Understand the nature of digital marketing used to establish prices.
●● Understand how digital has impacted on con- ●● Know about demand for a product and analyze
sumer behaviour and decision-making. the relationships between demand, costs and
profits.
●● Appreciate the new requirements of understand-
ing search engine management and content mar- ●● Understand the selection of a pricing strategy and
keting, types of digital media and multi-screen understand how to determine a specific price.
marketing.
●● Understand the all-important issue of social Explain why, when and how the basic marketing
media strategy. mix requires additional manipulation
●● Appreciate the growing role of mobile marketing. ●● Recognize that in many situations the basic mar-
●● Recognize the change to public relations brought keting mix requires modification.
about with online public relations. ●● Examine the nature of the marketing mix for busi-
●● Understand the way in which digital is driving ness markets.
innovation. ●● Understand the more complex and extended
●● Understand the challenges of turning big data marketing mix required for services.
into meaningful insights. ●● Recognize that for marketers involved with global
●● Understand the requirements for organizations in marketing, the marketing mix requires consider-
deciding on a multiple channel-to-market strategy. ation of additional issues.
Part three MARKETING PROGRAMMES 653
How to launch a vision? many well-known and start-up brands

Strategic case are being tested on public streets daily.
Japan’s SoftBank has invested $2.25bn Nevertheless, the frequently publicised
(£1.7bn) into GM’s autonomous unit Cruise. ‘incidents’ and crashes, including, sadly,
This is one of the biggest single investments fatalities, reveal that we are a long way
by a firm in self-driving technology. Separately, from having a safe and reliable market-ready
Waymo, which is owned by Google, is said to be buying up to proposition.
62 000 Fiat Chrysler minivans for its autonomous fleet. Uber Ponder what is involved . . . The sensors, the
also suggests that it may work with Waymo on self-driving software, the computer decision-making, the required
technology. General Motors and Fiat Chrysler both want to be communications, system interaction with humans and so
a part of this future face of the automotive sector, not to be left forth. And then consider your own use of your gadgets. You
behind by new entrants such as Tesla or Google. Google something on your iPhone and nearly instantly have
your response, guiding you in your decision-making and
life. You log on to your laptop or desktop and right away
you get on with your tasks. You relax in front of a set-top
box, satellite system or streaming and instantly you are
engrossed in your programme. You remotely turn on your
central heating or some other domestic device, arriving
home and all is as expected.
Except that is not always the case is it? Most days a con-
sumer’s smartphone first thing in the morning provides the
latest news update, but now and again it fails to connect. A
shiny new office desktop may fail to respond for many min-
utes, requiring a long ponder before hooking up to the desired
packages. Storms might interfere with a family’s diverse view-
ing habits, whether via a satellite dish or broadband router.
These momentary technology failings are frustrating, but
The SoftBank deal saw GM’s shares rise by more than would be quickly and harmlessly addressed. And none is life
10%. This was the biggest one-day gain since GM’s 2009 or death. Such everyday glitches have no unintended conse-
bankruptcy, after which it had to be re-listed on Wall Street. It quences other than annoyance.
was reported that SoftBank received a 19.6% stake in Cruise Such glitches at 40 or 70 mph, if the technology an
(www.bbc.co.uk/news/business-44325629, June 1 2018). autonomous car depends on for perfect functionality and safe
Cruise has now been valued at $11.5bn by the partnership, passage momentarily fails to respond, would have far more
justifying GM’s investment, as two years ago it was criticised devastating outcomes.
for over-paying when it bought the start-up company for $1bn. The sensors of a self-driving Uber car spotted a pedestrian
There are strong advocates for this technological break- pushing a bicycle across the road six seconds before killing her,
through and with so many active players – including tech according to a report.
giants, traditional automotive powerhouses and disruptive The on-board identification system classified her as an
start-ups – there can be little doubting the likelihood of these “unknown object, as a vehicle, and then as a bicycle”.
self-driving vehicles coming to market. Nevertheless, success
is far from assured . . . The car slowed slightly but failed to avoid Elaine Herzberg, 49,
of Tempe, Arizona, or perform an emergency stop.
Insurmountable issues? And the car’s human operator took control a second before
impact but did not hit the brake until just after.
First, there is the technology issue. Many autonomous vehicles “Uber car ‘had six seconds to respond’ in fatal crash”,
already are successfully deployed daily in routine activities, in BBC News, May 24 2018; www.bbc.co.uk/news/technology-
mines and quarries, on farms and on construction sites. And 44243118.
If a consumer still cannot depend on perfect performance will soon be offered reliable vehicles and that this market will
from her smartphone, broadband or viewing platforms, how rapidly take off. They want to be on this journey, maximiz-
can there be expectations for 100% performance from an ing their returns and being part of this revolution in driving
autonomous vehicle? behaviours and mobility solutions. The occasional high-profile
Until a zero-failure rate reasonably might be expected, will product failure, inevitably will stall adoption.
consumers trust in such innovative technology? No. The con- The real challenge is whether marketers are able to per-
sumer response and acceptance issue is a challenge for these suade enough consumers to be risk-averse and to adopt this
producers. And neither will regulators and politicians, which is product quickly enough to achieve payback on these invest-
another significant issue to face. ments. Understanding which consumers will be the core
target market, with what customer value proposition and
Appealing to the innovators and early engagement plan, will be key to success in this fast-evolving
adopters new market.
However, some consumers might be so trusting. No doubt Questions for discussion

there will be those prepared to trial. In all markets, amongst 1. Who will be the target audience(s) for a launch campaign
consumers there are the innovators and risk-takers, as well for autonomous vehicles?
as the very early adopters. Consumers who ‘must have’ the
2. What customer value proposition will be most effective in
latest breakthrough product or service, are excited by its pos-
gaining their interest and trust?
sibilities, or for self-status need to be seen possessing or using
such a new product. The rush by some for unproven, risky and 3. What mix of marketing communications will work best to
very expensive space tourism proves this. engage with these prospective customers?
SoftBank and others investing in autonomous vehicles 4. What other ingredients of the marketing mix will be most
hope that the latter group of innovators and early adopters important during customer engagement?
Part Four
Legal
forces
Customer
value
proposition
engagement
Buyer/
Place/
Price/ consumer
distribution/
value satisfaction
channel
logical green
forces forces
edge
Desired
customer
experience
Economic and
competitive forces
I
n Figure 1.4, the generic tasks of marketing strat- marketing management – implementation and control
egy were identified as marketing opportunity anal- of marketing strategy and marketing activity, with the
ysis, target market strategy creation, marketing popular and important toolkit of marketing planning.
mix development and marketing management. Parts Control of performance is very important. Of grow-
One to Three of Marketing: Concepts and Strategies ing importance to marketers and consumers are the
examined the first three of these generic tasks. Chap- topics of ethics and social responsibility in marketing.
ter 2 discussed marketing strategy in detail, and tar- These issues must be of central concern to marketers
get market selection was explored in Chapters 7 and when they determine marketing strategies and then
8. The focus of Part Four is on the core aspects of strive to implement these strategies.
655
656 Part Four Marketing management
Part Four of Marketing: Concepts and Strategies explores the central issues of marketing
management: marketing planning and forecasting sales potential; implementing strategies, inter-
nal marketing relationships and measuring performance; and the role of ethics and social respon-
sibility in responsible marketing. The rapid growth of social marketing is also further explored.
Chapter 22, ‘Marketing planning and forecasting sales potential’, examines the market-
ing planning process and how organizations practice marketing planning. The chapter presents
an overview of a ‘typical’ marketing plan. The chapter then highlights the important relationship
between marketing analysis, marketing strategy and marketing programmes for implementation:
the marketing process as described in Chapter 1. The commonly deployed SWOT analysis is
explained. The discussion then turns to the related issues of the assessment of market and sales
potential, and to the principal sales forecasting methods. The major components of a marketing
audit are described. The chapter helps readers appreciate how organizations operationalize a
marketing strategy.
Chapter 23, ‘Implementing strategies, internal marketing relationships and measuring

performance’, commences by describing how marketing activities are often organized within a
company’s structure, and explains the various ways of organizing a marketing unit. The chapter
then examines the marketing implementation process, various approaches to marketing imple-
mentation and the importance of internal marketing. The discussion next focuses on implement-
ing and controlling marketing activities, before looking at how sales and marketing cost analysis
is used in evaluating performance. The emergence of marketing shareholder value analysis is
introduced. The chapter closes with a look at popular methods and criteria for evaluating market-
ing strategies and performance.
Chapter 24, ‘Responsible marketing’, defines social responsibility, explaining the concept,
exploring important issues and describing strategies for dealing with social dilemmas for mar-
keters. The focus of the chapter then switches to marketing ethics and explains the impor-
tance of this concept in today’s environment. The chapter explores the factors that influence
ethical decision-making, discussing some of the important ethical issues marketers face. Next,
the chapter presents ways of improving ethical decisions in marketing. The concepts of social
responsibility and marketing ethics are compared and contrasted. Finally, the chapter explores
the growing use of marketing in applications of social marketing, which because of its areas of
focus demands ethical behaviour and high standards. This leads to a view of how the marketing
discipline is evolving.
By the conclusion of Part Four of Marketing: Concepts and Strategies, readers should under-
stand more about the complexities of managing marketing strategies and marketing programmes,
the role of marketing planning, forecasting sales potential, evaluating marketing performance, ways
of implementing marketing strategy and the significant influence of ethics and social responsibil-
ity in today’s marketing, together with the broader reach of marketing in society through social
marketing applications.
Chapter 22
Marketing planning and
forecasting sales potential
Planning identifies opportunities and creates engagement programmes,
but also aligns the organization to these priorities and establishes controls
Introduction
Objectives Manipulation of the marketing mix to match target market needs
and expectations constitutes a daily activity for most market-
To understand the marketing plan-
ing personnel. However, as explained in the first two chapters
ning process.
of Marketing: Concepts and Strategies, fundamental strategic
To gain an overview of the market- decisions need to be made before the marketing mix(es) are
ing plan. formulated and marketing programmes are executed. To expe-
dite this process and link the strategic decision-making to the
To examine the relationship
development of actionable marketing programmes, many orga-
between marketing analysis, mar-
nizations – small and large – turn to marketing planning. This
keting strategy and marketing pro-
chapter examines the nature of marketing planning.
grammes in marketing planning.
Like all business activities, marketing needs to have goals;
To examine the role of the SWOT often these are sales targets and market share objectives (see
analysis in marketing planning. Chapter 23 for a full discussion of marketing performance met-
rics). To set the right goals, marketers must be able to forecast
To become familiar with market and
future sales and market size trends, as explained in this chapter.
sales potential, and sales forecast-
Marketing planning is a systematic process involving the
ing methods.
assessment of marketing opportunities and resources, the
To analyze the major components determination of marketing objectives and the development of
of a marketing audit. a plan for implementation and control. It is an annual activity in
most organizations, helping to direct and control the activities of
To appreciate how organizations
marketers, and guide the activities of the other functions within
operationalize a marketing strategy.
a company.
A sales forecast is an estimation of the amount of a ser-
vice or product that an organization expects to sell during a
specific period at a specified level of marketing activity. Market
potential is a prediction of industry-wide market size, everything
else being equal, over a specified time period. Marketers often
spend large sums on executing marketing programmes, so
it is necessary to assess first whether the probable levels of
sales warrant such expenditure and commitment of managerial
657
658 Part four Marketing management
resource. The marketing audit, promoted by many academics, is a systematic examination of the
objectives, strategies, organization and performance of a company’s marketing unit. Although its use
is far from commonplace, the marketing audit has many purposes, one of which is to help develop
an organization’s appreciation of its capabilities and market challenges as a prelude to marketing
planning. Some companies conduct a marketing audit as a preliminary analysis to gain a realistic
understanding of the organization, its personnel and its market.
W hen US defence,
space and elec-
tronics giant, Lockheed
Planning for growth
The planning process
was broken into distinc-
tive phases. For each,
Martin, embarked on a new guidance was provided to
round of marketing planning in those inputting, and templates
its European operations, the com- for capturing their outputs were
pany wanted to re-think its priority activities and opportunities, created. These reflected accepted
re-aligning its operations accordingly. The MD recognized that best practice and the tools explained in Marketing: Concepts
this would prove a demanding task, diverting many executives and Strategies. They were constructed so as to steer the sub-
from their daily business and requiring careful management. sequent phase of the planning process. In this way, phase
A central team was created to explore emerging commer- I’s market analyses and opportunity assessment – which
cial opportunities, diversification possibilities, mergers and involved financial performance, marketing environment, trend,
acquisitions. Separately, the core planning process focused customer, competitor and capability analyses – informed the
on each business unit, with their leadership teams instructed company’s strategic decisions in phase II. Here, trade-offs
to produce updated plans and budgets for their markets and were made between existing activities and freshly identified
product groups. opportunities to pursue, identifying the most attractive real-
An external advisor was appointed to help structure this istically attainable set of pursuits and target markets. Phase
process and guide the various directors involved with under- III explored the required positioning in order to attract the
taking the planning process. The central business develop- selected customers and how best to establish competitive
ment function was strengthened, recruiting more analysts advantages. Having made certain that the company had com-
and networking with those knowledgeable of the company’s pelling propositions to take to growing and highly attractive
markets. The two senior business development executives markets, the next phase considered how best to engage with
were given the remit of controlling and mentoring the whole intended customers and the creation of appropriate sales and
process. marketing programmes. Finally, phase IV provided budgetary
and operational frameworks to facilitate roll-out of the plan.
The process required four months of intensive activity.
While a few managers were dedicated to this task, most
executives were juggling inputting to the planning process
alongside their existing daily activities and line management
responsibilities. The result was a well-considered strategy
with a fully specified marketing plan to guide execution of the
strategy. Those involved in the process bought-in to the out-
puts and soon other colleagues shared in the intended direc-
tion and detailed implementation programmes. Commercially,
significant growth resulted from the re-alignment of resources
and re-thought target market priorities. Marketing planning of
this sort is essential to provide topical direction informed by
market circumstances and developments.
Chapter 22 Marketing planning and forecasting sales potential 659
T
his chapter begins with a discussion of the marketing planning process and an
marketing planning
A systematic process overview of the marketing plan. The chapter then discusses the relationship
of assessing market- between marketing analysis – including the popular SWOT analysis – market-
ing opportunities and ing strategy and marketing programmes for implementation. The chapter proceeds to
resources, determining examine market and sales potential, and forecasting techniques for predicting sales,
marketing objectives and
before concluding with a discussion of the major components of a marketing audit.
developing a thorough
plan for implementation Readers should be aware of the importance of forecasting to marketers and of the role
and control. of marketing planning, which features in most marketers’ calendars.
marketing plan
A document or blueprint
Marketing planning
detailing requirements
for a company’s market- Marketing planning is a systematic process that involves assessing marketing oppor-
ing activity. tunities and resources, determining marketing objectives and developing a thorough plan
for implementation and control. Research shows that good-quality marketing planning can
lead to a positive impact on business performance.1 A core output of marketing planning
marketing planning is the marketing plan, a document or blueprint that details requirements for a company’s
cycle marketing activity. The marketing planning process involves analyzing the marketplace,
A circular process that
runs in two directions,
modifying or updating the recommended marketing strategy accordingly and developing
with planning running detailed marketing programmes designed to implement the specified marketing strategy.2
one way and feedback Figure 22.1 illustrates the marketing planning cycle. Note that marketing planning
the other. is a cyclical process. As the dotted feedback lines in the figure indicate, planning is not
Planning cycle
Development
D Feedback and control
or revision of
marketing
objectives
relative to
performance
5 Implementation 2 Assessment of
of marketing marketing
plan opportunities
and resources
4 Development or 3 Revision or
revision of formulation of
the plan for marketing
implementation strategy
Figure 22.1 and control
The marketing planning
cycle
one way. Feedback is used to coordinate and synchronize all the stages of the planning cycle,
to update market insights, re-think target market strategy and opportunity selection and to
re-orientate marketing programmes. Markets are dynamic and endure promiscuous buyers, pesky
competitors and poor operation of marketing programmes, so inevitably marketing plans must be
modified and re-engineered during their life.
Most businesses produce marketing plans annually, typically with a three-year perspective. The
immediate 12 months’ marketing activity is presented in detail, with overviews provided for years
two and three in the three years featured. Once up and running, this process involves revising the
previous year’s plan by updating the essential marketing analyses, revising the recommended
strategy accordingly, before determining detailed marketing mix action plans. Once an organization
has gone through the demanding, intensive and resource-hungry process of developing a market-
ing plan for the first time, subsequent annual revisions are much less taxing. The resulting plan is
normally presented to the board or leadership team for approval and budget before becoming a
documented set of actions for sales and marketing personnel to follow.
The duration of marketing plans varies. Plans that cover a period of up to a year are
short-range plans called short-range plans. Medium-range plans are usually for two to four years. Mar-
Plans that cover a period keting plans that extend beyond five years are generally viewed as long-range plans.
of up to a year.
Marketing managers may have short-, medium- and long-range plans all at the same
time. Long-range plans are relatively rare for good reason, given the volatility evident in
medium-range plans
many markets. Most marketing plans are revised annually, and usually at the same point
Plans that usually cover in an organization’s annual calendar.3 Organizations choose to update fully and revise
two to four years. their marketing plans, modifying their marketing programmes and changing the detail of
their marketing mix(es) as a result. Corporate strategic plans, as described in Chapter 2,
are unlikely to face annual changes of such magnitude, although strategy modifications
long-range plans will always be needed to respond to changes in customer needs, the marketing envi-
Plans that extend beyond
ronment and competitors’ activities.
five years.
Most companies have corporate plans, which are ‘big picture’ views of investment
plans, merger and acquisition targets, new product developments, diversifications, inno-
vation programmes, market developments and entry strategies, and associated structure, financial
and resourcing requirements. Marketing, as a function, inputs to these strategic plans, particularly
Figure 22.2
PWC has a careful marketing planning process
with market insights gained from examining the forces of the marketing environment, competi-
tors’ moves and changing customer expectations. The marketing plan should be aligned to the
overarching corporate strategy and not head off into contradictory directions. If marketers find this
happening, based on their market analysis, there may be the need for the organization’s leadership
to re-think its overall corporate strategy.
The extent to which marketing managers develop and use plans varies. Although marketing plan-
ning provides numerous benefits, some managers do not use formal marketing plans because they
spend almost all their time dealing with daily problems, many of which would be eliminated by adequate
planning. However, planning is becoming more important to marketing managers, who realize that
planning is necessary to develop, coordinate and control marketing activities effectively and efficiently.4
In the authors’ Marketing Planning, a practitioner text, the benefit of marketing planning is stated
as being to provide the basis for an organization:
●● serving the ‘best’ target customers
●● beating the competition
●● keeping abreast of market developments
●● maximizing returns for the organization
●● using resources to best advantage
●● minimizing threats
●● recognizing the organization’s strengths and weaknesses.
Malcolm McDonald, a leading authority on marketing planning, argues that marketing planning
facilitates:
●● coordination of the activities of many individuals whose actions are interrelated over time
●● identification of expected developments
●● preparedness to meet changes when they occur
●● minimization of non-rational responses to the unexpected
●● better communication among executives
●● minimization of conflicts among individuals that would result in a subordination of the goals of
the company to those of the individual.
When formulating a marketing plan, a new enterprise or a company with a new product does
not have current performance to evaluate or an existing plan to revise. Therefore its marketing plan-
ning focuses on assessing opportunities and analyzing capabilities appropriate for these emerging
opportunities. Managers can then develop a marketing strategy and specify marketing objectives.
Research suggests that companies that increase the level of resources put into planning outper-
form those that reduce their allocation to these activities.
Marketing plans should do the following:
1. Execute the agreed marketing strategy by detailing appropriate marketing programmes.
2. Specify expected results so that the organization can anticipate what its situation will be at the
end of the current planning period.
3. Identify the resources needed to carry out the planned activities so that a budget can be developed.
4. Describe in sufficient detail the activities that are to take place so that responsibilities for imple-
mentation can be assigned and schedules determined.
5. Provide for the monitoring of activities and the results so that control can be exerted.5
6. Reflect changing customer needs and evolving market developments.
7. Emphasize any differential advantages or strengths over rivals.
8. Provide clarity of purpose within an organization.
There is a logical and relatively straightforward approach to marketing planning:

1. Analysis of markets, the marketing environment, customer expectations, competitors and trends.
2. Analysis of current performance, successes and failures and the underlying reasons.
3. Identification and selection of opportunities to pursue and existing business to support.
4. Determination of core target markets relevant to these new-look priorities.
5. Identification of a basis for competing and a customer value proposition for each opportunity
pursued.
6. Statement of specific goals and desired product or service positioning.
7. Development of marketing mixes to create marketing programmes to implement plans.
8. Determination of required budgets and resourcing.
9. Specification of schedules and the allocation of marketing tasks to those responsible for their
execution and control.
10. Monitoring of performance and evolving market conditions, taking remedial action as is nec-
essary to execute effectively the plan.
Table 22.1 illustrates these aspects of the marketing planning process in more detail. A good
marketing plan addresses each of these aspects thoroughly and objectively, ensuring it is
truly customer-focused. To succeed, a company must have a plan that is followed closely yet
is flexible enough to allow for adjustments to reflect changes in the marketing environment. 6
Table 22.1 The core steps of the marketing planning process

Analysis
Financial performance
The marketing environment and trends
Company’s strengths, weaknesses, opportunities and threats (SWOT)
Customers’ needs, buying behaviour and perceptions
Market segmentation and brand positioning
Competition and competitors’ strategies
The balance of the product portfolio and ABC sales: contribution analysis
Strategy
Selection of opportunities to pursue and existing business to continue to support
Determination of associated core target markets; basis for competing/differential advantage; customer value propositions; desired product/brand
positioning
Agreement on marketing objectives and goals
Specification of sales targets and expected results
Programmes for implementation
Specification of plans for marketing mix programmes:
●● products
●● promotion
●● place/distribution
●● people (service) levels
●● pricing
Allocation of tasks/responsibilities; timing; costs; budgets
Internal marketing of the plan’s goals, strategy, key programmes, metrics, timelines and responsibilities
Ongoing work:
●● Monitoring progress and benchmarking performance
●● Filling gaps in market insight
Sources: Sally Dibb and Lyndon Simkin, Marketing Planning and The Marketing Planning Workbook (Cengage: 2008 and 1996). Reprinted with permission.
Obviously, the marketing plan document needs to be written carefully in order to satisfy these
objectives. The next section of this chapter takes a closer look at the marketing plan itself.
The marketing plan

The marketing plan is the written document, or blueprint, governing all of an organization’s mar-
keting activities, including the implementation and control of those activities.7 A marketing plan
serves a number of purposes:
●● offers a ‘road map’ for implementing a company’s strategies and achieving its objectives
●● assists in management control and monitoring of the implementation of a strategy
●● informs new participants in the plan of their role and function
●● specifies how resources are to be allocated
●● stimulates thinking and makes better use of resources
●● assigns responsibilities, tasks and timing
●● makes participants aware of problems, opportunities and threats
●● assists in ensuring that an organization is customer focused, aware of market and competitive
movements, realistic in its expectations, and prudent in its use of resources
●● enables the marketing team to be the ‘eyes and ears’ or ‘radar’ for the organization.
A company should have a plan for each marketing opportunity that it pursues and each target
market. As such plans must be modified as company circumstances and forces in the marketing
environment change, marketing planning is a continuous process. Many companies have separate
marketing managers or teams addressing separate regions, different product groups, markets or
market segments. Each team would typically have its own marketing plan relevant to its market-
place. In such cases, the Marketing Director or CMO would produce an overarching all-inclusive
marketing plan summarizing the key aspects of each team’s plan. Organizations use many different
formats when devising marketing plans. Plans may be written for strategic business units, product
lines, individual products or brands, or specific markets.
Most plans share some common ground by including an executive summary; a statement of
objectives; background to the market in question; headlines from market analysis and examination
of realistic marketing opportunities (a description of environmental forces, customers’ needs, mar-
ket segments and internal capabilities); competitor activity; an outline of marketing strategy, target
market priorities, differential advantage, brand and product positioning; a statement of expected
sales patterns; the detail of marketing mixes required to implement the marketing plan; financial
requirements and budgets; controls and performance expectations; and, any operational consid-
erations that arise from the marketing plan (see Table 22.2).
A leading defence conglomerate wanted to use its technological expertise in non-defence mar-
kets to generate business opportunities. For example, certain sensors developed for missiles have
applications in ocean drilling, fire protection systems and even baby monitors in hospital. Marketing
planning enabled this defence company to task its marketers to identify possible opportunities
for the company to use its expertise in the oil, alarm, automotive and rail sectors. These oppor-
tunities were checked out fully, narrowed down and then addressed with appropriate marketing
programmes, through the marketing planning process. The resulting marketing plan was able to
articulate the nature of the set of opportunities in non-defence markets and persuade the compa-
ny’s leadership team to sanction the resources required to enter these new markets.
The following sections consider the major parts of a typical marketing plan, as well as the pur-
pose that each part serves.
Management or executive summary The management summary, or executive summary (often

only one or two pages), should be a concise overview of the entire report, including key aims,
Table 22.2 Parts of a typical marketing plan

1 Management or executive summary
2 Marketing objectives
a Detailed company objectives
b Target market priorities
c Product group goals
3 Product/market background
a Product range and explanation
b Market overview and sales summary
c Directional policy matrix and evaluation of the product portfolio
4 Marketing analyses
a Overview of current performance drivers
b Marketing environment and trends
c Customers’ needs and segments
d Competition and competitors’ strategies
e Strengths, weaknesses, opportunities, threats (SWOT) analysis
5 Marketing strategies
a Selected opportunities to pursue and current activities to support
b Core target markets (segments) related to the priority pursuits
c Basis for competing/differential advantage
d Desired product/brand positioning and customer value propositions
6 Statement of expected outcomes, sales forecasts and results
7 Marketing programmes for implementation
a Marketing mixes
b Tasks, responsibilities and timelines
8 Controls and evaluation: monitoring of performance
9 Financial implications/required budgets
a Delineation of costs and budgets
b Expected returns on investment for implementing the marketing plan
10 Operational considerations
a Personnel issues/requirements
b Internal marketing relationships, reporting and communications
c Research and development/production needs
d Marketing information needs and ongoing market insight work
11 Appendices
a SWOT analysis details
b Background data and information
c Marketing research findings
Sources: Sally Dibb and Lyndon Simkin, The Marketing Casebook (Routledge, 1994). Reprinted with permission. Updated from Sally Dibb and Lyndon Simkin,
Marketing Planning (Cengage, 2008).
overall strategies, fundamental conclusions and salient points regarding the suggested marketing
mix programmes. Not many people – especially CEOs – read an entire report, tending to ‘dip in’
here and there, so the management summary should be comprehensive and clear.
marketing objective Marketing objectives Objectives are for the benefit of the reader, such as senior
A statement of what is to executives or new recruits, to give perspective to the report. Aims and objectives should
be accomplished through
marketing activities – the
be stated briefly but should include reference to the organization’s mission statement
results expected from and corporate goals, objectives and any fundamental desires for core product groups
marketing efforts. or brands. This section describes the objectives underlying the plan. A marketing
objective is a statement of what is to be accomplished through marketing activities. It
specifies the results expected from marketing efforts. A marketing objective should be expressed
in clear, simple terms, so that all marketing personnel and other colleagues understand exactly
what they are trying to achieve. The marketing objective should be written in such a way that its
accomplishment can be measured accurately. If a company has an objective of increasing its
market share by 12 per cent, the company should be able to measure changes in its market share
accurately. A marketing objective should also indicate the timeframe for accomplishing the objec-
tive. For example, a company that sets an objective of introducing three new products should state
the time period in which this is to be done, as well as the anticipated sales targets.
Objectives may be stated in terms of the degree of product introduction or innovation, sales
volume, profitability per unit, gains in market share, heightened dealer interest, media endorsement
and digital impact, or improvements in customer satisfaction or awareness of the company’s prod-
ucts and brands. They must also be consistent with the company’s overall organizational goals.
Progress against these metrics should be formally monitored as part of the planning process and
cycle.
Product/market background Product/market background is a necessary section. Not everyone

reading the plan will be fully familiar with the products and their markets. Senior managers may
be unfamiliar with specific aspects of the product or market. This section ‘scene sets’, helping the
readers – for example, a chief executive or advertising manager – to understand the context for
the marketing plan and its agreed priorities.
Marketing analysis The analysis section is the heart of the marketing planning exercise: if
incomplete or highly subjective, the recommendations are likely to be based on an inaccurate view
of the market and the company’s potential. This section of the plan provides a sound foundation to
the recommendations and marketing programmes. It includes headlines from the analyses of the
marketing environment, market trends, customers, competitors, competitive positions and com-
petitors’ strategies, the suitability of the business’s product portfolio and the financial performance
of products, market segments and even certain customers. As this lengthy list of subjects implies,
effective marketing planning is about much more than just being customer focused.8 Marketers
therefore need to be careful to include all of these areas in their analyses. However, while the anal-
ysis stage is a huge part of the marketing planning process, non-marketing colleagues do not want
to read too much detail, so only headlines and highlights should be included in the actual plan, to
help explain the strategy choices and underpin the required actions.
The market attractiveness – business strength matrix and the ABC sales: contribution analysis –
detailed in Chapter 12 – are popular tools employed by marketers to assess portfolio performance.
The marketing environment section of the marketing plan describes the current state of the
marketing environment, including the legal, political, regulatory, technological, societal/green,
economic and competitive forces, as well as ethical considerations. It also makes predictions
about future directions of those forces. As discussed in Chapter 3, environmental forces can
hamper an organization in achieving its objectives, but also reveal opportunities for growth.
This section of the marketing plan also describes the possible impact of these forces on the
implementation of the marketing plan. Most marketing planning processes include extensive
analyses of competitive, technological, legal and regulatory forces, perhaps even creating sepa-
rate sections in the plan for these influential forces of the marketing environment. It is important
that because the forces of the marketing environment are dynamic, marketing plans should be
reviewed and modified periodically to adjust to change.
Marketing exists to enable an organization to meet customers’ needs properly. This is par-
ticularly true in the marketing planning process. The views, needs and expectations of current
and potential customers are important as a basis for formal marketing planning. Without such an
understanding and analysis of likely changes in customer requirements, it is impossible to safely
target those markets of most benefit to the organization’s fortunes. It is also impossible to specify
a correct marketing mix (or mixes).
The analysis of the market includes competitive forces and trends. As explained in Chapter 2, a
meaningful marketing plan and associated programmes for implementation necessitate a prior com-
prehensive analysis of an organization’s competitive position in its markets and territories, together
with an understanding of rival organizations’ marketing strategies and direction. The failure to under-
stand or anticipate competitors’ likely actions is a major weakness in most businesses.9 Marketers
should consider how key competitors will react to their proposed plans, incorporating follow-up
marketing programmes prepared to combat hostile reaction from such rivals. In practice, too few
companies properly understand their competitors’ strategies or capabilities, so fail to realistically
appreciate how competitors will react and impact on their plans. This should not be the case: mar-
keters have a responsibility to glean competitor insights and to share these with senior colleagues.
The SWOT analysis is an important foundation for any marketing plan, helping to
SWOT analysis
produce realistic and meaningful recommendations. The section in the main body of
Analysis that determines
a company’s situation by the report should be kept to a concise overview, with detailed market-by-market or
examining four factors: country-by-country SWOTs and their full explanations kept to the appendices. Most mar-
strengths, weaknesses, keters and senior management teams conduct SWOT analyses (the letters SWOT stand
opportunities and threats. for strengths, weaknesses, opportunities and threats). The first half of this analysis –
strengths and weaknesses – examines the company’s position and capabilities, or that of
its product, vis-à-vis customers, competitor activity, environmental trends and company
resources. The second half of the SWOT takes this review further to examine the opportunities and
threats identified, and to make recommendations that feed into marketing strategy and the mar-
keting mix actions. The marketing environment analysis often reveals potential opportunities and
threats. Understanding and then responding to these opportunities and threats enables a business
to make the most of the environmental context in which it operates. Even a potential threat can be
transformed into an opportunity if appropriate action is taken.10 The result of the SWOT analysis
should be a thorough understanding of the organization’s status and its standing in its markets. A
SWOT analysis must be objective, with evidence provided to support the points cited. The focus
should be on issues likely to concern customers. As explained in Chapter 2, which offers illustrative
SWOT analyses, the checklist-style SWOT analysis is popular with marketers, particularly as part
of a marketing plan; few marketing plans are without one.
Marketing strategies Strategies should be self-evident, if the analyses have been objective
and thorough: the opportunities to pursue, the target markets most beneficial to the company, the
basis for competing and the desired product or brand positioning. This strategy statement must
be realistic and detailed enough to act upon, providing clear direction throughout the organization
and for the leadership team.
This section of the marketing plan provides a broad overview of the plan for achieving the mar-
keting objectives and, ultimately, the organizational goals. Marketing strategy focuses on identifying
opportunities to be pursued, defining a target market and developing a marketing mix to gain
long-run competitive and customer advantages. There is a degree of overlap between corporate
strategy and marketing strategy. Marketing strategy is unique in that it has the responsibility to
assess buyer needs and the company’s potential for gaining competitive advantage, both of which,
ultimately, must guide the corporate mission.11 In other words, marketing strategy guides the
company’s direction in relationships between customers and competitors. The bottom line is that
a marketing strategy must be consistent with consumer needs, perceptions and beliefs. So this
section should describe the company’s intended target market(s) and how product, people, pro-
motion, place/distribution and price will be used to develop a compelling proposition and product
or brand positioning that will satisfy the needs of members of the target market(s).
Expected results Having highlighted the strategic direction and intention, it is important to
explain the expected results, RoI and sales volumes, to show why the strategies should be fol-
lowed. These forecasts should be quantified. This stage is important if the required marketing mix
budgets are to be approved by senior managers.
Marketing programmes for implementation Marketing programme recommendations are

the culmination of the various analyses and statements of strategies: exactly what needs to
be done, how and why. This is the detailed presentation of the proposed marketing mixes to
achieve the goals and implement the strategies. In poor marketing plans, there is a lack of
analysis and strategy, with the focus falling fully on the tactical marketing mix recommenda-
tions. Robust planning requires the recommendation of detailed marketing mixes, but only
after time has been taken to thoroughly address the core marketing analyses and determine
a detailed marketing strategy.
Each market or market segment to be targeted may require its own, tailor-made marketing mix.12
This section of the marketing plan is of paramount importance, as it gives the specific details of
the marketing activity required to implement the marketing plan and to achieve the organization’s
strategic goals. Each element of the marketing mix should be discussed in turn, with specific rec-
ommendations explained in sufficient detail to enable managers to put them into action. Product,
people (service), pricing, place/distribution and promotion (marketing communications) must all
be addressed. Associated tasks should be allocated to personnel and responsibilities for action
clearly identified. This is the core output of marketing planning: the detailed plan of action for the
business’s marketing programmes. Organizations must also be prepared to adapt their imple-
mentation plans if unexpected events arise that were not predicted by the plan. Research shows
that in smaller businesses, marketing and business success are linked to how good they are at
improvising if the unexpected happens.13
Controls and evaluation It is essential that controls be established along with measures to
assess the ongoing implementation of the marketing plan. This section of the plan details how the
results of the plan will be measured. For example, the results of an advertising campaign designed
to increase market share may be measured in terms of increases in sales volume or improved
brand recognition and acceptance by consumers. Next, a schedule for comparing the results
achieved with the objectives set forth in the marketing plan is developed. Finally, guidelines may
be offered outlining who is responsible for monitoring the programme and taking remedial action.
Financial measures such as sales volumes, profitability and market shares will be included. ‘Softer’
issues, such as brand awareness and customer satisfaction, should also be monitored.14 The next
chapter of Marketing: Concepts and Strategies explains in more detail implementation controls
and performance measures.
Financial implications/required budgets The full picture may not be known, but an indi-
cation of required resources and the financial implications must be given. The financial projec-
tions and budgets section outlines the returns expected through implementation of the plan.
The costs incurred will be weighed against expected revenues. A budget must be prepared to
allocate resources in order to accomplish specific marketing objectives. It should contain esti-
mates of the costs of implementing the plan, including the costs of advertising, digital activity,
brand building, salesforce training and remuneration, development of distribution channels
and marketing research.
Operational considerations These strategies and marketing programmes may have ramifica-
tions for other product groups, sectors or territories, for research and development, for engineering
or production, and so on. The operational implications must be highlighted, but too much detail
may be inappropriate and politically sensitive within the organization.
Appendices The main body of the report should be as concise as possible. However, the
document must tell the full story and include evidence and statistics that support the strategies
and marketing programmes being recommended. The use of appendices – as long as they
are fully cross-referenced in the main body of the report – helps to keep the report concise
and well-focused.
Conducting marketing planning

Experienced marketers produce their own marketing plans, often with the involvement of col-
leagues from other functional areas within the organization and particularly the members of the
sales team, who have knowledge of market trends and customer issues. Most companies set a
point in the year when each business unit is expected to submit a detailed marketing plan, with fully
costed marketing programmes set against detailed sales expectations and market share targets.
Most marketing teams will spend at least the month before the deadline updating their marketing
analyses and strategic thinking, before detailing revised marketing mix programmes.
In organizations embarking on marketing planning for the first time, there is often a significant
learning curve to address, with the first round of marketing analyses requiring a long lead time and
much resourcing. The managers involved have to learn new skills and accommodate the planning
tasks alongside their normal tasks.15 By year three, the marketing planning process has generally
become part of the organization’s fabric and the required analyses are being updated routinely
throughout the year by marketers well versed in the planning process’s requirements.16 Initially,
though, ‘naive’ organizations – those not experienced in the marketing planning process – often
seek the help of external experts and facilitators, as outlined in the Marketing Tools and Techniques
box that follows.
JCB’s adoption of Marketing personnel, so some external sup-

marketing planning tools and port was commissioned in order to
research customers and competi-
techniques tors. Small teams from within the
Some time ago, the then incumbent
Marketing Director of construction marketing function were allocated
equipment leader JCB went to study to the different forces of the mar-
strategic marketing at INSEAD in keting environment: technological
France. On his return to the UK headquarters of JCB he intro- developments, regulatory pressures, economic trends and
duced a formal marketing planning process to the company. so forth. These teams reviewed secondary sources for infor-
Recognizing the cultural diversity and complexity of a global mation, networked with JCB and dealer personnel, met with
business, the Marketing Director opted to focus initially on the subject experts to solicit their views, and created a dialogue
UK. At the time the company had four core product groups, with industry observers. To examine competitors, the JCB
including backhoe loaders and telehandlers, plus some quickly marketers visited trade shows, talked with customers and
emerging new product categories, such as skid steers and dealers, analyzed rivals’ products and marketing programmes,
mini-excavators. Each product group had its own set of mar- reviewed financial performance and engaged with industry-
keters, thus each team produced a marketing plan. watchers. Marketing research in the form of one-to-one depth
As the marketing planning process was new to the com- interviews and focus groups gleaned customers’ views of JCB,
pany, external trainers were brought in to establish a stage- its products and customer service, changing customer needs
by-stage sequence of activities, and to provide the company’s and the customers’ views of competitors. Some of these
sales and marketing staff with the required analytical toolkit. analyses were undertaken by teams of marketers working
Stage one included the core marketing analyses: financial across JCB’s product groups and target markets, while much
performance of the company’s products and sales analysis; research was specific to the separate marketing teams han-
the marketing environment forces active in each product dling each product group in the company.
group’s target markets; the buying behaviour characteris- Within six weeks, a significant amount of marketing intel-
tics and evolving customer needs; competitors’ products, ligence had been derived, updated, collated and analyzed.
strengths, weaknesses and projected plans; the company’s Stage two, externally moderated by consultants, involved
brand positioning vis-à-vis leading rivals; plus, JCB’s capa- brainstorming workshops with sales and marketing person-
bilities. These tasks proved time-consuming for already busy nel reflecting on current strategies in the light of the various
marketing analyses conducted. As a result, the target mar- of new target market segments. The marketing plans by year
ket priorities were modified, new products commissioned, three were segment-specific, ignoring the product groups
revised marketing communications created, modified pric- created by JCB for operational convenience. This led to the
ing considered, dealer plans revisited and customer service formation of the company’s Compact Division, recognizing that
improved. An important aspect of stage two was the sharing customers of mini-excavators or mini-skid steers had different
of marketing intelligence particularly about competitors, purchasing behaviour to customers buying the larger-scale
opportunities and threats between the separate marketing versions of such products.
teams. The final stage of the process involved the formaliza- After three years, one manager described the marketing
tion of appropriate marketing programmes to operationalize planning process thus:
the revised marketing strategy, coordination of the separate
In the first year it was really hard – hell: learning new skills; realiz-
teams’ proposed marketing programmes, plus the alloca- ing we had inadequate or incomplete knowledge of market trends,
tion of budgets, personnel, schedules and responsibilities to competitors and even customers; adjusting to undertaking the
these emerging tasks. planning work alongside our ‘day jobs . . . just finding the time.
In year two, when the summer marketing planning period The process now is routine: we never miss the opportunity to find
was reached, JCB’s subsidiary companies overseas were also out about customer views, examine competitors or discuss market
included, producing top-line marketing plans. Managers over- developments with ‘those in the know’. We’re also much quicker
seas were able to learn from their UK colleagues and emu- in producing and delivering the marketing plan. The big difference
late the format of their resulting marketing plans. For the UK is that now the company’s strategic planning and budgeting are
marketers in their second season, there was the opportunity guided by the analyses and market understanding provided by the
marketing plan. More to the point, we’re selling more machines,
to address outstanding marketing analysis gaps from the pre-
in a larger number of segments to more satisfied customers. Even
vious year and to focus on utilizing the marketing planning
better, whether in our French subsidiary, Indian plant or American
toolkit rather than learning about its scope and tools. sales office, we’re all addressing the market in a coordinated
By year three, the rest of JCB’s non-UK operation had manner and everyone is aware of the requirements for effective
become involved, while in the UK the growing understanding marketing planning. But it has taken three years. Finding the time
of the marketplace facilitated by two years’ marketing plan- was hard to start with. It did ‘hurt’ in the first year!
ning and marketing intelligence gathering led to the creation
Having examined marketing planning, this chapter now focuses on an important aspect of
planning but one also necessary for any marketing strategy: forecasting sales and evaluating mar-
ket potential. Forecasting is integral to marketing planning, in order to justify the use of resources
as recommended in the marketing plan. Without some notion of likely sales and financial reward,
it is difficult to sign off any new marketing strategy or commit a budget to executing suggested
marketing programmes.
Market and sales potential and sales forecasting

Unfortunately, many organizations’ sales and marketing activities are reactions to changes in the mar-
ketplace, particularly the actions of competitors, rather than planned and carefully orchestrated activ-
ities that anticipate consumer needs and expectations. In such reactive organizations, predictions
of future changes in market size and potential tend to be rudimentary or non-existent. Estimations
of their own likely sales are often based only on the hunches of managers or on the status quo of
current performance. The forecasting of market potential and expected sales is problematic, but must
be undertaken thoroughly and with as much objectivity as marketing intelligence and market insight
permit. Forecasts are integral to robust marketing planning. They are also pivotal to shrewd budgeting
and the allocation of promotional mix budgets. As explored in Chapter 23, monitoring performance
is an essential part of the marketing process. Without an assessment of likely sales, it is difficult to
evaluate performance and resources cannot be committed by senior management to support plans.
This section focuses on market and sales potential, and on sales forecasting techniques.
market potential Market and sales potential

The total amount of a
Market potential is the total amount of a product that customers will purchase within
product that customers
will purchase within a a specified period of time at a specific level of industry-wide marketing activity. Market
specified period of time potential can be stated in terms of monetary value or units and can refer to a total
at a specific level of market or to a market segment. As shown in Figure 22.3, market potential depends
industry-wide marketing on economic, social and other marketing environment factors. When analyzing market
activity.
potential, it is important to specify a timeframe and to indicate the relevant level of indus-
try marketing activities. One airline determined that in one year 3 300 000 customers
travelled to Europe on its aircraft. The company had estimates for those travelling with
competitors. The airline also had information suggesting the sizes of rivals’ marketing budgets and
the allocation of this funding across various activities. Based on this information, its marketers were
able to estimate the market potential for European travel on its flights in the following year, taking
into account other environmental factors and market trends.
Market assessment – market potential Sales assessment – sales potential

Customer interest/buying propensity Company’s existing footprint
Competitor involvement Capability compatibility with the opportunity
Existing sales volumes for the category Reputation and fit with customers
Trends for sales volumes and profitability Competitors’ activities
Impact of macro marketing environment forces Company’s commitment and resourcing
= expected demand for the product category = possible likely sales and volumes
Performance expectation – forecasts

First period sales predictions
Likely trend in sales volumes
Profitability and ROI projections
Required resourcing and commitment
Figure 22.3
Forecasting
Expected marketing support
market potential = sales forecast
and sales
Marketers have to assume a certain general level of marketing effort in the industry when they
estimate market potential. The specific level of marketing effort certainly varies from one company
to another, but the sum of all companies’ marketing activities equals industry marketing efforts.
A marketing manager must also consider whether, and to what extent, industry marketing efforts
will change. For instance, in estimating the market potential for Microsoft Office, Microsoft must
consider changes in marketing efforts by other software producers and computer manufacturers.
If marketing managers at Microsoft know that a rival is planning to introduce a new version of its
spreadsheet product with a new advertising campaign, this fact will contribute to Microsoft’s esti-
mate of the market potential for this computer software.
Sales potential is the maximum percentage of market potential that an individual
sales potential company within an industry can expect to obtain for a specific product or service (see
The maximum percentage Figure 22.3). Several general factors influence a company’s sales potential. First, the
of market potential that
an individual company
market potential places absolute limits on the size of the company’s sales potential.
can obtain for a specific Second, the magnitude of industry-wide marketing activities has an indirect but defi-
product or service. nite impact on the company’s sales potential. Those activities have a direct bearing
on the size of the market potential. When Pizza Hut advertises home-delivered pizza,
for example, it indirectly promotes pizza in general; its advertisements may, in fact, also help sell
competitors’ home-delivered pizza. Third, the intensity and effectiveness of a company’s marketing
activities relative to those of its competitors affect the size of the company’s sales potential. If a
company is spending twice as much as any of its competitors on marketing efforts and if every
unit of currency spent is more effective in generating sales, the company’s sales potential will be
quite high compared with that of its competitors.
There are two general approaches to measuring sales potential: break-down and
break-down approach
An approach that derives
build-up. In the break-down approach, the marketing manager first develops a general
a company’s sales economic forecast for a specific time period. Next, market potential is estimated on the
potential from the gen- basis of this economic forecast. The company’s sales potential is then derived from the
eral economic forecast general economic forecast and the estimate of market potential.
and the estimate of mar- In the build-up approach, an analyst begins by estimating how much of a product
ket potential.
a potential buyer in a specific geographic area, such as a sales territory, will purchase in
a given period. Then the analyst multiplies that amount by the total number of potential
build-up approach buyers in that area. The analyst performs the same calculation for each geographic area
An approach that mea- in which the company sells products, and then adds the totals for each area to calculate
sures the sales potential the market potential. To determine the sales potential, the analyst must estimate, by
for a product by first cal- specific levels of marketing activities, the proportion of the total market potential that
culating its market poten-
the company can obtain.
tial and then estimating
what proportion of that For example, the marketing manager of a regional paper company with three com-
potential the company petitors could estimate the company’s sales potential for bulk gift-wrapping paper using
can expect to obtain. the build-up approach. The manager may determine that each of the 66 retailer business
customers in a single sales territory purchases an average of 10 rolls annually. For that
sales territory, the market potential is 660 rolls annually. The analyst follows the same
procedure for each of the business’s other nine sales territories and then totals the market potential
for each sales territory (see Table 22.3). Assuming that this total market potential is 6000 rolls of
paper (the quantity expected to be sold by all four paper companies), the marketing manager would
estimate the company’s sales potential by ascertaining that it could sell about 33 per cent of the
estimated 6000 rolls at a certain level of marketing effort (2000 rolls). The marketing manager may
then develop several sales potentials, based on several levels of marketing effort.
Whether marketers use the break-down or the build-up approach, they depend heavily on sales
estimates. To gain a clearer idea of how these estimates are derived, it is essential to understand
sales forecasting.
Table 22.3 The market potential calculations for bulk wrapping paper
Territory Number of potential customers Estimated purchases Total
1 66 10 rolls 660 rolls
2 62 10 620
3 55 5 275
4 28 25 700
5 119 5 595
6 50 20 1000
7 46 10 460
8 34 15 510
9 63 10 630
10 55 10 550
Total market potential 6000 rolls
Developing sales forecasts

A sales forecast is the amount of a product that the company actually expects to sell
sales forecast
The amount of a product during a specific period of time at a specified level of marketing activity (see Figure 22.3).
that the company actu- The sales forecast differs from the sales potential: it concentrates on what the actual sales
ally expects to sell during will be at a certain level of marketing effort, whereas the sales potential assesses what
a specific period of time sales are possible at various levels of marketing activities, based on certain environmental
at a specific level of mar-
conditions. Companies use the sales forecast for planning, organizing, implementing and
keting activity.
controlling their activities. The success of numerous activities depends on the accuracy
of this forecast. Forecasts help to estimate market attractiveness, monitor performances,
acquire and allocate resources effectively and efficiently, and gear up production to meet demand.
Excess stocks are wasteful and cost money; but production set too low leads to missed sales,
and perhaps customer or distributor unease.17 As described in the Topical Insight box following,
Harley-Davidson has required shrewd forecasting and planning to guide its entry into India.
A sales forecast must be time-specific. Sales projections can be short (up to a year), medium
(one to four years) or long (longer than five years). The length of time chosen for the sales forecast
depends on the purpose and uses of the forecast, the stability of the market, and the company’s
objectives and resources. Many companies set their marketers quarterly targets for the year ahead,
limited to an annual projection.
To forecast sales, a marketer can choose from a number of forecasting methods. Some of
these are arbitrary; others are more scientific, complex and time consuming. A business’s choice
of method or methods depends on the costs involved, the type of product, the characteristics of
the market, the time span of the forecast, the purposes of the forecast, the stability of the historical
sales data, the availability of required information, and the forecasters’ expertise and experience.18
The common forecasting techniques fall into five categories: executive judgement, surveys, time
series analysis, correlation methods and market tests.19, 20
Executive judgement At times, a company forecasts sales chiefly on the basis of

executive judgement, which is the intuition of one or more executives. This approach
executive judgement
A way of forecasting is highly unscientific but expedient and inexpensive. Executive judgement may work
sales based on the reasonably well when product demand is relatively stable and the forecaster has years
intuition of one or more of market-related experience. However, because intuition is swayed most heavily by
executives. recent experience, the forecast may be overly optimistic or overly pessimistic. Another
drawback to intuition is that the forecaster has only past experience as a guide when
deciding where to go in the future.
surveys
A method of questioning
customers, sales person- Surveys A second way to forecast sales is to use surveys, questioning customers,
nel or experts regarding sales personnel or experts regarding their expectations about future purchases.
their expectations about Through a customer forecasting survey, marketers can ask customers what types
future purchases.
and quantities of products they intend to buy during a specific period of time. This
approach may be useful to a business that has relatively few customers. For example,
customer forecasting
a computer chip producer that markets to fewer than a hundred computer manufac-
survey turers could conduct a customer survey. PepsiCo, though, has millions of consumers
A method of asking cus- and cannot feasibly use a customer survey to forecast future sales, unless its sampling
tomers what types and is known to reflect the entire market, which is hard to verify, or it is polling the views of
quantities of products its main distributors.
they intend to buy during
a specific period of time.
Customer surveys have several drawbacks. Customers must be able and willing to
make accurate estimates of future product requirements. Although business-to-business
buyers can sometimes estimate their anticipated purchases accurately from historical
buying data and their own sales forecasts, many cannot make such estimates. In addition, for a
variety of reasons, customers may not want to take part in a survey. Occasionally, a few respondents
give answers that they know are incorrect, making survey results inaccurate. Moreover, customer
Harley rides into India outside the USA, to assemble the Sport-
ster line, then from 2012 the Dyna line,
Hitting the open road on a Harley has been
Topical insight the Softail from 2013 and the Street 750
an American dream since 1903 and one and 500 in 2014. The Street platform is
pursued by consumers across many coun- jointly manufactured at Harley-Davidson’s US
tries. The brand is synonymous with Hollywood and India plants. The Street 750 was exported to
movies, US road trips, freedom, fun, excitement European and other Asian markets from the Indian
and looking cool. Now consumers in India can share the dream. plant. The company now offers Street, Street Rod, Sport-
Harley-Davidson had wanted to enter the India market for several ster, Softail, Touring and CVO ranges.
years, but government restrictions and high tariffs held it back. In Harley had to pay special attention to strategic planning,
2007, a deal involving the USA and India changed Indian emis- taking into account the social, cultural, economic, political and
sions restrictions and opened the door for Harley’s entry. ethical forces within India, all of which differed significantly
Harley began selling 12 models in India in 2010, the least to conditions in its domestic US marketplace. These charac-
expensive priced at $15 000, almost twice the price US cus- teristics initially placed demands on Harley’s planners when
tomers pay. Although India is the second-largest motorcycle producing forecasts against a backdrop of incomplete knowl-
market worldwide, most Indians favour cheaper motorcycles edge of consumer demand, unfamiliar competitors and their
and scooters priced under $1000. However, because of India’s uncertain reactions to Harley’s market entry, as well as the
growing economy, expanding middle class and new highway impact of the forces of the marketing environment. Neverthe-
construction, Harley was not worried about selling to Indian less, forecasts were necessary in order to manage production
consumers. The company believed the affluent middle classes and budget for the entry into India.
and brand appeal of a Harley would combine to create surging Harley has come a long way in just a few years of trading
sales growth, particularly in light of India’s rapidly growing in India. A dealer network of fourteen main showrooms now
luxury market and the sales successes of many international supplements its manufacturing base. Harley-Davidson India
brands established in India. also sponsors the country’s Harley Owners’ Group (HOG). The
Harley’s CEO, Keith Wandell, explained that the company company organizes five big rides across the north, south, east
was committed to making its entrance into India a long-term and west zones along with the India HOG Rally that takes
success. Harley initially imported its bikes into India fully place every year in Goa. Harley-Davidson India has also estab-
assembled, avoiding the need for factories and other over- lished Harley Rock Riders, its annual rock music tour. Harley
heads. However, this approach resulted in high tariffs (roughly is optimistic about its possibilities in India, while many Indian
90 per cent) as well as Indian taxes. Therefore the company consumers are looking forward to owning Harley bikes and
set up a production facility at Bawal in 2011, its only one living the highway dream.
surveys reflect buying intentions, not actual purchases. Customers’ intentions may not be well
formulated, and even when potential purchasers have definite buying intentions, they do not neces-
sarily follow through with them. A common marketing research problem is probing consumers about
their actual purchasing and consumption behaviour, as opposed to their perceptions or anticipated
behaviour. Finally, customer surveys consume much time and money.
In a salesforce forecasting survey, members of the company’s salesforce are
salesforce forecasting
asked to estimate the anticipated sales in their territories for a specified period of time.
survey
A method of asking The forecaster combines these territorial estimates to arrive at a tentative forecast (see
members of a company’s Figure 22.3).
salesforce to estimate A marketer may survey the sales staff for several reasons. The most important one
the anticipated sales is that the sales staff are closer to customers on a daily basis than other company per-
in their territories for a
sonnel; therefore, they should know more about customers’ future product needs and
specified period of time.
the intensity of competitors’ activities. Moreover, when sales representatives assist in
developing the forecast, they are more likely to work towards its achievement. Another
advantage of this method is that forecasts can be prepared for single territories, for
TIME SERIES GRAPH

£600 000
500 000
400 000
Sales 300 000
200 000
100 000
2000 2005 2010 2015 2020

(est.)
BAR CHART £4.5 PIE CHART
Profits for the period Sales figures for selected products
2008–2013 (est.), in millions of Martin Manufacturing
£3.1
£2.6
£2.0
£1.7 Answering Hairdryers
Figure 22.4
£1.2 machines 35%
Graphical presen-
tations of forecasts 40%
and sales; visual
depictions of sales Radios
and profits are popu- Lamps 15%
lar in marketing plan 2014 2015 2016 2017 2018 2019 (est.)
10%
documents
divisions consisting of several territories, for regions made up of multiple divisions and then for
the total geographic market. Thus the method readily provides sales forecasts from the smallest
geographic sales unit to the largest.
Despite these benefits, a salesforce survey has certain limitations. Salespeople can be too
optimistic or pessimistic because of recent experiences. In addition, they tend to underestimate
the sales potential in their territories when they believe that their sales goals will be determined
by their forecasts. They also dislike ‘paperwork’ because it takes up the time that could be spent
selling. If the preparation of a territorial sales forecast is time consuming, the sales staff may not
do the job adequately.
Nonetheless, salesforce surveys can be effective under certain conditions. If, for instance, the
salespeople as a group are accurate or at least consistent estimators, the over-estimates and
under-estimates should balance each other out. If the aggregate forecast is consistently over or
under actual sales, then the marketer who develops the final forecast can make the necessary
adjustments. Assuming that the survey is administered well, the salesforce can have the satis-
faction of helping to establish reasonable sales goals. It can also be assured that its
Delphi method forecasts are not being used to set sales quotas.
A centralized forecasting The Delphi method is very popular: managers’ and sales personnel’s views are
method that takes into validated centrally, and the resulting forecasts are returned to those involved for further
account the views of comment. Participants such as field managers make separate, individual forecasts.
managers, sales person-
nel and individual partic-
A central analyst independently aggregates and modifies their forecasts. This revised
ipants; aggregates them, forecast is returned to the separate participants, who can then amend their forecasts in
and modifies them. the context of the consolidated picture. The central analyst then collates the updated
forecasts to produce the company’s overall final forecast. The Delphi technique avoids
expert forecasting
many weighting and judgemental problems; the median of the group’s overall response
survey will tend to be more accurate; and the approach is useful for short-, medium- and long-
A survey prepared by term forecasts, as well as for new product development, for which there is no historical
outside experts such as information on which to base a forecast.
economists, management When a company wants an expert forecasting survey, it hires experts to help
consultants, advertising
executives or academics.
prepare the sales forecast. These experts are usually economists, management consul-
tants, advertising executives, academics or other people outside the company who have
solid experience in a specific market. Drawing on this experience and their analyses of
time series analysis available information about the company and the market, the experts prepare and pres-
A forecasting technique
ent their forecasts or answer questions regarding a forecast. Using experts is expedient
that uses a company’s
historical sales data to and relatively inexpensive. However, because they work outside the company, experts
discover a pattern or pat- may not be as motivated as company personnel to do an effective job.
terns in the company’s
sales over time. Time series analysis The technique by which the forecaster, using the company’s
historical sales data, tries to discover a pattern or patterns in the company’s sales over
time is called time series analysis (see Figure 22.4). If a pattern is found, it can be
trend analysis
Analysis that focuses on used to forecast sales. This forecasting method assumes that the past sales pattern
aggregate sales data over will continue in the future. The accuracy, and thus the usefulness, of time series analysis
a period of many years hinges on the validity of this assumption.
to determine whether In a time series analysis, a forecaster usually performs four types of analysis: trend,
annual sales are generally
cycle, seasonal and random factor.21 Trend analysis focuses on aggregate sales data,
rising, falling or constant.
such as a company’s annual sales figures, over a period of many years, to determine
whether annual sales are generally rising, falling or staying about the same. Through cycle
cycle analysis analysis, a forecaster analyzes sales figures – often monthly sales data – over a period of
A forecasting technique three to five years, to ascertain whether sales fluctuate in a consistent, periodic manner.
that analyses a company’s When performing seasonal analysis, the analyst studies daily, weekly or monthly sales
sales figures over a period
of three to five years to
figures to evaluate the degree to which seasonal factors, such as climate and holiday
ascertain whether sales activities, influence the company’s sales. Random factor analysis is an attempt to attri-
fluctuate in a consistent, bute erratic sales variations to random, non-recurring events, such as a regional power
periodic manner. failure, a natural disaster or political unrest in a foreign market. After performing each of
these analyses, the forecaster combines the results to develop the sales forecast.
Time series analysis is an effective forecasting method for products with reasonably
seasonal analysis
The study of daily, weekly stable demand, but it is not useful for products with highly erratic demand. Diageo, the
or monthly sales figures importer and producer of spirits and wines, uses several types of time series analysis
to evaluate the degree to for forecasting and has found them quite accurate.
which seasonal factors
influence the company’s
Correlation methods Like time series analysis, correlation methods are based on
sales.
historical sales data. When using correlation methods,22 the forecaster attempts to
find a relationship between past sales and one or more variables, such as population,
random factor analysis per capita income, gross national product, weather events or supply chain constraints.
An attempt to attribute To determine whether a correlation exists, the forecaster analyzes the statistical relation-
erratic sales variations to ship between changes in past sales and changes in one or more variables – a technique
random, non-recurring
known as regression analysis.23 The object of regression analysis is a mathematical
events.
formula that accurately describes a relationship between the company’s sales and one
or more variables; however, the formula indicates only an association, not a causal
correlation methods relationship. Once an accurate formula has been established, the analyst plugs the
Attempts to find a rela- necessary information into the formula to derive the sales forecast.
tionship between past Correlation methods are useful when a precise relationship can be established. How-
sales and one or more
variables such as popu-
ever, a forecaster seldom finds a perfect correlation. Furthermore, this method can be
lation, per capita income used only when the available historical sales data are extensive and reliable. Ordinarily,
or gross national product. correlation techniques are useless for forecasting the sales of new products, or in mar-
kets where changes are frequent and extensive.
market test Market tests Conducting a market test involves making a product available to buy-
An experiment in which ers in one or more test areas, and measuring purchases and consumer responses to
a product is made avail- distribution, promotion and price. Even though test areas are often cities with popula-
able to buyers in one or tions of 200 000 to 500 000, test sites can be larger metropolitan areas or towns with
more test areas, after
populations of 50 000 to 200 000, or TV regions. A market test provides information
which purchases and
consumer responses to about consumers’ actual purchases rather than about their intended purchases. In addi-
its distribution, promotion tion, purchase volume can be evaluated in relation to the intensity of other marketing
and price are measured. activities-advertising, in-store promotions, pricing, packaging, distribution and so forth.
On the basis of customer response in test areas, forecasters can estimate product
sales for larger geographic units. For example, Cadbury’s Wispa first appeared in the
north-east of England. Sales showed management that the company had to build more production
capacity to cope with a national roll-out of the brand and full launch.
As it does not require historical sales data, a market test is an effective tool for forecasting the
sales of new products or the sales of existing products in new geographic areas. The test gives
the forecaster information about customers’ real actions rather than their intended or estimated
behaviour. A market test also gives a marketer an opportunity to try out various elements of the
marketing mix. These tests are, however, often time consuming and expensive. In addition, a
marketer cannot be certain that the consumer response during a market test represents the total
market response or that such a response will continue in the future.
Using multiple forecasting methods

Although some businesses depend on a single sales forecasting method, most use several tech-
niques. A company is sometimes forced to use several methods when it markets diverse product
lines, but even for a single product line several forecasts may be needed, especially when the prod-
uct is sold in different market segments. Thus a producer of car tyres may rely on one technique
to forecast tyre sales for new cars, on another to forecast the sales of replacement tyres, and on
another technique for sales to fleet owners. Variation in the length of the forecasts required may
call for several forecast methods. A company that employs one method for a short-range forecast
may find it inappropriate for long-range forecasting. Sometimes a marketer verifies the results of
one method by using one or several other methods and comparing results.24 No matter which
technique or mix of approaches is deployed, it is essential that marketers produce accurate and
useful sales forecasts and assessments of market potential.
The marketing audit

marketing audit
A marketing audit is a systematic examination of the marketing function’s objectives,
A systematic examina- strategies, programmes, organization and performance. Its primary purpose is to identify
tion of the marketing weaknesses in ongoing marketing operations and plan the necessary improvements to
function’s objectives, correct these weaknesses. The marketing audit does not concern itself with the com-
strategies, programmes, pany’s marketing position; that is the purpose of the company’s marketing plan. Rather,
organization and
performance.
the marketing audit evaluates how effectively the marketing function or department per-
formed its assigned functions. Not all companies conduct a marketing audit, but when
one is used such an assessment generally diagnoses areas requiring improvement and
different working practices.
Like an accounting or financial audit, a marketing audit should be conducted regularly, instead of
just when performance control mechanisms show that the system is out of control. The marketing
audit is not a control process to be used only during a crisis, although a business in trouble may use
it to isolate problems and generate solutions. It is a useful diagnostic tool for correcting marketing
activity. The marketing audit is a useful precursor to undertaking marketing planning, providing an
insight into the strengths of the company’s marketing function and its activities.25
A marketing audit may be specific and focus on one or a few marketing activities, or it may
be comprehensive and encompass all of a company’s marketing activities. Table 22.4 lists many
possible dimensions of a marketing audit. An audit may deal with only a few of these areas, or
it may include them all. Its scope depends on the costs involved, the target markets served, the
structure of the marketing mix and environmental conditions. The results of the audit can be used
to re-allocate marketing effort and to re-examine marketing opportunities.26
Table 22.4 Dimensions of a marketing audit
Part One: The marketing environment audit

Marketing environment forces
A. Economic
1. What does the company expect in the way of inflation, material shortages, unemployment, credit availability, in the short run, medium run
and long run?
2. Will the company’s products be subject to tariffs?
3. What effect will forecast trends in the size, age distribution and regional distribution of population have on the business?
B. Technological
1. What major changes are occurring in product technology?
2. In process technology?
3. What are the major generic substitutes that might replace this product?
C. Political/legal/regulatory
1. What laws are being proposed that may affect marketing strategy and tactics?
2. What national and local government actions should be watched? What is happening with pollution control, health and safety, data controls,
equal opportunity employment, product safety, advertising, price controls and so on that is relevant to marketing planning?
D. Societal/green
1. What attitude is the public taking towards business and the types of products produced by the company?
2. What changes in consumer lifestyles and values have a bearing on the company’s target markets and marketing methods?
3. Will the cost and availability of natural resources directly affect the company?
4. Are there public concerns about the company’s role in pollution and conservation? If so, what is the company’s reaction?
E. Digital economy
1. What is the impact of digital on the company’s customers?
2. How is digital impacting on the supply chain?
3. Is digital altering channel strategy requirements?
4. Is social media fully embraced?
Markets
A. Market trends
1. What is happening to market size, growth, geographic distribution and profits?
2. What are the major market segments and their expected rates of growth?
3. Which are high opportunity and low opportunity segments?
B. Customers
1. How do current customers and prospects judge the company and its competitors on reputation, product quality, service, salesforce and
price?
2. How do different types of customers make their buying decisions?
3. What evolving needs and satisfactions are the buyers in this market seeking?
4. How do multiple marketing channels relate to these customers?
5. What is their view of the customer experience?
C. Competitors
1. Who are the major competitors? What are the objectives and strategy of each major competitor? What are their strengths and weak-
nesses? What are the sizes and trends in market shares?
2. Are new competitors emerging online?
3. What trends can be foreseen in future competition and substitutes for this product?
D. Distribution and dealers
1. What are the main channels bringing products to customers?
2. What are the efficiency levels and growth potentials of the different trade channels?
3. To what extent are multi-channels appropriate?
4. Is the customer experience properly managed across channels?
(Continued )
TABLE 22.4 Continued
E. Suppliers
1. What is the outlook for the availability of key resources used in production?
2. What trends are occurring among suppliers in their patterns of selling?
F. Facilitators and marketing organizations
1. What is the outlook for the cost and availability of transport services?
2. What is the outlook for the cost and availability of warehousing facilities?
3. What is the outlook for the cost and availability of financial resources?
4. How effectively is the advertising agency performing? What trends are occurring in advertising agency services?
5. To what extent have digital partners been harnessed?
G. Publics
1. Where are the opportunity areas or problems for the company?
2. How effectively is the company dealing with publics?
3. Is it addressing the role of social media?
Part Two: Marketing strategy audit
A. Business mission
1. Is the business mission clearly focused with marketing terms and is it attainable?
2. Is the mission followed and part of the company’s true ethos?
B. Marketing objectives and goals
1. Are the corporate goals clearly stated? Do they lead logically to the marketing objectives?
2. Are the marketing objectives stated clearly enough to guide marketing planning and subsequent performance measurement?
3. Are the marketing objectives appropriate, given the company’s competitive position, resources and opportunities? Is the appropriate stra-
tegic objective to build, hold, harvest, divest or terminate this business?
C. Strategy
1. What is the core marketing strategy for achieving the objectives? Is it sound?
2. Are the resources budgeted to accomplish the marketing objectives inadequate, adequate or excessive?
3. Are the marketing resources allocated optimally to prime market segments, territories and products?
4. Are the marketing resources allocated optimally to the major elements of the marketing mix; i.e. product quality, service, salesforce, adver-
tising, promotion, distribution and digital?
Part Three: Marketing organization audit
A. Formal structure
1. Is there a high-level marketing manager with adequate authority and responsibility over those company activities that affect customer
satisfaction?
2. Are the marketing responsibilities optimally structured along functional, product, end use and territorial lines?
B. Functional efficiency
1. Are there good communications and working relations between marketing and sales?
2. Is the product management system working effectively? Are the product managers able to plan profits or only sales volume?
3. Are there any groups in marketing that need more training, motivation, supervision or evaluation?
C. Interface efficiency
1. Are there any problems between marketing and manufacturing, research and development, purchasing, finance, accounting, legal depart-
ments, insight and digital that need attention?
2. Is there clarity and efficiency in communicating and sharing with suppliers and partners?
Part Four: Marketing systems audit
A. Market insight
1. Is the marketing intelligence system producing accurate, sufficient and timely information about developments in the marketplace?
2. Is market insight being adequately used by company decision-makers?
3. Is available marketing intelligence properly shared/accessed by managers?
B. Marketing planning system
1. Is the marketing planning system well-conceived and effective?
2. Are sales forecasting and measurement of market potential soundly carried out?
3. Are sales quotas set on a proper basis?
C. Marketing control system
1. Are the control procedures (monthly, quarterly, etc.) adequate to ensure that the annual plan’s objectives are being achieved?
2. Is provision made to analyze periodically the profitability and financial worth of different products, markets, territories and channels of distribution?
3. Is provision made to examine and validate periodically various marketing costs?
(Continued )
TABLE 22.4 Continued
D. New product development system

1. Is the company well organized to gather, generate and screen new product ideas?
2. Does the company do adequate concept research and business analysis before investing heavily in a new idea?
3. Does the company carry out adequate product and market testing before launching a new product?
Part Five: Marketing-productivity audit
A. Profitability analysis
1. What is the profitability of the company’s different products, served markets, territories and channels of distribution?
2. Should the company enter, expand, contract or withdraw from any business segments, and what would be the short- and long-run profit
consequences?
B. Cost-effective analysis
1. Do any marketing activities seem to have excessive costs? Are these costs valid?
2. Are cost-reducing steps routinely sought and taken?
Part Six: Marketing function audits
A. Products and service
1. What are the product line objectives? Are these objectives sound? Is the current product line meeting these objectives?
2. Are there particular products that should be phased out?
3. Are there new products that are worth adding?
4. Are any products able to benefit from quality, feature or style improvements?
5. Is adequate customer service provided?
6. Is there an aftermarket support package-warranty, parts and servicing, dealer network?
B. Price
1. What are the pricing objectives, policies, strategies and procedures? Are prices set on sound cost, demand and competitive criteria?
2. Do the customers see the company’s prices as being in or out of line with the perceived value of its products?
3. Does the company use price promotions effectively?
4. Is there an adequate value proposition?
C. Distribution
1. What are the distribution objectives and strategies?
2. Is there adequate market coverage and service?
3. How effective are the following channel members: distributors, manufacturers’ reps, brokers, agents and so on?
4. Should the company consider changing its distribution channels?
5. Does the company manage multiple channels effectively?
D. Promotional mix
1. What are the organization’s advertising objectives? Are they sound?
2. Is the right amount being spent on advertising? How is the budget determined?
3. Are the ad themes and copy effective? What do customers and the public think about the advertising?
4. Are the advertising media well chosen?
5. Are the internal advertising staff adequate?
6. Is the sales promotion budget adequate? Is there effective and sufficient use of sales promotion tools, such as samples, coupons, displays
and sales contests?
7. Is the publicity budget adequate? Is the public relations staff competent and creative?
8. Is use of the internet appropriate? If so, is the website well designed?
9. Does the company effectively embrace digital communications?
10. Are social media activities fully executed?
11. Are there well-developed brand communities?
12. Is there an attempt to instil brand advocacy?
13. What of sponsorship? Is it relevant? Are associated third parties appropriate and reputable?
14. Is direct marketing possible? Through what media and with what proposition?
E. Salesforce
1. What are the organization’s salesforce objectives?
2. Is the salesforce large enough to accomplish the company’s objectives?
3. Is the salesforce organized along the proper principle(s) of specialization (territory, market, product)? Are there enough (or too many) sales
managers to guide the field sales reps?
4. Does the sales compensation level and structure provide adequate incentive and reward?
5. Does the salesforce show high morale, ability and effort?
6. Are the procedures for setting quotas and evaluating performance adequate?
7. How does the company’s salesforce compare with the salesforces of competitors?
Source: Adapted from Philip Kotler, Marketing Management: Analysis, Planning, and Control, 6th edn (Englewood Cliffs, NJ: Prentice Hall, 1988), pp. 748-51.
Used by permission of Pearson.
The marketing audit should aid evaluation by:

1. describing current activities and results in relation to sales, costs, prices, profits and other
performance feedback (see Chapter 23)
2. gathering information about customers, competition and marketing environment developments
that may affect the marketing strategy and the effective implementation of marketing mix
programmes
3. exploring opportunities and alternatives for improving the marketing strategy
4. providing an overall database to be used in evaluating the attainment of organizational goals
and marketing objectives
5. diagnosing reasons for the successes and failures experienced by a company’s marketers,
and their analyses, strategies and tactical marketing mix programmes.
Marketing audits can be performed internally or externally. An internal auditor may be a top-level
marketing executive, a company-wide auditing committee or a manager from another office or of
another function. Although it is more expensive, an audit by outside consultants is usually more
effective; external auditors have more objectivity, more time for the audit and greater experience.
There is no single set of procedures for all marketing audits. However, companies should adhere
to several general guidelines. Audits are often based on a series of questionnaires administered to
the company’s personnel. These questionnaires should be developed carefully to ensure that the
audit focuses on the right issues. Auditors should develop and follow a step-by-step plan to guar-
antee that the audit is systematic. When interviewing company personnel, the auditors should strive
to talk to a diverse group of people from many parts of the company. The auditor should become
familiar with the product line, meet staff from headquarters, visit field organizations, interview cus-
tomers, review competitors and analyze information for a report on the marketing environment.
The audit framework and associated questionnaires should remain consistent over time, so that
improvements and problems can be noted between audits.
To achieve adequate support, the auditors normally focus first on the company’s top management
and then move down through the organizational hierarchy. The auditor looks for different points of
view within various departments of the organization or a mismatch between the customers’ and the
company’s perception of the product as signs of trouble in an organization. The results of the audit
should be reported in a comprehensive written document, which should include recommendations
that will increase marketing productivity and determine the company’s general direction. The market-
ing audit enables an organization to change tactics or alter day-to-day activities as problems arise.
For example, marketing auditors often wonder whether a change in budgeted sales activity is caused
by general market conditions or is due to a change in the company’s market share.
Although the concept of auditing implies an ‘official’ examination of marketing activities, many
organizations audit their marketing activities informally. Any attempt to verify operating results and
to compare them with standards can be considered an auditing activity. Many smaller businesses
probably would not use the word audit, but they do perform auditing activities. Several problems
may arise in an audit of marketing activities. Marketing audits can be expensive in terms of both time
and money. Selecting the auditors may be difficult because objective, qualified personnel may not
be available. Marketing audits can also be extremely disruptive because employees sometimes fear
comprehensive evaluations, especially by outsiders. The benefits, though, are significant. The audit
reveals successes and also problem areas that need to be addressed. Many companies do not
deploy a marketing audit. It is not necessary to conduct a marketing audit in order to have a marketing
orientation (see Chapter 1). However, many organizations benefit significantly from routine auditing of
their marketing practices, identifying good practices to replicate and share, or poor practices against
which to take remedial action (see Figure 22.5). As a precursor for marketing planning, a marketing
audit can help rectify deficiencies and poor practices in the marketing function, so enhancing the
likelihood of effective deployment of a more meaningful marketing plan. While many companies do not
practice marketing auditing, most companies do produce marketing plans to steer their marketing.
Figure 22.5
No matter the product or the market,
marketers should audit their standing
and performance and make adjustments
accordingly, such as when growing ocean
pollution concerns prompted many com-
panies to promote their environmental
credentials
Summary
In order to manipulate the marketing mix, to create marketing programmes matching target market needs and achieve
organizational goals, a company must address fundamental strategic decisions. To expedite this process and to set appro-
priate goals, many companies use marketing planning.
Marketing planning is a systematic process that involves assessing marketing opportunities and resources, determining
marketing objectives and developing a full plan for implementation and control. A core output of marketing planning is the
marketing plan, a document or blueprint containing the requirements for a company’s marketing activity. The marketing
planning process involves (1) analyzing the marketplace, (2) understanding current performance, (3) modifying the rec-
ommended marketing strategy accordingly, and (4) developing detailed marketing programmes designed to implement
the specified marketing strategy. The marketing planning cycle is a cyclical process of planning and feedback that allows
for revision. Most companies update their plans annually, typically with a three-year focus. However, short-, medium- and
long-range plans are available.
A key part of the marketing plan is the marketing objective, a statement of what is to be accomplished through marketing
activities. Objectives should be measurable, indicate a timeframe and be consistent with a company’s overall organiza-
tional goals.
The heart of the marketing plan is the analysis section. The elements analyzed include current performance, the marketing
environment and market trends, customers, competitive positions and competitors’ strategies, plus the company’s capa-
bilities to respond to marketing opportunities, and the appropriateness of its product and brand portfolio. A SWOT analysis,
which identifies strengths, weaknesses, opportunities and threats, helps to produce realistic and meaningful marketing
recommendations.
The strategy recommendations within the marketing plan examine the opportunities to be pursued and existing activities
to be supported, associated target market priorities, the basis for competing, differential advantage and desired brand or
product positioning. Marketing strategy guides the company’s direction in relationships between customers and competi-
tors. Marketing programmes implement the recommended marketing strategy. They discuss each element of the market-
ing mix in detail and the allocation of schedules and tasks, personnel, budgets, responsibilities and monitoring of ongoing
performance. Without such details of the operationalization of the marketing plan, it is unlikely the plan’s recommendations
would be implemented.
Marketers produce marketing plans for each business unit, product group or target market, and a synthesized overview
plan for the board of the company. Usually, cross-functional teams are involved. In companies embarking on marketing
planning for the first time, there is a steep learning curve and the required marketing analyses are very invasive. After three
years, the planning process becomes routinized. External consultants are often brought in to support a senior management
team’s initial attempts to develop a marketing plan.
Sales and marketing activities should be carefully planned activities that anticipate consumer needs and expectations.
Whether using a total market or a market segmentation approach, a marketer must be able to measure the sales potential
of the target market or markets. Market potential is the total amount of a product that customers will purchase within a
specified period of time at a specific level of industry-wide marketing activity. Sales potential is the maximum percentage
of market potential that an individual company within an industry can expect to obtain for a specific product or service.
There are two general approaches to measuring sales potential: the break-down approach and the build-up approach.
A sales forecast is the amount of a product that the company actually expects to sell during a specific period of time and
at a specified level of marketing activity. Several methods are used to forecast sales: executive judgement, surveys (cus-
tomers, salesforce and expert forecasting surveys, including the Delphi method), time series analysis (trend analysis, cycle
analysis, seasonal analysis, random factor analysis), correlation methods and market tests. Although some businesses may
rely on a single sales forecasting method, most companies employ several different techniques. It is an essential part of
the marketing process to develop objective and reliable sales forecasts and assessments of market potential.
To identify weaknesses in ongoing marketing operations and plan the necessary improvements to correct these weak-
nesses, it is sometimes necessary to audit marketing activities. A marketing audit is a systematic examination of the mar-
keting group’s objectives, strategies, programmes, organization and performance. A marketing audit attempts to identify
what a marketing unit is doing, to evaluate the effectiveness of these activities and to recommend future marketing activi-
ties and processes. Although an insightful technique, the use of the marketing audit is far from routine.
It is a useful diagnostic tool for correcting marketing activity and some companies conduct the audit as a prelude to mar-
keting planning.
Executive judgement
Key links Expert forecasting survey
Long-range plans
This chapter, examining marketing planning and sales Market potential
forecasting, should be read in conjunction with: Market test
●● Chapter 1, on scoping out the marketing process. Marketing audit
Marketing objective
●● Chapter 2, which deals with exploring the role of mar-
Marketing plan
keting planning within marketing strategy.
Marketing planning
●● Chapter 23, explaining the latest views about market-
Marketing planning cycle
ing performance and managing the implementation of Medium-range plans
marketing recommendations. Random factor analysis
Sales forecast
Sales potential
Important terms Salesforce forecasting survey
Break-down approach Seasonal analysis
Build-up approach Short-range plans
Correlation methods Surveys
Customer forecasting survey SWOT analysis
Cycle analysis Time series analysis
Delphi method Trend analysis
Discussion and review questions 11. In what ways does marketing planning help with establish-
ing controls for a marketing function?
1. What is marketing planning? How does it help companies
12. Why is a marketer concerned about sales potential when
address their market places better?
trying to find a target market?
2. What is the difference between a marketing plan and a
13. What is a sales forecast, and why is it important?
corporate plan?
14. What is the Delphi method of forecasting? Why is it a pop-
3. What is the timespan for a marketing plan?
ular tool?
4. What are the main tasks involved with producing a market-
15. Why would a company use a marketing audit?
ing plan?
5. Were you asked to direct the production of a marketing plan
what would be your game plan and approach? Recommended readings
6. In what ways do marketing environment forces affect mar-
Blythe, J. and Megicks, P., Marketing Planning: Strategy, Environment
keting planning? Give some examples. and Context (FT/Prentice Hall, 2010).
7. What is a SWOT analysis? How does it lead to an under- Dibb, S. and Simkin, L., Marketing Planning (Cengage, 2008).
standing of realistic marketing opportunities? Dibb, S., Simkin, L. and Bradley, J., The Marketing Planning Workbook:
Effective Marketing for Marketing Managers (Thomson Learning,
8. What issues must be analyzed thoroughly during mar-
1998).
keting planning prior to the formulation of a marketing
Gilligan, C. and Wilson, R.M.S., Strategic Marketing Planning (Routledge,
programme? 2016).
9. Why is it important to seek a differential advantage? McDonald, M.H. and Wilson, H., Marketing Plans: How To Prepare Them,
How To Use Them (John Wiley, 2016).
10. Why does it take three years before the use of marketing
Wood, M.B., Essential Guide to Marketing Planning (Pearson, 2017).
planning typically is routinized in a company?
Web task Classroom tools 2. A long-term category leader

such as Heinz is prevalent in some
A core task in developing a strong slumbering parts of the supermar-
marketing plan is the analysis of ket, such as soups and sauces.
competitors. There are many ways In developing a marketing plan
of finding information about competitors, as described in Chap- designed to achieve significant growth in sales, what
ters 2 and 9. One useful source of intelligence about rivals is would be the most important aspects of marketing plan-
to review their websites. Marketers look for the strengths cited ning and why?
by brands and for products on their websites. Additionally, by
examining a range of competitors’ websites, it is possible to
infer their deficiencies. This is achieved by identifying themes Applied mini-case
popular on many rivals’ websites but ignored on only one or two. Despite various economic blips and global troubles, many
Take the example of food processors, mixers and blenders. consumers still seek adventure and escapism, which is
Look at the websites for a selection of leading brands, such as good news for theme park operators such as Disney or Alton
Breville, Dualit, Kenwood, KitchenAid, Magimix, Morphy Rich- Towers. In the UK, Alton Towers aims to maintain its market
ards, Moulinex and Philips. What are the respective apparent leadership, and invests continually in new rides and facili-
strengths and weaknesses of these brands and products? ties. It opened a £20 million holiday village next to the park
for the leisure market and the growing business conference
Group tasks market, to create the Alton Towers Resort, spent £10 mil-
lion on the leading white-knuckle Oblivion ride, £18 million
1. As the new marketing team for Red Bull you have been on The Smiler roller-coaster, and now £16 million on Wicker
asked to produce an updated marketing plan. What Man, as well as creating CBeebies Land for younger visitors
would be involved in this task and what activities would along with its Octonauts roller-coaster. It now promotes its
be required?
rides, waterpark, spa and hotels as a resort destination. The Originally conceived as a day-tripper, family-oriented park,
CBeebies Land Hotel, Alton Towers Hotel, Woodland Lodges, Alton Towers has monitored demographic changes and com-
Luxury Treehouses and its Splash Landings Hotel have turned petitor activity, and has continually modified its rides, ame-
the theme park into more than a day-tripper destination. The nities and services to reflect the requirements of its evolving
strategy is to attract new visitors to the park, from the UK and target market segments. The growth of corporate clients for
from continental Europe, while encouraging repeat visits from conferences and away-days reflects this constant updating
current users. Key target customers are young adults aged 15 of the theme park’s marketing strategy and associated mar-
to 24, families with children, school parties and, increasingly, keting planning.
the corporate sector. Business clients use Alton Towers for
sales incentive schemes and corporate events, such as AGMs, Question
product launches or salesforce parties. The corporate sector
In producing a marketing plan for a theme park such as Alton
was a leading reason for developing good-quality on-site hotel
Towers, what would be the most important elements of the
accommodation.
marketing planning process? Explain why.
Dell has to plan for a new core computer expertise. Indeed, many
future Case study computer sector observers perceived that
the diversification had deflected Dell from
Dell originally made its name selling personal its core market, enabling computer com-
computers directly to customers through its petitors such as Acer and Lenovo to make
catalogues, phone orders and more recently significant inroads.
websites. Over the years, it has expanded into related product Unfortunately for Dell, it had launched its
lines while battling aggressive rivals such as Hewlett Packard consumer electronics items just as major technolog-
and Apple. A few years ago, Dell decided to enter the world ical developments were changing how consumers bought
of consumer electronics, hoping to drive a large portion of and used such products. Dell’s affordable handheld comput-
revenues and profits from a wider mix of products for use ers initially sparked a flurry of customer interest, but insti-
beyond the home office. Flat-screen television was one con- gated a price war with Hewlett Packard as the two fought
sumer electronics market the company targeted aggressively, for market share. However, when Apple, Samsung, Nokia and
seeking to take on the then leading rivals Philips, Panasonic others began marketing new generation smartphones with
and Sony. built-in computer capabilities and multiple entertainment
With a long history of marketing technology-based prod- functions, customers found those offerings more appeal-
ucts, Dell had become a well-known US brand. Senior man- ing than the kind of stand-alone handhelds that Dell was
agement saw the brand as a strength and set out to exploit offering.
it by marketing flat-screen televisions and tiny digital music In addition, Dell was caught in the crossfire of intense
players into then quickly growing markets, along with other competition. At the start of its consumer electronics initiative,
non-computer-based products. ‘We’ve come out of nowhere the company introduced the Dell Digital Jukebox, and the
to be the number three consumer brand in the United States Dell Music Store, putting it on a competitive collision course
in less than five years, while Coca-Cola has been doing it for with Apple’s popular iPods and iTunes store. Apple had so
100 years’, said Dell’s then general manager of consumer much momentum that Dell discontinued its own brand of
business for the US. ‘We’re not in this to be number three. music players and instead re-sold products made by Sam-
Number one is the only target around here.’ sung and other manufacturers. This enabled Dell to satisfy
However, despite considerable research and marketing customer demand for certain consumer electronics items but
investment, Dell’s consumer electronics strategy did not suc- without the expense of researching, developing, manufactur-
ceed. In fact, it was not long before the company reversed ing and marketing the products under the Dell name. Dell
course, pulling back from diversifications to re-focus on its formed a mobile device division to create products such as
selling directly to customers, Dell began distributing its brand

of computers, monitors, printers and accessories through
Walmart, PC World, Staples office supply stores and other
retailers around the world. The company also ‘polished its
brand’ by improving customer service, an especially import-
ant step as PC sales grew more slowly throughout the industry
and competitors dug in to defend market share. Unfortunately,
Dell’s relentless cost cutting had damaged its ability to handle
technical questions and complaints, which in turn reduced
customer satisfaction scores. Dell had to rebuild relationships
by increasing its customer service budget and encouraging
customers to have their say.
An examination of Dell’s current portfolio of products
(www.dell.co.uk) reveals how many of these departures into
consumer durables have failed to deliver success, leaving
Dell to focus on its original core computing business and
customers.

1. To what extent should marketing planning have helped
Dell to avoid the problems encountered when it first
diversified into consumer electronics?
mobile phones and other portable devices. After two years of
research, Dell entered into an agreement with AT&T to carry 2. In what stage of the product life cycle are personal com-
its Mini 3 Smart Phone that used Google’s Android software, to puters? What are the implications for marketing planning
provide an entry into the growing smartphone market. in Dell?
Meanwhile, Dell continued to be a major player in the com- 3. Explain how marketing planning might underpin Dell’s
puter industry. Moving away from its traditional policy of only ongoing selection of opportunities and target markets.
Chapter 23
Implementing strategies,
internal marketing
relationships and measuring
performance
The job does not end with the creation of a target market strategy or mar-
keting plan . . . they have to be put into operation and executed flawlessly
Introduction
Objectives Whether an organization creates a stand-alone marketing
function similar to a finance unit, human resource function or
To understand how marketing activ-
production unit, or empowers specific managers in a variety
ities are organized within a compa-
of other roles to also handle the marketing process, decisions
ny’s structure.
about how best to manage marketing must be made.
To examine the marketing imple- There is plenty of evidence to suggest that many organiza-
mentation process. tions create marketing strategies and marketing plans without
too many problems, but that the implementation stage is where
To learn about impediments to mar-
they encounter crises, with the result that so much great analy-
keting implementation.
sis, strategic thinking and planning goes to waste, owing to the
To grasp the importance of internal failure to execute the strategy or plan. Most of these impedi-
marketing. ments to the roll-out of strategies and plans are avoidable or
controllable, as long as implementation is itself planned and
To explore implementing and con-
managed. Or, if unavoidable, they can often be remedied or
trolling marketing activities.
mitigated relatively easily, if only these difficulties are spotted.
To learn how sales and marketing Marketers spend significant sums of money on specifying
cost analysis can be used as meth- and then executing their marketing programmes. Therefore it is
ods of evaluating performance. necessary to assess the expected returns for the organization
and to examine whether there are better ways of achieving the
To describe marketing shareholder
desired results. Performance measures should be in place, but
value analysis.
these need to reflect the full set of core activities for which mar-
To discuss the popular criteria for keters are responsible.
measuring marketing performance. This chapter examines some popular ways for organizing
marketing activity within a company, the essential ‘rules’ for
facilitating implementation of marketing strategies and mar-
keting plans, and the best practice approaches to evaluating
marketing performance.
686
Chapter 23 Implementing Strategies, Internal Marketing Relationships 687
‘I’m lovin’ it’: McDonald’s

M ighty McDonald’s,
famous for its golden
arches, was established
keeps tight control
When McDonald ’s first
came to Europe, it had to
educate its customers to
in 1940 when Dick and expect unbuttered rolls, no
Mac McDonald opened up knives or forks and no table
in San Bernadino, California. service. Despite being in Lis-
Ray Kroc, credited with the bon, Portugal, for years, when
chain’s global ambitions, bought the rights to develop the McDonald’s opened in Porto in northern Portugal, it advertised
brand in 1955 and created McDonald’s Corporation. Every day, the concept of the hamburger and explained that it could be
from Moscow to Hong Kong, McDonald’s serves millions of eaten for lunch or dinner and even as a snack at any time of
people… sixty-nine million daily in 36 000 restaurants across the day. This may seem strange to a generation that has grown
119 countries. Leading branding consultancy Interbrand ranks up with fast-food restaurants, but it was a major marketing
McDonald’s as one of the most recognized brands in the world. task. Staff also had to be trained and managed to perform
Whether in Lisbon, Chicago or Manchester, a McDonald’s their duties effectively. The training and orientation of staff are
restaurant is instantly evident, with a homogeneous layout, still central to the success of the company. Behind the scenes,
ambience, design and ethos that are the envy of most services internal marketing programmes ensure that staff comprehend
marketers. The menus change slightly to reflect local tastes, the fundamentals of the McDonald’s trading concept and ide-
but for the most part there is consistency in the product the als. The customer’s experience must be good and it should be
world over. Alcohol is available in Lausanne, while incredible similar every time they enter a McDonald’s restaurant.
ice-cream concoctions are on offer in Porto, but everywhere the Controls are central to the trading practices of the com-
core dishes are the same – the Big Mac, Chicken McNuggets, pany. Every customer ordering a Big Mac must receive a similar
Egg McMuffin and Filet-O-Fish to eat in or often available as meal every time: cooked identically, with similar relish, wrap-
a drive-thru take-away. Single adults snacking, business reps ping, pricing and a smile. The purchasing experience should
lunching, children partying or teenagers dining before taking be simple but also consistent from visit-to-visit. As should
in a movie, McDonald’s caters for a wide range of customers. the feel of the restaurant and its appearance. Any complaints
must be handled quickly, courteously and with no damage
to the well-known branding. With 80 per cent of McDonald’s
restaurants franchised to independently owned companies and
operators, such uniformity does not occur by accident. Country
managers are allowed to source locally but must conform to
well-established ingredients and standards. While Burger King
emphasizes its food, McDonald’s promotes the whole-restau-
rant experience and establishes performance standards to
maintain a consistent customer offer. As the company continues
to grow, with innovative outlets on ferries, at football grounds
and even in hospitals, internal operational controls are just as
important to its success as is the extensive promotional activity
designed to keep the brand in the target audience’s mind.
McDonald’s understands the importance of maintaining
high standards and of integrating the brand, people, design,
ambience, technology and food to create a winning experi-
ence. Not everyone is a McDonald’s fan, but millions daily
are happy to return to the trusted golden arches, safe in the
knowledge that their anticipated experience is likely to be the
reality of their experience, owing to the company’s focus on
operational effectiveness.
References: McDonald’s stores UK, 2018; www.mcdonalds.com/corp, July
2018; www.mcdonalds.co.uk, July 2018.
T
his chapter focuses first on the marketing unit’s position in the organization and the ways
the unit itself can be organized. The chapter goes on to examine several issues regarding
the implementation of marketing strategies, particularly the links with relationship marketing,
internal marketing – so important to the success of McDonald’s – and total quality management.
The most frequently encountered impediments hindering implementation are discussed. The chap-
ter then discusses the use of cost and sales analyses to evaluate the effectiveness of marketing
strategies and to measure the company’s performance, the emergence of marketing shareholder
value analysis (MSVA), before concluding with an examination of popular marketing performance
measures and metrics.
Organizing marketing activities

Some companies do not have a free-standing specialist marketing function. For them, marketing’s
remit is allocated between managers in other functions or is the responsibility of either the sales
function or the business development team. So long as the marketing process outlined in Chapter 1
is enacted and those involved in executing the various stages in the process – marketing analyses,
marketing strategy development, the creation of marketing programmes and the execution of these
programmes – are coordinated and well managed, this approach to undertaking marketing may
achieve adequate results. However, in general most companies have specialist marketing person-
nel, operating either together as a marketing unit or allocated to separate business units, product
teams or market groups in order to manage the marketing activity required to support that spe-
cific part of the organization’s activities. Most medium and large companies do have a marketing
function and specialist marketing personnel, while many SMEs have a marketing specialist in post.
The organization of a marketing function involves the development of an internal structure for
the marketing unit, including relationships and lines of authority and responsibility that connect and
coordinate individuals. Individual marketing managers, brand managers or marketing assistants
must understand their roles and reporting structures. Within a business unit typically comprising
planning personnel, sales and marketing staff, managers handling operations and administrative
staff, non-marketers also need to understand the remit for marketing and the specific roles of
those responsible for marketing activities. It should be obvious to all concerned who is tasked with
analyzing customers’ views; assessing competitors; monitoring the forces of the marketing envi-
ronment; creating a marketing strategy; developing the brand positioning; specifying the marketing
mix; handling social media; managing the website; creating the advertising proposition and mar-
keting communications programme; handling customer service; managing customers; overseeing
customer experience; handling multiple channels; conducting marketing research; liaising with
agencies and trade partners and tracking the effectiveness of the marketing programme deployed.
This section starts by looking at the place of marketing within an organization and examines
some of the major alternatives available for organizing a marketing unit. It then goes on to show
how marketing activities can be structured to fit into an organization so as to contribute to the
accomplishment of overall objectives.
The place of marketing in an organization

As the marketing environment is so dynamic, the importance of the marketing unit within the orga-
nization has increased during the past 30 years. As explored in Chapter 1 of Marketing: Concepts
and Strategies, companies that truly adopt the marketing concept often develop a distinct orga-
nizational culture – a culture based on a shared set of beliefs, which makes the customers’ needs
the pivotal point of a company’s decisions about strategy and operations.1 When this philosophy
permeates the whole organization, there is a genuine marketing orientation to that company’s
behaviour and actions. Instead of developing products in a vacuum and then trying to persuade
consumers to buy them, companies using the marketing concept begin with an orientation towards
their customers’ needs and desires. If the marketing concept serves as a guiding philosophy, the
marketing unit will be coordinated closely with other functional areas, such as production, finance
and human resources. Figure 23.1 shows the organization of a marketing unit by types of customer.
This form of internal organization works well for organizations having several groups of customers
whose needs differ significantly. The version in the lower part of the figure is particularly prevalent
among many business-to-business organizations, such as component suppliers serving several
market sectors, an IT services company active across many markets or a firm of financial advisers
specializing in more than one business sector.
Marketing must interact with other functional departments in a number of key areas. It needs to
work with manufacturing in determining the volume and variety of the company’s products. Those
in charge of production often rely on marketers for accurate sales forecasts. Research and devel-
opment departments depend heavily on information gathered by marketers about product features
and benefits desired by consumers, the new products launched by competitors, the implications
of marketing environment trends, as well as details of complaints concerning current products.
Decisions made by the physical distribution department – logistical support – hinge on information
about the urgency of delivery schedules and cost/service trade-offs.2 In many organizations there
are specialist customer service departments, whose activities must reflect the marketing strategies
developed by the marketers in the company, but whose knowledge of customer issues should be
fed back to the marketers tasked with developing marketing and brand strategies. Similarly, sales
personnel must prioritize the key target markets selected by the marketing strategy, reflect the
desired brand positioning and maximize use of any differential advantage identified by the market-
ers, while having links with marketing colleagues in order to share their knowledge of customer
issues and market developments. Whether manufacturing, services, public sector or consumer
marketing, those tasked with managing the organization’s marketing activities must have involve-
ment with colleagues across the organization.
As discussed in Chapter 1, a marketing-oriented organization concentrates on dis-
marketing-oriented
A company that con- covering what the market needs and wants, providing it in a way that lets the company
centrates on discovering achieve its objectives. Such a company has an organizational culture that effectively and
what the market needs efficiently specifies a sustainable differential advantage.3 The whole business focuses on
and wants, providing it customer analysis, competitor analysis and the integration of the business’s resources to
in a way that lets the
provide customer value and satisfaction, as well as long-term profits. Senior managers
company achieve its
objectives. expect to be well informed about market developments and align their strategies to
these circumstances.
As Figure 23.2 shows, the Marketing Director’s position is often at the same level
as those of the Finance, Production and Human Resource Directors. Thus the Marketing Director
takes part in top level decision-making. The Marketing Director is also responsible for a variety of
activities. Some of them – sales forecasting and product planning – would be under the jurisdiction
of other functional managers in production or sales-oriented organizations. Some organizations
do not have a Marketing Director: the head of marketing in such companies is often at the same
level as the senior managers responsible for IT, logistics, purchasing and channel management. In
these cases, there is usually a director responsible for Sales and Marketing or perhaps Business
Development, to whom specialist marketing managers report.
To be successful, a company does not have to employ a Marketing Director. However, the
core activities of marketing must be undertaken and the forward thinking enabled by the mar-
keting process must be deployed by someone. Few other business functions are interested in
external market developments, competitor moves, changing customer expectations or the likely
shape of target market priorities in three years’ time. Finance, Production, Operations, Human
Resources and Logistics have other priorities, often although not exclusively focused on short-
term performance improvement and the effective utilization of corporate resources. It is the case
that marketers spend much of their time rolling-out marketing programmes, but when develop-
ing marketing strategies and undertaking marketing planning they do take a longer-term view
of the company’s fortunes and required strategy realignment. In addressing the core marketing
Marketing
Board of directors
director
Marketing Marketing Advertising Display and Customer Product

research/MIS planning staff and digital exhibitions relations staff development
staff staff staff staff
Marketing manager Marketing manager for Marketing manager

for customer group A customer group B for customer group C
Marketing research Advertising and

Sales manager Distribution Product/technical
manager for promotions
for customer manager for specialist for
customer group A manager for
group A customer group A customer group A
customer group A
Note: In some organizations, each marketing manager would have responsibility for a product group rather than a
customer group, and would be termed a product manager
Marketing
Board of directors
director
Advertising, Marketing Marketing Marketing

Marketing Marketing
promotions manager for manager for manager for
research/MIS planning/
and digital customer customer customer
staff strategy staff
staff group A group B group C
Customer Product
relations development Product/
Marketing
staff staff Sales
research technical
manager for
manager for specialist for
customer
customer customer
group A
group A group A
Advertising
and Distribution
promotions manager for
manager for customer
Note: These two illustrative structures are examples
customer group A
only – there are in practice numerous derivatives of
these schemes group A
Figure 23.1
Organizing the marketing unit
Chairperson/
Managing
director
Human Resources Production director Financial director Marketing director

director Research and Acquisition of funds Target marketing
Recruiting development Budgets Marketing research
Selecting Scheduling Working capital Sales forecasting
Wages and salaries Manufacturing Capital budgeting Marketing planning
Employee relations Quality control Accounting Product planning
Working practices Technical innovation Shareholder Sales supervision
Training and Performance relations Advertising and
motivation optimization Performance promotion
Change management Productivity monitoring Distribution strategies
Corporate strategy Customer relations
Figure 23.2
Organizational chart of a marketing-oriented company
analyses – performance, customers, competitors, marketing environment trends, capabilities –

and making marketing strategy recommendations about opportunities to pursue, target markets
to prioritize, brand positioning and possible competitive advantage, marketers are well placed
to warn a business about impending threats and guide their colleagues in aligning resources to
emerging opportunities. There is much to be commended in having a marketing function that is
viewed by the organization as offering a longer-term perspective on market developments and
how markets will evolve, acting as the company’s ‘radar’ or ‘eyes and ears’.
Marketing has a limited impact when the company views the role of marketing as simply selling
the products that it makes. For organizations – and there are these out there – in which senior
managers view the role of marketing as simply ‘creating advertisements’, ‘conducting customer
surveys’, ‘dealing with customer complaints’ or ‘keeping dealers and distributors happy’, the con-
tribution of marketing is very limited. Such organizations are failing to benefit from the insights and
direction provided from the marketing process. However, a marketing orientation is not achieved
simply by redrawing the organizational chart: management must also adopt the mar-
centralized keting orientation as a management philosophy, using and connecting the stages of
organization the marketing process – marketing analyses, marketing strategy formulation, marketing
A company in which top- programme creation and implementation controls.
level managers delegate
very little authority to
the lower levels of the Centralization versus decentralization
organization.
The organizational structure that a company uses to connect and coordinate various
activities affects its success. Basic decisions relate to how various participants in the
decentralized company will work together to make important decisions, as well as to coordinate,
organization implement and control activities.
A company in which Top managers create corporate strategies and coordinate lower levels. A central-
decision-making author-
ity is delegated as far
ized organization is one in which the top-level managers delegate very little authority
down the chain of com- to lower levels of the organization. In a decentralized organization, decision-making
mand as possible. authority is delegated as far down the chain of command as possible. The decision to
centralize or decentralize directly affects marketing in the organization.
In a centralized organization, major marketing decisions originate with top management and are
transmitted to lower levels of management. A decentralized structure gives marketing managers
more opportunity for making key strategic decisions. Although decentralizing may foster innovation
and a greater responsiveness to customers, a decentralized company may be inefficient or appear
to have a blurred marketing strategy when dealing with larger customers. A centralized organization
avoids confusion among the marketing staff, vagueness in marketing strategy and autonomous
decision-makers who are out of control. Of course, overly centralized companies often become
dependent on top management and respond too slowly to be able to solve problems or seize
new opportunities. Obviously, finding the right degree of centralization for a particular company is
a difficult balancing act.
While many highly centralized organizations are quite successful, the overall trend is for compa-
nies to decentralize. This trend is partly caused by the need for organizations to remain very flexible,
given the ever-changing marketing environment. For some companies, the need to adapt to chang-
ing customer needs is of critical importance. These organizations often use an extreme
form of decentralization: empowerment. This involves giving front-line employees the
empowerment
Giving front-line authority and responsibility to make marketing decisions without seeking the approval
employees the authority of their supervisors.4 In practice, for many organizations the solution is something of a
and responsibility to hybrid: marketing activity is decentralized within business units that are responsible for
make marketing deci- individual market segments or product groups, but the marketing personnel in the orga-
sions without seeking
nization also work collectively in order to manage tasks that cut across the activities of
the approval of their
supervisors. separate business units, such as brand development and communication, new product
concept development, the assessment of the marketing environment forces, analysis
of new territories for expansion or the creation of customer-handling programmes. For
example, IT giant IBM has specialist marketers supporting each of its business units, but these
personnel also work together on aspects of the marketing process.
The concept of empowerment is increasingly important as organizations strive to become faster
moving and more customer-responsive. The following examples illustrate empowerment:
●● A car salesperson is allowed to negotiate the price or financing arrangement with a customer
without speaking with the sales manager.
●● A retail sales assistant decides, without seeking the approval of a manager, whether to refund
customers’ money on products they return.
●● A receptionist at a hotel gives one night’s free accommodation to a dissatisfied guest who
complains about poor service.
●● A retail store manager is permitted to lower prices on merchandise in order to match a com-
petitor without asking the regional manager.
Although employees at any level in an organization can be empowered to make decisions, empow-
erment is used most often at the front line, where employees interact daily with customers. Service
and retail marketers practice empowerment quite extensively because of the interactive nature of
these businesses. However, empowerment can work in a manufacturing organization as well.
One of the characteristics of empowerment is that employees can perform their jobs the way
they see fit, as long as their methods and outcomes are consistent with the mission of the organi-
zation.5 However, the effectiveness of empowerment is tied to the organization’s culture. Empow-
erment works best when the corporate culture is guided by a sense of shared direction, which
ensures that employees make the right decisions.6 Obviously, creating this type of culture does
not happen overnight. The corporate vision must be communicated to employees so that they
understand how their job affects the vision. Employees must also be trained and persuaded to
accept the corporate vision and to become part of the organization’s culture.7 Leading IT services
company Fujitsu adopted a new brand reputation model based on honesty, straight talking and
integrity. If a client’s wishes could not be actioned or a project’s complexity was likely to cause time
or cost over-runs, unlike some rival providers, Fujitsu would tell a client’s executives. Therefore, if
staff failed to behave with openness and honesty, the whole brand proposition would crash, so an
18-month programme of staff orientation and training was launched in order to explain the new
values and the importance of adhering to them.
Major alternatives for organizing the marketing unit

How effectively a company’s marketing management can plan and implement marketing strategies
depends on how the marketing unit is organized. Effective organizational planning can give the
company a competitive edge. The organizational structure of a marketing department establishes
the authority relationships between marketing personnel and specifies who is responsible for mak-
ing certain decisions and performing particular activities. This internal structure is the vehicle for
directing marketing activities.
In organizing a marketing unit, managers divide the work into specific activities and delegate
responsibility and authority for those activities to people in various positions within the unit. These
positions include the channel manager, the segment manager, the customer service manager, the
digital insight manager and the advertising manager.
No single approach to organizing a marketing unit works equally well in all businesses. A mar-
keting unit can be organized according to:
●● functions
●● products
●● regions, or
●● types of customer (segments).
The best approach or approaches depend on the number and diversity of the company’s prod-
ucts, the characteristics and needs of the people in the target market, and many other factors,
including the expected norms amongst suppliers and customers in a particular commercial sector.
Businesses often use some combination of organization by functions, products, regions or
customer types. Product features may dictate that the marketing unit be structured by products,
whereas customers’ characteristics require that it be organized by geographic region or by type of
customer. Construction equipment manufacturers organize by product type (crawler excavators,
backhoe diggers, compact equipment and so forth), but many financial institutions organize by
customer type, because personal banking needs differ from commercial ones. By using more than
one type of organization, a flexible marketing unit can develop and implement marketing plans to
match customers’ needs precisely. To develop organizational plans that give a company a differ-
ential advantage, four issues should be considered:
1. Which jobs or levels of jobs need to be added, deleted or modified? For example, if new prod-
ucts are important to the success of the business, marketers with strong product development
skills and the ability to think innovatively should be added to the organization, or if digital mar-
keting is deemed key managers with such expertise must be recruited.
2. How should reporting relationships be structured to create a competitive edge? This question
is discussed further in the following descriptions of organizational structure.
organizing by function 3. T
o whom should the primary responsibility for accomplishing work be assigned?
A way of structuring a Identifying primary responsibility explicitly is critical for effective performance appraisal
marketing department in and reward systems, as without clear accountability progress is unlikely.
which personnel directing
marketing research, prod-
4. Should any committees or task forces be organized?8
uct development, distri-
bution, sales, advertising,
digital and customer rela-
Organizing by function Some marketing departments adopt a structure known as
tions report to the top-level organizing by function, such as marketing research, product development, distribu-
marketing executive. tion, sales, branding, advertising, digital and customer relations. The personnel who
direct these functions report directly to the top-level marketing executive. This structure
is fairly common because it works well for some businesses with centralized marketing operations,
such as Ford and General Motors. In more decentralized companies, such as some retailers or
fast-moving consumer goods giants like Procter & Gamble and Unilever, functional organization
can give rise to severe coordination problems. The functional approach may suit a large, centralized
company, whose products and customers are neither numerous nor diverse.
Organizing by product A business that produces and markets diverse products may find the
functional approach inadequate. The decisions and problems related to a single marketing func-
tion for one product may be quite different from those related to the same marketing function for
another. As a result, businesses that produce diverse products sometimes organize their
organizing by product marketing units according to product groups. Organizing by product gives a company
A way of structuring a the flexibility to develop special marketing mixes for different products.
marketing department
so that the company has
The product management system, which was introduced by Procter & Gamble, oper-
the flexibility to develop ates in about 85 per cent of companies in the consumer packaged goods industry or
special marketing mixes fast-moving consumer goods (FMCG), as they are often known. In this structure, the
for different products. product manager oversees all activities related to his or her assigned product. S/he
develops product plans, sees that they are implemented, monitors the results and takes
corrective action as necessary. The product manager is also responsible for acting as a
category management
liaison point between the company and its marketing environment, transmitting essential
A core approach to
merchandising, inventory information about the environment to the company.9 The product manager may also
control and display in draw on the resources of specialized staff in the company. Category management,
many retailers, with currently popular in supermarkets, off-licences, newsagents, and forecourt shops, takes
similar lines from sev- this notion further, with marketers – ‘category captains’ – becoming responsible in-store
eral suppliers being
for categories of product lines, such as fresh foods, tobacco products or all alcoholic
controlled by a category
manager and managed beverages in supermarkets or off-licences. Category management is explored in more
as a discrete unit. detail in Chapter 15.
Organizing by region A large company that markets products nationally or inter-

organizing by region nationally may adopt a structure for its marketing activities known as organizing by
A way of structuring a region. Managers of marketing functions for each region report to their regional mar-
marketing department,
used by large national or
keting manager, and all the regional marketing managers report directly to the execu-
international companies, tive marketing manager. This form of organization is especially effective for a business
that requires managers whose customers’ characteristics and needs vary greatly from one region to another.
of marketing functions A company with marketing managers for each separate region often has a complete
for each region to report marketing staff at its headquarters to provide assistance and guidance to regional mar-
to their regional market-
ing manager.
keting managers.
Organizing by type of customer Sometimes the marketing unit opts for organizing
organizing by type of by type of customer. This form of internal organization works well for a business that
customer has several groups of customers whose needs and problems differ significantly. For
A way of structuring a example, Bic may sell pens to large retail stores, wholesalers and institutions such as
marketing department,
suitable for a business
schools, and disposable razors to a mix of wholesaling, retail and hotel business custom-
that has several groups ers. Retailers may want more rapid delivery of small shipments and more personal selling
of customers with very by the producer than do wholesalers or institutional buyers. As the marketing decisions
different needs and and activities required for these groups of customers differ considerably, the company
problems. may find it efficient to organize its marketing unit by type of customer.
In an organization with a marketing department broken down by customer group,
the marketing manager for each group reports to the top-level marketing executive and
directs most marketing activities for that group. A marketing manager controls all activities needed
to market products to a specific customer group or target market segment.
The planning and organizing functions provide purpose, direction and structure for marketing
activities. However, until marketing managers implement the marketing plan, exchanges cannot
occur. In fact, organizers of marketing activities can become excessively concerned with planning
strategy while neglecting implementation. Obviously, implementation of plans is important to the
success of any organization. Proper implementation of a marketing plan depends on internal
marketing to employees, the motivation of personnel who perform marketing activities, effective
communication within the marketing organization and the coordination of marketing activities.
Whichever option is adopted, marketing must be able to effectively create and implement a suc-
cessful marketing strategy.
Marketing implementation
Marketing implementation is the ‘How?’, ‘What?’, ‘When?’, ‘By whom?’ of market-
marketing
implementation ing strategy; it involves processes and activities directed at actioning marketing strate-
Processes and activities gies or rolling out the marketing plan’s recommendations. The implementation process
deployed to action the can determine whether a marketing strategy is successful. Increasingly marketers are
marketing strategy or roll recognizing the importance of managing implementation and planning for the execu-
out the marketing plan.
tion of marketing programmes.10 For example, the output of marketing planning – see
Chapter 22 – used to be the specification of the marketing mix. Now, a robust mar-
keting plan is not deemed complete until the ‘How?’, ‘By whom?’, ‘When?’ and ‘How
much?’ issues are addressed: allocation of budgets, personnel, schedules and performance mea-
sures to the specific marketing mix recommendations. Often managers question what could go
wrong . . . having created a strategy or plan, they seek to identify the likely blockers to progress, so
that they might pre-empt these problems. In providing these details, marketers identify deficiencies
and inadequacies in their capabilities and resources that they must address in order to implement
their marketing plans effectively. These impediments often relate to operational and managerial
issues. In short, good marketing strategy combined with bad marketing implementation is a recipe
for certain failure. Marketing has to be made to happen!11
Figure 23.3
The development of a new car model may
take six years, but its success in terms
of sales volume depends as much on
the implementation of the target market
strategy as on the design and features of
the car
The exponents of marketing planning have for many years realized that internal organizational
barriers are likely to impede or restrict the implementation of marketing plans and marketing
strategies.12 They propose that senior managers address the people and cultural concerns detailed
in Figure 23.4, before embarking on developing marketing plans, new market segmentation
schemes or marketing strategies.13 These issues reflect the importance of addressing the internal
market in effectively pursuing the implementation of marketing strategies and the deployment of
recommended marketing mix programmes. Failure to control internal audiences and develop suit-
able control strategies will reduce the viability of the marketing function’s recommended strategies
and marketing plan recommendations in the external marketplace.
Operational considerations Level of command Communications

Disruption by planning? Who? Within marketing?
Non-marketers/directors? When? Across functions?
Buy-in from functions? Involvement? Through hierarchies?
Accessibility of personnel/ Channels/approaches? Mechanisms?
information? Communication? Channels?
Communication of plan? Support?
Involvement
Who?
When?
Time frames and formats Levels? Participants’ expectations
How long? Functions? What expectations?
When? Support? Working priorities?
Action learning or Worries/concerns?
externally supported? Additional resources Political cliques?
Hands-on/hands-off? Intelligence/information? Office politics?
Communications? People?
IT/communications?
Time?
Figure 23.4
People and culture prerequisites to effective marketing and marketing planning programmes
Source: Updated and adapted from: Sally Dibb, Lyndon Simkin and John Bradley, The Marketing Planning Workbook (London: Thomson, 1998).
Already-busy managers developing marketing plans or involved with revising market segmen-
tation schemes need to be managed, cajoled, motivated and rewarded. Any planning process
requires access to marketing intelligence and market insight; and the involvement of person-
nel with knowledge of the marketplace, customers, competitors, trends and new developments.
Those directly involved must have access to their colleagues and be empowered to conduct the
necessary analyses and develop appropriate strategies. Buy-in from managers and colleagues,
whose remit may change as a result of the planning, warrants facilitation. The necessary analytical
skills and time to strategize must be provided. Senior management should be aware
requisites for of the invasive nature of marketing planning or creating an updated marketing strategy,
implementation and schedule other activities accordingly. The requisites for implementation include
Process, skill, leadership,
empowerment, commu-
process, skill, leadership, empowerment, communication, timing, information, resource
nication, timing, infor- and participation decisions. The learning point is straightforward: appreciation of the
mation, resource and checklist issues outlined in Figure 23.4 prior to embarking on marketing planning – or
participation decisions. the creation of a new marketing strategy – will significantly enhance the likelihood of a
successful outcome. Unfortunately, many organizations only realize the importance of
intended strategy planning and facilitating the strategizing activity after problems have emerged, progress
The strategy on which the has been baulked and key stakeholders within the organization are failing to cooperate.14
company decides during An important aspect of the implementation process is understanding that marketing strat-
the planning phase.
egies almost always turn out differently than expected. In essence, all organizations have two
types of strategy: an intended strategy and a realized strategy.15 The intended strategy is
realized strategy the strategy that the organization decided on during the planning phase and wants to use.
The strategy that actually The realized strategy, on the other hand, is the strategy that actually takes place; it comes
takes place. about during the process of implementing the intended strategy. The realized strategy is not
necessarily any better than the intended strategy, though it is often worse.
Problems in implementing marketing activities

Why do marketing strategies sometimes turn out differently from expected? The most common
reason is that managers fail to realize that the marketing implementation is just as important as
marketing strategy.16 Both strategy and implementation are important to strategic planning. The
relationship between strategic planning and implementation creates a number of problems for
managers when they plan implementation activities. Three of the most important problems are
described below:17
Marketing strategy and implementation are related Companies that experience this problem
typically assume that strategic planning always comes first, followed by implementation. In reality,
marketing strategies and implementation activities should be developed simultaneously. The content
of the marketing strategy determines how it will be implemented. Likewise, implementation activities
may require that changes be made in the marketing strategy. Thus it is important for marketing man-
agers to understand that strategy and implementation are highly entwined and iterative processes.
Marketing strategy and implementation are constantly evolving This second problem refers
to how strategy and implementation are both affected by the marketing environment. Since the
environment and market circumstances are constantly changing, both marketing strategy and
implementation must remain flexible enough to adapt. The relationship between strategy and
implementation is never fixed; it is always evolving to accommodate changes in customer needs,
government regulation or competition.
The responsibilities for marketing strategy and implementation are separated This problem
is often the biggest obstacle in implementing marketing strategies. Typically, marketing strategies
are developed by the top managers in an organization. However, the responsibility for implementing
those strategies rests at the front line of the organization. This separation can impair implemen-
tation in two ways (see Figure 23.5). First, because top managers are separated from the front
line, where the company interacts daily with customers, they may not grasp the unique problems
associated with implementing marketing activities. Second, people – not organizations – implement
strategies. Front-line managers and employees are often responsible for implementing strategies,
even though they had no voice in developing them. Consequently, these front-line employees may
lack motivation and commitment.18
Much time
spent
Strategic planning
Figure 23.5
The separation of strate-
gic planning and marketing Marketing implementation
implementation
Little time
Source: Adapted from Strategic Mar- spent
keting Management: Text and Cases
by O. C. Ferrell, George H. Lucas and Chief Mid-level Front-line
David J. Luck. Copyright © 1994,
p. 183. Reprinted with permission of
executive marketing marketing
the authors. officer managers managers
Components of marketing implementation

The marketing implementation process has several components, all of which must be synchronized
if the implementation is to succeed. These components are shown in Figure 23.6. The systems
component refers to work processes, procedures and the way in which information is structured –
elements ensuring that the organization’s day-to-day activities are carried out. Typical organizational
systems include marketing information systems, strategic planning systems, marketing planning
processes, budgeting and accounting systems, manufacturing and quality control systems and
performance measurement systems.
The people component in Figure 23.6 refers to the importance of employees in the implemen-
tation process. It includes such factors as the quality, diversity and skills of the workforce within
the organization, and also covers the human resources function. Issues like employee recruitment,
selection and training have great bearing on the implementation of marketing activities.19 Closely
linked to the people component is leadership, or the art of managing people. It involves such issues
as employee motivation, communication and reward policies.
At the centre of marketing implementation are shared goals, which draw the entire organization
together into a single, functioning unit. These goals may be simple statements of the company’s
objectives. On the other hand, the goals may be detailed mission statements, outlining corporate
philosophy and direction. Shared goals appear in the centre of Figure 23.6 because they hold all
the other components together to ensure successful marketing implementation.20 Without shared
goals, different parts of the organization might work towards different goals or objectives, thus
limiting the success of the entire organization. These ideas have been embraced within the related
concepts of internal marketing and relationship marketing, as discussed later in this chapter.
Marketing Marketing
structure strategy
Systems/ Shared
Leadership
Communications goals
Resources People
Figure 23.6
Elements of marketing
implementation
Motivating marketing personnel

An important element in implementing a marketing strategy or the marketing plan is motivating
marketing personnel to perform effectively.21 People work to satisfy physical, functional, psycholog-
ical and social needs. To motivate marketing personnel, managers must discover their employees’
needs and then develop motivational methods that help them satisfy those needs. It is crucial
that the plan for motivating employees be fair, ethical and well understood by them. Additionally,
rewards to employees must be tied to organizational goals. In general, to improve employee moti-
vation, companies need to find out what workers think, how they feel and what they want. Some
of this information can be obtained from an employee attitude survey. A business can motivate
its workers by directly linking pay with performance, by informing workers how their performance
affects department and corporate results, by following through with appropriate rewards, by pro-
moting or implementing a flexible benefits programme and by adopting a participative management
approach.22
Consider the following example. Suppose a salesperson can sell product A or B to a particular
customer, but not both products. Product A sells for £200 000 and contributes £20 000 to the
company’s profit margin. Product B sells for £60 000 and has a contribution margin of £40 000. If
the salesperson receives a commission of three per cent of sales, he or she would obviously prefer
to sell product A, even though the sale of product B contributes more to the company’s profits. If
the salesperson’s commission was based on contribution margin instead of sales, and the com-
pany’s goal was to maximize profits, both the company and the salesperson would benefit more
from the sale of product B.23 By tying rewards to organizational goals, the company encourages
behaviour that meets organizational goals.
Besides tying rewards to organizational goals, managers must motivate individuals by using
different motivational tools, based on each individual’s value system. For example, some employees
value recognition more than a slight pay increase. Managers can reward employees with money,
plus additional fringe benefits, prestige or recognition, or even non-financial rewards such as job
autonomy, skill variety, task significance and increased feedback. A survey of Fortune 1000 com-
panies found that ‘the majority of organizations feel that they get more for their money through
non-cash awards, if given in addition to a basic pay plan’.
Communicating within the marketing unit

With good communication, marketing managers can motivate personnel and coordinate their
efforts. Marketing managers must be able to communicate with the company’s high-level man-
agement to ensure that marketing activities are consistent with the company’s overall goals. Com-
munication with top-level executives keeps marketing managers aware of the company’s overall
plans and achievements. It also guides what the marketing unit is to do and how its activities are
to be integrated with those of other departments such as finance, production or human resources
with whose management the marketing manager must also communicate in order to coordinate
marketing efforts. For example, marketing personnel must work with production staff to help design
products that customers want. To direct marketing activities, marketing managers must commu-
nicate with marketing personnel at the operations level, such as sales and advertising personnel,
researchers, wholesalers, retailers and package designers. Without good communications, mar-
keters will struggle to share important market insights with the leadership in the organization, so
reducing the perceived value of the marketing function.24
To facilitate communication, marketing managers should establish an information system within
the marketing unit. The marketing information system should allow for easy communication among
marketing managers, sales managers and sales personnel. Marketers need an information sys-
tem to support a variety of activities, such as planning, budgeting, sales analyses, performance
evaluations and the preparation of reports. An information system should also expedite communi-
cations with other departments in the organization and minimize destructive competition between
departments for organizational resources. Managers must be encouraged to communicate freely,

sharing ideas, insights, marketing intelligence, strategies and tactical recommendations. Such
channels of communication should be across business functions and hierarchies. Stone-walling,
gatekeeping, ring-fencing and deliberate misinformation – all facets of petty ‘office politics’ – offer
no benefits.
Coordinating marketing activities

As a result of job specialization and differences related to marketing activities, marketing managers
must synchronize individuals’ actions to achieve marketing objectives. In addition, they must work
closely with managers in research and development, production, finance and human resources to
see that marketing activities mesh with other functions of the company.
Marketing managers must coordinate the activities of marketing staff within the business and
integrate those activities with the marketing efforts of external organizations – advertising and
digital agencies, resellers (wholesalers, retailers and dealers), researchers and analysts, logistics
providers, among others. Marketing managers can improve coordination by using internal market-
ing activities to make each employee aware of how his or her job relates to others, and how his or
her actions contribute to the achievement of marketing plans. The Marketing Tools and Techniques
box entitled Practitioners’ implementation management of marketing planning: the Dibb/Simkin
checklists presents one particularly well-executed process for facilitating the implementation of
marketing plans.
Practitioners’ Marketing The Dibb/Simkin checklist below

implementation tools and was developed for a global B2B ser-
vices company that examined how to
management of marketing techniques improve its annual marketing planning
planning: the Dibb/Simkin activity. Such a checklist should be
checklists considered by those instigating mar-
keting planning – senior managers and
When a company commences marketing planning for the first the marketing function – before the launch of a marketing
time, already-busy sales and marketing personnel are going planning programme.
to be expected to find time to produce the marketing plan.
Hardly any companies employ specialist marketing planners. ●● Who to involve, what to tell them, how to control them,
The organization must recognize the time pressures and how to free up their time.
resourcing issues associated with asking staff to become ●● Who to put in charge, their level of hands-on involve-
involved in marketing planning. Senior managers must be ment, their liaison with other functional areas and senior
seen to be appreciative, but they must also create channels managers.
of communication between functions in the business so that ●● The expected timeframe for completion of the marketing
marketing intelligence may be gathered, ideas generated and
plan and the timing of the planning activity given other
the resulting plan disseminated across the company. Rather
commitments in the business.
than await problems of information availability, time pressure,
●● Resources required in terms of people, marketing infor-
poor internal communications, ineffective leadership and so
forth, it is better to be aware of these issues from the outset. mation, IT and administrative support.
●● Facilitation of communications within the marketing plan- Review workshop agenda

ning team, across business functions, through the hierar-
●● Review the current strategy.
chies of the company.
●● Coordination of the inputs from non-marketers, the
Focus on the plan’s product/service propositions and
how effectively they are being taken to the specified tar-
buy-in to the process by managers, and the roll-out of
get market segments.
emerging actions.
●● Examine what is working and what is not!
●● The marketing planning process to utilize, its stages/
activities and core requirements. Lessons to emulate and problems to fix.
●● The implementation of the resulting marketing plan, its ●● Determine appropriate actions.
launch, internal communication, external execution (see Specify tasks and responsibilities as a result of the
Figure 23.7), required roll-out resourcing. discussion.
●● A sequence of ongoing reviews to ensure effective imple- Generally, such a discussion revolves around:
mentation of the marketing plan occurs and any required
●● the product/service propositions developed to take to
remedial action is taken.
market and their fine-tuning
As explored in Chapter 22, it is also necessary to adhere ●● the message – clarity of the propositions – and their
to a robust marketing planning process. This should involve: communication to target markets
●● Marketing analysis so that the business is properly ●● marketing communications campaign development and
informed about current market dynamics and the reality execution
of its standing. ●● communication across the company of the plan and its
●● A period of strategy development to ensure that the imperatives
target market strategy and defined basis for competing ●● orientation of channel partners/members to the revised
reflect the realities of the marketplace. direction of the plan
●● The creation of marketing mix programmes designed to
●● specialist skills required to help roll out the plan
execute the devised marketing strategy.
●● strategy for establishing/managing channel and cus-
●● A process of controls and reviews to facilitate the roll-out
tomer relationships
and execution of the marketing plan.
●● controls and incentives required to change colleagues’
Once the marketing strategy or the plan has been devel- behaviours in order to enact the new-look marketing
oped, it must be implemented. This partly involves ensuring strategy and marketing plan.
that specific actions from the plan have been allocated to indi-
Often, a marketing plan changes a company’s thinking and
vidual managers, with clearly defined timeframes, budgets and
direction, so a programme of change management is required
performance measures. The facilitation of implementation also
in order to realign managers, budgets, the sales force and so
requires reviews and monitoring of progress.
forth. Without the detailed planning of how best to align an
‘Review days’ are often utilized. These generally take one
organization’s resources around a marketing plan, successful
of two forms:
implementation is unlikely.
1. Business unit teams present to senior managers and While the sentiments above have focused on marketing
explain their progress in rolling-out their part of the com- planning, the same procedures and tips apply to the implemen-
pany’s marketing plan. tation of a marketing strategy or revised target market strategy.
2. Cross-functional workshops are held in order to more
Sources: © Dibb/Simkin. This process is adapted from and based on mate-
fully review progress, explore emerging issues and
rial from Sally Dibb, Lyndon Simkin and John Bradley, The Marketing Planning
determine appropriate remedial actions. Workbook (London: Cengage) and Sally Dibb and Lyndon Simkin, The Market
Segmentation Workbook (London: Cengage); Sally Dibb and Lyndon Simkin,
The B2B company cited above introduces its review work- Marketing Planning (Cengage); and, Sally Dibb and Lyndon Simkin, Market
shops thus: Segmentation Success: Making It Happen! (Routledge).
Figure 23.7
The Samsung Galaxy has
been carefully researched
and developed to appeal
to the intended target
market: the creative
execution is part of the
operationalization of
the designed marketing
strategy
Concepts related to marketing implementation

This section discusses three concepts that exist for their own purposes, but that also relate to
marketing implementation: relationship marketing, internal marketing and total quality manage-
ment. These approaches, which represent mindsets that marketing managers can adopt when
organizing and planning marketing activities, are not mutually exclusive. Indeed, many companies
adopt a combination of these approaches when designing marketing and other business activities.
Relationship marketing
As outlined in Chapter 1, relationship marketing has attracted considerable attention
Places emphasis on
in the marketing literature.25 It focuses on the interaction between buyers and sellers,
the interaction between and is concerned with winning but also keeping customers by maintaining links over
buyers and sellers, and is time between marketing, quality, customer service and relevancy.26 The term relation-
concerned with winning ship marketing has been defined as attracting, maintaining and enhancing customer
and keeping customers relationships.27 The notion hinges on selling organizations taking a longer-term view of
by maintaining links over
time between marketing,
customer relationships, to ensure that those customers attracted to the brand are also
quality, customer service retained. Rather than focusing on the worth of an individual transaction, the relationship
and relevancy. marketing concept is concerned with the lifetime value of the customer relationship and
in winning a larger share of a customer’s spending over a prolonged period. There has
been a shift from transaction-based marketing towards a relationship focus, as explained
by a leading exponent: ‘Transaction marketing of the 1980s placed the emphasis on the individual
sale. Relationship marketing of the 1990s placed the emphasis on individual customers and seeks
to establish a long-term relationship between customer and company.’28 Of course, companies
need to achieve both: they must attract new customers and also work to retain their interest and
custom beyond the initial transaction. Often these two objectives require different marketing pro-
grammes: acquisition and retention.
The fundamental message is that ongoing, longer-term relationships are essential for a busi-
ness’s viability and market performance. While marketers are encouraged to devote
five markets model of greater resources to developing such customer relationships, the relationship marketing
relationship marketing literature explains that such long-term commitment stems not only from treating custom-
In addition to customer
ers differently, but also from addressing other audiences. A business must work hard to
markets, the core audi-
ences of influencers, retain customers and to do so often depends on other parties. As detailed in the five
referrals, employee markets model of relationship marketing in Figure 23.8, these audiences include:
recruitment, suppliers
and internal markets. ●● referral markets, such as insurance brokers and advisers
●● suppliers
●● employee recruitment markets

●● influencer markets, such as government bodies, EU officials and the central bank
●● internal markets.
In highlighting this final ‘market’ or domain of the five markets model, relationship marketers are
acknowledging the damage that can be done if employees do not understand their role in ensur-
ing that marketing recommendations are adequately actioned and customers are not valued. In
order to exploit this internal market effectively, thought must be devoted to the establishment of
communication channels; leadership qualities and people skills; associated resources; information
content, access and sharing; IT support systems; management controls; clear internally-focused
propositions and messages; as well as priorities for which employees are primary targets.
Internal
markets
Influencer Referral
markets markets
Customer
markets
Figure 23.8
The five markets model of
Source: From Relationship
Marketing: Creating Stake-
holder Value, 2nd edition by Employee
Christopher, M., Payne, A. Supplier
recruitment
and Ballantyne, D. 2002: markets
markets
Butterworth-Heinemann.
Reproduced with kind permis-
sion of the authors.
internal marketing Internal marketing

The application of
Much appears to depend on internal marketing, which is the application of mar-
marketing internally
within the company, with keting internally within the company, with programmes of communication and guid-
programmes of commu- ance targeted at internal audiences.29, 30 For example, it has been shown that there is
nication and guidance a relationship between satisfied employees, marketing orientation and organizational
targeted at internal performance.31 Internal marketing plays a vital role in developing a customer-focused
audiences to develop
organization and helps ensure coherent relationship marketing.32 Internal marketing is
responsiveness and a
unified sense of purpose based on communication, the development of responsiveness and a unified sense of
among employees. purpose among employees. It aims to develop internal and external customer aware-
ness, and to remove functional or human barriers to organizational effectiveness. Internal
marketing centres on the notion that every member of the organization has a ‘supplier’
and a ‘customer’. Long-term, ongoing relationships require improved customer service. High levels
of service depend on individuals ensuring that their suppliers and customers are happy. The con-
cept also requires that all members of staff work together, in tune with the organization’s mission,
strategy and goals. The aim is to ensure that all staff represent the business in the best possible
way in all transactions they have with suppliers, customers and other staff.33 A new marketing
strategy or modified marketing plan will not be implemented if personnel within the organization
do not understand the direction being recommended, fail to appreciate their role in executing the
strategy, feel unmotivated or refuse to comply. Internal marketing is a philosophy for managing
human resources with a marketing perspective.34
In order to achieve this internal cohesiveness, internal marketers propose six steps:35
1. the creation of internal awareness
2. identification of internal ‘customers’ and ‘suppliers’
3. determination of internal customers’ expectations
4. communication of these expectations to internal suppliers
5. internal suppliers’ modifications to their activities to reflect internal customers’ views
6. a measure of internal service quality and feedback to ensure a satisfactory exchange between
internal customers and suppliers.
Marketing activities cannot be implemented effectively without the cooperation of employees.

Employees are the essential ingredient in increasing productivity, providing customer service and
beating the competition. Thus, in addition to marketing activities targeted at external custom-
ers, companies use internal marketing to attract, motivate and retain qualified internal customers
(employees) by designing internal products (jobs, roles, strategies and plans) to satisfy employees’
wants and needs. Generally speaking, internal marketing refers to the managerial actions necessary
to make all members of the marketing organization understand and accept their respective roles in
implementing the marketing strategy. This means that all of them, from the CEO of the company
to the hourly workers on the shop floor, must understand the role they play in carrying out their
jobs and implementing the marketing strategy.36 Everyone must do his or her part to ensure that
customers are satisfied. All personnel within the company, both marketers and those who perform
other functions, should recognize the tenet of customer orientation and service that underlies the
marketing concept.
As with external marketing activities, internal marketing may involve market segmentation, prod-
uct development, research, distribution, websites and even public relations and sales promotion.
The internal marketing framework is shown in Figure 23.9. As in external marketing, the marketing
mix is used in the internal marketing approach to satisfy the needs of employees. For example, an
organization may sponsor sales competitions to encourage sales personnel to boost their selling
efforts. Some companies encourage employees to work for their companies’ customers for a
period of time, often while continuing to receive their regular salaries. This helps the employees,
and ultimately the company, to better understand customers’ needs and problems, enables them
to learn valuable new skills and heightens their enthusiasm for their regular jobs. In addition, many
companies use planning sessions, workshops, letters/emails, webinars, online fora, formal reports
and personal conversations as tools of internal distribution to ensure that employees understand
the corporate mission, the organization’s goals and the marketing strategy. The end results are
more satisfied employees and improved customer relations.
Internal marketing requires the acceptance of the need for improved internal communication,
information sharing and liaison across business functions and managerial hierarchies.37 The core
requirements are:
●● information sharing of marketing intelligence/market insight

●● orientation sessions to familiarize staff with marketing strategies and marketing plans
●● multi-functional team interaction
●● formalized internal marketing communications campaigns
●● debrief and feedback sessions

●● incentivized staff motivation
●● empowerment of line management to take ownership of problems
●● the encouragement of ‘success stories’ to champion
●● identification of colleagues not ‘buying-in’ and appropriate remedial actions.
Marketing strategy
Marketing implementation
Internal External
marketing marketing
programme programme
Marketing Marketing
mix mix
Figure 23.9
The internal marketing framework
Source: From Market-Led Strategic Change Target audiences Customer
4th edition by Nigel F. Piercy, Butter-
within the groups or
worth-Heinemann. Copyright © 2009 Nigel
F. Piercy. organization target markets
In order to exploit the internal market effectively, thought must be devoted to establishing commu-
nication channels, leadership qualities, associated resources, information, and clear internally focused
propositions and messages. All of this would routinely be undertaken for an external customer or
target market, so why not within the business to ensure staff understanding and cooperation?
Total quality management

A concern in many organizations is total quality management. It is a concept typically led by
operations management colleagues. Major reasons for this concern about quality are heightened
competition, more demanding customers and poorer profit performance due to reduced
total quality manage- market shares and higher costs. Total quality management (TQM) is the coordination
ment (TQM) of efforts directed at improving all aspects of a business: enhancing customer satisfac-
Coordinated efforts tion, increasing employee participation and empowerment, forming and strengthening
directed at improving all supplier partnerships, and facilitating an organizational culture of continuous quality
aspects of a business
from product and service
improvement. Customer satisfaction can be improved through higher-quality products
quality to customer and and better customer service, such as reduced delivery times, faster responses to cus-
employee satisfaction. tomer enquiries and treatment of customers that exhibits a caring attitude on the part
of the company.
As a management philosophy, TQM relies heavily on the talents of employees to continually

improve the quality of the organization’s goods and services. The TQM philosophy is founded
on three basic principles: empowered employees, continuous quality improvement and quality
improvement teams.38
Empowered employees Ultimately, TQM succeeds or fails because of the efforts of the organi-
zation’s employees. Thus employee recruitment, selection and training are critical to the success of
marketing implementation. Empowerment means giving employees the authority to make decisions
in order to satisfy customer needs. However, empowering employees is successful only if the orga-
nization is guided by an overall corporate vision, shared goals and a culture that supports the TQM
effort.39 Customer-contact employees often continue to maintain productivity levels (i.e. getting the
tasks done) even while the quality of their work deteriorates. Providing control mechanisms that
achieve desired quality standards can maintain productivity and quality.40 Such a system cannot
spring up overnight. A great deal of time, effort and patience are needed to develop and sustain a
quality-oriented culture in an organization. Three years of training workshops and evolution were
required at JCB before TQM became firmly established as a managerial philosophy.
Continuous quality improvement The continuous improvement of an organization’s products

and services is built around the notion that quality is free: not having high-quality goods and
services can be very expensive, especially in terms of dissatisfied customers.41 The continuous
improvement of quality also means more than simple quality control, or the screening out of bad
products during production. Rather, continuous improvement means building in quality from the
very beginning, totally redesigning the product if necessary. Continuous improvement is a slow,
long-term process of creating small improvements in quality. Companies that adopt TQM realize
that the major advancements in quality occur because of an accumulation of these small improve-
ments over time. A build-on TQM is Six Sigma’s process improvement, popular in a variety of
businesses, particularly large manufacturers.
A primary tool of the continuous quality improvement process is benchmarking, or
benchmarking
The process of com-
the measurement and evaluation of the quality of an organization’s goods, services or
paring the quality processes as compared with the best-performing companies in the industry.42 Bench-
of an organization’s marking enables an organization to know where it stands competitively in its industry,
goods, services or thus giving it a goal to aim for over time. This goal is usually to be the best in the industry.
processes with those
of its best-performing
competitors.
Quality improvement teams The idea behind the team approach is to get the best
and brightest people from a wide variety of perspectives working on a quality improve-
ment issue simultaneously. Team members are usually selected from a cross-section
of jobs within the organization, as well as from among suppliers and customers. Customers are
included in the quality improvement team because they are in the best position to know what they
and other customers want from the company. Suppliers, too, understand the market.
Total quality management can provide several benefits. Overall financial benefits include lower
operating costs, a higher return on sales and investment, and an improved ability to use premium
pricing rather than competitive pricing. Additional benefits include faster development of innova-
tions, improved access to global markets, higher levels of customer retention and an enhanced
reputation.43 Despite these advantages, not all companies use the TQM approach, although the
numbers are growing. The reason is that putting the TQM philosophy into practice requires a great
deal of organizational resources: time, effort, money and patience on the part of the organization.
However, companies with the resources necessary to implement TQM gain an effective means of
achieving major competitive advantages in their respective industries.
Although many factors can influence the effectiveness of the internal marketing and total quality
management approaches, two issues are crucial. First, top management must be totally committed
to internal marketing or TQM and must make either one or both of the approaches their top priority.
Committed top managers serve as role models for other managers and employees.44 It is naive
for managers to expect employees to be committed to an approach when top managers are not.
Second, management must coordinate the specific elements of these approaches to ensure that
they work in harmony with each other. Over-emphasizing one aspect of relationship marketing,
internal marketing or TQM can be detrimental to the other components, thus limiting the success
of the overall programme.
Controlling marketing activities

To achieve marketing objectives as well as general organizational goals, marketing
marketing control
process managers must control marketing efforts effectively. The marketing control process
One that establishes consists of establishing performance standards, evaluating actual performance by com-
performance standards, paring it with established standards, and reducing the differences between desired and
evaluates actual per- actual performance, taking corrective action if necessary. Dunkin’ Donuts has developed
formance and reduces
a programme to ensure consistency throughout its franchises. Dunkin’ Donuts controls
the differences between
desired and actual the quality of operations in its franchised units by having franchisees attend Dunkin’
performance. Donuts University. Owners and managers of Dunkin’ Donuts outlets are required to take
a six-week training course, covering everything from customer relations and marketing
to production, including a test of making 140 dozen doughnuts in eight hours. As part
of the test, an instructor selects six of the 1680 doughnuts made at random, to ascertain that they
weigh around 350 grams (12 ounces) and measure just under 20 centimetres (eight inches) when
stacked. The Dunkin’ Donuts University was opened to guarantee uniformity in all aspects of the
company’s operations throughout the 12 500 franchise units.
Although the control function is a fundamental management activity, it has until recently received
little attention in marketing. There are both formal and informal control systems in organizations.
The formal marketing control process involves performance standards and metrics, evaluation
of actual performance and corrective action to remedy shortfalls (see Figure 23.10). The informal
control process, however, involves self-control, social or group control, and cultural control through
acceptance of a company’s value system. Which type of control system dominates depends on
the environmental context of the business.45
Most well-run organizations monitor the roll-out of their marketing strategies and marketing
plans. For example, Raytheon’s senior managers hold quarterly review meetings with the busi-
ness unit managers tasked with implementing the annually agreed marketing plans. At each
meeting, problems in effectively actioning the plan or barriers impeding progress are highlighted
and appropriate steps specified to remedy the problems. This may result in senior managers
forcing others in the organization to comply with the plan’s recommendations or reallocating
resources as required. Often, the review meeting itself is sufficient motivation for the business
unit managers to increase momentum. Implicit in this approach is the need to specify deliverables
from the marketing strategy, marketing plan or marketing programme that may be assessed in
order to determine the extent of successful implementation and the effectiveness of the market-
ing activity in the marketplace.
Establishing performance standards

Planning and controlling are closely linked because plans include statements about what is to be
accomplished. For purposes of control, these statements function as performance standards. A perfor-
mance standard is an expected level of performance against which actual performance can
performance standard be compared. Examples of performance standards might be the reduction of customers’
An expected level of per-
formance against which
complaints by 20 per cent, a monthly sales quota of £150 000, a 10 per cent increase per
actual performance can month in new customer accounts, or an increase in a measure of brand awareness. Perfor-
be compared. mance standards are also given in the form of budget accounts – marketers are expected
to achieve a certain objective without spending more than a given amount of resources.
Development or
4 Corrective action,
adjustment of
if necessary
marketing objectives
Information
control
processes
3 Evaluation of actual
2 Establishment of
performance relative
performance
to established
standards
standards
Figure 23.10
The marketing control
process
Performance standards can relate to product quality and should be tied to organizational goals.
Table 23.1 details the most frequently used performance standards adopted among the profes-
sional members of the UK’s Chartered Institute of Marketing. A more recent addition to perfor-
mance standards is that of marketing shareholder value.
Evaluating actual performance

To compare actual performance with performance standards, marketing managers must know
what marketers within the company are doing and must have information about the activities of
external organizations that provide the business with marketing assistance. Records of actual per-
formance are compared with performance standards to determine whether a discrepancy exists
and if so, how much of one. For example, a salesperson’s actual sales are compared with his or her
sales quota. If there is a significant negative discrepancy, the sales manager takes corrective action.
A marketing research company may be contracted to produce quarterly surveys, providing the
analyzed results within ten days of each survey’s completion. If the report is late and the sampling
or analysis inaccurate, the marketer will probably switch to an alternative supplier.
Taking corrective action

Marketing managers have several options for reducing a discrepancy between established perfor-
mance standards and actual performance. They can take steps to improve actual performance, or
they may review the performance standard and possibly redefine it. Changes in actual performance
Table 23.1 Currently popular performance standards

Key marketing financial performance standards include:
●● revenue growth
●● return on investment (RoI)
●● product profitability
●● customer profitability
●● earnings before interest, taxes, depreciation and amortization (EBITDA)
●● return on sales
●● total return to shareholders
●● return on capital employed
●● sales per square metre (for retailers).
Leading non-financial marketing performance standards include:
●● customer satisfaction
●● delivery performance
●● new customers gained
●● market share
●● customer loyalty
●● customer dissatisfaction
●● brand awareness
●● lost customers
●● price level achieved
●● customer brand attitudes.
Source: Adapted from Sally Dibb and Lyndon Simkin, Marketing Briefs: A Revision and Study Guide (Oxford: Elsevier, 2004); plus a survey of UK
Chartered Institute of Marketing members’ views.
Digital marketing metrics are detailed in Chapter 19.
may require the marketing manager to use better methods of motivating marketing personnel or to
find more effective techniques for coordinating marketing efforts. In order to prescribe corrective
action, it is necessary to diagnose problems and investigate the challenges facing a company’s
marketers. The Marketing Tools and Techniques box below entitled ‘The Dibb/Simkin implemen-
tation audit as applied to a B2B company’ presents the market status audit, as developed for a
leading business-to-business company’s marketing department. This is a comprehensive exam-
ination of trends in a market linked to the assessment of reasons for under-performance. Certain
performance standards (see above) are included in this company’s audit process, which is loosely
related to the marketing audit described in Chapter 22. The audit featured in the Marketing Tools
and Techniques box was administered via an email questionnaire to managers across the compa-
ny’s many business units, supported by plenary discussions.
Requirements for an effective control process

A marketing manager should consider several requirements in creating and maintaining effective
marketing control processes.46 Effective control hinges on the quantity and quality of information
available to the marketing manager and the speed at which it is received. The control process
should be designed so that the flow of information is rapid enough to allow the marketing manager
to quickly detect differences between actual and planned levels of performance. A single control
procedure is not suitable for all types of marketing activity, and internal and environmental changes
affect an organization’s activities. Therefore control procedures should be flexible enough to adjust
to both varied activities and changes in the organization’s situation. For the control process to be
usable, its costs must be low relative to the costs that would arise if controls were lacking. Finally,
the control process should be designed so that both managers and subordinates can understand
it and its requirements.
Problems in controlling marketing activities

When marketing managers attempt to control marketing activities, they frequently run into several
problems. Often, the information required to control marketing activities is unavailable or available
only at a high cost. Even though marketing controls should be flexible enough to allow for environ-
mental changes, the frequency, intensity and unpredictability of such changes may hamper effective
control. In addition, the time lag between marketing activities and their effects limits a marketing
manager’s ability to measure the effectiveness of marketing activities.
As marketing and other business activities overlap, marketing managers cannot always deter-
mine the precise cost of marketing activities. Without an accurate measure of marketing costs, it
is difficult to know if the effects of marketing activities are worth their expense. Marketing control
may be difficult because it is very hard to develop exact performance standards for certain mar-
keting personnel.
The Dibb/Simkin imple- Marketing also important. Most marketing plans

mentation audit as applied tools and now conclude with clear statements
of what is planned and how it is
to a B2B company techniques intended to deliver this programme,
so that an assessment of progress is
This book has explored the essential
possible and, more crucially, colleagues
marketing analyses required to build
know what is supposed to be happening and what their own
up a view of a market as necessary for informed decision-
role is in this implementation.
making when determining a marketing strategy. These stra-
These are marketing planning templates used by a leading
tegic choices have also been explored: the opportunities to
IT player to help in the planning of the execution of its mar-
pursue, target market selection, brand positioning, the basis
keting plans. The first sums up the proposition being taken
for competing and customer value propositions. The chosen
to market, including target market, customer targets and the
marketing strategy is executed with assiduously constructed
customer value proposition. Intended to orientate colleagues
marketing mix programmes. However, the marketing process
across the organization, this template also highlights some
does not end there. Unless the operationalization of the agreed
of the impending challenges both externally in the market-
marketing programmes is planned, managed and controlled,
place and within the organization. The second template breaks
no matter how smart the marketing strategy it will not deliver
down the proposed marketing mix and customer engagement
the desired results.
requirements into the many activities involved, allocates costs
Effective implementation depends on many components.
and those responsible for ensuring execution over the coming
The strategy and plan need to be turned into a roadmap, indi-
eighteen months.
cating what route should be followed, its key milestones and
The third builds on this to further explore scheduling,
expected destination. Who will undertake the many activities
costs, responsibilities, but also where the likely pinch-points
which collectively form the planned marketing programme(s)
will be and what hurdles must be overcome by the organiza-
must be specified, as well as what they will be doing, how
tion if its marketing strategy is to be successful. The final one
and when, along with at what cost and with what resources.
of this set (part of a much larger set of templates deployed
Outcomes must be agreed so that ongoing performance and
by this company) identifies the ongoing required pipeline of
the effectiveness of rolling out the plan may be monitored
developments necessary to successfully follow through with
and judged.
the agreed strategy. The senior leadership team in the organi-
Rarely does everything work out perfectly smoothly…
zation uses these outputs to allocate resources, make neces-
factors in the market may change or operational effective-
sary improvements to the way in which the business operates
ness within the organization may impede progress. Having a
and to have milestones against which the effectiveness of the
review process is of fundamental importance to the success
plan’s roll-out is measured.
of a marketing strategy. Knowing what to review therefore is
Our Proposition Company XYZ
The XYZ compelling proposition:

(Product/Service offering)
Likely sales:
(Volumes/Ex + When)
Principal target customers & Key
influencing/deciding personnel:
Main key customer values &
needs to be satisfied:
Leading competitive threats:

(Rivals + Threats posed)
Key XYZ weaknesses/Deficiencies:
XYZ’s basis for competing:

(Strengths + Differential advantages)
Desired XYZ product/Brand
positioning & Brand promise:
Any gaps/Urgent requirements/Likely
problems:
(Advanced warning of difficulties)
Resourcing and Execution Company XYZ

Key activities Person responsible Scheduling/Timing Anticipated costs Resourcing gaps
Customer Engagement Activities Company XYZ
2019 2020
Q1 Q2 Q3 Q4 Q1 Q2
Activities
Operat-
Costs:
ional
CapEx
Costs:
Owner
Other
needs
+
Medium-Term Requirements/Developments Company XYZ

Area Requirements
Internal structure/Operations:
Market development:
Resource base:
Products/Services:
Sales force:
Campaigns/Marketing:
Channel management/Partnering:
Pricing/Cost base:
Training/Skills:
Recruitment:
Other:
Source: Dibb/Simkin, Copyright 2018
Methods of evaluating performance

There are specific methods for assessing and improving the effectiveness of a marketing strategy. A
marketer should state in the marketing plan what a marketing strategy is supposed to accomplish.
These statements should set forth performance standards, which are usually stated in terms of
RoI, profits, sales, market share, brand awareness, customer satisfaction levels or the variables
detailed in Table 23.1. Actual performance must be measured in similar terms so that comparisons
are possible.
This section describes sales analysis and marketing cost analysis, two general ways of evaluating
the actual performance of marketing strategies. ‘Softer’ measures, such as brand awareness and
customer satisfaction levels, are also important and feature in the performance standards adopted
by marketing-led businesses. An emerging tool for assessing performance is also described in this
section: marketing shareholder value analysis.
Sales analysis
sales analysis Sales analysis uses sales figures to evaluate a company’s current performance. It is
The use of sales figures
probably the most common method of evaluation, because sales data partially reflect
to evaluate a business’s
current performance. the target market’s reactions to a marketing mix and are often readily available, at least
in aggregate form.
Marketers use current sales data to monitor the impact of current marketing efforts.
However, that information alone is not enough. To provide useful analyses, current sales data
must be compared with forecast sales, previous sales, industry sales, specific competitors’ sales
or the costs incurred to achieve the sales volume. For example, knowing that a store attained
a £600 000 sales volume this year does not tell management whether its marketing strategy
has been successful. However, if managers know that expected sales were £550 000, they are
then in a better position to determine the effectiveness of the company’s marketing efforts. In
addition, if they know that the marketing costs needed to achieve the £600 000 volume were
12 per cent less than budgeted, they are in an even better position to analyze their marketing
strategy precisely.
sales measurement Sales measurements Although there are several types of sales measurement, the
Data regarding sales basic unit of measurement is the sales transaction. A sales transaction results in a cus-
transactions that are used tomer order for a specified quantity of an organization’s product sold under specified
to analyze performance, terms by a particular salesperson or sales group on a certain date. Many organizations
usually in terms of cash
record these bits of information about their transactions. With such a record, a company
volume or market share.
can analyze sales in terms of cash or sales volume, or market share.
Companies frequently use cash volume sales analysis because currency is a com-
mon denominator of sales, costs and profits. However, price increases and decreases affect total
sales figures. A marketing manager who uses cash volume analysis should factor-out the effects
of price changes.
A company’s market share is the company’s sales of a product stated as a per-
market share centage of industry sales of that product. For example, KP, Golden Wonder and Walkers
The company’s sales of a account for around 70 per cent of the UK savoury snacks market. In the carbonated
product stated as a per- drinks sector, Coca-Cola has a leading share by volume.47 Market share analysis permits
centage of industry sales
of that product.
a company to compare its marketing strategy with competitors’ strategies. The pri-
mary reason for using market share analysis is to estimate whether sales changes have
resulted from the company’s marketing strategy or from uncontrollable environmental
forces. When a company’s sales volume declines but its share of the market stays the same, the
marketer can assume that industry sales declined because of some uncontrollable factors and that
this decline was reflected in the company’s sales. However, if a company experiences a decline
in both sales and market share, it should consider the possibility that its marketing strategy is not
effective. The competitive positions proforma analysis described in Chapter 2 of Marketing: Con-
cepts and Strategies incorporates market share analysis to infer the relative performance of the
competitive set within a market segment.
Even though market share analysis can be helpful in evaluating the performance of a marketing
strategy, the user must interpret results cautiously. When attributing a sales decline to uncontrol-
lable factors, a marketer must keep in mind that such factors do not affect all companies in the
industry equally. Not all companies in an industry have the same objectives, and some change their
objectives from one year to the next. Changes in the objectives of one company can affect the mar-
ket shares of one or all companies in that industry. For example, if a competitor increases promo-
tional efforts significantly or drastically reduces prices to increase market share, a company could
lose market share despite a well-designed marketing strategy. Within an industry, the entrance of
new companies or the demise of established ones also affects a specific company’s market share,
and market share analysts should attempt to account for these effects. KFC, for example, probably
re-evaluated its marketing strategies when McDonald’s introduced its own chicken products. Most
fast-food companies revised their strategies and performance expectations in the light of media
attention about obesity problems and drives for healthier eating.
Whether based on sales volume or market share, sales analysis can be performed on aggregate
sales figures or on disaggregated data. Aggregate sales analysis provides an overview of current
sales. Although helpful, aggregate sales analysis is often insufficient, because it does not bring to
light sales variations within the aggregate. It is not uncommon for a marketer to find that a large
proportion of aggregate sales comes from a small number of products, geographic areas or cus-
tomers. This is sometimes called the ‘iceberg principle’, because only a small part of an iceberg
is visible above the water. To find such disparities, total sales figures are usually broken down by
geographic unit, channel, salesperson, product, customer type, segment or a combination of
these categories.
In sales analysis by geographic unit, sales data can be classified by city, county, region, country
or any other geographic designation for which a marketer collects sales information. Actual sales in
a geographic unit can be compared with sales in a similar geographic unit, with last year’s sales or
with an estimated market potential for the area. For example, if a company finds that 18 per cent
of its sales are coming from an area that represents only eight per cent of the potential sales for the
product, then it can be assumed that the marketing strategy is successful in that geographic unit.
As a result of the cost associated with hiring and maintaining a salesforce, businesses com-
monly analyze sales by salesperson to determine the contribution each member of the salesforce
makes. Performance standards for each salesperson are often set in terms of sales quotas for a
given time period. Evaluation of actual performance is accomplished by comparing a salesperson’s
current sales with a pre-established quota or some other standard, such as the previous period’s
sales. If actual sales meet or exceed the standard, and the sales representative has not incurred
costs above those budgeted, that person’s efforts are acceptable.
Sales analysis is often performed according to product group or specific product item. Mar-
keters break down their aggregate sales figures by product to determine the proportion that each
contributed to total sales. Disney, for example, might break down its total sales figures by box office
figures for each film produced. A company usually sets a sales volume objective and sometimes
a market share objective for each product item or product group, and sales analysis by product
is the only way to measure such objectives. A marketer can compare the breakdown of current
sales by product with those of previous years. In addition, within industries for which sales data by
product are available, a company’s sales by product type can be compared with industry averages.
To gain an accurate picture of where sales of specific products are occurring, marketers sometimes
combine sales analysis by product with sales analysis by geographic area or salesperson.
Analyses based on customers are usually broken down by type of customer or market segment.
Customers can be classified by the way they use a company’s products, their distribution level,
producer, wholesaler, retailer size, the size of orders, or other characteristics. Sales analysis by
customer type enables a company to ascertain whether its marketing resources are allocated in a
way that achieves the greatest productivity. For example, sales analysis by type of customer may
reveal that 60 per cent of the salesforce is serving a group that accounts for only 15 per cent of
total sales. When market segments have been identified, sales per segment are compared against
forecasts.
A considerable amount of information is needed for sales analyses, especially if disaggregated
analyses are desired. The marketer must develop an operational system for collecting sales infor-
mation; obviously, the effectiveness of the system for collecting sales information largely determines
the ability of a company to develop useful sales analyses. As outlined in Chapter 18, control of a
salesforce is part of effective sales management, and most organizations routinely scrutinize the
performance of their salesforces.
Marketing cost analysis

Although sales analysis is critical for evaluating the effectiveness of a marketing strategy, it gives
only part of the picture. A marketing strategy that successfully generates sales may also be
extremely costly. To obtain a complete picture, a company must know the marketing
marketing cost costs associated with using a given strategy to achieve a certain sales level. Marketing
analysis cost analysis breaks down and classifies costs to determine which are associated with
The breakdown and
specific marketing activities. By comparing the costs of previous marketing activities with
classification of costs
to determine which are results generated, a marketer can better allocate the business’s marketing resources in
associated with specific the future. Marketing cost analysis lets a company evaluate the effectiveness of an ongo-
marketing activities. ing or recent marketing strategy by comparing sales achieved and costs incurred. By
pinpointing exactly where a company is experiencing high costs, this form of a nalysis can
help isolate profitable or unprofitable customer segments, products or geographic areas.
In some organizations, personnel in other functional areas such as production or accounting
perceive marketers as primarily concerned with generating sales, regardless of the costs incurred.
Marketers often do commit a large proportion of resources to launching products, achieving dis-
tribution or creating promotional campaigns. By conducting cost analyses, marketers can counter
this criticism and put themselves in a better position to demonstrate how marketing activities
contribute to generating profits. Even though hiring a sports figure such as David Beckham or
Harry Kane is costly, in many sectors sales goals cannot be reached without large expenditures
for promotion. Many advertisers believe that using celebrities helps to increase sales. Research
shows that the public are good at identifying which personalities are linked to advertised brands.
Ultimately, cost analysis should show if promotion costs are effective in increasing sales.
A robust marketing plan – see Chapter 22 – is not complete without a detailed budget which,
when balanced with the sales forecast, marketing analyses, strategic thinking and detailed mar-
keting mix programmes, explains the required marketing spend. In effect, a sound marketing
plan should offer a cost–benefit analysis in terms of setting the anticipated costs of rolling out the
proposed marketing programmes against the expected sales levels and revenue gains. Marketing
cost analysis is a necessary facet for managing a well-run marketing department.
The task of determining marketing costs is often complex and difficult. Simply ascertaining
the costs associated with marketing a product is rarely adequate. Marketers must usually deter-
mine the marketing costs of serving specific geographic areas, market segments or even specific
customers. The ABC sales – contribution analysis outlined in Chapter 12 is a useful tool in this
endeavour.
A first step in determining the costs is to examine accounting records. Most account-
natural accounts ing systems classify costs into natural accounts – such as rent, salaries, office supplies
The classification of costs and utilities – which are based on how the money was actually spent. Unfortunately,
based on how money
many natural accounts do not help explain what marketing functions were performed
was actually spent.
through the expenditure of those funds. It does little good, for example, to know that
£80 000 is spent for rent each year. The analyst has no way of knowing whether the
marketing function money is spent for the rental of production, storage, marketing or sales facilities. There-
accounts fore, marketing cost analysis usually requires some of the costs in natural accounts to be
A method of indicating reclassified into marketing function accounts, which indicate the function performed
the function performed through the expenditure of funds. Common marketing function accounts are transport,
through the expenditure
of funds.
storage, order processing, sales, advertising, sales promotion, marketing research,
insight, digital, consultancy and customer credit. Most companies allocate outgoings to
cost codes for auditing purposes.
Natural accounts can be reclassified into marketing function accounts, as shown in the sim-
plified example in Table 23.2. Note that a few natural accounts, such as advertising, can be
reclassified easily into functional accounts because they do not have to be split across several
accounts. For most of the natural accounts, however, marketers must develop criteria for assign-
ing them to the various functional accounts. For example, the number of square metres of floor
space used was the criterion for dividing the rental costs in Table 23.2 into functional accounts. In
some instances, a specific marketing cost is incurred to perform several functions. A packaging
Table 23.2 Reclassification of natural accounts into functional accounts

Profit and loss statement
Sales £250 000 Functional accounts
Cost of goods sold 45 000
Personal Marketing Non-
Gross profit 205 000
Advertising selling Transport Storage research marketing
Expenses (natural accounts)
Rent £ 14 000 £ 7 000 £6 000 £ 1 000
Salaries 72 000 £ 12 000 32 000 £7 000 £1 000 20 000
Supplies 4 000 1 500 1 000 1 000 500
Advertising 16 000 16 000
Freight 4 000 2 000 2 000
Taxes 2 000 200 1 800
Insurance 1 000 600 400
Interest 3 000 3 000
Bad debts 6 000 6 000
£29 500 £40 000 £9 000 £6 800 £2 000 £34 700
Total £ 122 000
Net profit £ 83 000
cost, for example, could be considered a production function, a distribution function,

direct costs
Costs directly attributable a promotional function, brand marketing or all four. The marketing cost analyst must
to the performance of reclassify such costs across multiple functions.
marketing functions. Three broad categories are used in marketing cost analysis: direct costs, traceable
common costs and non-traceable common costs. Direct costs are directly attributable
traceable common to the performance of marketing functions. For example, web managers’ salaries might
costs be allocated to the cost of selling a specific product item, selling in a specific geographic
Costs that can be allo- area or selling to a particular customer. Traceable common costs can be allocated
cated indirectly, using one
indirectly, using one or several criteria, to the functions that they support. For example, if
or several criteria, to the
functions they support. the company spends £80 000 annually to rent space for production, storage and selling,
the rental costs of storage could be determined on the basis of cost per square metre
used for storage. Non-traceable common costs cannot be assigned according to
non-traceable any logical criteria and thus are assignable only on an arbitrary basis. Interest, taxes and
common costs the salaries of top management are non-traceable common costs.
Costs that cannot be
The manner of dealing with these three categories of costs depends on whether the
assigned according to
any logical criteria. analyst uses a full cost or a direct cost approach. When a full cost approach is used,
cost analysis includes direct costs, traceable common costs and non-traceable common
costs. Proponents of this approach claim that if an accurate profit picture is desired, all
full cost approach costs must be included in the analysis. However, opponents point out that full costing
An approach in which does not yield actual costs, because non-traceable common costs are determined by
cost analysis includes arbitrary criteria. With different criteria, the full costing approach yields different results.
direct costs, traceable
common costs and
A cost-conscious operating unit can be discouraged if numerous costs are assigned
non-traceable common to it arbitrarily. To eliminate such problems, the direct cost approach is used, which
costs. includes direct costs and traceable common costs but not non-traceable common costs.
Opponents say that this approach is not accurate, because it omits one cost category.
Table 23.3 Functional accounts divided into product group costs

Product groups
Functional accounts A B C
Advertising £29 500 £14 000 £ 8 000 £ 7 500
Personal selling 40 000 18 000 10 000 12 000
Transport 9 000 5 000 2 000 2 000
Storage 6 800 1 800 2 000 3 000
Marketing research 2 000 — 1 000 1 000
Total 87 300 38 800 23 000 25 500
direct cost approach Marketing shareholder value analysis

An approach that includes
Building on the rationale for marketing cost analysis, the concept of value-based mar-
only direct costs and
traceable common costs. keting has emerged in recent years. Value-based marketing is the inclusion of the
value of a marketing strategy and programme in an organization’s financial analysis of
shareholder value. To achieve this, marketing shareholder value analysis (MSVA)
value-based marketing divides the estimation of the value to the business created by a marketing strategy into
The inclusion of the value two components:
of a marketing strategy
and marketing activity 1. The present value of cash flows during the strategizing and planning phases.
in an organization’s 2. The continuing value following implementation of the strategy.
financial analysis of
shareholder value. MSVA provides a means of demonstrating the contribution of marketing to the orga-
nization’s financial performance. This also enables marketing assets – such as marketing
knowledge, brands, customer loyalty and strategic relationships – to be included in the

marketing shareholder
value analysis (MSVA) shareholder value analysis (SVA), as each can be shown to have quantifiable financial
Divides the estimation of value to the business. MSVA enables marketers to communicate the expected results
the value to the organiza- of their marketing strategies in terms comprehended by top management and investors.
tion created by a marketing The analysis supports marketers’ requests for budgets, notably those traditionally most
strategy into two compo-
at risk of cost cutting in times of reduced demand, such as advertising and marketing
nents: (1) the present value
of cash flows during the research.
strategizing and planning In many organizations, the lack of a true marketing orientation has allowed the
phases (2) the continuing finance function to take over the notion of shareholder value analysis (SVA).48 Accord-
value after implementation ing to leading marketing strategist Peter Doyle, by focusing on short-term profits
of the strategy.
and ignoring intangible assets such as brand awareness and customer satisfaction,
traditional accounting practices have marginalized marketing activity. However, SVA
marketing can in fact bring the core strategic drivers of marketing to the fore in the form of
performance MSVA. Marketing has struggled to quantify results in order to demonstrate its value.
The assessment of the
effectiveness of mar-
By adopting MSVA, marketers can reverse this state of affairs. MSVA can help justify
keting programmes to marketing actions in terms of their propensity to bring financial value to the busi-
implement recommended ness. MSVA offers marketing a greater theoretical base and encourages profitable
marketing strategies, marketing investment. MSVA also penalizes arbitrary cuts to the marketing budget,
fulfil corporate financial something encountered regularly by marketers when a company’s fortunes decline
expectations and achieve
the required levels of
suddenly.
customer satisfaction.
Performance measures
marketing metrics
The evaluation of marketing performance – the assessment of the effectiveness of
Specific measurable and
quantifiable criteria used marketing programmes to implement recommended marketing strategies, fulfil cor-
to evaluate the effec- porate financial expectations and achieve the required levels of customer satisfaction
tiveness of a marketing – is a necessary control mechanism in the marketing process. Marketing must agree
strategy and assess mar- marketing metrics and be judged against these. Table 23.1 presented some popu-
keting performance.
lar performance measures adopted by marketers to assess overall markets, specific
segments or product lines. Most UK companies are notoriously short term in their
sales per square metre thinking, focusing on profitability as their overriding measure. Other financial measures
A financial measure retail- include return on investment, return on capital employed and, for retailers, sales per
ers might use to assess
square metre of selling space. In businesses generating a lot of cash, EBITDA is
marketing performance.
important: earnings before interest, taxes, depreciation and amortization. Units pro-
duced and units sold are included as measures by most manufacturers, leading to
EBITDA an assessment of production capacity utilization. Market share is a vital criterion for
The acronym for earn-
ings before interest,
judging performance.
taxes, depreciation and While it is, unquestionably, important for businesses to be financially viable, mak-
amortization. ing adequate profits to be able to fund future investments in production, people, new
products, new target markets and so forth, increasingly marketers have accepted the
customer satisfaction
need to evaluate performance on additional, more customer-oriented measures.49
A qualitative measure of Marketing aims to satisfy customers, so it is sensible to monitor customer satis-
marketing performance faction and retention. A qualitative measure of marketing performance, assessing
that involves surveying customer satisfaction involves surveying customers’ perceptions and expecta-
customers over time. tions over time in order to determine the effectiveness of the marketing programme
in servicing their needs. Over time, such surveys should reveal an improvement in
brand awareness customer satisfaction levels, otherwise it could be argued that the marketing strategy
A qualitative measure of and programme are failing to fully address target customer needs and expectations.
marketing performance Most hotel companies operate room card/email/SMS surveys of guest satisfaction
that determines whether
a company’s brands cap-
in order to monitor customers’ experiences and improve the performance of their
ture the attention of their staff, services and facilities. A measure of brand awareness is also monitored
target markets. by a growing number of marketers, usually through qualitative marketing research
surveys, to ensure that their marketing programmes are effectively bringing their brands and
products to their target market’s attention. While such tracking involves qualitative marketing
research, measures of customer satisfaction and brand awareness should be integral to a
business’s assessment of performance, alongside the important traditional financial perfor-
mance measures.
Marketing communications is a major part of marketers’ activity and accounts for a significant
proportion of the marketing budget. Performance in the promotional mix, however, has taxed
experts for decades and there remain few proven objective solutions to determining the value of
promotional spend to the business’s overall fortunes. It is possible in public relations to use a social
media monitoring service to count the frequency of mentions of a specific brand or company in
selected media, but this approach fails to assess the positive/negative mix of mentions and cannot
extrapolate to draw conclusions relating to sales gains resulting specifically from this PR activity.
Sponsorship agencies monitor the awareness of clients’ brands when linked to sporting events
or the performing arts, but cannot prove that such awareness leads directly to increased sales of
products, better profitability or rising market share.
‘Hits’ on a company’s website are counted, but do these lead to sales or an enhanced corpo-
rate reputation? If an order is placed via the internet a link can be shown, but if not, it is difficult to
demonstrate a causal relationship between the website and sales. Even if an order is placed via the
web, it is possible that the customer was in fact responding primarily to a press or TV advertise-
ment or to an earlier in-store demonstration. It is possible to track YouTube hits or Twitter follower
numbers, but again, it is still not evident whether such digital activity led to an actual sale or order.
Nevertheless, digital marketing activities arguably are easier to measure than many traditional
marketing activities, as explored in Chapter 19.
Salesforce managers assess individual sales personnel in terms of the ratio of calls to
orders. In addition, the salesforce is directly involved in the selling process and instantly judges
its own performance. What stands for a good ratio of orders to calls is still a subjective
assessment. Sales promotions are perhaps the safest to measure as they generally require
customers to redeem coupons and vouchers or submit competition applications, all of which
may be counted. However, subjective judgement is still used in determining what constitutes
a ‘good’ redemption rate. Most problematic is the assessment of advertising effectiveness.
This is unfortunate as advertising often accounts for the largest individual proportion of the
marketing budget. It is possible, as described in Chapter 17, to monitor target audience aware-
ness of advertising, but not to prove that exposure to a specific advertisement has led to a
specific sale. At the moment, there are no easy solutions to this dilemma, yet marketers must
attempt to assess the performance of their activities, seeking to validate their promotional mix
spending. The tools described here are far from perfect but they demonstrate a willingness
to assess promotional effectiveness. Many businesses, unfortunately, fail to utilize even these
simplistic tools.50
Ultimately, a well-managed, customer-oriented company should use a mix of financial and
qualitative measures, such as those listed in Table 23.1, to judge its performance and the effec-
tiveness of its marketing. A company should adopt a balanced set of performance measures,
mixing the short-term view of profitability with the often longer-term perspective of market share
gains. It requires considerable resources to increase market share at the expense of rivals, which
may reduce short-term profitability. However, market share increases are likely to bring longer-term
security and rewards. In addition to the financial performance measures, marketers should insist
on being assessed on dimensions such as customer retention, customer satisfaction and brand
awareness. If marketing programmes are effective, these three customer-oriented criteria should
all show signs of improvement. Whatever the selected criteria for assessing marketing perfor-
mance, it is essential that marketers incorporate performance monitoring within their control and
management processes.
Summary
The organization of marketing activities involves allocating responsibilities for the marketing process and the development
of an internal structure for the marketing unit, including relationships and lines of authority and responsibility that connect
and coordinate individuals. The internal structure is the key to directing marketing activities. In a marketing-oriented orga-
nization, the focus is on finding out what customers want and providing it in a way that enables the company to achieve
its objectives, with the organization and leadership fully aligned to market developments and circumstances. A central-
ized organization is one in which the top-level managers delegate very little authority to lower levels of the business. In
a decentralized organization, decision-making authority is delegated as far down the chain of command as possible. An
extreme form of decentralization is empowerment, in which frontline employees are given the authority and responsibility
to make marketing decisions without seeking the approval of their supervisors.
The marketing unit can be organized by (1) functions, (2) products, (3) regions, or (4) types of customer. Category manage-
ment is an in-vogue variation of organizing by products in fmcg markets. An organization may use only one approach or a
combination.
Marketing implementation, a process that involves activities to put marketing strategies into action, is an important part of
the marketing management process. The requisites for implementation include process, skill, leadership, empowerment,
communication, timing, information, resource and participation decisions. Failure to address these issues prior to embark-
ing on marketing strategy formulation or the development of a marketing plan may result in the failure to produce recom-
mendations that are implemented.
To help ensure effective implementation, marketing managers must consider why the intended marketing strategies do not
always turn out as expected. The intended strategies often differ from the realized strategies because of the three prob-
lems of implementation: marketing strategy and implementation are related; they are constantly evolving; the responsibility
for them is separated. Marketing managers must also consider other vital components of implementation – resources,
systems, people, leadership and shared goals – to ensure the proper implementation of marketing strategies.
Implementation is an important part of the marketing management process. Proper implementation of a marketing plan
depends on internal marketing to motivate personnel who perform marketing activities, effective communication within
the marketing unit and the coordination of marketing activities. Managers can motivate personnel by linking rewards,
both financial and non-financial, to organizational goals. A company’s communication system must allow the marketing
manager to communicate with high-level management, with managers of other functional areas in the company and with
personnel involved in marketing activities both inside and outside the organization. Finally, marketing managers must
coordinate the activities of marketing personnel and integrate these activities with those in other areas of the company and
with the marketing efforts of personnel in external organizations.
Related approaches that organizations may use to help facilitate marketing implementation include relationship marketing,
internal marketing and total quality management (TQM). In relationship marketing, the focus is on winning and keeping
customers by maintaining links between marketing, quality, customer service and relevancy. This requires a company to
satisfy not only customers but also those audiences in the five markets model of relationship marketing: referral, supplier,
employee recruitment markets, influencer and internal markets. Internal marketing is the application of marketing inter-
nally within the company, with programmes of communication and guidance targeted at internal audiences to develop
responsiveness and a unified sense of purpose among employees. It is a philosophy for managing human resources with a
marketing perspective so that all members of the organization understand and accept their respective roles in implement-
ing the marketing strategy.
The TQM approach relies heavily on the talents of employees to continually improve the quality of the organization’s goods
and services. The three essentials of the TQM philosophy are empowered employees, continuous quality improvement
and the use of quality improvement teams. One of TQM’s primary tools is benchmarking, or measuring and evaluating the
quality of an organization’s goods, services or processes in relation to the best performing companies in the industry. Put-
ting the TQM philosophy into practice requires a great deal of organizational resources. For relationship marketing, internal
marketing or TQM to be successful, top management must be totally committed and the specific elements of these pro-
grammes must be coordinated to ensure that they work in harmony with each other.
The marketing control process consists of establishing performance standards, evaluating actual performance by com-
paring it with established standards, and reducing the difference between desired and actual performance. Performance
standards, which are established in the planning process, are expected levels of performance against which actual per-
formance can be compared. In evaluating actual performance, marketing managers must know what marketers within
the business are doing and must have information about the activities of external organizations that provide the company
with marketing assistance. Then actual performance is compared with performance standards. Marketers must determine
whether a discrepancy exists and, if so, whether it requires corrective action, such as changing the performance standards
or improving actual performance.
Effective marketing control hinges on the quantity and quality of information and the speed at which it is received. The con-
trol of marketing activities is not a simple task. Problems encountered include environmental changes, time lags between
marketing activities and their effects, and difficulty in determining the costs of marketing activities. In addition to these, it
may be hard to develop exact performance standards for marketing personnel.
Control of marketing strategy can be achieved through sales and marketing cost analyses. Sales measurements are usu-
ally analyzed in terms of either cash volume or market share. For a sales analysis to be effective, it must compare current
sales performance with either forecast company sales, industry sales, specific competitors’ sales or the costs incurred to
generate the current sales volume. A sales analysis can be performed on the company’s total sales, or the total sales can
be disaggregated and analyzed by product, geographic area, salesperson or customer type and market segment.
Marketing cost analysis involves an examination of accounting records and frequently a reclassification of natural accounts
into marketing function accounts. Three broad categories are used in marketing cost analysis: direct costs, traceable com-
mon costs and non-traceable common costs. Such an analysis is often difficult, because there may be no logical, clear-cut
way to allocate natural accounts into functional accounts. The analyst may choose either a full cost approach or direct cost
approach. Cost analysis can focus on (1) an aggregate cost analysis of natural accounts or functional accounts, or (2) an
analysis of functional accounts for products, geographic areas or customer groups.
Value-based marketing is the inclusion of the value of a marketing strategy and marketing activity in an organization’s
financial analysis of shareholder value. Marketing shareholder value analysis (MSVA) enables marketing strategies and pro-
grammes to be incorporated within this financial appraisal of shareholder value. The value to the business of a marketing
strategy is estimated, based on (1) the present value of the business during the strategizing and planning stage, and (2) the
continuing value of the business after the plans have been implemented and actioned.
Performance measures popular in evaluating marketing performance include assessing overall markets, specific segments
or product lines in terms of financial profitability, contribution or return on investment, market share, customer satisfaction
levels, and qualitative measures of customer brand awareness. Retail marketers additionally favour a measure of sales per
square metre of store selling space. EBITDA is important in businesses generating a lot of cash.
Sales analysis
Key links Sales measurements
Sales per square metre
The implementation of marketing strategy and pro- Total quality management (TQM)
grammes, controls and the assessment of performance Traceable common costs
go hand-in-hand with the creation of marketing strategies Value-based marketing
and marketing plans. With this in mind, read this chapter
in conjunction with:
●● Chapter 1, on the evolution of marketing towards the
relationship marketing era. 1. What determines the place of marketing within an orga-
●● Chapter 2, on marketing strategy development and nization? Which type of organization is best suited to the
competitor assessment. marketing concept? Why?
●● Chapter 22, on marketing planning and associated 2. What marketing activities must be undertaken by an orga-
processes. nization striving to establish the marketing concept at its
heart?
3. What factors can be used to organize the internal aspects
of a marketing unit? Discuss the benefits of each type of
Important terms
organization.
Benchmarking 4. Why might an organization use multiple bases for organiz-
Brand awareness ing its marketing unit?
Category management
5. What are the implementation requisites for marketing strat-
Centralized organization
egies and plans?
Customer satisfaction
Decentralized organization 6. Why is motivation of marketing personnel important in
Direct cost approach implementing marketing plans?
Direct costs 7. How does communication help in implementing marketing
EBITDA plans?
Empowerment 8. What attributes distinguish relationship marketing from
Five markets model of relationship marketing transaction-based marketing?
Full cost approach
9. What is internal marketing? Why is it important in imple-
Intended strategy
menting marketing strategies?
Internal marketing
Market share 10. Total quality management is a growing force in many
Marketing control process businesses. What is TQM? How can it help to implement
Marketing cost analysis marketing strategies effectively?
Marketing function accounts 11. What are the major steps of the marketing control process?
Marketing implementation 12. List and discuss the five requirements for an effective con-
Marketing metrics trol process.
Marketing oriented
13. Discuss the major problems in controlling marketing
Marketing performance
activities.
Marketing shareholder value analysis (MSVA)
Natural accounts 14. What is a sales analysis? What makes it an effective control
Non-traceable common costs tool?
Organizing by function 15. Identify and describe three cost analysis methods. Compare
Organizing by product and contrast direct costing and full costing.
Organizing by region 16. What is marketing shareholder value analysis? What are its
Organizing by type of customer strengths?
Performance standard
17. What performance measures are favoured by marketers?
Realized strategy
Relationship marketing 18. Why should more than one performance metric be adopted
Requisites for implementation by an organization to assess its marketing outcomes?
Recommended readings Dibb, S. and Simkin, L., Marketing Planning (Cengage, 2008).
Doyle, P., Value-Based Marketing (Wiley, 2000).
Aaker, D.A., Managing Brand Equity (Free Press, 2009). Kimura, T., Internal Marketing: Another Approach to Marketing for Growth
Aaker, D.A. and McLoughlin, D., Strategic Marketing Management (Wiley, (Routledge, 2017).
2010). McDonald, M.H. and Wilson, H., Marketing Plans: How to Prepare Them,
Blokdyk, G., Marketing Operations Management (CreateSpace Indepen- How to Use Them (John Wiley, 2016).
dent Publishing Platform, 2018). Piercy, N., Market-Led Strategic Change (Routledge, 2016).
Blythe, J. and Megicks, P., Marketing Planning: Strategy, Environment
and Context (FT/Prentice-Hall, 2010).

If you are working, look at your own A leading IT services company had
organization’s website or intranet. been marketing its IT outsourcing
If you are studying, look at the web pages of your academic solutions to manufacturers, financial services companies, retail-
institution. ers, health providers, government departments and other sectors.
The new head of its business unit, charged with marketing IT
1. What elements of internal marketing are evident in the solutions to the manufacturing sector (automotive, pharmaceu-
website’s sections? ticals, electrical components, domestic appliances and so on)
2. In what ways is the content attempting to control, coor- decided that, rather than market to the manufacturers, the com-
dinate and share information with employees or people pany should identify the providers of facilities (offices, depots and
within the organization? factories), purchased by these manufacturers in order for them
to produce their products. The plan was to promote the IT busi-
3. How else could the organization communicate its mar-
ness to the big construction companies so that when a new-build
keting strategy and marketing plan intentions to internal
factory was commissioned, the IT business would already be the
stakeholders?
agreed supplier of IT systems and technology infrastructure to
the building contractor. There are far fewer major construction
companies than manufacturers, so this novel approach to achiev-
Group tasks ing sales was accepted by the IT business’s board. However, the
1. As a syndicate group you have probably endured new strategy required a major change of behaviour, as sales and
many heated discussions and some disagreements, so marketing resources were moved from selling to manufacturers
you will recognize the difficulties of achieving consen- operating in factories to building relationships with construction
sus and buy-in to an idea. What steps should a team companies providing manufacturers with their factories.
of marketers take to engender the support for their
marketing strategy of colleagues in other functions of Question
the business? Suggest the problems likely to be encountered inside the IT
2. Consider the controls required to ensure effective company as it attempts to realign its operations around this
implementation and worthwhile performance for a new new target market strategy. What steps would the company
marketing plan. need to take to pre-empt such obstacles?
Timex stands the test of time the Swiss-made Swatch watch invaded
Case study department stores and convinced cus-
During the 1970s, watches took a techno- tomers that their watches were not just
logical leap forward, from wind-up spring time-telling devices but fashion statements,
mechanisms to quartz crystals, batteries and Timex was not ready to offer any competi-
digital displays. The Timex Corporation lagged tion. At Timex, reliability and value had always
behind other manufacturers in making such changes. When been the priorities, certainly not style and fashion.
For years, Timex’s sales suffered because of its drab image, theme, ‘It Takes a Licking and Keeps on Ticking’, has taken a
especially in contrast with the colourful Swatch. Then came humorous bent in television spots, where sumo wrestlers wear
the 1990s and the decade of value. As value came to take the watches strapped to their middles as they grapple on the
precedence over status, more price-conscious consumers mat, and rock musicians use Timex watches to strum their
were attracted by quality at moderate prices than by designer guitars. In a print advertising campaign, the company featured
labels. Timex took advantage of this trend to revive its brand, real people who, like the Timex watches they wear, have been
the old reliable Timex watch . . . True Value Since 1854. By through rough experiences but survived to tell the tale.
blending its ‘value pricing’ message with some trendy new With traditional watch sales in most countries declining,
designs and diversifying its product for specific niche markets, most watchmakers are concerned. However, at Timex, exec-
Timex made a comeback. utives are celebrating sales and market share increases. The
Wear It Well today focuses on the fashion-conscious company now controls a larger proportion of the market than
consumer. Timex regularly features in surveys of the leading its four biggest competitors combined. Timex is happy to be
trendy fashion brands. The recent credit crunch once more shedding its dowdy and boring image. Rising young professional
focused consumers on value, to the pleasure of Timex execu- people do not have to put their wrists behind their backs to hide
tives. However, the growth of high-tech app-led smartwatches a Timex any more or announce loudly to colleagues that they
as health monitors, comms devices and web browsers poses are only wearing a Timex while their Rolex is being repaired.
interesting challenges for all traditional watch producers. Ruthless controls and continual performance monitoring
Consumers can still buy an unadorned Timex watch for are intended to avoid a repeat of the 1980s doldrums period
under £20, and analysts say that these simple styles with for Timex. Marketing executives have monitored the marketing
easy-to-read faces are the company’s best-sellers. However, strategy carefully in order to:
to compete in a crowded market, Timex developed stylish
1. ensure that signs of success or failure can be acted
special collections for adults: dress watches, sports watches,
upon, and
boyfriend watches, vintage watches, technology watches
and outdoor watches. Timex set up studios in France and the 2. modify marketing programmes continually in order to
United States to design Timex’s own versions of colourful cre- enhance the impact of Timex’s new approach.
ative watches. There are many ranges, such as Easy Reader Sales and financial performance are evaluated regularly.
watches, Waterbury and Fairfield fashion ranges and IronMan Changing fashions and aggressive competitors – such as
sports, fitness and monitoring watches. Swatch – caught Timex out once before. The company does
Timex’s advertising strategy is to appeal to niche markets not intend to be left behind again. With 5000 employees in four
by reviving its traditional ‘durable yet inexpensive’ positioning continents, manufacturing and distribution in 20 countries,
and revitalizing its powerful brand identity. The famous Timex growing sales in 72 countries through a network of 53 dis-
tributors and 33 000 retail outlets, and a successful defence
against the likes of Swatch, the future looks bright for Timex.

1. Which environmental forces are likely to be of greatest
interest to marketing managers at Timex?
2. Identify the target markets towards which Timex is aim-
ing its products.
3. Why must Timex continually assess its performance and
the impact of its marketing?
References: Sylvester’s 2018 and www.timexgroup.com, 2018.
Chapter 24
Responsible marketing
Ethics and CSR increasingly matter to consumers . . . they should to
marketers, too
Introduction
Objectives There is a growing expectation among people and those who
govern them that businesses will behave in a responsible man-
To understand the concept of social
ner. The banking crisis brought into sharp focus how poor
responsibility and to consider the
corporate behaviour and low standards have significant con-
importance of marketers behaving
sequences. This expectation of responsibility also extends to
responsibly.
marketers and the way in which they practice. Social responsi-
To define and describe the impor- bility and ethics are two issues that can have a profound impact
tance of marketing ethics. on the success of marketing strategies. They matter far more
broadly, too . . . for the greater good of society in general.
To become familiar with ways
This chapter gives an overview of how social responsibility
to improve ethical decisions in
and ethics must be considered in marketing decision-making.
marketing.
Most marketers operate responsibly and within the limits of the
To understand the role of social law. However, some companies engage in activities that cus-
responsibility and ethics in improv- tomers, other marketers and society in general deem unac-
ing marketing performance. ceptable. Such activities include questionable selling practices,
misuse of customer data, bribery, price discrimination, decep-
To revisit the concept of social mar-
tive advertising, misleading packaging, spying on competitors,
keting and consider how it is used.
planting lies about rivals on social media, marketing defective
To appreciate how the marketing products and selling pirated or fake merchandise. For exam-
concept is evolving and understand ple, a third of the software programmes used by businesses
the challenges facing marketers worldwide are illegally pirated copies. Practices of this kind raise
today. questions about marketers’ obligations to society. Inherent in
these questions are the issues of social responsibility and mar-
keting ethics.
Even if laws are not broken, there are growing obligations on
marketers to handle customer data ethically and responsibly,
question information sources and their appropriateness, and
worry about collaborations and the monetization of big data via
third parties.
There is also growing interest in how marketing as a disci-
pline can overtly contribute to the well-being of society and of
individuals. One way in which this can be achieved is through
social marketing activities, which use commercial marketing
tools and techniques for the good and well-being of communi-
ties and those who live within them.
724
Chapter 24 Responsible marketing 725
Responsible marketing
T he clothes we buy
and wear are fun-
damental to how we
approaches challenge the
concept to production in a
very short space of time.
This approach ensures a
express ourselves and relate rise in fast fashion better alignment between
to others. The fashion industry what consumers want and
has benefitted from the importance what is produced.
to our identity of clothing, by fuelling consumption through the Another trend is the growth in
ever-growing availability of low-cost clothing. Yet fast fashion the pre-owned fashion market, with figures suggesting that
trends are at odds with the needs to manage raw materials clothing makes up around half of the resale economy. This
and resources more sustainably. The Waste and Resources trend is changing the way that second-hand fashion is per-
Action Programme (WRAP) suggests that to reduce the ceived, offering consumers a more sustainable way to refresh
environmental impact of clothing, people need to buy fewer their wardrobes. Luxury fashion retailer The Real Real is one
items, wear them for longer, launder them more sustainably reseller which is supporting the idea of circularity in fashion.
and reuse or recycle items in wardrobes rather than throw By investing in careful curation and rigorous authentication
them away. of items it resells, the business is developing its relationship
Reflecting the need for greater circularity in fashion, many with consumers who enjoy the variety of regularly swapping
new manufacturers have emerged which differentiate them- items in their wardrobes. Working in partnership with Stella
selves through more sustainable and ethical manufacturing McCartney, The Real Real recently launched ‘The Future of
and business practices. American designer Reformation, Fashion is Circular’, to coincide with Earth Day. Designed to
which uses sustainable fabrics and re-purposed vintage promote the idea of ‘make well, buy well, resell’, the initiative
materials in its clothes, is one such example. Among the offers shopping vouchers as rewards to consumers using The
fabrics favoured by the company is TENCEL™, made from Real Real to resell a Stella McCartney product.
a fibre from Eucalyptus trees (which do not need to be irri- As consumer interest in a more sustainable and ethical
gated), viscose from renewable plant material, and modal, approach to fashion grows, high street retailers are also get-
which is produced using beechwood from forests that have ting in on the act. Marks & Spencer has installed Shwop boxes
been sustainably managed. Reformation runs on short and in its stores, encouraging shoppers to donate unwanted cloth-
rapid manufacturing cycles, which can take a design from ing items. Working in conjunction with Oxfam, the retailer is
supporting resale, reuse and recycling of this clothing, using
the proceeds to support Oxfam’s work overseas. This is just
one example of growing trends in more responsible marketing.
References: www.marketingweek.com/2018/06/28/billion-dollar-fashion-
resale-economy/; www.thereformation.com/pages/our-stuff; www.wrap.org.
uk/category/materials-and-products/textiles; The Real Real, accessed June
2018, www.therealreal.com/; www.recode.net/2018/4/11/17219742/realreal-
funding-ipo-online-luxury-consignment; M&S, accessed June 2018,
www.marksandspencer.com/s/plan-a-shwopping; Harris, F., Roby, H. and Dibb,
S. (2016), “Sustainable clothing: challenges, barriers and interventions for
encouraging more sustainable consumer behaviour”, International Journal of
Consumer Studies, Vol. 40 Issue 3, pp. 309–318, DOI: 10.1111/ijcs.12257.
M
arketers in all sectors are increasingly aware of expectations that companies will behave
in a responsible and ethical manner. The growing opposition to fast fashion and a throw-
away culture is an example. The Real Real and M&S Shwop boxes are such responses.
The implications of decisions such as these are considered in more detail throughout this chapter.
This chapter begins by defining social responsibility and exploring its dimensions. Various social
responsibility issues are then discussed, such as the natural environment and the marketer’s role as
a member of the community. The definition and role of ethics in marketing decisions are explored.
Ethical issues in marketing, the ethical decision-making process and ways to improve ethical conduct
in marketing are all considered. Next, the ways in which social responsibility and ethics can be incor-
porated into marketing decisions are examined. Finally, the chapter explains the concept of social mar-
keting and considers how marketing tools and techniques can be used to improve societal well-being.
Social responsibility
The nature of social responsibility
In marketing, social responsibility refers to an organization’s obligation to maximize
social responsibility its positive impact and minimize its negative impact on society. Social responsibility
An organization’s obli- deals with the total effect of all marketing decisions on society. Ample evidence demon-
gation to maximize its
strates that ignoring society’s demands for responsible business practices and marketing
positive impact and min-
imize its negative impact activity can destroy customers’ trust and even prompt government regulations, with
on society. reputational damage to then redress. This was the case when corporate tax avoidance
became a dominant news story in the UK.
Irresponsible actions that anger customers, employees or competitors may not only
jeopardize a marketer’s financial standing but could have other repercussions as well. For example,
following a report into misleading claims on food packaging, the UK’s Food Standards Agency
(FSA) instigated a campaign to ‘name and shame’ food manufacturers selling unhealthy products,
including those with high sugar, salt or fat content.1
In contrast, socially responsible activities can generate positive publicity and boost sales. MAC
Cosmetics is a good example:
WHAT MAKES UP M·A·C?
M·A·C is the world’s leading professional makeup authority because of our unrivalled expertise
in makeup ARTISTRY.
M·A·C celebrates diversity and INDIVIDUALITY – we are for All Ages, All Races, All Genders.
M·A·C is a proud COMMUNITY of professional makeup artists working together to bring our
vision to life.
M·A·C is at the forefront of fashion TRENDSETTING, collaborating with leading talents from
fashion, art and popular culture. Our artists create trends backstage at fashion weeks around
the world.
M·A·C believes in SOCIAL RESPONSIBILITY, with initiatives such as VIVA GLAM and the M·A·C
AIDS Fund at the heart and soul of our unique culture.
www.maccosmetics.co.uk/our-story, June 2018
Socially responsible efforts have a positive impact on local communities; at the same time, they
indirectly help the sponsoring organization by attracting goodwill, publicity and potential customers
and employees. Thus, while social responsibility is certainly a positive concept in itself, most orga-
nizations embrace it in the expectation of indirect long-term benefits. Proctor & Gamble, Unilever,
PepsiCo, Santander and McDonald’s are just a few of the companies that have social responsibility
commitments. Research suggests that an organizational culture that is conducive to
marketing citizenship social responsibility engenders greater employee commitment and improved business
The adoption of a strate-
performance.
gic focus for fulfilling the
economic, legal, ethical
and philanthropic social The dimensions of social responsibility
responsibilities expected
by stakeholders. Socially responsible organizations strive for marketing citizenship by adopting a strate-
gic focus for fulfilling the economic, legal, ethical and philanthropic social responsibilities
that their stakeholders expect of them. Stakeholders include those constituents who
stakeholders
Constituents who have a have a ‘stake’, or claim, in some aspect of the company’s products, operations, mar-
‘stake’, or claim, in some kets, industry and outcomes; these include customers, employees, investors and
aspect of a company’s shareholders, suppliers, governments, communities and many others. Companies that
products, operations, consider the diverse perspectives of stakeholders in their daily operations and strategic
markets, industry and
planning are said to have a ‘stakeholder orientation’, an important element of social
outcomes.
responsibility.2 For example, DIY retailer B&Q secured stakeholder input on issues rang-
ing from child labour, fair wages and equal opportunity to environmental impact. The
company has a vision to be the first choice for sustainable home improvement and has developed
a series of principles to support this goal. These include responsible forestry, promoting eco
homes and living, and supporting charities involved with sustainability.3 As Figure 24.1 shows,
Tax shaming damages The paper reported that the government was
planning to say tax is a ‘moral issue’ and that
reputation Topical insight it was ‘determined to end avoidance and eva-
Google, Amazon, Starbucks: sion’. October 2010 – and the Vodafone case –
The rise of ‘tax shaming’ saw the Daily Mail report: ‘Vodafone closes Oxford
Street store at £6bn tax protest’.
●● Multinationals such as Google, Amazon A few months later and the focus moved to Sir Philip
and Starbucks have been criticized by the Green’s fashion clothing business empire. ‘Crisis? What cri-
Public Accounts Committee over tax avoidance. sis?’ reported the Mail, which said the TopShop boss was ‘enjoy-
●● Stung, Starbucks announced plans to change its arrange- ing’ a Barbados holiday while thousands of campaigners laid
ments and pay UK corporation tax. siege to his UK stores.
Global firms such as Starbucks, Google and Amazon have come Barclays Bank was the next target – in February 2011
under fire for avoiding paying tax on their British sales. There the Daily Express reported on the ‘raid’ by tax protesters, who
seems to be a growing culture of naming and shaming compa- shouted: ‘Dave and George do your sums.’ Later that same month,
nies. But what impact does it have? the Guardian ran with the headline ‘UK Uncut: “People are starting
Companies have long had complicated tax structures, but a to listen to us”.’
spate of stories highlighted a number of tax-avoiding firms that www.bbc.co.uk/news/magazine-20560359
are not seen to be playing their part.
Starbucks, for example, had sales of £400 million in the UK in The above piece was splashed across BBC News in May
2011, but paid no corporation tax. It transferred some money to a
2013 and featured in the BBC News Magazine’s online pages.
Dutch sister company in royalty payments, bought coffee beans
In an era of rolling 24-hours news, social media sharing of
from Switzerland and paid high interest rates to borrow from
such stories and the ease with which interested parties can
other parts of the business. Amazon, which had sales in the UK of
£3.35 billion in 2011, only reported a ‘tax expense’ of £1.8 million. gather support to protest, companies increasingly must bal-
And Google’s UK unit paid just £6 million to the Treasury on UK ance their shareholders’ short-term financial interests against
turnover of £395 million. Everything these companies were doing reputational damage and a backlash from consumers, sup-
was legal. It was avoidance and not tax evasion, which is illegal. pliers and regulators. The digital era seemingly creates the
But the tide of public opinion is visibly turning. Even ten years need for greater transparency and corporate responsibility.
ago news of a company minimizing its corporation tax would have Certainly, the headlines reported in the BBC’s piece above
been more likely to be inside the business pages than on the caused those brands’ marketers and communications agen-
front page. cies significant aggravation and disruption.
What changed? And is ‘shaming’ of companies justifiable and
effective? Momentum has been growing for the last few years.
In September 2009, the Observer ran with the head- Source: ‘Google, Amazon, Starbucks: The rise of “tax shaming”,’ Vanessa Bar-
line: ‘Avoiding tax robs our public services, declares minister.’ ford and Gerry Holt, BBC News Magazine, 21 May 2013 (accessed 1 May 2015).
social responsibility dimensions can be viewed as a pyramid.4 The economic and legal aspects
have long been acknowledged, whereas philanthropic and ethical issues have gained recognition
more recently.
The basic entry phase Economic

Profitability/ROI
An obligation to be solvent
The foundation for the other
phases Publicly quoted companies
should at the very least be
Legal
Compliant with laws
here, but occasionally rogue
Society’s view of right & wrong organizations slip through
Playing by accepted rules
Probably the most common
Ethical
phase to have reached Being ethical
Obligated to do what is right/
fair/just/honest
Avoiding doing harm
Philanthropic The Timberland case

A good corporate citizen illustrates this phase
Contributing resources to the
community
Improving the quality of life
Relatively few reach this phase
of their development,
values and behaviours
Figure 24.1
The phases of CSR
Source: Adapted from the work of Archie Carroll, published in Business Horizons, July–August, 1991, p. 42.
At the most basic level, all companies have an economic responsibility to be profitable so that
they can provide a return on investment to their owners and investors, create jobs for the commu-
nity, and contribute goods and services to the economy. How organizations relate to shareholders,
employees, competitors, customers, the community and the natural environment affects the econ-
omy. When economic downturns or poor decisions lead companies to lay off employees, commu-
nities often suffer as they attempt to absorb the displaced employees. Customers may experience
diminished levels of service as a result of fewer experienced employees. Share prices often decline
when lay-offs are announced, affecting the value of stockholders’ investment portfolios. Moreover,
stressed-out employees facing demands to reduce expenses may make poor decisions that affect
the natural environment, product quality, employee rights and customer service. An organization’s
sense of economic responsibility is especially significant for employees, raising such issues as
equal job opportunities, workplace diversity, job safety, health and employee privacy. Economic
responsibilities require finding a balance between society’s demand for social responsibility and
investors’ desire for profits.
Marketers also have an economic responsibility to compete fairly. Size frequently gives compa-
nies an advantage over rivals. Large companies can often generate economies of scale that allow
them to put smaller companies out of business. Consequently, small companies and even whole
communities may resist the efforts of businesses such as Walmart, Tesco and McDonald’s to open
outlets in their neighbourhood. These companies are able to operate at such low costs that small,
local businesses cannot compete. Though consumers appreciate lower prices, the failure of small
businesses creates unemployment for some members of the community. Such issues create con-
cerns about social responsibility for organizations, communities and consumers.
Marketers are also expected to obey laws and regulations. The efforts of elected representatives
and special interest groups to promote responsible corporate behaviour have resulted in laws
and regulations designed to keep European companies’ actions within the range of acceptable
conduct. When customers, interest groups or businesses become outraged over what they per-
ceive as irresponsibility on the part of a marketing organization, they may urge the government
to draft new legislation to regulate the behaviour or engage in litigation. For example, following a
record number of complaints about the practices of door-to-door sales people, the UK government
looked at legislative action to control this kind of selling.
Economic and legal responsibilities are the most basic levels of social responsibility for a good
reason: failure to consider them may mean that a marketer is not around long enough to engage
in ethical or philanthropic activities. Beyond these dimensions is marketing ethics,
marketing ethics
principles and standards that define acceptable conduct in marketing as determined
Principles and standards
that define acceptable by various stakeholders, including the public, government, regulators, private interest
marketing conduct as groups, consumers, industry and the organization itself. Some companies, including The
determined by various Body Shop, The Co-operative supermarket chain or MAC, have built their businesses
stakeholders, including around ethical ideas. The most ethical principles have been codified as laws and reg-
the public, government,
ulations to encourage marketers to conform to society’s expectations about conduct.
regulators, private inter-
est groups, consumers, However, marketing ethics goes beyond legal issues. Ethical marketing decisions foster
industry and the organi- trust, which helps build long-term marketing relationships. There is a more detailed look
zation itself. at the ethical dimension of social responsibility later in this chapter.
Philanthropic responsibilities At the top of the corporate responsibility tree (see

philanthropic
igure 24.1) are philanthropic responsibilities. These responsibilities, which go beyond
F
responsibilities
Not required of a com- marketing ethics, are not required of a company, but they promote human welfare or
pany, but they promote goodwill, as do the economic, legal and ethical dimensions of social responsibility. The
human welfare or philanthropic responsibility that companies demonstrate is shown in the level of corporate
goodwill. support attracted by events such as Sport Relief and Red Nose Day/Comic Relief. Even
small companies participate in philanthropy through donations and volunteer support of
local good causes and national charities, such as the NSPCC, Oxfam and the Red Cross.
More companies than ever are adopting a strategic approach to corporate philanthropy. Many busi-
nesses link their products to a particular social cause on an ongoing or medium-term basis, a practice
known as cause-related marketing. For example, Procter & Gamble baby brand Pampers
cause-related has since 2006 supported UNICEF’s programme to vaccinate mothers and babies against
marketing
The practice of linking
tetanus. ‘With the help of parents like you, Pampers has been working with UNICEF to help
products to a particular protect mums and babies from Maternal and Newborn Tetanus in 15 countries around the
social cause on an world.’5 For each Pampers product carrying the ‘1 Pack 5 1 life-Saving Vaccine’ logo, the
ongoing or medium-term company provides funding for a single dose of vaccine. Such cause-related programmes
basis. tend to appeal to consumers because they provide an additional reason to ‘feel good’
about a particular purchase. Marketers like the programmes because well designed ones
increase sales and create feelings of respect and admiration for the companies involved.
Some companies are beginning to extend the concept of corporate philanthropy beyond
strategic philanthropy financial contributions by adopting a strategic philanthropy approach, the synergistic
The synergistic use
use of organizational core competencies and resources to address key stakeholders’ inter-
of organizational core
competencies and ests, and achieve both organizational and social benefits. Strategic philanthropy involves
resources to address employees, organizational resources and expertise, and the ability to link these assets to
key stakeholders’ inter- the concerns of key stakeholders, including employees, customers, suppliers and social
ests, and achieve both needs. Strategic philanthropy involves both financial and non-financial contributions to
organizational and social
stakeholders (employee time, goods and services, and company technology and equip-
benefits.
ment, as well as facilities), but it also benefits the company.6
Social responsibility issues

Although social responsibility may seem to be an abstract ideal, managers make decisions related
to social responsibility every day. To be successful, a business must determine what customers,
government regulators and competitors, as well as society in general, want or expect in terms of
social responsibility. The success of international retailer The Body Shop has been attributed to
the company’s early awareness of the Green movement and demonstration of social responsibility.
Table 24.1 summarizes three major categories of social responsibility issues: the natural environ-
ment, consumerism and community relations.
Table 24.1 Social responsibility issues

Issue Description Major social concerns
Natural environment Consumers insisting not only on a good quality of life but on a healthful Conservation
environment so they can maintain a high standard of living during their Water pollution
lifetimes Air pollution
Land pollution
Consumerism Activities undertaken by independent individuals, groups and organizations The right to safety
to protect their rights as consumers The right to be informed
The right to choose
The right to be heard
The right to privacy
Community relations Society eager to have marketers contribute to its well-being, wishing to Equality issues
know what marketers do to help solve social problems Disadvantaged members of
society
Safety and health
Education and general welfare
Ethical consumption
sustainability Sustainability
The potential for the
One way in which marketers are increasingly demonstrating their social responsibility
long-term well-being of
the natural environment, is through programmes designed to protect and preserve the natural environment.7
including all biological Sustainability is the potential for the long-term well-being of the natural environment,
entities, as well as the including all biological entities, as well as the interaction among nature and individu-
interaction among nature als, organizations and business strategies. Sustainability includes the assessment and
and individuals, orga-
improvement of business strategies, economic sectors, work practices, technologies
nizations and business
strategies. and lifestyles, all while maintaining the natural environment.
Many companies are making contributions to environmental protection organizations,
supporting clean-up events, promoting recycling, re-tooling manufacturing processes to
minimize waste and pollution, changing packaging, modifying logistics and generally re-evaluating
the effects of their products on the natural environment. Many supermarkets, for example, provide
on-site recycling for customers and encourage their suppliers to reduce wasteful packaging.
Procter & Gamble uses recycled materials in some of its packaging and markets refills for
some products, which reduces packaging waste. Such efforts generate positive publicity and
often increase sales for the companies involved. The Food and Drink Federation (FDF) – whose
membership includes PepsiCo, Coca-Cola and Kraft – is encouraging sustainable practice by
establishing strict environmental targets. These include a reduction in CO2 emissions by 2020,
zero food and packaging waste going to landfill sites, and a 20 per cent reduction in water use
within the supply chain.8
Green marketing Green marketing is the specific development, pricing, promo-

green marketing tion and distribution of products that do not harm the natural environment. Toyota and
The specific develop- Nissan have succeeded in marketing ‘hybrid’ cars that use electric motors to aug-
ment, pricing, promotion
and distribution of prod-
ment their internal-combustion engines, improving the vehicles’ fuel economy without
ucts that do not harm the reducing their power. The UK government is now supporting these alternative fuel
natural environment. technologies by funding the installation of electric vehicle points in certain locations.
Figure 24.2 illustrates a category in many supermarkets in response to some consumers’
Figure 24.2
Many consumers are increasingly aware
of ‘green’ issues and some businesses
are responding accordingly: here a
retailer is offering organically produced
fruit and vegetables to its shoppers
growing awareness of green issues: organic fruit and vegetables. Meanwhile, Hewlett Packard (HP)
has taken a leadership role in the recycling of electronic waste by creating drop-off locations for
rechargeable batteries and recycling programmes for printer cartridges and other electronic items.9
An independent coalition of environmentalists, scientists and marketers is one group involved
in evaluating products to assess their environmental impact, determining marketers’ commitment
to the environment. Described as ‘The directory for planet-friendly living’, The Green Guide, which
was first published in 1984, offers online and print guidance on green products and ethical living.10
Such information sources have an important role to play during what is a confusing time for many
consumers, who are increasingly faced with an array of products making a variety of environmental
claims. For example, most Chiquita bananas are certified through the Rainforest Alliance’s Better
Banana Project as having been grown using more environmentally and labour-friendly practices.11
In Europe, companies can apply for the EU Ecolabel to indicate that their products are less harm-
ful to the environment than competing products, based on scientifically determined criteria (see
Figure 24.3).
Figure 24.3
The European Ecolabel
Source: ec.europa.eu/environment/ecolabel
Although demand for economic, legal and ethical solutions to environmental problems is wide-
spread, the environmental movement in marketing includes many different groups, whose values
and goals often conflict. Some environmentalists and marketers believe companies should work
to protect and preserve the natural environment by implementing the following goals:
1. Eliminate the concept of waste. Recognizing that pollution and waste usually stem from inef-
ficiency, the question is not what to do with waste but how to make things without waste.
2. Reinvent the concept of a product. Products should be reduced to only three types and even-
tually just two. The first type is consumables, which are eaten or, when placed in the ground,
turn into soil with few harmful side-effects. The second type is durable goods such as cars,
televisions, computers and refrigerators which should be made, used and returned to the
manufacturer within a closed-loop system. Such products should be designed for disassembly
and recycling. The third category is unsaleables and includes such products as radioactive
materials, heavy metals and toxins. These products should always belong to the original mak-
ers, who should be responsible for the products and their full life-cycle effects. Reclassifying
products in this way encourages manufacturers to design products more efficiently.
3. Make prices reflect the cost. Every product should reflect, or at least approximate, its actual
cost, not only the direct cost of its effect on production but also the cost of its effect on air,
water and soil.
4. Make environmentalism profitable. Consumers are beginning to recognize that competition in
the marketplace should not occur between companies harming the environment and those
trying to save it.12
greenwash
It is important that marketers’ claims are true and can be substantiated. Consumers
Misleading claims about are cynical and are quickly alienated by greenwash. It might be better to say nothing
a brand’s green creden- than to make claims which raise suspicion or cause a backlash of negative chatter on
tials, resulting in loss of social media. Trust is easily lost, with dire consequences for a brand’s reputation and
trust and a consumer sales.13
backlash.
Consumerism A significant aspect in socially responsible marketing is consumerism,

consumerism which is the efforts of independent individuals, groups and organizations to protect the
The efforts of indepen- rights of consumers. The underlying assumption is that consumers have a range of
dent individuals, groups rights, including the right to privacy, the right to safety, the right to choose, the right to
and organizations to be charged fairly, the right to be properly informed, the right to data privacy and secu-
protect the rights of
rity, and the right to fair treatment when they complain. For example, the right to safety
consumers.
means that marketers are obligated not to market a product that they know could harm
consumers. This right can be extended to imply that all products must be safe for their
intended use, include thorough and explicit instructions for proper and safe use, and have been
tested to ensure reliability and quality.
Interest groups play an important role in helping to protect consumers’ rights by taking action
against companies they consider irresponsible, by lobbying government officials and agencies,
engaging in letter-writing and social media campaigns and boycotts and making public service
announcements. A number of high-profile consumer activists have also crusaded for consumer
rights. Consumer activism has resulted in legislation requiring various safety features in cars: seat
belts, padded dashboards, stronger door catches, headrests, baby and toddler seats, shatterproof
windscreens and collapsible steering columns. Activists’ efforts have furthered the passage of
several consumer protection laws.
The power of angry consumers should not be underestimated. Indeed, research suggests
that such individuals not only fail to make repeat purchases but may retaliate against the
source of their dissatisfaction.14 Negative reaction from the public was partly the reason why
News International took the decision to close the News of the World newspaper following
damaging publicity that journalists working there had hacked the mobile phones of celebrities
and members of the public involved in tragedies. The consumer movement has been helped
by news format television programmes, such as the BBC’s Watchdog. There has also been a
growth of consumer sites on the web offering advice and reviews for consumers. For instance,
mumsnet.com provides product ratings and reviews, and lobbies for better practices. Financial
journalist and consumer rights activist Martin Lewis’s Money Saving Expert website promotes
better financial and debt management, providing consumers with much-needed advice and
links (www.moneysavingexpert.com).
community relations Community relations Social responsibility also extends to community relations and
Marketers’ roles as marketers’ roles as community members. Individual communities expect marketers to
community members make philanthropic contributions to civic projects and institutions, and to be ‘good corpo-
and their contributions rate citizens’. While most charitable donations come from individuals, corporate philan-
to civic projects and
thropy is on the rise, with contributions of resources (money, product, time) to community
institutions.
causes such as education, the arts, recreation, disadvantaged members of the community
and others. British Airways’ ‘Change for Good’ partnership with UNICEF encourages
donations of foreign currency from passengers, which can then be used to fund a range of health
and educational projects aimed at children around the world. Over 15 years, £27 million has been
raised. McDonald’s, Shell, Ogilvy & Mather and Hewlett Packard all have programmes that contrib-
ute funds, equipment and personnel to educational reform. Similarly, Sainsbury’s has a scheme that
allows shoppers to collect vouchers enabling their local schools to obtain sports equipment.
Actions such as these can significantly improve a community’s quality of life through employment
opportunities, economic development and financial contributions to educational, health, cultural
and recreational causes.15 These efforts also indirectly help the organizations in the form of goodwill,
publicity and exposure to potential future customers. Although social responsibility is certainly a
positive concept, most organizations do not embrace it without the expectation of some indirect
long-term benefit.
The manner in which organizations deal with equality is also a key social responsibility issue.
Diversity in the work environment has focused attention on the need to integrate and utilize an
increasingly diverse workforce. Companies that are successful in achieving this are finding increases
in creativity and motivation, and reductions in staff turnover.
Marketing ethics
Marketing ethics is a dimension of social responsibility involving principles and standards that define
acceptable conduct in marketing. Acceptable standards of conduct in making individual and group
decisions in marketing are determined by various stakeholders and by an organization’s ethical
climate. Marketers should also use their own values and ethical standards to act responsibly and
provide ethical leadership for others.
Marketers should be aware of ethical standards for acceptable conduct from several viewpoints:
company, industry, government, customers, special interest groups and society at large. When
marketing activities deviate from accepted standards, the exchange process can break down,
resulting in customer dissatisfaction, lack of trust, damaged brand reputation and legal action. In
recent years, a number of ethical scandals have resulted in a massive loss of confidence in the
integrity of businesses.16 The recent global financial crisis led to sharp criticism of the financial
services sector and growing distrust among consumers. Once trust has been broken, it can take
a considerable time to rebuild. In fact, some research suggests that 76 per cent of consumers
would boycott the products of a socially irresponsible company, and 91 per cent would consider
switching to a competitor’s products.17
When managers engage in activities that deviate from accepted principles, continued marketing
exchanges become difficult, if not impossible. The best time to deal with such problems is during
the marketing strategy process and when planning, not after major problems have materialized.
Marketing ethics goes beyond legal issues. Marketing decisions based on ethical considerations
foster mutual trust in marketing relationships and foster internal collegiality. Although attempts are
often made to draw a boundary between legal and ethical issues, the distinction between the two
is frequently blurred in decision-making. Marketers operate in an environment in which overlapping
legal and ethical issues often colour decisions. To separate legal and ethical decisions requires an
assumption that marketing managers can instinctively differentiate legal and ethical issues. How-
ever, while the legal ramifications of some issues and problems may be obvious, others are not.
Questionable decisions and actions often result in disputes that must be resolved through litigation.
The legal system therefore provides a formal venue for marketers to resolve ethical disputes as
well as legal ones.
Hasbro, for example, filed a lawsuit against a man who marketed a board game called Ghetto-
poly. Hasbro’s suit accused David Chang’s game of unlawfully copying the packaging and logo of
Hasbro’s long-selling Monopoly board game and causing ‘irreparable injury’ to Hasbro’s reputation
and goodwill. After minority-rights groups complained that Ghettopoly promoted negative stereo-
types of some minorities, some retailers stopped selling the game.18 Indeed, most ethical disputes
reported in the media involve the legal system at some level. In many cases, however, settlements
are reached without requiring the decision of a judge or jury.
It is not the aim of this chapter to question individuals’ ethical beliefs or personal convictions.
Nor is it the purpose to examine the conduct of consumers, although some do behave unethically
(engaging for instance in shoplifting, returning clothing after wearing it, sharing untrue information,
and other abuses). Instead, the goal here is to highlight the importance of understanding and
resolving ethical issues in marketing and to help readers learn about marketing ethics.
ethical issue Ethical issues in marketing

An identifiable problem,
situation or opportunity An ethical issue is an identifiable problem, situation or opportunity requiring an
requiring a choice individual or organization to choose between actions that must be evaluated as right or
between several actions wrong . . . ethical or unethical. Any time an activity causes marketing managers or cus-
that must be evaluated tomers in their target market to feel manipulated or cheated, a marketing ethical issue
as right or wrong, ethical
exists, regardless of the legality of that activity.
or unethical.
Regardless of the reasons behind specific ethical issues, marketers must be able to
identify these issues and decide how to resolve them.19 To do so requires familiarity with
the many kinds of ethical issue that may arise in marketing. Some examples of ethical
issues related to product, people, promotion, price and place/distribution (the marketing
mix) appear in Table 24.2.20
Table 24.2 Typical ethical issues related to the marketing mix
Product issue Covering up defects in products that could cause harm to a consumer; withholding critical performance informa-
Product information tion that could affect a purchase decision.
Place/distribution issue Counterfeit products are widespread, especially in the areas of computer software, clothing and audio and video
Counterfeiting products; the internet and social media have facilitated the distribution of counterfeit products.
People issue Promising or promoting aftermarket care with no intention of honouring the promise or warranty.
Customer service
Promotion issue Deceptive advertising or withholding important product information in a personal selling situation.
Advertising
Pricing issue Indicating that an advertised sale price is a reduction below the regular list price when, in fact, that is not the case.
Pricing
Product-related ethical issues generally arise when marketers fail to disclose the risks associated
with a product, or information regarding the function, value or use of a product. Most car compa-
nies have experienced negative publicity associated with design or safety issues that resulted in a
government-required recall of specific models. Pressures can build to substitute inferior materials
or product components to reduce costs. Ethical issues also arise when marketers fail to inform
customers about existing conditions or changes in product quality. Consider the introduction of a
new size of confectionery bar, labelled with a banner touting its ‘new larger size’. However, when
placed in vending machines alongside older confectionery bars of the same brand, it became
apparent that the product was actually slightly smaller than the bar it had replaced. Although this
could have been a mistake, the company still has to defend and deal with the consequences of
its actions. In today’s digital environment, such poor behaviours quickly are discussed on social
media, with e-word-of-mouth causing damage to a brand.
Promotion can create ethical issues in a variety of ways, among them false or misleading adver-
tising and manipulative or deceptive sales promotions, tactics and publicity. A major ethical issue in
promotion pertains to the marketing of video games that allegedly promote violence and weapons
to children. Many other ethical issues are linked to promotion, including the use of bribery in per-
sonal selling situations. Even bribes that might benefit the organization can be unethical, because
they jeopardize trust and fairness and can damage the organization in the long run.
In pricing, common ethical issues are price fixing, predatory pricing and failure to disclose the
full price of a purchase. The emotional and subjective nature of price creates many situations in
which misunderstandings between the seller and buyer cause ethical problems. Marketers have
the right to price their products to earn a reasonable profit, but ethical issues may crop up when
a company seeks to earn high profits at the expense of its customers. Some pharmaceutical
companies, for example, have been accused of pricing products at exorbitant levels and taking
advantage of customers who must purchase the medicine to survive or to maintain their quality
of life. Another issue relates to the quantity surcharges that occur when consumers are effectively
overcharged for buying a larger package size of the same grocery product.21
Ethical issues in distribution involve relationships among producers and marketing middlemen.
Marketing middlemen, or intermediaries (wholesalers and retailers), facilitate the flow of products
from the producer to the ultimate customer. Each intermediary performs a different role and agrees
to certain rights, responsibilities and rewards associated with that role. For example, producers
expect wholesalers and retailers to honour agreements and keep them informed of inventory needs.
Serious ethical issues relating to distribution include manipulating a product’s availability for purposes
of exploitation and using coercion to force intermediaries to behave in a specific way. Some retailers
have attracted criticism for driving down the price paid to producers of milk to an extent where many
farmers have gone out of business. When companies outsource production and other functions,
managing the supply chain becomes increasingly difficult. For instance, melamine-tainted milk from
China founds its way into thousands of products around the world, making 300 000 people ill and
killing six infants. The same issue resurfaced just over a year later. Companies that source their milk
from China suffered reputational and financial damage as a result of these scandals.22
Charity gap uses behaviour Coordinated by Global Action Plan,

change to promote Clean Air Day brings together communi-
Topical insight ties, businesses, education and the health
sustainable living sector:
Behaviour change approaches such as ●● to improve public understanding of air

nudge are central to the way that environ- pollution, both indoors and outdoors
mental charity Global Action Plan (GAP) fulfils its ●● to build awareness of how air pollution affects
mission. The charity works with organizations, communities our health
and young people to deliver behaviour change projects that
●● to explain some of the easy things we can all do to
promote more sustainable living. These activities involve GAP
tackle air pollution, helping to protect the environment
in a wide range of programmes targeting a variety of different
and our health, too.
groups.
Clean Air Day Water Explorer

Clean Air Day is the UK’s largest air pollution campaign, How do you get schoolchildren to learn about the value of
engaging thousands of people at hundreds of events and water in a fun, engaging way? And while they’re at it, save
reaching millions more through the media. water too?
Look no further than Water Explorer, Global Action Plan’s ●● Goals for Good supports participants to consider their
award-winning programme for students aged 8–14. long-term values and aspirations and set goals that align
Using our free online resources on the Water Explorer web- with what they really care about.
site, thousands of schools from around the world have been
taking part in water-saving challenges, such as:
Transform Our World
●● carrying out school water audits
●● sharing water-saving advice with teams from other ●● Transform our world is about working with children to
countries around the world bring the UN sustainable development goals to life.
●● organizing events like sustainable fashion shows in their ●● The UN’s Sustainable Development Goals (SDGs) aim to
communities put an end to extreme poverty, protect natural resources,
●● growing veg in the school garden and irrigating it from a and ensure a socially just and equal society for everyone.
water butt. At Global Action Plan we want to work with children to
make sure these goals become a reality.
●● As the workers and consumers of the future, children
Goals for Good who understand and support these goals will be able to
Global Action Plan has teamed up with international experts in create a better society for everyone.
the fields of motivation, well-being, values and sustainability www.globalactionplan.org.uk
to develop an exciting new goal-setting course called Goals
for Good. The impact of the charity’s work is evident through the
many initiatives in which it has been involved. Using behaviour
●● A recent PWC survey found that millennials’ most prized change approaches as the basis, by working in partnership
benefit is their continued learning and development. with business and community audiences, GAP aims to support
●● They want to work for innovative employers offering young people to tackle our throw-away culture and defy the
exciting opportunities to build their skills and knowledge. pressure to buy, buy, buy! Corporate partners include Accen-
ture, Aviva, EDF, E.ON, Investec, Lloyds, Npower, O2, PwC,
Goals for Good teaches goal-setting skills based on the latest
Sainsbury’s, SES Water, Skanska, Sky, Southern Water, Tesco,
research that employees can use in their personal and pro-
Thames Water and various NHS Foundations.
fessional lives.
GAP’s research also underpins a range of tools that are
used to support its programmes. Among these tools is a pack
Mental health and millennials of behaviour change cards which describe simple approaches
Mental health is even more important to millennials than phys- to improving sustainability. Using scientifically grounded ideas
ical health, and with good reason as young people’s rates of and examples, the cards are designed to inspire those work-
unhappiness, depression and anxiety have risen by 70% in ing in organizations to make positive changes. For example,
the past 30 years. the ‘Not the Environment’ card explains that it is easier to
bring about change that fits our own self-interest. Using the
●● Supporting the mental well-being of employees not
statement ‘We all value the environment. Just not enough to
only shows that you are a caring employer, but also change our habits’, the card describes how the charity used
helps reduce sickness and promotes productivity, with this principle in an intervention to encourage people to wash
happier employees being shown to be 10-12% more their clothes at lower temperatures.
productive.
●● Goals for Good uses the latest research into happiness
and well-being to support young people to set goals that
Sources: www.globalactionplan.org.uk (accessed June 2018); www
will really make them happy. .waterexplorer.org; S. McIver and S. Hyson, ‘Starting at square one: Building
●● Millennial employees want to work for employers who a business case for involving employees in sustainability’, Global Action Plan,
www.globalactionplan.org.uk/News/starting-at-square-one (accessed 1 May
make a positive contribution to the world, and they want 2015); www.theguardian.com/teacher-network/teacher-blog/2014/jul/08/
to have a positive social impact themselves. how-to-pull-plug-water-waste-in-schools?utm_content=buffer05547&utm_
medium=social&utm_source=twitter.com&utm_campaign=buffer (accessed
1 May 2015).
The nature of marketing ethics

To grasp the significance of ethics in marketing decision-making, it is helpful to examine the fac-
tors that influence the ethical decision-making process. As Figure 24.4 shows, individual factors,
organizational relationships and opportunity interact to determine ethical decisions in marketing.
Individual ETHICAL Organizational

factors DECISIONS relationships
Figure 24.4
Factors that Opportunity
Influence the ethical
decision-making
process
individual factors Individual factors

When people need to resolve ethical conflicts in their
In ethical decision- lives, they often base their decisions on their own values and principles – individual
making and principles of factors – of right or wrong. For example, a study by the Josephson Institute of Ethics
right and wrong. reported that seven out of ten students admitted to cheating in a test at least once in the
past year, and 92 per cent admitted to lying to their parents in the past year. One out of
six students confessed to showing up for class drunk in the same period.23 People learn
values and principles through socialization by family members, social groups, religion and formal
education. In the workplace, however, research has established that an organization’s values often
have more influence on marketing decisions than do a person’s own values.24
Organizational relationships Although people can, and do, make ethical

organizational
relationships
choices relating to marketing decisions, no one operates in a vacuum.25 Ethical choices
Work groups, commit- in marketing are most often made jointly, in work groups and committees, or in conversa-
tees, conversations tions and discussions with colleagues. Marketing employees resolve ethical issues based
and discussions with not only on what they have learned from their own backgrounds but also on what they
colleagues. learn from others in the organization. The outcome of this learning process depends on
the strength of each individual’s personal values, opportunities for unethical behaviour,
and exposure to others who behave ethically or unethically. Superiors, peers and subordi-
nates in the organization influence the ethical decision-making process. Although people outside the
organization, such as family members and friends, also influence decision-makers, organizational
culture and structure operate through organizational relationships to influence ethical decisions.
Corporate culture is a set of values, beliefs, goals, norms and rituals that members
corporate culture
of an organization share. These values also help shape employees’ satisfaction with
A set of values, beliefs,
goals, norms and rituals their employer, which may affect the quality of the service they provide to customers.
that members of an Figure 24.5 indicates that at least 92 per cent of surveyed employees who see trust,
organization share. respect and honesty applied frequently in their organizations express satisfaction with their
employers.26 A company’s culture may be expressed formally through codes of conduct,
memos, manuals, dress codes and ceremonies, but it is also conveyed informally through
work habits, extracurricular activities and anecdotes. An organization’s culture gives its members
meaning and suggests rules for how to behave and deal with problems within the organization.
Frequently Occasionally Rarely/never

100
80
Employee satisfaction (%)

60
Figure 24.5 40
The relationship of organizational values to
employee satisfaction
Source: Ethics Resource Center, The Ethics
20
Resource Center’s 2000 National Business Eth-
ics Survey: How Employees Perceive Ethics at
Work (Washington, DC: Ethics Resource Center, 0
2000), p. 85. Reprinted with permission. Trust Respect Honesty
Most experts agree that the chief executive, managing director or marketing director sets the
ethical tone for the entire organization. Lower level managers take their cue from top managers, but
they too impose some of their personal values on the company. This interaction between corporate
culture and executive leadership helps determine the company’s ethical value system.
Colleagues’ influence on an individual’s ethical choices depends on the person’s exposure to
unethical behaviour. Especially in grey areas, the more a person is exposed to unethical activity
by others in the organizational environment, the more likely s/he is to behave unethically. Most
marketing employees take a lead from colleagues in learning how to solve problems, including
ethical problems.27 Indeed, research suggests that marketing employees who perceive their work
environment as ethical, experience less role conflict and ambiguity, are more satisfied with their
jobs, and are more committed to their employer.28
Organizational pressure plays a key role in creating ethical issues. For example, because of
pressure to meet a deadline, a superior may ask a salesperson to lie to a customer over the
phone about a late product shipment. Similarly, pressure to meet a sales quota may result in
overly aggressive sales tactics. Research in this area indicates that superiors and colleagues can
generate organizational pressure, which plays a key role in creating ethical issues. In a study by
the Ethics Resource Centre, 60 per cent of respondents said they had experienced pressure from
superiors or colleagues to compromise ethical standards to achieve business objectives.29 Nearly
all marketers face difficult issues whose solutions are not obvious or that present conflicts between
organizational objectives and personal ethics.
opportunity
Opportunity Opportunity provides another pressure that may shape ethical decisions
A favourable set of con- in marketing. Opportunity is a favourable set of conditions that limit barriers or provide
ditions that limit barriers rewards. A marketing employee who takes advantage of an opportunity to act unethi-
or provide rewards. cally and is rewarded or suffers no penalty may repeat such acts as other opportunities
arise. For example, a salesperson who receives a bonus after using a deceptive sales
presentation to increase sales is being rewarded and thus will probably continue the
behaviour. Indeed, the opportunity to engage in unethical conduct is often a better predictor of
unethical activities than are personal values.30 Beyond rewards and the absence of punishment,
other elements in the business environment may create opportunities. Professional codes of con-
duct and ethics-related corporate policy also influence opportunity by prescribing what behaviours
are acceptable, as will be explained later. The larger the rewards and the milder the punishment for
unethical conduct, the greater the likelihood that unethical behaviour will occur.
However, just as the majority of people who go into retail stores do not try to shoplift at each
opportunity, most marketers do not try to take advantage of every opportunity for unethical
behaviour in their organizations. Although marketing managers often perceive many opportunities
to engage in unethical conduct in their companies and industries, research suggests that most
refrain from taking advantage of such opportunities. Moreover, most marketing managers do not
believe unethical conduct in general results in success.31 Individual factors as well as organizational
culture may influence whether an individual becomes opportunistic and tries to take advantage of
situations unethically.
Improving ethical conduct in marketing

It is possible to improve ethical conduct in an organization by taking on ethical employees and
eliminating unethical ones, and by improving the organization’s ethical standards. One way to
approach improvement of an organization’s ethical standards is to use a ‘bad apple/bad barrel’
analogy. Some people always do things in their own self-interest, regardless of organizational goals
or accepted moral standards; such people are sometimes referred to as ‘bad apples’. To eliminate
unethical conduct, an organization must rid itself of bad apples through screening techniques and
enforcement of the company’s ethical standards. However, organizations sometimes become
‘bad barrels’ themselves, not because the individuals within them are unethical but because the
pressures to survive and succeed create conditions (opportunities) that reward unethical behaviour.
One way to resolve the problem of the bad barrel is to redesign the organization’s image and culture
so that it conforms to industry and societal norms of ethical conduct.32
If senior management develops and enforces ethics and legal compliance programmes to
encourage ethical decision-making, it becomes a force to help individuals make better decisions.
A National Business Ethics Survey in the USA found that ethics programmes that include written
standards of conduct, ethics training, ethics advice lines or offices and systems for anonymous
reporting, increase the likelihood that employees will report misconduct observed in the workplace.33
Thus a well implemented formal ethics and compliance programme and a strong corporate culture
result in the greatest reduction of future misconduct. Companies that wish to improve their ethics,
need to implement a strong ethics and compliance programme and encourage commitment to
it. When marketers understand the policies and requirements for ethical conduct, they can more
easily resolve ethical conflicts. However, marketers can never fully abdicate their personal ethical
responsibility in making decisions. Claiming to be an agent of the business (‘the company told me
to do it’) is unacceptable as a legal excuse and is even less defensible from an ethical perspective.34
Codes of conduct Without compliance programmes, and uniform standards and policies regard-
ing conduct, it is hard for employees to determine what conduct is acceptable within the company.
In the absence of such programmes and standards, employees will generally make decisions
based on their observations of how co-workers and superiors behave. To improve ethics, many
organizations have developed codes of conduct (also labelled codes of ethics) con-
codes of conduct
sisting of formalized rules and standards that describe what the company expects of its
Formalized rules and
standards that describe employees. Most large businesses have formal codes of conduct. Codes of conduct
what the company promote ethical behaviour by reducing opportunities for unethical behaviour; employees
expects of its employees. know both what is expected of them and what kind of punishment they face if they vio-
late the rules. Codes help marketers deal with ethical issues or dilemmas that develop
in daily operations by prescribing or limiting specific activities. Codes of conduct have
also made companies that subcontract manufacturing operations abroad more aware of the ethical
issues associated with supporting facilities that underpay and even abuse their workforce.
Codes of conduct do not have to take every situation into account, but they should provide
guidelines that enable employees to achieve organizational objectives in an ethical and acceptable
manner. The Ethical Trading Initiative (ETI) works in partnership with its membership of companies,
trade unions and voluntary organizations to improve the quality of life of workers around the world.
Among its members are Mothercare, The Body Shop, Superdry, The White Company, Next, M&S,
Tesco, Sainsbury’s, The Co-operative, Eileen Fisher and Asos. The alliance’s vision is for people to
work in freedom, equity and security and to be free from discrimination and exploitation. Table 24.3
summarizes ETI’s base ethical trade code.
Table 24.3 The ethical trading initiative base code

Ethical Trading Initiative base code
The ETI base code is founded on the conventions of the International Labour Organization (ILO) and is an internationally recognized code of labour
practice.
1. Employment is freely chosen
1.1 There is no forced, bonded or involuntary prison labour.
1.2 Workers are not required to lodge ‘deposits’ or their identity papers with their employer and are free to leave their employer after
reasonable notice.
2. Freedom of association and the right to collective bargaining are respected
2.1 Workers, without distinction, have the right to join or form trade unions of their own choosing and to bargain collectively.
2.2 The employer adopts an open attitude towards the activities of trade unions and their organizational activities.
2.3 Workers’ representatives are not discriminated against and have access to carry out their representative functions in the workplace.
2.4 Where the right to freedom of association and collective bargaining is restricted under law, the employer facilitates, and does not hinder,
the development of parallel means for independent and free association and bargaining.
3. Working conditions are safe and hygienic
3.1 A safe and hygienic working environment shall be provided, bearing in mind the prevailing knowledge of the industry and of any specific
hazards. Adequate steps shall be taken to prevent accidents and injury to health arising out of, associated with, or occurring in the
course of work, by minimizing, so far as is reasonably practicable, the causes of hazards inherent in the working environment.
3.2 Workers shall receive regular and recorded health and safety training, and such training shall be repeated for new or reassigned
workers.
3.3 Access to clean toilet facilities and to potable water, and, if appropriate, sanitary facilities for food storage shall be provided.
3.4 Accommodation, where provided, shall be clean, safe, and meet the basic needs of the workers.
3.5 The company observing the code shall assign responsibility for health and safety to a senior management representative.
4. Child labour shall not be used
4.1 There shall be no new recruitment of child labour.
4.2 Companies shall develop or participate in and contribute to policies and programmes which provide for the transition of any child found
to be performing child labour to enable her or him to attend and remain in quality education until no longer a child; “child” and “child
labour” being defined in the appendices.
4.3 Children and young persons under 18 shall not be employed at night or in hazardous conditions.
4.4 These policies and procedures shall conform to the provisions of the relevant ILO standards.
5. Living wages are paid
5.1 Wages and benefits paid for a standard working week meet, at a minimum, national legal standards or industry benchmark standards,
whichever is higher. In any event wages should always be enough to meet basic needs and to provide some discretionary income.
5.2 All workers shall be provided with written and understandable information about their employment conditions in respect to wages
before they enter employment and about the particulars of their wages for the pay period concerned each time that they are paid.
5.3 Deductions from wages as a disciplinary measure shall not be permitted nor shall any deductions from wages not provided for by
national law be permitted without the expressed permission of the worker concerned. All disciplinary measures should be recorded.
6. Working hours are not excessive
6.1 Working hours must comply with national laws, collective agreements, and the provisions of 6.2 to 6.6 below, whichever affords the
greater protection for workers. Sub-clauses 6.2 to 6.6 are based on international labour standards.
6.2 Working hours, excluding overtime, shall be defined by contract, and shall not exceed 48 hours per week.*
6.3 All overtime shall be voluntary. Overtime shall be used responsibly, taking into account all the following: the extent, frequency and hours
worked by individual workers and the workforce as a whole. It shall not be used to replace regular employment. Overtime shall always
be compensated at a premium rate, which is recommended to be not less than 125 per cent of the regular rate of pay.
(Continued )
6.4 The total hours worked in any seven-day period shall not exceed 60 hours, except where covered by clause 6.5 below.
6.5 Working hours may exceed 60 hours in any seven-day period only in exceptional circumstances where all of the following are met:
●● this is allowed by national law;
●● this is allowed by a collective agreement freely negotiated with a workers’ organization representing a significant portion of the
workforce;
●● appropriate safeguards are taken to protect the workers’ health and safety; and
●● the employer can demonstrate that exceptional circumstances apply such as unexpected production peaks, accidents or
emergencies.
6.6 Workers shall be provided with at least one day off in every seven-day period or, where allowed by national law, two days off in every
14-day period.
NB: This base code clause was revised with effect from 1 April 2014.
7. No discrimination is practiced
7.1 There is no discrimination in hiring, compensation, access to training, promotion, termination or retirement based on race, caste,
national origin, religion, age, disability, gender, marital status, sexual orientation, union membership or political affiliation.
8. Regular employment is provided
8.1 To every extent possible work performed must be on the basis of recognized employment relationship established through national law
and practice.
8.2 Obligations to employees under labour or social security laws and regulations arising from the regular employment relationship shall
not be avoided through the use of labour-only contracting, sub-contracting, or home-working arrangements, or through apprenticeship
schemes where there is no real intent to impart skills or provide regular employment, nor shall any such obligations be avoided through
the excessive use of fixed-term contracts of employment.
9. No harsh or inhumane treatment is allowed
9.1 Physical abuse or discipline, the threat of physical abuse, sexual or other harassment and verbal abuse or other forms of intimidation
shall be prohibited.
* International standards recommend the progressive reduction of normal hours of work, when appropriate, to 40 hours per week, without any reduction in
workers’ wages as hours are reduced.
Source: www.ethicaltrade.org/eti-base-code
ethics officers Ethics officers Organizational compliance programmes must be overseen by

Responsible for creating, high-ranking members of the company, who are known to respect legal and ethical
distributing, enforcing standards. Many companies, including Starbucks and Walmart, have ethics officers.
and advising on a code They are typically responsible for creating and distributing a code of conduct, enforcing
of conduct.
the code, and meeting with colleagues to discuss or provide advice about ethical issues.
They may also set up telephone ‘hotlines’ and online fora to provide advice to employees
faced with an ethical issue.
Implementing ethics and legal compliance programmes To nurture ethical conduct in mar-
keting, open communication and coaching on ethical issues are essential. This involves providing
employees with ethics training, clear channels of communication and follow-up support through-
out the organization. Companies need to consistently enforce standards and impose penalties
on those who violate codes of conduct. In addition, businesses must take reasonable steps in
response to violations of standards and, as appropriate, revise their compliance programmes to
diminish the likelihood of future misconduct.
To succeed, a compliance programme must be viewed as part of the overall marketing strat-
egy implementation. If ethics officers and other executives are not committed to the principles
and initiatives of marketing ethics and social responsibility, the programme’s effectiveness will be
compromised. Although the virtues of honesty, fairness and openness are often assumed to be
self-evident and universally accepted, marketing strategy decisions involve complex and detailed
matters in which correctness may not be so clear-cut. A high level of personal morality may not be
sufficient to prevent an individual from violating the law in an organizational context in which even
experienced lawyers debate the exact meaning of the law.
As it is impossible to train all members of an organization as lawyers, the identification of ethical

issues and the implementation of compliance programmes and codes of conduct that incorpo-
rate both legal and ethical concerns, constitute the best approach to preventing violations and
avoiding litigation. Codifying ethical standards into meaningful policies that spell out what is and
is not acceptable gives marketers an opportunity to reduce the probability of behaviour that could
create legal problems. Without proper ethical training and guidance, it is impossible for the aver-
age marketing manager to understand the exact boundaries of illegality in the areas of price fixing,
copyright violations, fraud, export/import violations and so on. A corporate focus on ethics helps
create a buffer zone around issues that could trigger serious legal considerations for a company.
Incorporating social responsibility and ethics

into marketing decisions
Although the concepts of marketing ethics and social responsibility are often used interchangeably,
it is important to distinguish between them. Ethics relates to individual and group decisions: judg-
ments about what is right or wrong in a particular decision-making situation. Social responsibility,
on the other hand, deals with the total effect of marketing decisions on society. The two concepts
are interrelated because a company that supports socially responsible decisions and adheres to a
code of conduct is likely to have a positive effect on society. Figure 24.6 illustrates how the Fairtrade
movement is dedicated to working with companies in the grocery industry to benefit supplying
communities. Although ethics and social responsibility programmes can be profitable as well, an
increasing number of companies are incorporating them into their overall marketing ethos.
Figure 24.6
The Fairtrade movement
is growing, but depends
on the ethical behaviour of
producers and marketers
in order to ensure identified
products conform to the
movement’s standards
As has been emphasized throughout this chapter, ethics is just one dimension of social respon-
sibility. Being socially responsible relates to doing what is economically sound, legal, ethical and
socially conscious. One way to evaluate whether a specific activity is ethical and socially responsible
is to ask other members of the organization if they approve. Contact with concerned consumer
groups and industry or government regulatory groups may be helpful. A check to see whether there
is a specific company policy about an activity may help resolve ethical questions; if other organiza-
tion members approve of the activity and it is legal and customary within the industry, the chances
are the activity is acceptable from both an ethical and a social responsibility perspective. Table 24.4
provides an audit of mechanisms to help control ethics and social responsibility in marketing.
A rule of thumb for resolving ethical and social responsibility issues is that if an issue can with-
stand open discussion that results in agreement or limited debate, an acceptable solution may
exist. Nevertheless, even after a final decision has been reached, different viewpoints on the issue
may remain. Openness is not a complete solution to the ethics problem, but it creates trust and
facilitates learning relationships.35
Table 24.4 Corporate audit of social responsibility and ethics control mechanisms
Answer ‘True’ (T) or ‘False’ (F) for each statement
1. No mechanism exists for top management to detect social responsibility and ethi- T F
cal issues relating to employees, customers, the community and society.
2. There is no formal or informal communication within the organization about proce- T F
dures and activities that are considered acceptable behaviour.
3. The organization fails to communicate its ethical standards to suppliers, custom- T F
ers and groups that have a relationship with the organization.
4. There is an environment of deception, repression and cover-ups concerning events T F
that could be embarrassing to the company.
5. Reward systems are totally dependent on economic performance. T F
6. The only concerns about environmental impact are those that are legally required. T F
7. Concern for the ethical value systems of the community with regard to the T F
company’s activities is absent.
8. Products are described in a misleading manner, with no information on negative T F
impact or limitations communicated to customers.
True answers indicate a lack of control mechanisms, which, if implemented, could improve ethics and social responsibility.
Being socially responsible and ethical is challenging

To promote socially responsible and ethical behaviour while achieving organizational goals, market-
ers must monitor changes and trends in society’s values. In response to increasing concerns about
sustainability, more firms are making commitments to behave responsibly in this regard. PepsiCo
UK is one example, having committed to making all of its packaging renewable, biodegradable or
recyclable. Although implementing the programme will not be without difficulty, the president of
PepsiCo UK explains that, ‘The business case is clear. Building sustainability into our corporate
DNA cuts costs, drives innovation, reduces risk and motivates employees’.36
Likewise, when consumers began to demand greater transparency or openness from compa-
nies in the wake of a number of ethics scandals, transparency became a factor in most marketing
and management decisions.37 An organization’s senior management must assume some responsi-
bility for employees’ conduct by establishing and enforcing policies that address society’s desires.
After determining what society wants, marketers try to predict the long-term effects of decisions
relating to those wants. Specialists outside the company, such as doctors, lawyers and scientists,
are often consulted, but sometimes there is a lack of agreement within a discipline as to what is
an acceptable marketing decision. Today, not all scientists agree about the causes or likely impact
of global warming or whether GM foods are good. Fifty years ago, tobacco marketers promoted
cigarettes as being good for people’s health, yet today it is recognized that cigarette smoking is
linked to cancer and other medical problems. Consequently, society’s attitude towards smoking
has changed, and some governments have passed legislation banning smoking in public places.
This has implications for marketers, such as those in hotels and leisure sites, who must implement
this change and consider whether they wish to provide smoking areas away from the rest of their
customers. The change in attitude towards cigarettes will, no doubt, be mimicked in the future
for many products which today are consumed without hesitation, so marketers must be vigilant.
Many of society’s demands impose costs. For example, society wants a cleaner environment and
the preservation of wildlife and its habitats, but it also wants low-priced products. This means that
companies must carefully balance the costs of providing low-priced products against the costs of
manufacturing, packaging and distributing their products in an environmentally responsible manner.
In trying to satisfy the desires of one group, marketers may dissatisfy others. Regarding the
smoking debate, for example, marketers must balance non-smokers’ desire for a smoke-free envi-
ronment against smokers’ desire or need to continue to smoke. Some anti-smoking campaigners
call for the complete elimination of tobacco products to ensure a smoke-free world. However, this
attitude fails to consider the difficulty smokers have in quitting. Thus, this issue, like most ethical
and social responsibility issues, cannot be viewed in black and white terms.
Satisfying the demands of all members of society is difficult, if not impossible. Marketers must
evaluate the extent to which members of society are willing to pay for what they want. For instance,
customers may want more information about a product but be unwilling to pay the costs the busi-
ness incurs in providing the data. Marketers who want to make socially responsible decisions may
find the task a challenge because, ultimately, they must ensure their economic survival.
Social responsibility and ethics improve marketing performance

Increasing evidence indicates that being socially responsible and ethical pays off. Research sug-
gests that a relationship exists between a marketing orientation and an organizational climate that
supports marketing ethics and social responsibility. This relationship implies that being ethically and
socially concerned is consistent with meeting the demands of customers and other stakeholders.
By encouraging employees to understand their markets, companies can help them respond to
stakeholders’ demands.38
A survey of marketing managers found a direct association between corporate social responsi-
bility and profits.39 In a survey of consumers, around three-quarters indicated that they would pay
more for a product that came from a socially responsible company. Almost half of young adults
aged 18 to 25 said they would take a pay cut to work for a socially responsible company.40
Recognition is therefore growing that the long-term value of conducting business in a socially
responsible manner far outweighs short-term costs. Companies that fail to develop strategies and
programmes to incorporate ethics and social responsibility into their organizational culture may pay
the price, with poor marketing performance and the potential costs of legal violations, civil litigation
and damaging publicity, when questionable activities are made public.
As marketing ethics and social responsibility are not always viewed as organizational perfor-
mance issues, many managers do not believe they need to consider them in the strategic planning
process. Individuals also have different ideas as to what is ethical or unethical, leading them to
confuse the need for workplace ethics and the right to maintain their own personal values and
ethics. While the concepts are undoubtedly controversial, it is possible and desirable to incorporate
ethics and social responsibility into the planning process.41
Social marketing
social marketing
Uses tools and tech- The use of marketing in commercial settings is well established. Social marketers use
niques from commercial the same tools and techniques to achieve social, rather than commercial, objectives. As
marketing to encourage explained in Chapter 1, social marketing involves using commercial marketing ideas
positive behavioural and tools to change behaviour in ways that will improve the well-being of individuals
changes, such as quit-
ting smoking, reducing
and society. For example, research evidence shows that images of smoking in movies
alcohol consumption, can strongly influence young people to start smoking. The SmokeFree Liverpool team
minimizing anti-social uses messaging, tools, interventions and clinics to support smokers in the city to quit.
behaviours or reducing Table 24.5 explains the differences in priorities and approach for commercial and social
carbon footprint. The marketers.
health and well-being of
individuals, society and
As Figure 24.7 shows, many social marketing programmes seek to achieve changes
the planet are at the core in health behaviour42, such as encouraging individuals to quit smoking, exercise more
of social marketing. often, eat more healthily or drink less alcohol.43 However, this is not always the case.
Encouraging more sustainable behaviour by increasing recycling rates, getting drivers
Table 24.5 Difference in approach between commercial and social marketers

Commercial marketing Social marketing
Product The marketing process revolves primarily around the development The marketing process is used to change or
and sale of goods and services maintain behaviour
Primary aim Financial gain Individual or societal gain
Primary Other organizations offering similar goods or services The current or preferred behaviour of the target
competition segment
Source: National Social Marketing Centre (www.thensmc.com/sites/default/files/Big_pocket_guide_2011.pdf).
to reduce their speed or drive more safely, reducing energy consumption, managing personal debt
more responsibly, and even encouraging people to pay their taxes, are some of the other situations
in which social marketing has been applied. The common thread in all of these campaigns is the
link between achieving behaviour change and enhancing social good, using planned interventions
to nudge or encourage new attitudes and changed behaviours.
Figure 24.7
Social and responsible marketing is
becoming increasingly important, such as
in the Change4Life marketing campaign
Source: Image courtesy of Change4Life.
The kinds of social marketing initiatives that target individuals whose behaviour needs to be
changed are sometimes referred to as downstream social marketing.44 Often these downstream
efforts need to be combined with upstream activities targeting influential stakeholders, such as gov-
ernments, regulators, health professionals and industries. For example, while health professionals in
the UK have for many years targeted individual smokers with programmes designed to encourage
them to quit (downstream initiatives), the introduction of legislation to ban smoking in public places
(an upstream initiative) has had a profound effect on levels of quitting and smoking take-up.
Social marketers need to make sure that those who are targeted with social marketing pro-
grammes are actively involved in the process. The improvements to individual and social well-being
at the heart of social marketing can only be achieved if voluntary behaviour change takes place.
Just as in commercial marketing, social marketing involves an exchange between organizations
or individuals responsible for a particular programme and the consumers who are on the receiving
end. For example, the central exchange in a vaccination programme involves individuals who agree
to be vaccinated being offered protection against future illness. Similarly, those who sign up to a
programme to help them cut down on their calorie intake and increase their life expectancy as per
the ‘Change4Life’ campaign, are hoping to improve their health and reduce their financial outlay on
drink in exchange for altering their behaviour. Social marketing hinges on understanding ‘consum-
ers’ and identifying which segment is best to target with a well-defined intervention and campaign.
One of the challenges faced by social marketing programmes is that the benefits on offer can
be quite intangible. For instance, although the problems associated with global warming and
sustainability are well recognized, many consumers struggle to change their behaviour in ways
that will protect the environment. Cutting down on leisure travel, improving recycling behaviour and
reducing energy use can seem like a major sacrifice for consumers. Sometimes people also find it
difficult to accept that behaviour change made at the individual level can make a real difference to
the global picture. For these reasons social marketers have to work hard to ensure that they are
genuinely consumer orientated and must often use innovative approaches to encourage people
to modify their behaviour. The Topical Insight considers how GAP has intervened regarding water
consumption. Nevertheless, social marketing applications have broadened the scope for market-
ing practice, employing many marketing graduates and applying the marketing process across a
diversity of non-commercial areas.
Current hot topics in the marketing discipline

This chapter of Marketing: Concepts and Strategies has explored some of the hottest topics cur-
rently taxing the minds of marketers, such as ethical consumption and social marketing. A recent
poll of senior practitioners in the discipline identified these pressures and drivers:
Big data The wealth of up-to-the-minute insights in the digital era – enabled by improved data capture,
analytics and heuristics – provides exciting opportunities for being more informed (understanding
customers and mapping competitors, testing out hunches and tracking the marketing environ-
ment) as well as for developing relationships, but only if companies can avoid being swamped
and if they and their partners are able to identify the real nuggets of important insight amongst
the huge volume of data now incessantly being produced. The growth in market insight or cus-
tomer insight teams, analytics support and consultancies offering insight and analytics is a direct
response to this hot topic.
Social media and C2C As explored in Chapters 1, 5 and 19, social media and the growth in consumer-to-consumer
communications have removed the power of brand messaging from marketers – with so much
product, brand, usage and attitude information now emanating from other consumers and various
third parties on the web – presenting challenges for marketers, as consumers radically alter their
buying behaviour, information search, decision-making, purchasing activities and relationships.
There is a growth of ‘trash-talking’ and deliberating alienating users so as to derail the perfor-
mance of competing brands.
Privacy concerns Most apps use location data, websites’ cookies track behaviours and CRM systems capture and
explore significant amounts of consumption, lifestyle, behavioural and financial data about con-
sumers, raising data protection challenges, presenting ethical dilemmas for marketers and lead-
ing to growing concerns for consumers and watchdogs. The EU’s new data regulations are partly
in response to these concerns. As a result, marketers and their agencies have to be much more
judicious when seeking, collating, storing, analyzing and sharing customer data.
Ethics In a rolling-news and social media-driven society misbehaviour by brands is far more evident
and open to debate, with consequences for consumers’ trust, loyalty, word-of-mouth support or
annoyance and their spending, at a time when, increasingly, companies’ leadership teams are
striving to avoid litigation and to behave ethically . . . many marketers do have a conscience, but
are let down by the unscrupulous behaviours of a damaging minority in their profession.
Sustainability Many observers thought the trend over the past two decades towards greater responsibility
socially by companies, particularly around energy use and wasteful consumption, would tone
down during the recent global financial crisis, but in practice the reverse is true. Marketers must
ensure their behaviours, their brands’ credentials and their channel activities reflect the ongoing
sustainability agenda. This agenda in its own right creates business opportunities and offers a
clear direction around which marketers must align their activities. One example is the circular
economy, in which suppliers strive to be leaner and minimize waste in production and distribu-
tion, while brands seek to limit the disposable society and encourage re-use or recycling.
Regulation All of the above drivers lead to an increasingly regulated environment in which non-compliance
is more visible – with often damaging reputational and financial consequences – so marketers’
understanding of these forces from the marketing environment and their ability to act as the ‘eyes
and ears’ for their organizations become even more important.
(Continued )
Recruitment of talent The digital era, big data, thirst for insight and changing managerial behaviours – driven by the
issues above – require new skills and capabilities. However, the growth of analytics and insight
teams reduces the pool of talent from which marketers may recruit. At a time when the growth of
social marketing in non-profit fields is attracting growing numbers of marketing graduates, creat-
ing significant recruitment and staff development challenges for marketers in commercial sectors
and their human resource partners.
When is it wrong to While not as dominant a theme as many of the other points described here, the recent reces-
encourage consumption? sion and pressures on household expenditures have caused some marketers to question their
promotion of their brands as they strive to encourage more consumption and thereby consumer
spending; resulting in some brands re-engineering their propositions in order to offer value and to
reduce pressures on consumers.
Multi-channel management The companies operating with only traditional non-digital marketing channels are very much in
of customer experience the minority. Many companies now reach their customers through multiple channels of distribu-
tion and points of sale. Whether in-store, at a depot or online, a customer must be well-served
and looked after, with appropriate branding, messaging, customer service and value propositions.
This customer experience should not vary across the channels used by a particular customer. All
too often, the experience is very different between buying a brand online and in-store. It should
not be different.
Marketing metrics As explored in Chapter 23, there are many financial performance measures by which marketers
are measured: profitability, sales volumes, return on investment, market share and shareholder
value to name just some. Marketers are also responsible for creating a strong and visible brand,
engaging with customers, achieving satisfaction and providing ongoing relationships. They are
also charged with identifying and pursuing new pipelines for new business. Marketers need
their senior peers to understand these multiple measures and to track progress in this context.
Marketers must capture information which will reveal the extent to which they are achieving their
targets. Understanding what ‘success’ will be in the eyes of key senior colleagues is part of this
narrative.
President Trump and UK Rarely do such democratic votes create such turmoil for marketers. Most businesses are still
Brexit from the EU struggling to fully appreciate the implications from the election of Trump in the USA and the UK
referendum to exit from the EU. No free borders or movement of goods across the EU, potentially
the UK becoming an unattractive location for foreign direct investment, and trade tariffs from
America, are not inconsequential concerns for marketers across Europe.
Summary
Social responsibility refers to an organization’s obligation to maximize its positive impact and minimize its negative impact
on society. Although social responsibility is a positive concept, most organizations embrace it in the expectation of indirect
long-term benefits.
Marketing citizenship involves adopting a strategic focus for fulfilling the economic, legal, ethical and philanthropic social
responsibilities expected of organizations by their stakeholders, those constituents who have a stake, or claim, in some
aspect of the company’s products, operations, markets, industry and outcomes.
At the most basic level, companies have an economic responsibility to be profitable so that they can provide a return
on investment to their stockholders, create jobs for the community and contribute goods and services to the economy.
Marketers are also expected to obey laws and regulations. Marketing ethics refers to principles and standards that define
acceptable conduct in marketing as determined by various stakeholders, including the public, government regulators,
private interest groups, industry and the organization itself. Philanthropic responsibilities, which encompass cause-related
marketing, go beyond marketing ethics; they are not required of a company, but they promote human welfare or goodwill,
known as strategic philanthropy.
Three major categories of social responsibility issues are the natural environment, consumerism and community relations.
A common way in which marketers demonstrate social responsibility is through programmes designed to protect and pre-
serve the natural environment. Green marketing refers to the specific development, pricing, promotion and distribution of
products that do not harm the environment. Marketers must avoid ill-judged greenwash, which is rarely well received and
risks the alienation of consumers and target audiences. Consumerism consists of the efforts of independent individuals,
groups and organizations to protect the rights of consumers.
Whereas social responsibility is achieved by balancing the interests of all stakeholders in the organization, ethics relates
to acceptable standards of conduct in making individual and group decisions. Marketing ethics goes beyond legal issues,
fostering mutual trust in marketing relationships.
An ethical issue is an identifiable problem, situation or opportunity requiring an individual or organization to choose
between actions that must be evaluated as right or wrong, ethical or unethical. A number of ethical issues relate to the
marketing mix (product, people, promotion, price and place/distribution) and to data use.
Individual factors, organizational relationships and opportunity interact to determine ethical decisions in marketing. Individ-
uals often base their decisions on their own values and principles of right or wrong. However, ethical choices in marketing
are often made jointly, in work groups or with colleagues, and are shaped by corporate culture and structure.
The more someone is exposed to unethical activity in the organizational environment, the more likely s/he is to behave
unethically. Organizational pressure and opportunity play a key role in creating ethical issues. Improving ethical behaviour
in an organization can be achieved by developing and enforcing ethics and legal compliance programmes, establishing
codes of conduct, formalized rules and standards that describe what the company expects of its employees, and having an
ethics officer.
To nurture ethical conduct in marketing, open communication and coaching on ethical issues are essential. This requires
providing employees with ethics training, clear channels of communication and follow-up support throughout the organi-
zation. Companies must consistently enforce standards and impose penalties on those who violate codes of conduct, via
appointed ethics officers.
Companies are increasingly incorporating ethics and social responsibility programmes into their marketing decisions.
Increasing evidence indicates that being socially responsible and ethical results in valuable benefits: an enhanced public
reputation, which can increase market share, costs savings and profits.
Social marketing uses tools and techniques from commercial marketing to encourage positive behavioural changes, such
as quitting smoking, reducing alcohol consumption, more responsible personal financial management, minimizing anti-
social behaviours or reducing carbon footprint. The health and well-being of individuals, society and the planet are at the
core of social marketing. Whereas the main aim of commercial marketing is to generate sales, profit and shareholder value,
social marketers are concerned with achieving social good and behaviour change. Downstream social marketing activities
targeting behaviour change are often combined with upstream initiatives aimed at influential stakeholders, such as govern-
ments, regulators, health professionals and industries.
This chapter has explored some of the biggest challenges facing marketers today. Recent research identifies ethics, privacy
concerns, driving consumption, sustainability and responsible behaviours as key drivers or hot topics now steering the
onwards development of marketing, along with the big date era, social media and greater consumer-to-consumer com-
munication; multi-channel management and customer experience; agreeing and meeting performance metrics; regulation;
the growth of social marketing and talent recruitment hindering access to an ideal talent pool; as well as responding to the
decisions to exit the EU by the UK and elect Donald Trump into the White House.
7. How do the factors that influence ethical or unethical

Key links decisions interact?
8. What ethical conflicts could arise if a company’s employees
This chapter should be read in conjunction with:
chose to fly only on certain airlines in order to accrue
●● Chapter 2’s explanation of developing marketing personal frequent-flier miles?
strategies. 9. Give an example of how each component of the marketing
●● Chapter 3’s description of the forces of the marketing mix can be affected by ethical issues.
environment, which include the increased emphasis 10. How can ethical decisions in marketing be improved?
on ethics and social responsibility.
11. How can people with different personal values work
●● Chapter 23’s discussion of implementing marketing together to make ethical decisions in organizations?
strategies and marketing programmes.
12. What evidence exists that being socially responsible and
ethical is worthwhile?
Important terms 13. What is social marketing and how does it use commercial
marketing tools to change behaviour?
Cause-related marketing
Codes of conduct 14. In what ways has the emergence of social marketing broad-
Community relations ened the scope of marketing?
Consumerism 15. What are some of the key challenges or ‘hot topics’ facing
Corporate culture marketing teams?
Ethical issue
Ethics officer
Green marketing Recommended readings
Greenwash Ball, K., Canhoto, A., Daniel, E., Dibb, S., Meadows, M. and Spiller, K., The
Individual factors Private Security State? (CBS Press, 2015).
Marketing citizenship Crane, A. and Matten, B., Business Ethics: Managing Corporate Citizen-
Marketing ethics ship and Sustainability in the Age of Globalization (Oxford University
Opportunity Press, 2015).
Organizational relationships Eagle, L., Dahl, S., Hill, S., Bird, S., Spotswood, F. and Tapp, A., Social
Philanthropic responsibilities Marketing (Pearson, 2012).
Social marketing Eagle, L. and Dahl, S., Marketing Ethics and Society (Sage, 2015).
Fraedrich, J., Ferrell, L. and Ferrell, O.C., Business Ethics: Ethical Deci-
Social responsibility
sion Making and Cases, (South Western, 2016).
Stakeholders
Grant, J., The Green Marketing Manifesto (Wiley, 2007).
Strategic philanthropy Hastings, G., Social Marketing: Why Should the Devil Have All the Best
Sustainability Tunes? (Routledge, 2016).
Hastings, G. and Domegan, C., Social Marketing: Rebels With A Cause
(Routledge, 2017).
Discussion and review questions Kotler, P. and Lee, N.R., Social Marketing: Changing Behaviours for Good
1. What is social responsibility and why is it important? (Sage, 2015).
Martin, D. and Schouten, J., Sustainable Marketing (Pearson, 2013).
2. What are stakeholders? What role do they play in strategic Nguyen B., Simkin, L. and Canhoto, A., The Dark Side of CRM (Routledge,
marketing decisions? 2015).
3. List four dimensions of social responsibility. Rasche, A., Morsing, M. and Moon, J., Corporate Social Responsibility:
Strategy, Communication, Governance (Cambridge University Press,
4. What are some major social responsibility issues? Give an
2017).
example of each.
Sage Publications, Sage Brief Guide to Marketing Ethics (Sage, 2011).
5. What is the difference between ethics and social responsibility? Velasquez, M.G., Business Ethics: Concepts and Cases (Pearson, 2017).
6. Why are ethics an important consideration in marketing
decisions?

The Institute of Business Ethics Is it possible for a retailer to become
offers guidance to organizations on too large and powerful? This is a
doing business ethically. Its website question some people have been
provides advice on developing codes of business ethics and asking about Walmart, the world’s largest retail company, and
presents some simple tests on ethical decisions. Visit the Insti- about Tesco in the UK. Walmart has aggressively pursued its
tute’s website at: www.ibe.org.uk low-price mantra, bringing better value to consumers and forc-
ing suppliers to innovate. A possible concern is that Walmart
1. What role do codes of business ethics play?
has become so big that it can do virtually anything it wants in
2. What steps might a business take to implement a code some areas. Obviously, this kind of power has enormous ethical
of conduct? and social implications. Some suppliers suggest that Walmart
3. Using the links to sample codes of conduct on the IBE (Asda in the UK) is able to dictate every aspect of its operations,
website, list the kinds of area that businesses might from product design to pricing, in its efforts to maximize savings
cover in such a code (www.ibe.org.uk). for customers. Some suppliers claim they have been forced to
reduce staff numbers and even locate to lower-cost regions,
in order to meet the biggest retailer’s margin demands. Their
Group tasks fear is that if they hesitate to comply, they risk losing their most
1. Many businesses now publish their CSR and ethics lucrative outlet and will find their products quickly replaced by
policies. Can you identify examples of brands’ market- a competitor’s on Walmart’s shelves. For the customer, seek-
ing deviating away from the stated overarching CSR ing keen prices and great choice, there are obvious benefits to
and ethics codes? Consider how this might have been Walmart’s approach, but perhaps there is also a cost.
possible.
2. For social marketing interventions seeking to encourage Questions
behaviour changes relating to smoking or unhealthy 1. What are some of the ethical and social implications of the
eating, which aspects of the strategic marketing process power Walmart and other huge retailers are able to exert?
are most useful?
2. What action can a company like Walmart take to manage
these issues?
Recession piles on the new holidays because of reduced incomes

pressure Case study and their rising costs of everyday living. At
first, the company squeezed its operating
costs and margins, in order to maintain
A large holiday travel agency business had
service levels and the range of holidays
a strong reputation for providing value for
it marketed. This proved insufficient and
money packaged holidays to a loyal customer in order to remain solvent, the company made
group which regularly returned to plan and book future hol- some long-term staff redundant – often those with
idays. Customer satisfaction levels were high and the care- the best knowledge of destinations and individual customer’s
fully selected value-based holiday packages provided reliable preferences – and it started to source its holiday packages
experiences to customers, who felt that they could depend on from less familiar, cheaper and overseas operators, with which
the company and its travel agency staff to provide guidance it had no track record and about which it had little knowledge
and suggest destinations. of reliability, honesty or customer service provision.
However, the recession had reduced customer numbers The company’s customers knew none of this: they were
and some previous holiday-makers were deferring booking not told about changing suppliers, the lack of knowledge by
this travel business, have been forced to do this in many

markets because of the global economic downturn, increas-
ing trade barriers, weakening consumer spending and con-
sumer uncertainty about spending on higher value items,
such as holidays. Some companies have opted to make
such commercial decisions, in order to remain in business,
without providing any information to customers about such
reductions in product and service levels. By contrast, other
companies have opted to communicate to their customers
such changes, to explain their reasons and offer safeguards
and guarantees. Other companies have de-specified their
products and services, but turned them into new launches
travel agency staff of the new destinations and hotels, or the of explicitly value-led propositions, visibly labelled as value
financial uncertainty of using cheaper suppliers in less regu- propositions, so as to be seen to be on the side of their cus-
lated regions of the world. The risks to the company’s brand tomers and to be supportive of the pressures their customers
reputation were evident to staff and senior management, but are under. This particular travel company did not inform cus-
the view was that these steps were necessary to remain in tomers of its changed sourcing strategy, reduction of service
business and to safeguard employees’ jobs and incomes. levels and poorer knowledge of the places to which it was
The potential for customers to arrive at less than satisfactory sending its holidaying customers. No attempt was made to
destinations and hotels was also discussed. Staff used web re-brand, re-position or re-state its proposition. Customers
searches to review destinations, hotels and any information only found out the difference through experience when they
about the supplying companies, while the company’s execu- arrived at their holiday destination.
tives used their long-established corporate networks to seek
reassurances from fellow travel businesses about the newly Questions for discussion
offered destinations, hotels and suppliers. Nevertheless, staff
1. What were the options available to the travel agency
in the company’s travel agencies still voiced concerns about
company as it sought to remain in business?
the lack of first-hand experience and knowledge of the prod-
ucts they were now promoting and whether the supplying 2. Consider the advantages and disadvantages of ‘coming
companies would service customers as well as the company’s clean’ to customers or remaining secretive? Suggest
former long-term suppliers. which route you would take and why.
In effect, economic uncertainty and target customers’ 3. How could this holiday company have turned its com-
declining incomes were forcing the company to de-specify mercial necessity to re-think its business model into a
its products and service offering. Many companies, not just new customer-facing proposition and launch?
752 Part four MARKETING PROGRAMMES
Part four postscript

Part Four has focused on marketing management issues necessary for the operationalization of the specified
marketing strategy, namely marketing planning, implementation processes and control measures. Performance
has been examined and, in addition, the important issues of ethics and social responsibility in marketing man-
agement have been highlighted.
Readers should be confident that they are now able to do the following:
Explain the process of marketing planning and forecasting sales potential

●● Understand the marketing planning process.
●● Have an overview of the marketing plan.
●● Understand the relationship between marketing analysis, marketing strategy and marketing programmes in
marketing planning.
●● Understand the role of the SWOT analysis in marketing planning.
●● Be familiar with market and sales potential, and sales forecasting methods.
●● Understand the major components of a marketing audit.
●● Appreciate how organizations operationalize a marketing strategy.
Understand the issues relating to implementing strategies, internal marketing relationships and
measuring performance
●● Understand how marketing activities are organized within a company’s structure.
●● Understand the marketing implementation process.
●● Know about impediments to marketing implementation.
●● Grasp the importance of internal marketing.
●● Understand implementing and controlling marketing activities.
●● Know how sales and marketing cost analysis can be used as methods of evaluating performance.
●● Describe marketing shareholder value analysis.
●● Discuss the popular criteria for measuring marketing performance.
Discuss the relevance of ethics and social responsibility in marketing

●● Understand the concept of social responsibility and consider the importance of marketers behaving
responsibly.
●● Define and describe the importance of marketing ethics.
●● Be familiar with ways to improve ethical decisions in marketing.
●● Understand the role of social responsibility and ethics in improving marketing performance.
●● Revisit the concept of social marketing and consider how it is used.
●● Appreciate how the marketing concept is evolving and understand the challenges facing marketers today.
Part four Marketing management 753
Ethical concerns, cultural positioning and indeed to its franchise

clashes and regulatory Strategic case with its consumers.
pressures: what next for

Chu-Hi and Coca-Cola
Coca-Cola?
Against this backdrop, it was intriguing to
For well-known drinks brands Red Bull and
find details on BBC News that for the first time
Coca-Cola, the relationship between alcohol and their prod-
in its 125-year-old history, Coca-Cola was planning
ucts until now has been left to the bartender or consumer.
to launch an alcoholic drink. Not for the clubs in UK cities,
Neither company is the producer of alcoholic beverages. Any
the cafes in Paris or the bars on the streets of Berlin, but
party-night at university and most Friday and Saturday nights
as an alcopop-type product in Japan, Coca-Hol. Speaking
‘out on the town’ will, however, witness many requests for
to BBC News, Jorge Garduno, Coca-Cola’s head in Japan,
vodka and coke, rum and coke, or any other permutation
explained, “We haven’t experimented in the low alcohol
of coke with well-known alcohol brands. The same alco-
category before, but it’s an example of how we continue
hols are popular when mixed with Red Bull or other energy
to explore opportunities outside our core areas. Coca-Cola
drinks. However, until now neither well-known producer of
has always focused entirely on non-alcoholic beverages,
non-alcoholic beverages has ventured into the production of
and this is a modest experiment for a specific slice of our
alcohol-laced product lines.
market”.
There is a rapidly growing demand amongst Japanese
Red Bull kept away consumers for Chu-Hi, which are canned sparkling flavoured
drinks given an alcoholic kick with a local spirit called shochu.
Red Bull have faced this dilemma for many years. The talented This vodka-like spirit is distilled from potatoes, barley, rice or
international marketing team responsible for Red Bull’s global sugar and has seen 40% growth in recent years. Chu-Hi is
domination of the energy drink sector had targeted new terri- short for shochu highball, marketed as an alternative to beer
tories and successfully entered most countries thought of as and proving to be very popular with female drinkers. Added
appropriate sales territories. They had stretched the brand into ingredients have included acerola, wild basil and yoghurt.
many market segments, from students revising and seeking In Japan, the most popular flavours are strong citrus-based
help in staying awake and concentrating, jaded commuters ones, such as lemon or grapefruit, but there are grape, apple
requiring a pick-me-up on long journeys, managers facing and peach varieties, too. Strong Zero, Highball Lemon and
wear-out in overly-long business meetings able to open a Red Slat are some of the leading brands already on the market,
Bull-shaped chiller full of rejuvenating Red Bull cans, as well but there are hundreds competing in a market enjoying huge
as sports-active consumers requiring an adrenalin boost in growth over the past five years.
order to keep going. So, where next to seek volume growth The large Japanese alcohol players – Kirin, Suntory, Takara
in sales? and Asahi – all have Chu-Hi products, ranging from 3% to 8%
The elephant in the room has been alcohol. Already a alcohol by volume. As these canned products are pre-mixed,
party drink of choice for millions of students around the world, they pre-empt consumers asking for a vodka and coke or rum
Red Bull is frequently mixed with vodka or rum. But not sold and coke, potentially reducing in-bar sales of Coca-Cola. If
ready-mixed by Red Bull. The tension amongst the marketing Coca-Cola sat back and did not enter the category, it would
team has been palpable. Huge volumes would undoubtedly inevitably witness a falling demand for its colas in bars, as some
be sold by Red Bull if it offered consumers ready-mixed alco- consumers prefer to buy the pre-mixed Chu-Hi alcopops. By
holic variants of Red Bull. To do so, however, would cross a entering this growing segment, Coca-Cola can benefit from
line… associating the brand explicitly with alcohol. Not only these new sales and have a slice of the action, as well as uti-
would this cause significant challenges with certain cultures, lize its obvious expertise in canning and distributing sparkling
demographic groups and regulators, but the extreme sports drinks.
so strongly associated with Red Bull’s sponsorship of sports, Consumers the world over are familiar with the Coca-Cola
events and teams would cry foul, too. brand, the vintage bottle design, popular flavour varieties
This ethical dilemma for Red Bull’s marketers and exec- and Coke’s distribution across bars, supermarkets, kiosks
utives has been critically important to its marketing strategy and vending machines. The company’s entry into alcopops
and product development plans, trade relationships, brand
754 Part four MARKETING PROGRAMMES
in Japan demonstrates how global brands recognize oppor- to market product lines that bartenders and consumers already
tunities in local markets and modify their marketing strategy mix for themselves. Red Bull managers, faced with hugely
in order to satisfy local consumer behaviour, fend off local attractive potential sales volumes but struggling to square
competition and leverage local sales potential. the inevitable ethical concerns, cultural clashes, regulatory
pressures, media probing and possible consumer backlash
Where next? associated with such a move into producing alcohol-based
product lines, steered away from this path.
The intrigue now is to what extent Coca-Cola will leverage its Coke’s alcopop launch in Japan cannot have been an
Japanese experimentation and seek to provide alcohol-based easy decision. It must be one now causing its bosses in
mixed products on a more global scale . . . vodka and Coke, Atlanta all sorts of mixed emotions. If Coke’s brand exten-
rum and Coke, etc. Coca-Cola would, after all, only be bringing sion stretches further in this direction, it will cause many
others to have mixed emotions, too. Should Coca-Cola bring
ready-mixed alcohol-based products to other regions and
markets? The ethical dilemmas facing brands seeking con-
tinual sales growth and searching for a competitive edge are
considerable.

1. Why did Red Bull’s marketers shy away from launching
ready-mixed alcoholic drinks containing Red Bull?
2. What are the risks to Coca-Cola in pursing this strategy
in Japan?
3. Is it surprising for a brand as ubiquitous as Coca-Cola to
References: “Coca-Cola to launch alcoholic drink in Japan”, vary its approach so significantly in one market territory?
Financial Times, March 7 2018; Coca-Cola plans to launch its first
alcoholic drink”, BBC News, March 7 2018; “COCA-HOL. What is
4. What process needed to be in place to safeguard the
Chu-Hi, what’s the Coca Cola alcoholic drink and is it available in brand’s reputation when Coca-Cola deliberated this
the UK?”, The Sun online, March 7 2018. path?
Notes
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766 Notes
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39 Walker, K. (1984) ‘Not-for-profit profits’, Forbes, 10 17 Rosenbloom, B. (1987) Marketing Channels:
September, 165. A Management View, Hinsdale, IL: Dryden, p. 160.
18 Ibid., p. 161.
Chapter 14 19 Bowersox, D. J. and Cooper, M. B. (1992) Strategic
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10 Ailawadi, K. and Farris, P. (2017) ‘Managing 27 Keith, J. E., Jackson, D. W. and Crosby, L. A. (1990)
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11 Yan et al. (2018) ‘Clicks versus Bricks: The role of 28 Gaski, J. F. and Nevin, J. R. (1985) ‘The differential
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Notes 767
Chapter 15 23 Rinehart, Cooper and Wagenheim (see note 20), p. 67.

1 Casson, C. (1988) ‘1988 wholesaler giants; making 24 Guelzo (see note 18), pp. 35–36.
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agement View, Hinsdale, IL: Dryden Press, p. 63. 29 The EOQ formula for the optimal order quantity is
4 US Census of Wholesale Trade, May 1985, p. 207. EOQ=2DR/I, where EOQ=optimum average order
5 Rosenbloom (see note 3), p. 61. size, D=total demand, R=cost of processing an
6 Ibid. order and I=cost of maintaining one unit of inventory
7 Ibid., p. 62. per year. For a more complete description of EOQ
8 Bonoma, T. V. (1983) ‘Get more out of your trade methods and terminology, see McLaughlin, F. S.
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10 Rosenbloom (see note 3), p. 185. 30 Burt, D. N. (1989) ‘Managing suppliers up to speed’,
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768 Notes
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17 Rossiter, J. and Percy, L. (1987) Advertising and Pro- 4 Hume, S. (19

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Preface x Marketing tools and techniques Practitioners’

4 Marketing in international 6 Business markets and business

9 Marketing research 259 11 Branding and packaging 318

place and ­channels, promotion Marketing a solution to today’s stresses 377

Functions of marketing channels 407 17 Advertising, public ­relations

The Running Order of Marketing: Concepts and

Sally Dibb and Lyndon Simkin

Study with interactive tools and resources designed to

Review your current course grade and

Get the free MindTap Mobile App and

Break Limitations. Create your

Chapter 2, ‘Marketing strategy and understanding competitors’, presents an overview of

Chapter 3, ‘The marketing environment’, explores the importance to marketers – and

Marketing explained and defined

Understanding customers and anticipating their requirements is a core theme of effective

The definitions of marketing explored

Marketing consists of activities

Marketing is performed by individuals and organizations

exchange Marketing facilitates satisfying exchange relationships

Marketing occurs in a dynamic environment

Marketing involves products, distribution, promotion, pricing and people

good Marketing focuses on goods, services and ideas

An organizational function and a set of processes for creating, communicating

The marketing process

Target market priorities

Budgets and schedules

Personnel and responsibilities

With an understanding of customers’ needs, buying behaviour, expectations and product or

The importance of marketing

Marketing activities are important to organizations and the economy

Ireland: marketing the low rates of corporate taxation, excel-

Marketing knowledge enhances consumer awareness

TABLE 1.2 Popular marketing myths

Marketing costs consume a sizeable proportion of buyers’ incomes

The marketing concept and its evolution

influence on brands and purchasing decisions, and business-to-business interaction.

An alternative view of so ‘social marketing’ can do the reverse. The

The essentials of marketing

marketing opportunity Marketing opportunity analysis

The organization of this book

What does each part of this book cover?

Marketing: Concepts and Strategies also offers:

●● full subject and name indexing

Web task Classroom tools Applied mini-case

Sweden’s IKEA marches on tastes, dreams, aspirations . . . and wallets.

themed, reduced range at any point in time. For example, IKEA

Marketing strategy defined

place and channels, promotion Marketing a solution to today’s stresses 377

Functions of marketing channels 407 17 Advertising, public relations