ADVENTIST UNIVERSITY OF CENTRAL AFRICA (AUCA)

 
COURSE: PRINCIPLES OF MARKETING
Lecturer: GATOYA HABIMANA Samuel
 
TABLE OF CONTENTS:

Chapter I. INTRODUCTION

1. Definitions
2. The need for Marketing
CHAPTER II: The marketing orientated
organization
2.1. Different types of business orientation
2.1.1. Production orientation
2.1.2 Sales Orientation
2.1.3 Marketing Orientation
2.1.4 Marketing Concept
2.2 Marketing as Business Philosophy
2.2.1 Taking a holistic view
2.2.2 Distinguishing features of marketing
2.3 Summary
CHAPTER III: MARKETING ENVIRONMENT

3.1 Introduction

3.2 Monitoring the Internal Environment

3.2.1 Capitalizing on environment Changes

3.2.2 Speed of Response

3.3 The general of marketing environment

3.4 The intra- firm environment

3.5 The macro-Environment

3.6 The proximate macro- Environment

3.6.1 The supplier Environment

3.6.2 The competitive Environment

3.6.3 The distributive Environment

3.7 The wider macro- Environment

3.7.1 The economic Environment

3.7.2 The technological Environment

3.7.3 The political and legal Ennironment

3.7.4 The social and culture Environment

3.7.5 Other macro-environment factors

CHAPTER IV: THE FUNCTIONS OF MARKETING
4.1 INTRODUCTION
4.2 Marketing in practice: The mix
4.3 Product
4.4 Price
4.5 Promotion
4.6 Place
4.6.1 Distribution channels
4.6.2 Physical distribution management
4.7 Personal selling
4.8 Marketing information
5.1 Introduction
5.2. The need for segmentation
5.3. Targeted marketing efforts
5.4. Effective segmentation
5.5. Segmentation bases in consumer product
markets
5.5.1 Geographic segmentation
5.5.2. Demographic segmentation
5.5.3Lifestyle segmentation
5.5.4. Direct or behavioral segmentation
5.5.5. Loyalty status
5.6. Segmentation bases in industrial
product markets
5.7. Evaluating and appraising market
segments
5.8. Selecting specific target markets
5.9. Developing product positioning
strategies
5.10. Developing appropriate marketing
Chap VI: Buyer behavior
6.1. Definitions
6.2. Cultural and social influences
6.3. Specific social influences
6.3.1. Social class
6.3.2. Reference groups
6.3.3The family
6.4. The consumer as an individual
6.4.1. The self-concept and personality
6.4.2. Motivation
6.4.3. Perception
6.4.4. Attitudes
6.4.5. Learned behavior
6.5. Models of consumer buying behavior
6.5.1. The buyer decision process
6.6. Organizational buying behavior
6.6.1. Buying situations
Chap.: VII marketing research
7.1. Main areas of marketing research
7.1.1. Product research
7.1.2. Communications research
7.1.3. Pricing research
7.1.4. Distribution research
7.2. Evaluating information
Chap. VIII: Sales forecasting
8.1. Forecasting terminology
8.2. Data collection
8.2.1. Data from the sales department
8.2.2. Data from other department
8.2.3. Department plans.
Chap. IX: Marketing strategy, planning and control
9.1. Formalized planning procedures
9.1.1. Planning is central to marketing
9.1.2. Terms in common use
9.2. Strategic planning at the corporate level
9.3. Strategic business units (SBUS0
9.4. Audit and SWOT
9.5. Industry/market evolution
9.6. Marketing planning at an operational level
9.7. Tows matrix
9.7.1. Procedure for marketing planning
9.7.2. Analysis
9.7.3. Setting objectives
Chap. X: International marketing
10.1. Defining subdivisions of international activity
10.2. Why enter overseas markets
10.3. How does international marketing begin?
10.4. The international decision-a strategic commitment
10.5. The international mentality
10.6. Organizational for international marketing
10.6.1. Internal organization
10.6.2. External organization.
 REFERENCES

1. Principles of marketing. Second edition, Thomas

C. Kinner/Kenneth L. Bernardt.
2. Principles of marketing Twelfth Edition,
Kurthz/Boone.
3.Principles of marketing Twelfth, Edition, Phillip
Kotler/ Gary Armstrong.
4.Principles of marketing. Second Edition, Bradl
Tompson/ Lola Frederickson/Anne R. Corroll.
5.Marketing Essentials, Phillip Kotler.
6. Marketing management strategy and cases. Douglass/
Dalrymple. Leonard J. Persons.

7. Nickels/McHugh/ McHugh(understanding Business)

Ninth Edition
8. J.HOLTON WILSON/BARRY KEATING/JOHN GALT
SOLUTIONS,INC( Business Forecasting with ForecastingXTM )
Sixth Edition
9. Hill Hernandez-Requejo( Global Business Today )
Global Edition
10. Internet.
11. Kurtz/Boone(Principles of Marketing )
Twelfth Edition
EXAMINATION (Assessment Strategy/ Assessment Pattern)
VI. Course requirement and weight( sample)
 Formative Evaluation-Description Weight
Due date
Attendance 5%

Quiz ,Assignment, Research paper/Essay 25%

Mid-semester Examination 30%

Final examination 40%

100%
Total
Grading scale:
A=
B=
C=
D=
F=
 Chapter I. INTRODUCTION
• As William J. Stanton of the University of Colorado has
stated, “The foundations of marketing in America were laid
in colonial times when the early settlers traded amongst
themselves and also with the Indians” (Stanton et al., 1991).
• As far back as 1776, during the Industrial Revolution, Adam
Smith, widely regarded to be the founding father of modern
economics, wrote the following in his classic work The
Wealth of Nations: Consumption is the sole end and
purpose of all production and the interest of the
• producer ought to be attended to only so far as it may be
necessary for promoting what the consumer need and
expect.
•Marketing is evolutionary. It changes as
society changes.
Marketing maturity does not happen at a
stroke. It tends to be a gradual
Developmental process.
•Many firms who have reached a full
marketing orientation have done so by
evolving through secondary stages of
development
•There is a link between marketing
theory and marketing practice that
students will find increasingly important,
as they understand more about the field.
 What is marketing?

• The term marketing means different things to

different people. Many think of marketing as simply
“selling” or “Advertising”. Yes, selling and
advertising are part of marketing, but it’s much
more. The American Marketing Association (AMA)
defines marketing as the activity, set of institutions,
and processes for creating, communicating,
delivering, and exchanging offerings that have value
for customers, clients, partners and society at large.
 1.1 DEFINITIONS

1. It is the identification and satisfaction of consumer

requirements that forms the basis of the modern concept
of marketing.
2. Many successful firms see marketing as the keystone of
their business.
3. Marketing is a very wide-ranging subject, which can be
looked at from many different points-of-view.
4. Marketing is principally concerned with exchange or trade.
5. Marketing is the performance of business activities that
direct a flow of goods and
6. Marketing is the process of planning and executing the conception,
pricing, promotion, and distribution of ideas, goods, and services to
create exchanges that satisfy individual and organizational objectives.
7. Dr. Philip Kotler defines marketing as “the science and art of
exploring, creating, and delivering value to satisfy the needs of a
target market at a profit. Marketing identifies unfulfilled needs and
desires. ... Marketing is the messages and/or actions that cause messages
and/or actions. Mar 29, 2011
8. Marketing is the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value
for customers, clients, partners, and society at large. 
(Approved by AMA, July 201.3)

9. Marketing is the social process by which individuals and organizations

obtain what they need and want through creating and exchanging value
with others.
Kotler and Armstrong (2010).
 1.2. The need for marketing
• The heart of your business success lies in its marketing.
Most aspects of your business depend on
successful marketing. The overall marketing umbrella
covers advertising, public relations, promotions and
sales. Marketing is a process by which a product or service
is introduced and promoted to potential customers.
• Without marketing, your potential customers may never be
aware of your business offerings and your business may not
be given the opportunity to progress and succeed. Using
marketing to promote your product, service and company
provides your business with a chance of being discovered
by prospective customers.
As soon as organizations or people
begin to consider the possibility of
creating a good, service, or idea, they
are in the market for the consumer and
must seek to understand consumer
needs.
 CHAPTER II: The marketing oriented organization

• A market orientation means that the company is constantly

listening to the marketplace to see what customers’ most urgent
needs are and how these needs are changing. The company stays
dialed in to its target markets and tries to bring products and
services to market that are a perfect match to these needs.
Achieving this close match with what customers want allows the
company to gain greater market share with less marketing effort.
The company’s marketing message focuses on making
customers aware of how well the company can meet their needs
rather than convincing customers they have a need for the
products or services.
• Generally speaking, there are three basic types of business
orientation: production orientation, sales orientation and
marketing orientation. These can be viewed as begin
hierarchical, and usually sequential, stages of development.
Many basically production-orientated
firms develop greater sales awareness and
begin to place much greater importance on
moving products on to the consumer
through the use of sales push programmes
and techniques, rather that through
producing objects and expecting them to
sell automatically.
Eventually, enlightened firms begin to
appreciate that selling itself plays but a
single part in the overall operation of
moving goods from the factory to the
consumer.
The customer becomes much more than someone who
is there merely to sell to. The satisfaction of consumers’
needs and wants becomes the rationale for everything
the company does.
Such companies have progressed to a marketing
orientation.
Of all the stakeholders in a business enterprise, the
customer is by far the most important.
It is through the concentration upon the satisfaction of
customer needs, and the profits that result from so
doing, that all other stakeholder needs are satisfied.
 2.1. Different types of business orientation

• An understanding of the lower levels of

business orientation is necessary for a full
appreciation of how a marketing-orientated
organization is superior to other forms of
business thinking. Each type of orientation will
now be examined.
 2.1.1. Production orientation

• Production orientation is a marketing strategy in which the

company focuses on products rather than customers' wants or
desires.
• In the nineteenth and most of the twentieth centuries, the
primary purpose of all business and industrial activity was thought
to be production.
• The production manager was the key figure within the
organization, and it was normally through production that
managers reached the most senior positions in the management
hierarchy.
• Manufacturers were in a “supplier’s market”, and were faced with
a virtually insatiable demand for all that could be produced.
Firms concentrated on improving production efficiency in an
attempt to bring down costs. Generally, firms produced
whatever they could produce well, expecting effective demand
for their goods and services to present itself automatically.
An understanding of customers’ requirements was of secondary
importance.
A famous production-orientated statement reflected this
thinking: Build a better mousetrap and the world will beat a path
to your door.
Henry Ford also made a classic production-orientated statement
that is often repeated today, in relation to his Model “T” For that
was introduced in 1913: you can have any color you want; as
long as it is black! This production-orientated philosophy was
feasible as long as sellers’ market pertained.
The economic recession that particularly hit the USA
but the UK as well in the 1920s and 1930s thousands
to bankrupt businesses testified to the folly of this
philosophy.
The lesson to be learned from this experience was that
firms that focused all their attention on existing
products and existing markets without paying
attention to the changing needs of the market place
ran the risk of being overtaken by events and
becoming obsolete.
Many firms still have this antiquated attitude. They
feel that if they produce excellent products and
consumers fail to buy them, there can be only two
possible reasons: either the consumer does not
appreciate the good quality of the product, or the sales
force is inept.
It is true that many firms produce excellent
products, but not necessarily items of the type of
or design that potential customers want to
purchase.
The British motorcycle industry produced many
fine machines in the 1950s and early 1960s, but
lost their markets to the Japanese on points of
styling, design and choice.
Under a production-orientated philosophy, the
salesperson’s role is a relatively minor one. The
salesperson’s role is a relatively minor one. The
salesperson is there to sell what the firm has
produced.
 SALES ORIENTATION
• Sales Orientation is a business approach of making profits by
focusing on persuasion of people to buy the products instead
of understanding the customer needs. Emphasis is put on
advertising and improving the abilities of the sales force. The
product and the production capacity precede the customer.
• Gradually, business people began to appreciation that in a
highly competitive environment it was simply not enough to
produce goods as efficiently as possible. They also had to be
sold. The sales concept affirms that effective demand has to
be created through the art of persuasion using sales
techniques.
The sales department was anticipated to hold the key
to the firm’s prosperity and survival. Scant attention
was paid to the genuine needs and requirements of the
final consumer, but at least it was understood that
goods services did not necessarily sell themselves
without some kind of effort.
Personnel Manager Sales Manager
Sales Manager

Managing Director
Typical organization of a production
oriented firm
Even today, many firms think of
marketing as a modern term for selling.
Many simply change the name of their
sales office to “Marketing Department”
to keep up with the times. In fact
selling, although important, is but one
of several functions for which a true
marketing department is responsible.
Peter Drucker explained the relationship
between selling and marketing in an eloquent
manner, when he stated ( Drucker, 1954):
There will always, one can assume, be a need
for some selling. But the aim of marketing is to
make selling superfluous. The aim of marketing
is to know and understand the customer so well
that the product or service fits him and sells
itself. Ideally, marketing should result in a
customer who is ready to buy!
In a sales-orientated firm, sales volume is the
success criterion. Planning horizons tend to be
relatively short-term, with the actual customer
and how they perceive the value of the goods
being sold being of secondary importance.
The implicit premises of a sales
orientation are that:
 The firm’s main task is to establish a
good sales team
 Consumers naturally resist purchasing,
and it is the salesperson’s role to
overcome this resistance.
 Sales techniques are needed to induce
consumers to buy more.
The implicit premises of a sales
orientation are that:
 The firm’s main task is to establish a
good sales team
 Consumers naturally resist purchasing,
and it is the salesperson’s role to
overcome this resistance.
 Sales techniques are needed to induce
consumers to buy more.
Sales techniques like “putting the customers in a position where they
cannot say “no” flourished (i.e. putting questions such that they will
receive assenting answers). However, this kind of activity was
relatively minor in terms of dishonest practice.
Many sales and advertising technique that were openly practiced then
now come under the criminal code (e.g. pyramid selling and inertia
selling).
It was during the 1970s that the UK government reacted to assist
consumers, and much legislation was introduced to protect
consumers in this era of what is termed “consumerism”. In fact, it is
often argued that this era of sales orientation, which lasted in the UK
and Europe approximately for the decade of the 1960s, is what gave
marketing a bad image in the eyes of the public, and this negative
image still persists to the present day.
There is nothing inherently immoral in production orientation, for it
gives customers the opportunity to say ‘No’.
As we go on to discuss in the next section, marketing
orientation is the natural development that follows
sales orientation.
In a sales-orientated firm, selling is a major
management function, and is often given status equal
to that of production and finance.
 2.1.3. Marketing orientation
• The market concept assumes that in order to survive in the long
term, an organization must ascertain the needs and wants of
Customer requirements profitably. Under the marketing concept,
the customer becomes the centre of business attention.
• The organization no longer sees production or sales as the key to
prosperity, growth and survival, and these are simply tools of the
business. Marketing orientation acknowledges that what is required
is the identification and satisfaction of customers’ needs and wants.
• The main difference between production and marketing orientation
is that company management in a production-orientated firm
focuses its attention on existing products, paying scant attention to
 Test
Identify need Decide Design products Achieve
and wants of which needs products and organizational
specifically and wants to and services services goals through
defined meet-may of value and modify customer
target concentrate which meet if satisfaction
markets upon certain prospective necessary
segments of customers’
the target requirement
market s

Continuous feedback
 2.1.4 Marketing Concept
• The marketing-orientated firm produces goods and services,
which it has ascertained the prospective customer actually
wants to purchase.
• The main difference between sales and marketing orientation
has been very well summed up by Theodore Levitt (Levitt, 1960):
• Selling focuses on the needs of the seller; marketing on the
needs of the buyer. Selling is preoccupied with the seller’s need
to convert his product into cash; marketing with the idea of
satisfying the needs of the customer by means of the product
and the whole cluster of thing associated with creating,
delivering and finally consuming it.
Sales-orientated firms tend to use shorter-run production
methods and are preoccupied with achieving current
sales targets, and this philosophy extends down to
individual members of the fields sales force because of
the way that their commission and earnings are
structured through the sales quota and target system. In
such a company, customer considerations and dealings
with individual customers are often restricted to the sales
department.
In a marketing-orientated organization, the entire firm
appreciates the central importance of the customer and
realizes that without satisfied customers there will be no
business.
To be able to progress from a ‘sales’ to a ‘marketing’
orientation, senior management in the organization must
work to cultivate a company-wide approach to the
satisfaction of customer requirements.
The main problem facing a sales-orientated firm
in progressing to a marketing orientation is the
management of organizational change.
The marketing department is likely to require
proportionally more influence and authority
over other department in order to bring about an
integrated and cohesive organization in which
all departments pull in the same direction for
the benefit of customers. Unless the philosophy
of marketing permeates the entire organization
from top to bottom, it will never achieve its full
potential of anxiety that can be brought about
by major organizational change. It is quite
natural for departments like sales and
production to experience a sense.
 Departmental philosophical differences
Other Other department’s priorities Marketing department’s priorities
departments
Finance and ‘Cost plus’ pricing; rigid budgetary Marketing-orientated pricing; flexible
accountancy control; standard commercial budgeting; special terms and discounts
transactions
Purchasing Standard purchasing procedures; Flexible purchasing procedures; smaller
bulk orders; narrow product line; orders if necessary; wide product line; non-
standard parts standard products
Production Long production lead time; long Short production lead time; short runs;
runs; limited range of models; extensive range of models; customized
supplier-specified products orders
Sales Time horizon-short term; success Time horizon-long term; success criterion-
criterion-sales; ‘one department’- customer satisfaction; whole organization-
orientated; short-term sales orientated; long-term profits
And they may even resent having to adjust their activities in
line with marketing requirements. The human implications of
such a change need to be taken into consideration. The
reallocation of power within a company can be an
uncomfortable experience for those with a vested interest in
keeping the status quo.
The main departmental differences and possible
organizational conflicts between marketing and other areas
of the firm.
In a marketing-orientated company, it is quite probable that
the Managing Director will come from a marketing
background. This marketing philosophy is not confined to
the Marketing Director or to the marketing department, but it
permeates the whole company.
 Marketing
Director

Human
resource Production Financial Managing
Director Director Director Director

Field sales Advertising Marketing

Product Group
manager manager research
manager
manager

Regional Manager
manager Regional Manager
Brand/
area A manager Brand/
area B Product A product B
Typical organization of a marketing-
orientated firm.
Satisfaction at the very centre of management
thinking throughout the organization, and this
is what distinguishes a marketing-orientated
firma from a production-or sales-orientated
organization.
 2.2. Marketing as a business philosophy

• Students approaching the subject of marketing for the

first time might be confused because they see it as a
rather complex phenomenon, drawing its theories from
a disparate number of sources. The main source of
confusion is the combination in marketing of the
philosophy of business and its practice. These are two
separate yet interrelated areas: a basic way of thinking
about business that focuses on customer’s needs and
wants, and a functional area of management that uses a
set of techniques. As Peter Doyle explains (Doyle, 1994):
The Marketing Concept is not a theory of
marketing but a philosophy of business. It
affirms that the key to meeting the objectives
of stakeholders is to satisfy customers. In
competitive markets, this means that success
goes to those firms that are best at meeting the
needs of customers. Because this is such a
source of confusion, a separate section is
devoted to these issues. If the points that follow
are not fully understood at this stage, then you
are likely to become confused when studying
later chapters.
 2.2.1. Taking a holistic view
• To look at the subject of marketing as an overall business philosophy is
to take a holistic view of the discipline. This approach is explained by
Peter Drucker, who has contributed so much to the development of
marketing management as a serious discipline (Drucker, 1954):
marketing is not only much broader than selling, it is not a specialized
activity at all. It encompasses the entire business. It is the whole
business seen from the point of view of its final result, that is, from the
customer’s point of view. Concern and responsibility for marketing
must, therefore, permeate all areas of the enterprise.
• Marketing cannot exist in a vacuum. An integrated approach is needed,
not just the creation of a marketing department. Such an approach to
business propels the marketing-orientated firm towards embracing new
opportunities, and away from the narrow preoccupation with selling
existing products to existing customers.
 2.2.2. Distinguishing features of marketing
• Because of the difficulty of incorporating all the various facets of
marketing into a single definition, let us look instead at the
distinguishing features of the subject in summary form:
• Marketing is dynamic and operational, requiring action as well as
planning.
• Marketing requires an improved form of business organization,
although this on its won is not enough.
• Marketing is an important functional area of management, often
based in a single physical location. More importantly, everybody in
the entire organization should adopt an overall business philosophy.
• The marketing concept states that the identification, satisfaction and
retention of customers is the key to long-term survival and
prosperity.
Marketing involves planning and control.
The principle of marketing states that all business
decisions should be made with careful consideration of
customer requirements.
Marketing focuses attention from production towards the
needs and wants of the market place.
Marketing is concerned with obtaining value from the
market by offering items of value to the market. It does
this by producing goods and services that satisfy the
genuine needs and wants of specifically defined target
markets.
The distinguishing feature of a marketing-orientated
organization is the way in which it strives to provide
customer satisfaction as a way of achieving its own
business objectives.
2.3. Summary
The marketing-orientated firm achieves its
business objectives by identifying and
anticipating the changing needs and wants
of specifically defined target markets.
 Chapter III. Marketing environment

3.1. Introduction
• Marketing managers must be aware of surrounding environment when
making marketing mix decisions.
• The business environment is a marketing term and refers to factors and
forces that affect a firm's ability to build and maintain successful relationships
with customers.
 
• The marketing firm operates within a complex and dynamic external
environment. It is the task of the marketing-orientated company to link the
resources of the organization to the requirements of customers. This is done
within the framework of opportunities and threats present in the external
environment. Change is an unequivocal fact, and organizations have to adapt.
Sometimes change occurs very slowly-indeed, almost imperceptibly. At other
Charles Darwin, author of the classical work Origin of the
species, put forward a theory that is widely accepted-that
living organisms have been able to survive in a constantly
changing and potentially hostile world because of their
ability to adapt to changing environmental conditions.
Firms operate in an ever-changing business environment.
They too, in order to survive, need to take account of and
adapt to changing economic and technological conditions.
In the previous chapter we discussed the importance of the
customer as the essence of the business philosophy we call
‘marketing’. Although a clear understanding of customer
requirements is of paramount importance in putting such a
business philosophy into practice, this alone is not enough.
Firms must monitor not only the changing needs and wants
of target markets, but also changes in the wider, external or
‘macro’ environment. This is necessary if the organization
is to be able to prepare to adapt to changing conditions.
3.2 Monitoring the external environment
 Monitoring the external environment
• With environmental change organizations should, if possible, capitalize on
it rather than merely react to it in a purely defensive manner. Firms can
very rarely control their macro- environment, but they can understand and,
to a certain extent, anticipate it.
• The ability of companies to understand and react to environmental forces
is of vital importance to marketing success. In fact an individual
organisation’s new technology may be the external environmental force of
technology that is affecting other organizations! Zeithaml and Zeithaml
(1984) give examples of environmental management strategies that firms
can use to influence the largely uncontrollable environment. The general
marketing environment is made up of all factors and forces that affect or
influence the marketing function. These include interdepartmental
relationships (referred to here as the intra-firm environment) and all other
external factors (the macro-environment).
The macro-environment can, in turn, be broken down into
two broad categories:
The marketing company’s immediate environment is the
marketing function itself, consisting of the ‘Four Ps’ plus an
extra People ‘P’, the latter being those who are there to
ensure the smooth operation of the marketing function. This
leads to the ‘intra-firm’ environment, consisting of other
departments in the company such as finance, production,
human resource management, and research, design and
development. The next layer is called the ‘micro-
environment’, and this consists of suppliers, customers,
competitors, distributors and marketing intermediaries like
advertising agencies and marketing research companies.
2.The wider external environment is termed the
‘macro-environment’, and this includes political,
economic, socio-cultural and technological factors
(remembered through the well-known acronym
‘PEST’). Lately, ‘legal’ factors have been isolated from
‘political’ factors, making the acronym ‘SLEPT’. More
recently still, the acronym has become ‘PESTLE’, with
the extra ‘E’ standing fro ‘environmental. Its latest
incarnation is now ‘STEEPLE’, with yet another ‘E’
standing for ‘ecological’. As a student of marketing, it
is important that you know these various acronyms,
because they are quite often referred to in these
shorthand terms in marketing strategy examination
papers.
In order for organizations to be in a position to adapt
successfully to changing conditions, their management requires
an appreciation of the many factors and forces influencing such
changes. Firms would like to be in the position of being able to
adapt to changes as they occur. Ideally, management would like
to be able to adapt in advance of change by anticipating events.
By identifying environmental trends early enough, management
should be able to anticipate the likely outcome of such trends.
Unless firms are able to identify and react to changes quickly,
they run the risk of being dictated to by circumstances beyond
their control; firms are then forced into being ‘market followers’
rather than playing a part in the changes occurring, influencing
events and ‘leading’ the market.
  
3.2.2. Speed of response

• In terms of speed of response and an ability to react

to changing conditions, we can identify three types
of organization:
• Companies that make things happen! Such
organizations identify and understand the forces and
conditions that bring about change. They continually
strive to adapt, and stay ‘ahead of the game’. To a
certain extent, such companies may themselves play
some part in influencing the rate and direction of
change.
•Companies that watch things happen!
These organizations fail to adapt to
changes early enough to actually become
part of that change. Such firms have little
opportunity of actually influencing event,
but are usually forced to make changes in
order to survive. Such changes are always
‘reactive’ rather than planned, and are often
instigated as part of a defensive ‘crisis
management’ programme.
•Companies that wonder what happened!
Companies in this final category are those that
are blind and impervious to change. Such firms
sometimes even fail to realize that
circumstances have altered. Even when this
change is acknowledged by company
management, the management team often
refuses to adapt to an ever-changing
environment. Such firms are unlikely to
survive in the long term.
 3.2.3 The need of monitoring constantly

• In mixed economies, like those of Europe and North

America, companies are allowed a great deal of autonomy
in the management of their business affairs.
• Company management has control over how it chooses to
organize and integrate functions and responsibilities
within the organization. Generally, management is free to
decide what to produce and the methods of manufacture,
and to make decisions concerning distribution, pricing,
packaging and communications. Providing management
operates within the law of the country, it is relatively free
to conduct its business affairs as it chooses.
The business variable that are the responsibility
of the marketing function, such as price,
advertising, new product development,
packaging and the customers to whom the
products are marketed, are collectively referred
to as the marketing mix. The functions of
marketing and the concept of the marketing mix
are discussed in greater detail in Chapter 4.
Although marketing-orientated firms have
direct control over their mix elements, they do
not formulate plans and strategies in a vacuum.
As we have already discussed, organizations are
influenced by a plethora of environmental
factors largely outside their control.
Environmental change poses both opportunities
and threats to the marketing firm. The success
of the firm in meeting the challenge posed by
change will depend on the ability of
management and individual managerial skills in
carrying out the following tasks:
•Monitoring the external environmental and
anticipating significant changes
•Evaluating the likely effect of change
or potential change on the business
activities of the firm.
 3.3 The general marketing environment

• The general marketing environment is made up of a number of

separate but interrelated elements. From a conceptual point of
view, it is perhaps easier to think of these individual elements as
‘sub-environments’. Marketing management is primarily
concerned with anticipating and reacting to perceived changes
occurring outside the organization itself. This external
environment, as has already been mentioned, is referred to as
the macro-environment.
• The term ‘general marketing environment’ is often used to refer
to all factors and forces that impinge upon marketing
management’s ability to conduct its affairs successfully. This also
includes interdepartmental factors and influences.
In chapter 2 it was explained that the marketing
concept is a customer orientated philosophy that
should permeate the whole organization. A
distinction was also made between marketing as
an overall concept or philosophy, and the more
narrowly held view of marketing as a specific
functional area of management. As a functional
area of management, marketing invariably has to
both compete and co-operate with other
departments within the firm. Again, as has been
stated earlier, we term this ‘micro’ area of the
general marketing environment the intra-firm
environment, and this is all part of the company’s
micro-environment. These terms are reiterated
here because they often appear as a part of
marketing examination questions.
  
3.4. The intra-firm environment

• Companies have a finite amount of money and other

resources, and the remarketing function often has to
compete with other management functions to secure
that share oft the firm’s overall budget that it requires
in order to carry out its tasks effectively. Marketing
needs a revenue budget to spend on advertising,
exhibitions, direct mail, sales personnel, marketing
research and other activities that form part of the
process of winning orders. It also needs a capital budget
in order to purchase equipment like computers
Other management departments such as production,
finance and human resource management feel that they
too provide important services, and hence deserve an
equal share of the company’s budget.
The marketing department not only has to ‘compete’
with other departments for financial resources, but it also
has to work in co-operation with these other functions.
For example, marketing research may identify a ‘gap’ in
an existing market that the firm can commercially
exploit. In order to produce products or services that
might fill this gap the marketing department will have to
call upon the services of other departments, such as
finance, research, design and development, production,
and the legal department. Hence, marketing tasks cannot
be achieved in isolation, but need the full co-operations
of many other departments.
When considering the overall environment in which marketing
operates, it is important to appreciate that although the marketing
function is the process through which the organization adapts to
changes in external conditions, it also has to take note of internal
factors. Marketing managers make decisions that directly affect
other functional areas of the firm. Likewise, decisions made
elsewhere within the organization affect marketing’s ability to
carry out its job effectively. When addressing the environmental
problems facing the marketing department, students often fail to
appreciate the importance of understanding the degree of conflict
and co-operation inherent in the interaction between marketing
and other functional areas of the firm.
 3.5.The macro-environment

• Although departmental rivalries and conflicts that present themselves within

the company’s intra-firm environment are often a problem, they are to a
certain extent within the control of the organization’s management. It is
generally uncontrollable forces in the external macro-environment that pose
the most important sources of opportunities and threats to the company.
• The term macro-environment denotes all forces and agencies external to the
marketing firm itself. Some of these forces and agencies will be closer to the
operation of the firm than others, e.g. A company’s suppliers, agents,
distributors and other distributive intermediaries and competing firms.
These ‘closer’ external factors are often collectively referred to as the firm’s
proximate macro-environment to distinguish them from the wider external
forces found, for example, in the legal, cultural, economic and technological
sub environments.
 
 3.6. The proximate macro-environment

• The proximate macro-environment consists of

people, organizations and forces within the
firm’s immediate external environment.
• Of particular importance to marketing firms
are the sub-environments of suppliers,
competitors and distributors (intermediaries).
These sub-environments can each have a
significant effect upon the marketing firm.
 3.6.1. The supplier environment

• Suppliers are generally other business firms, although they can also
be individuals (e.g. marketing consultant-supplying advice). Suppliers
provide the marketing firm with raw materials, product constituents
(parts), service or, in the case of retailing firms, possibly the finished
goods themselves. For example, motor vehicle manufacturers (e.g.
Ford) must obtain sheet steel, windscreens, interior fabric and the
many other components from which they produce their vehicles.
Specialist manufacturers often produce such components. Some of
these suppliers can be companies as large and almost as well known
as the vehicle manufacturer itself (ex. Lucas Industries, Dunlop,
Pilkington Brothers and Unipart), and others may be small firms
dependent on the motor industry for their survival, supplying
components such as engine gaskets and industrial fasteners.
Large retailers such as Marks & Spencer purchase
clothing and other textile products form a wide
range of suppliers. Many suppliers to large retailers
supply finished goods rather than intermediate
constituent product parts.
Companies, whether these are manufacturers or
retailers, often depend on numerous suppliers.
However, it is not a case of one-way dependence;
supplying firms also depend on the future property
of the buying firm for future orders. The
buyer/supplier relationship is one of mutual
economic interdependence, both parties relying on
the other for their commercial wellbeing.
Changes in the terms of the relationship can
have a significant effect on both parties, and any
such changes are usually the result of careful
negotiation rather than unilateral action. Both
parties seek a degree of security and stability
from their commercial relationship that is
increasingly viewed as being long term. This is
borne out by relatively recent development of
the ‘just-in-time’ manufacturing technique,
which was developed by the Japanese Toyota
Company but is now becoming increasingly
adopted by companies throughout the world.
This philosophy of management demands
absolute reliability from suppliers to deliver
goods that are never substandard (‘zero
defects’ is the term used), so that any
inspection at the customer’s works before
they are committed to the production line is
eliminated. This philosophy also demands
that goods and components be delivered
exactly when they are required (so the
ordering company does not effectively have
to hold any stocks).
Although both parties to a commercial
contract are seeking stability and security,
it would be wrong to believe that factors
in the supplier environment are not
subject to change. Suppliers may be
affected by industrial disputes that might
affect delivery of materials to the buying
company. Other changes (e.g. a sudden
increase in raw material prices) may force
suppliers to raise their prices. They may
even be compelled to go into liquidation
owing to financial difficulties.
Whatever the product or service being purchased
by the marketing firm, unexpected developments
in the supplier environment can have an
immediate and serious effect on the firm’s
commercial operations. Because of this,
marketing management, by means of its market
intelligence system, should continually monitor
changes and potential changes in the supplier
environment and have contingency plans ready to
deal with potentially adverse developments.
 3.6.2. The competitive environment

• Factors in the competitive environment can

affect the commercial prosperity of any
company. Management must be alert to the
potential threat of other companies marketing
product substitutes. Many United Kingdom
manufacturers in industries like steel and
textiles have experienced intense competition
from imported foreign products
For example, the UK carpet industry has traditionally had a reputation for
producing excellent quality Ax minster and Wilton woven carpets. Much of
this production is still carried out in the textile town of Kidderminster in the
Midlands, which has been traditionally acknowledged as the ‘carpet centre of
the world’. Over recent years the market has changed, with cheaper ‘tufted’
carpets (not woven, but with the yarn punched into a backing material)
becoming more popular. Since people have become increasingly mobile and
inclined to move home more often, many are reluctant to invest in a top
quality woven carpet that may well last 20 years or more, especially when it
is recognized that it is often impractical to take up a fitted carpet when
moving home. A further reason for the increase in popularity of tufted
carpets is that not only are they significantly cheaper than traditional woven
carpets, but also the quality and visual appearance of synthetic fibers have
dramatically improved. To a certain extent, the UK carpet industry failed to
react fast enough to changes in consumer tastes and to the changes in
technology required to produce tufted synthetic carpet.
Nowadays, much of this type of carpet is imported into the UK from
Belgium and the USA. The UK carpet industry is much smaller today
than it was 20 years ago, and many manufacturers of traditional woven
carpets have been forced into liquidation.
In some industries, as in the carpet industry, there may be numerous
manufacturers worldwide posing a potential competitive threat. In other
industries, such as aerospace or motor vehicle manufacture, there may
only be a few. Whatever the type, size and composition of the industry in
question, it is essential that marketing management has a full
understanding of competitive forces. Because of the globalization of the
market place for many products, some firms are forming strategic
alliances; for example, Louis Kraar discusses the case of Ford and
Volkswagen setting up a joint company in Brazil (Kraar, 1989).
Companies need to establish exactly who their competitors are, and the
benefits they are offering to the marketplace. Armed with this
knowledge, the company will have a greater opportunity to compete
effectively.
 3.6.3. The distributive environment

• Many firms rely on marketing intermediaries to ensure that their products

reach the final consumer. Some firms supply directly to a retailer, whilst
others use a more complex ‘chain’ including intermediaries such as
wholesalers, factors, agents and distributors. The use of intermediaries is
more common in the distribution of consumer goods that are usually
targeted at a mass market. Firms manufacturing industrial products,
particularly where these are custom made, or buyer specified rather than
supplier specified, are more inclined to deliver their products direct to the
final customer. However, this is a generalization, as a number of industrial
marketing firms make use of factors, distributors and other intermediaries.
It may seem that the conventional method of distribution in any particular
industry is relatively static. To a certain extent, this is true, although
distribution channels are subject to evolutionary change, just like any other
facet of business.
The rate of change in the distributive environment has
often been likened to the hour hand of a watch. The
hand of the watch is always moving, although each
individual movement is so small as to be
imperceptible. Taken over time, the cumulative
movement is, of course, very significant. Because
changes in the distributive environment occur
relatively slowly, there is a danger of marketing firms
failing to appreciate the commercial significance of
cumulative change. Existing channels may be
declining in popularity over time, whilst new channels
may be developing unnoticed by the marketing firm.
An obvious recent example has been the advances that
have been made in this direction by e-commerce
companies.
The subject of distribution, and in
particular the factors and forces
influencing change, is discussed in greater
detail in Chapter 8. At this early stage, it is
sufficient to appreciate that the distributive
environment, like any other environmental
factor, is likely to be subject to change
 3.7.The wider macro-environment

In the previous section we examined a number of factors present in

the proximate macro-environment, which are the macro-
environmental forces closest to the marketing firm (i.e. suppliers,
competitors and marketing changes in the wider macro-
environment may not be as ) immediate to the marketing firm’s
day-to-day operations, but are just as important. The main factors
making up these wider macro-environmental forces fall into four
groups:
• Political (and legal) factors
• Economic factors
• Social (and cultural) factors
• Technological factors.
In the previous section we examined a number
of factors present in the proximate macro-
environment, which are the macro-
environmental forces closest to the marketing
firm (i.e. suppliers, competitors and marketing
changes in the wider macro-environment may
not be as ) immediate to the marketing firm’s
day-to-day operations, but are just as important.
The main factors making up these wider macro-
environmental forces fall into four groups:
Political (and legal) factors
Economic factors
Social (and cultural) factors
Technological factors.
Changes in these sub-environments
affect not only the marketing firm, but
also those organizations and individuals
that make up the proximate macro
environment.
The two parts of the overall macro-
environment (the proximate and wider
macro-environments) are therefore very
closely related. A change in the supplier
in the technological or political arenas.
We have shown the organization’s
inner proximate marketing
environment surrounded by its wider
macro-environmental influences, and
we now examine each of these wider
macro-environmental influences in
more detail.
 3.7.1. The economic environment

• Economic factors are of concern to marketing firms

because they are likely to influence, among other things,
demand, costs, prices and profits the business pages of
the quality press are principally concerned with the
country’s level of industrial output; the level of retail
buying, inflation and unemployment; the balance of
payments; and exchange rates. These economic factors
are largely outside the control of the individual firm, but
their effects on individual enterprises can be profound.
One of the weaknesses of economics as a social science is
the relatively poor predictability of economic variables.
Not even the ‘expert’s such as Sylvia
Nasar in the USA, have produced
anything like accurate long-range
economic forecasts for economic
conditions throughout the 1990s. The
problem too with such forecasts is that
they tend to assume a spurious
accuracy in the minds of people who
apply them in business settings. Of
course, how accurate such forecasts
will turn out to be is a matter that only
the passage of time will tell. Political
and economic forces are often strongly
related.
For example, the Middle East War in autumn 1973,
which was political and military conflict between Israel
and its Arab neighbours, produced economic shock
waves throughout the Western world that probably had
greater economic implications for the world than the
Second World war. Indirectly, the conflict resulted in the
Arab nations dramatically increasing crude oil prices, a
commodity upon which the economies of advanced
Western nations were principally dependent. This
contributed significantly to a worlds economic
recession, which lasted for more than a decade.
Increased oil prices meant increased energy costs (hence
increased transportation, power and heating and lighting
costs), as well as increases in the cost of many oil-based
raw materials such as plastics and synthetic fibres.
The ‘oil crisis’, as this period of world
economic history has become known,
demonstrated to the world that any state or
confederation of states possessing prime
resources has far more economic, and
therefore political, power than had hitherto
been realized. This oil crisis demonstrates
clearly how dramatic economic change can
upset the traditional structures and
balances in the world business
environment.
Another economic development that has had a
significant effect on individual United Kingdom
enterprises was joining what was then called the
European Economic Community, or EEC (now
the European Union, or EU), on 1st January 1973.
The EU, or ‘Common Market’, was initially set
up as a customs union. This implies that all tariffs
between member states on all goods and services
should be abolished and that a uniform tariff be
adopted for all goods and services imported into
the customs union area from non-member
countries.
However, as we have seen, the EU has expanded
beyond its original customs union remit and is
now a political union; this was particularly
evidenced when the words ‘Economic’ and
‘Community’ were dropped from the original EEC
nomenclature to become ‘Union’. The issue of the
EU is dealt with in more detail later in chapter 15,
when the subject of international marketing is
examined. As has been already demonstrated,
changes in world economic changes and forces in
the domestic economy is also of vital importance,
as these forces have the most immediate impact.
A factor that has persistently troubled the UK
economy over the past 15 years, in spite of a
relatively impressive economic performance, has
been (until only relatively recently) the high level
of unemployment this level of domestic
unemployment has consistently decreased the
effective demand for many luxury consumer goods,
which in turn has adversely affected the demand for
the industrial machinery required to produce such
goods. In some regions of the UK, particularly in
those that have switched from ‘old’ industries like
coal production to newer ‘hightech’ industries, the
local economy, and in particular the retail and other
service sectors that served it, has been devastated
by the blight of persistent long-term unemployment
Other domestic economic variables are the rate of
inflation and the level of domestic interest rates (i.e.
the variable that determines the cost of borrowing).
These can of course be significantly influenced by
world economic factors. High levels of inflation, and
the high levels of interest rates used to combat
inflation, affect the potential return from new
investments and can inhibit the adoption and diffusion
of new technologies. Governments of every
persuasion attempt to encourage economic growth
through various policy measures. Tax concessions,
government grants, employment subsidies and capital
depreciation allowances are simply some of the
measures that have been used to stimulate growth.
 3.7.2.The technological environment

• Technology is a major macro-environmental variable that

affects not only the marketing firm but also all the
elements in the company’s proximate macro-
environment, including its customers. The rate of
technological change is accelerating. Marketing firms
themselves play a part in technological progress, either
through having their own research departments or
through the sponsorship of applied research.
Organizations must make use of current technology and
play a part in innovating new developments and new
applications.
Technology has influenced the development of many of the
products that we take for granted today-for example, television,
calculators, aerosol spray, compact disc players, video recorders
and home computers. In the advanced industrial nations, more
mature ‘smoke-stack’ industries such as steel making are in
relative decline. New ‘sunrise’ industries such as biotechnology,
electronics and information technology have developed, and it is
to these new industries that advanced industrial nations should
look for manufacturing and trading opportunities. Of the
‘sunrise’ industries, the development of information technology
(IT) has had particularly wide-reaching effects on marketing
organizations. The development and large-scale production of
the microprocessor has enabled the development of new
products (e.g. calculators and digital watches).
It has also revolutionized the collection,
processing and dissemination of information,
which has in turn affected the whole spectrum of
marketing activity. The area of marketing
research provides a good illustration of change
in practice resulting from the adoption of the
new technology. Questionnaires can now be
designed and coded by computer, and data
collected from respondents can go directly back
to the computer via optical readers. ‘Computed-
aided telephone interviewing’ (CATI) provides
sophisticated screen presentations and enormous
capacity in terms of the complexity, scope and
sample size of the respondents to be
interviewed.
Response speed and fast data-processing
turnaround time are the principal
advantages of this system.
Sales forecasting is another example of
an important marketing activity
revolutionized by advances in
information technology. Before the
advent of computers, sales forecasts were
usually subjective ‘educated guesses’.
Computers, and the software package
that go with them, have given even the
smallest organization access to powerful,
sophisticated, quantitative forecasting
techniques.
Vast amounts of data can now be stored, and the numerous,
complex equations inherent in sophisticated quantitative
methods can be solved and updated automatically by the
computer. Routine sales forecasting can now largely be left to
a computer, leaving the manager free to tackle more
important, non-routine activities. The impact of technological
change on marketing activities can also be seen at the retail
level. Electronic point of sale (EPOS) data capture is now
being applied by retail multiples. The ‘laser checkout’ reads a
bar code on the produce being purchased and stores this
information. It is then used to analyze sales and re-order stock,
as well as giving customers a printed readout of what they
have purchased and the price charged. Such as system
obviates the tedious task of marking every item with the retail
price and the need for the checkout person to key the price of
each item into the till machine. Manufacturers of fast-moving
consumer goods (FMCGs), particularly packaged grocery
products, have been compelled to respond to these
technological innovations by incorporating bar codes on their
product labels or packaging.
Developments in communications have been particularly
striking. Further developments in fiber optics and high-
definition television (HDTV) have made remarkable
advances over the past decade. Stanton, Etzel and
Walker provide a particularly good discussion in relation
to this area (Stanton et al., 1991).
The examples that have been provided in support of this
section illustrate how changes in the technological
environment can affect the products and services that
firms produce, and the way in which firms carry out
their business operations. Technological change, like all
other factors in the macro environment, poses both
threats and opportunities to the marketing firm.
 3.7.3.The political and legal environment

• For clarity, we have been examining the factors

present in the firm’s macroenvironment in isolation.
In reality these factors are very much interrelated,
and this is particularly true when considering
political factors. The political environment cannot
be examined in a vacuum, as it simply becomes
academic. Politics may be intellectually interesting,
but has no substance until translated from theory
into practice (or from rhetoric into action).
The outcomes of political decisions are manifest in the
legislation of government. Changes in the legal
environment are of necessity preceded by political
debate and decisions. This is why political and legal
forces are grouped together here, but in the context of
‘PEST’ the ‘legal’ part of ‘P’ is often subsumed under
‘political’ when it appears on its own in many question
papers. Many of the legal, economic and social
developments in society are the direct result of political
decisions put into practice. The government of the
United Kingdom, for example, has followed a basically
‘free market’ philosophy since the late 1970s.
This started with the privatization of many
previously nationalized state industries in 1979.
There is a belief amongst the major UK political
parties that business enterprise should be in the
hands of private shareholders rather than being
controlled by the state. The central guiding
objective of government economic strategy is the
control of inflation. To this end, great significance
is attached to controlling the monetary supply,
reducing and attempting to eliminate the public
sector borrowing requirements (PSBR), and
keeping public expenditure to a level commensurate
with a balanced budget.
Entrepreneurship, self-help, private ownership and a
reasonable level of profit with the lowest possible level of
taxation are viewed by Government as being vital to the
country’s prosperity. These matters have been introduced
to illustrate the important fact that many aspects of the
economy are directly influenced by the political climate of
the day.
To many companies, domestic political considerations are
likely to be of prime concern. However, firms involved in
international operations are faced with the additional
dimension of international political developments. Many
firms export, and many have joint ventures or subsidiary
companies abroad.
In many developing countries, the domestic political
and economic situation is less stable than in the UK.
Change is often sought by force, rather than through the
democratic process. Marketing firms operating in such
volatile conditions clearly have to monitor the local
political situation very carefully. Whatever industry the
marketing firm is involved in, changes in the political
and legal environments at both the domestic and
international levels can affect the company and its
implications, and therefore need to be fully understood.
 3.7.4.The social and cultural environment
• Of all the elements making up the marketing macro-
environment, perhaps socio-cultural factors are the
most difficult to evaluate, and hence pose the greatest
challenge to the marketing firm.
• Social and cultural change manifests itself in changing
tastes, purchasing behavior and priorities. The type of
goods and services demanded by consumers is a
function of their social conditioning and their
consequent attitudes and beliefs.
. In essence a society’s culture is a distinctive way of
life of a people, which is not biologically transmitted
but is a learned behavior that is evolving and changing
over time. Cultural influences give each society its
particular attributes. Although the norms and values
within a society are the result of many years of cultural
conditioning, they are not static. It is the cause and
effects of cultural change and the resulting revised
norms and values within a society that are of particular
interest to marketing firms. The UK culture was greatly
influenced during the late nineteenth century by the
Victorian Protestant work ethic, which prescribed hard
work, self-help and the accumulation of material
wealth.
Other industrial societies are also materialistically
orientated. Cultural values do, of course, change over time,
and such change is particularly evident amongst the young.
Evidence suggests that many young people today question
the desirability of a culture with core values based upon
materialism.
Core cultural values are those that are firmly established
within a society and difficult to change. Such beliefs and
values are perpetuated through the family, religion,
education, the government, and other institutions within
society. As a result, core cultural values act as relatively
fixed parameters within which marketing firms are
compelled to operate.
Secondary cultural values tend to be less strong and thus
more likely to undergo change. Social and cultural
influences are so interrelated that it is difficult to evaluate
the effects of each in isolation. Generally, social change is
preceded by changes over time in a society’s secondary
cultural values. The following are examples of changes in
the secondary cultural values of UK society that have
caused quite dramatic social changes in the United
Kingdom, and in the Western world in general.
Changes in social attitudes towards credit
As recently as the 1960s, credit 9or hire
purchase as it was more commonly called then)
was generally, frowned upon. It was more
acceptable to finance major purchases such as
cars and houses on credit, although even these
financial arrangements were rarely discussed
openly, even among friends, as they are
nowadays.
There tended to be a stigma attached to buying goods
on credit. Credit was often referred to in derisory
terms such as ‘on tick’ or the ‘never-never’.
Today, offering instant credit has become an integral
part of marketing activity. Many people have credit
accounts at garages and stores, and many use credit
and charge cards such as Access, Visa and American
Express. Credit transactions are now conducted
openly in stores and elsewhere without any hint of
social stigma. Credit transactions are so prevalent
nowadays that it is the person who never finances
purchases on credit who is unusual.
Changes in attitude towards health
People are more concerned about their health
than they were a few decades ago. They question
the desirability of including artificial
preservatives, colourings and other chemicals in
the food they eat. In the early 1980s, people who
ate special ‘health’ foods and who took regular
exercise like jogging were considered to be
rather odd. Today, eating wholesome foods and
taking sensible, regular exercise is an important
part of many people’s lives.
Marketing firms have responded to this increase in
general health awareness amongst the population.
Today, many food products are advertised as being
‘natural’ or ‘additive-free’, and food producers
have to specify the ingredients on the package.
Sports equipment and sportswear marketing is
now aimed at all sectors of society, irrespective of
age, sex or social class. The concern of what were
the ‘eccentric few’ has grown into a multi-million
pound industry
Marketing firms have responded to this increase in
general health awareness amongst the population.
Today, many food products are advertised as being
‘natural’ or ‘additive-free’, and food producers have
to specify the ingredients on the package. Sports
equipment and sportswear marketing is now aimed
at all sectors of society, irrespective of age, sex or
social class. The concern of what were the ‘eccentric
few’ has grown into a multi-million pound industry
Many people today never start smoking, and
many who do, attempt to stop. It is now the
norm to have to look for smoking sections in
public places rather than for non-smoking
sections.
This is a classic example of how changes in
social attitudes have posed a significant threat,
in this case, to the tobacco industry. Tobacco
manufactures are diversifying out of these
products into new areas of growth in an
attempt to counteract the general decline in
their traditional markets.
Changes in attitudes towards working women
The old cliché that ‘a woman’s place is in the home’
reflects the chauvinistic attitude held by many people
(including women) a few decades ago. In the UK today,
social attitudes are more enlightened and a high
proportion of economically active people are women.
Approximately 60 per cent of all working women are
married, and combine running a home with the demands
of a job or career.
Changes in moral attitudes
Social commentators as being the era of the ‘social
revolution’ have described the period of the 1960s and
early 1970s. The 1960s is recognized to have seen the
birth of the so-called ‘permissive society’. Throughout the
1960s, society’s values went through a period of dramatic
change. Attitudes towards marriage, divorce, sexual
relationships, drugs, religion, family, economic and social
institutions, and towards authority in general, underwent
considerable change. Many members of the ‘older
generation’ were shocked to see how value and beliefs,
which had been held for many generations, were cast aside
or totally ignored by younger people.
Generally, people become more responsive to change. This
was the period of ‘individualism’ where behavior considered
socially unacceptable a few years previously became
tolerated and even accepted as being typical. Since the
1990s, society has experienced something of a reversal in
moral attitudes among the young. Young people have
witnessed periods of economic recession and high
unemployment, a dramatic increase in the divorce rate and
the number of single parent families, and the consequences
of drug abuse, sexual permissiveness and the advent of
AIDS. Today, there is a tendency amongst younger people to
place a greater emphasis on health, economic security and
more stable relationships.
 3.7.5 .Other macro-environmental factors.

• The macro-environmental factors discussed so far are not

intended to form an exhaustive list, but merely demonstrate
the main areas of environmental change. Other sub-
environments may be important to marketing management.
For example, in a number of countries the religious
environment may pose an important source of threats and
opportunities for firms.
• In the UK, demographic changes are viewed as being
important by many companies. The UK population has been
stable at approximately 56 million for a number of years,
but the birth rate is falling and people are living longer.
Companies that produce goods and services
suitable for babies and small children (e.g. Mother
care) have seen their traditional markets remain
static or decline slightly. Such companies have
tended to diversify, offering products targeted at
older age groups. A larger older sector of the
population offers opportunities for companies to
produce goods and services to satisfy their
particular needs. Special products and services
such as holidays and pensions related financial
services are being marketed to meet the needs and
wants of this relatively affluent sector, the over
55s, who have more disposable income available
than any other age group. This group is the modern
marketer’s dream, as many people have retired
early on generous occupational incomes.
CHAPTER IV: THE FUNCTIONS OF MARKETING

4.1. Introduction
In chapter 2, marketing was described as a conceptually
based business philosophy that has as its primary
objective the realization of profit through customer
satisfaction. This philosophy is implemented through the
various functions that make up marketing. It is a common
error to think of marketing as a limited set of activities,
notably advertising, sales promotions and market
research. A truly marketing orientation company should
ensure that the marketing concept is uppermost in the
thoughts and actions of all its departments and personnel.
It is true that marketing specialists are the people
most directly concerned with implementing the
marketing concept and most closely associated
with the customer. Individual marketing
specialism are known as marketing’s functions.
The role of the functional specialists is to identify
the needs of the market, to interpret these, to bring
products and services to the market place in a
manner that is appealing, and to ensure lasting
customer satisfaction.
 4.2. Marketing in practice: the mix

Marketing strategy can be likened to a recipe, where the

ingredients are the various marketing functions. Just
as recipes vary according to the dish being prepared,
so different marketing strategies require differing
levels and combinations of functional ingredients.
Even if a relatively minor ingredient is calculated
incorrectly or forgotten, a recipe will not be
successful. The same is true of marketing strategy,
where all functional ingredients depend on each other
for success. The idea of the ‘Four Ps’- product, price,
promotion and place (distribution) – was first
suggested by E. Jerome Mc Carthy (1960).
These are the key elements of the marketing function. Each of these mix
elements possesses a number of variables (see Figure 4.1) whose
emphasis can be varied according to a chosen strategy. Inherent in any
marketing strategy is a series of inter-mix variables as well as several
intra-functional variables. These functional aspects of the marketing mix
which include the ‘Four Ps’ in addition to customer.
PRICE PROMOTION
Level Advertising
Discrimination Sales promotion
Discount Personal selling

PRODUCT PLACE
Design Warehousing
Packaging Transportation
Display Service
Brand Stockholding
The marketing mix – available marketing tools to
target customers. segmentation, targeting and
positioning are referred to as the marketing mix-a term
coined by Neil Borden (1964). These marketing mix
variables are directly controlled by marketing, and the
manipulation of the Four Ps is how the company
reaches its target segments.
The above table gives a diagrammatic representation of
how the marketing mix can be utilized. A marketing
strategy takes the tools of the marketing mix and
ascribes to them varying degrees of emphasis that
marketing considers appropriate to a given situation.
This placing of emphasis is described as marketing
effort. The marketing effort has human resource
allocation as one of its components.
Considered in financial terms, the use of the
marketing mix concept allows management to
arrive at a total budget for marketing strategy, and
then allows for this budget to be allocated at
various levels across the mix and within each
element of the mix. Remembering that the
marketing mix is composed of closely interrelated
elements, it is necessary to examine each of these
functions in turn to be clear about their respective
roles. As each function has at least a chapter
devoted to it, the purpose here is to examine these
functions at an introductory level and to put them
in perspective relative to one another.
 4.3. Product (or service)

• The marketing mix is a combination of many factors,

but consumers tend to view the whole of marketing
effort in more tangible terms of the product (or
service). It is important for marketers to recognize
that much of the ‘want satisfying’ nature of the
product is derived from consumer perceptions of the
product. The true nature of the product is always what
the consumer perceives it to be, and not what the
company thinks it is or would like it to be.
 Marketing management is responsible for finding
out what perception will contribute to consumer
satisfaction, and then manipulating the marketing
mix to ensure that the product embodies these
perceptions.
The product (or service) is the cornerstone of the
marketing mix and should be considered as the
starting point for marketing strategy, because
without it there is nothing to promote, price or
distribute. Marketing strategies have a variety of
options available in their design. These vary in
their levels of sophistication and long-term impact
more adventurous and risky. In the longer term,
however, new product (or service) development is
the principal means of survival for the company.
The key aspects of the product as a marketing function can be summarized as
follows:
1.Product planning
a. Product/market decisions-to whom, where and in what quantity?
b. New product decisions, research and development programmes, marketing
research studies.
2.Product management
a. Organizational decision relating to human accountability for the success of the
product
b. Marketing decisions relating to the numbers and types of product on offer. These
are product line and product mix elements.
3.The physical product
a. Design decisions
b. Quality/image decisions
c. Packaging decisions
In service industries, it should be recognized that the service is, in effect, the
product, and marketing practitioners often refer to their individual services as
‘products’.
 4.4. Price
Price is a particularly potent element of the
marketing mix because of its direct impact on the
customer, the company and the economy. To the
consumer, price is a major indication of quality and
an important factor in the decision making process.
For the company, the price at which a product or
service is sold represents the sole means of
recouping costs and making a profit. The price that
customers are prepared to pay for a product
determines the level of demand for that product,
which will affect the overall prosperity of the
marketing company and may have a bearing on the
company’s competitive position in the market
place.
Price levels in general have far-reaching implications for the
national economy. They influence wages, interest rates and
government policy. Sales people sometimes claim that price is the
only factor of importance in their particular market. It is true that in
some commodity markets, various companies have achieved similar
levels of service, product quality and promotional support so that
price has become the major method of product differentiation.
However, we should not overlook the major marketing efforts that
these companies have made in order to reach such a state of
similarity. We should also be aware that if one company is able to
differentiate its product on a non-price basis or, conversely, if a
company fails to maintain the standards of its competitors, then
price will decrease in important, but never all-important. Marketing
management faces a particular problem when attempting to arrive at
a specific price level.
The problem is complicated because price is difficult to define. Whilst it is
possible to think of the price of a product as the monetary value given in
exchange, this definition is simplistic if we wish to consider price in relation to
the other elements of the marketing mix. The buyer and seller have different
views of the price of an item. Whatever the buyer’s actual motive for
purchasing, the economic consideration of price as an opportunity cost cannot
be ignored. As levels of affluence continue to rise, it remains true that the
decision to spend a certain amount of money on one product leaves the
purchaser with less to spend on other products or services. Whilst price is often
thought of as an indicator of quality and prestige in the minds of consumers, it
is also a negative aspect of the product. If the quality of two products is
perceived to be equal, buyers will naturally tend to choose the one that bears the
cheaper price. Whilst there is ample scope for product differentiation by the
seller, price remains an important, albeit imperfect, yardstick that buyers use in
reaching a purchase decision.
Initially, the seller considers price as the mechanism for making profit. There
is often a close relationship between the selling price of a product and the cost
of production. The marketer does not, however, view price as being
something that is ‘attached’ to the product after all the other components
(tangible and intangible) have been assembled. Rather, the marketing
orientated seller hopes that price will be considered as a product feature,
viewed by the buyer in conjunction with a variety of other product attributes.
In this way, the marketer never loses sight of the reality that price is but one,
albeit very important, element of overall marketing effort. The pricing
decision is further complicated by the fact that it can create conflict within the
firm, within marketing channels and within the competitive environment.
Marketing management may arrive at a price that fits perfectly with total
marketing effort and at a price they believe will be considered to be optimal
by the customer. The application of this price may be frustrated by other
members of management who consider it to be impractical in terms of the
immediate rate of return. Distributive intermediaries may consider the price
to be unfair, or disagree with the manufacturer’s pricing policy. Finally, the
most effective pricing strategy can be disrupted by competitive action; this
point is discussed further in Chapter 11, along with the options available to
companies who are faced with competitive pricing pressures.
If any element of the marketing mix strategy is mismanaged or ill-conceived,
the consequences for the company can be grave. Where errors of judgment
occur outside the realm of pricing, the company can face major setbacks.
Although the cost (not just the financial cost) to the company can be severe,
remedial action can usually be taken. Where pricing is concerned, the effects
of misjudgment are more immediately apparent in terms of their influence on
the financial well-being of the organization. It is a simple economic reality
that companies cannot survive unless the value of sales is in excess of costs.
A price that is pitched too high may destroy the effectiveness of an otherwise
well conceived marketing mix strategy. If a price is set too low and the
volume of sales cannot offset this disparity, it is unlikely that a subsequent
increase in price will be readily acceptable to the marketplace. The financial
or survival implications associated with pricing strategy make this functional
area one of key importance that must be approached with caution.
 4.5. Promotion

• The promotion of a product is perhaps the element of

the marketing mix that is most subject to variation
according to the type of product or service on offer. For
some products, promotion may only play a minimal role
in the marketing effort; for others, marketing strategy
may be almost solely based on this mix element.
• No product can be sold if the target market is unaware
of its existence. It is also undeniable that no amount of
promotion will help to sell a product that is not
acceptable to the market.
This is a major defensive argument against critics who claim that
advertising is over-persuasive and over-pervasive. In consumer
markets particularly; promotion often has the highest budget
allocation of all mix elements, especially after the product has
been launched.
For this reason promotion receives a great deal of attention as a
marketing function. However, the effects of promotional
expenditure are particularly difficult to measure, and although
recognized procedures exist for measuring its effectiveness, the
task remains complex. Lord Leverhulme, of washing detergent
fame, is quoted as saying: ‘Half the money I spend on advertising
is wasted. The problem is I don’t know which half!’. One of the
main reasons why promotion is so difficult to evaluate is that
promotional expenditure does not create immediately tangible
success.
Correctly viewed, promotion is an investment, but
problems often arise when fixing a company’s
promotional budget. Unlike the purchase of
machinery, the recruitment of extra staff or improved
warehousing facilities, the promotional budget
provides nothing that can be readily perceived as
‘value for money’. This is a recurrent source of
dispute and confusion in companies where budgets
are allocated by managers who are not altogether
convinced about the value of ‘promotion’. This can
be overcome by ensuring that promotional strategy is
preceded by the setting of clear, well-defined
objectives. By so doing, it is possible to attempt to
make judgments about a strategy’s effectiveness.
The term ‘promotion’ traditionally covers four basic activities:
advertising, personal selling, public relations, and specialized
sales promotion techniques. An element of overlap occurs, but
there are definitions that help to clarify the respective roles of
each area:
1.Advertising is concerned with communicating messages to
selected segments of the public in order to inform and influence
them in a manner that leads them to perceive favorably those
items that the advertising features. Advertising is always clearly
identifiable in terms of the product being promoted. It is also a
commercial transaction between the advertiser and the
management of the chosen media.
2.Whilst advertising tends to be aimed at a group, personal selling
( as the description implies) tends to be tailored towards
individuals. The seller may convey the same basic messages that
are included in advertising, but the presentation can be modified
where necessary to suit specific situations and potential
customers.
3. Public relations includes a broad set of
communicational activities through which an
organization creates or maintains a favorable
image with its various ‘publics’. These publics
range from customers and company employees
to shareholders, and even the government. Public
relations thus has its major role as a marketing
activity, but it also extends to other aspects of an
organization.
4. Sales promotion involves those activities and
elements of promotion not already mentioned.
Temporary price reductions, displays, coupons
and free sample distributions are only a few of
the many sales promotional techniques available.
The purpose of promotion is to create and stimulate demand.
Most promotional strategies are likely to involve all four of the
activities discussed, and how they are ‘blended’ together is
referred to as the promotional mix or, more correctly, the
communications mix. Just as the basic marketing functions go to
make up the overall marketing mix, communications functions
can be employed to form an intra-functional mix. Again,
integration is the key word: sales are made easier when
consumers are informed and made interested by prior advertising.
The effectiveness of advertising is in turn increased when it is
coordinated with specific sales promotional techniques. The other
elements of the marketing mix-price, product and place-are all
indispensable.
In contrast, advertising, public relations and sales promotion,
although not personal selling, are more abstract activities that can
sometimes be omitted from a marketing programme without any
immediate detrimental effects. Harm would occur over a period of
time, either sooner or later, depending on the nature of the product
being marketing (e.g. branded foodstuffs would be more quickly
affected than quality furniture because of the former’s shorter
purchasing cycle). Management who are not marketing-orientated
have a tendency to treat advertising, public relations and sales
promotion as the ‘poor relations’ among the marketing mix elements.
In times of entrenchment, these are the areas that are more readily
cut back. While the assessment of advertising effectiveness can be
difficult, it is also well established that a good product, an efficient
distributive system and an appropriate price are insufficient to
provide overall success without the aid of promotion.
A marketing mix without advertising and sales promotion might
appear dull when compared to the efforts of competitors, and
such a strategy would be vulnerable to competition. The
importance of promotion is made clear when we consider that its
task is to stimulate demand by constant communication, which,
if effective, should convince buyers that the featured products
are ‘right’ for their particular needs. Chapter 6 identifies the
stages in the purchasing process, and it is seen that
communication at every stage is vital. Even when the buying
decision has been made, promotional communication is
necessary to convince the buyer that the correct decision has
been made, so that positive attitudes are reinforced and repeat
purchases are made.
Promotion is a communication process whose basic objectives
are to modify behavior, inform, persuade and remind.
 4.6. Place
• This function is concerned with all those activities needed to move
the product or service from the seller to the buyer, and its origin is
in the word ‘placement’. To understand place (usually referred to
as distribution) as a function in itself and as part of the marketing
mix, we must divide the function into two categories:
• A structure or network through which transactions can be
completed so that the product is made available and accessible to
the final user. This structure is referred to as a distribution
channel.
• Once the channels of distribution have been established, the
company must turn its attention to the problem of how its products
are to be physically moved through the distributive system. This is
called physical distribution management (PDM), or logistics.
 4.6.1. Distribution channels
• Although changes in retail trends during the past 30 years have
increased the number of goods that flow directly from
manufactures to retailers 9in the form of super-and hyper-
markets), the use of intermediaries still remains quite significant
for the movement of many goods. Manufacturers themselves
feature in the channel system, as they are the recipients of goods
(raw materials and components) from their own suppliers. The
use of intermediaries in a channel system has a number of
advantages:
• The sheer number of transactions that must be made is
dramatically reduced when sales are effected through
intermediaries or middlemen. Instead of a manufacturer selling
to numerous retail outlets or other manufacturers, distributors or
wholesalers can assume this task, reducing the manufacturer’s
transactions to more easily manageable proportions.
2. Middlemen relieve some of the financial burden that
manufacturers need to bear when marketing directly to
the end user.
3.The manufacturer’s costs of transport, storage and
stock levels are reduced, as these are ‘broken up’ (the
wholesaler’s function is technically known as
‘breaking bulk’) and shared throughout the channel
network.
4. Channel members possess skills and knowledge of
their localized markets that it would be impractical for
the producer to possess.
5.Middle men also market a variety of related (and
sometimes competing) products and have
established contacts and means of entry into local
markets that the producer might find difficult to
approach if acting independently. They may
promote the product and employ a sales force with
an intimate knowledge of the local market. Only
the very largest manufacturers would be able to
field a sales force equivalent in both number and
knowledge to the combined sales teams of a group
of middle men.
The advantages of the channel system can be summarized by
describing the utilities that channels create:
1.Time utility: distribution is co-ordinate so products reach the user
or consumer when they are demanded.
2.Place utility: this describes the physical movement of goods from
one place to another.
3.Possession utility: intermediaries ensure that possession is
facilitated. The financial risks and burdens are reduced with the
changes of title (ownership) that occur as goods move down the
channel towards the ultimate consumer.
4.Form utility: goods are progressively changed into a more usable
form as they proceed downwards along the chain of distribution.
While the benefits of channel systems are clear, these cannot be
enjoyed without an element of cost.
When responsibilities are shared or passed on, the company must
pay a cost in terms of loss of control. Ideally, the channel structure
should operate to the mutual satisfaction of all members. In
reality, there is always a tendency for the behavioral dimensions
of the channel to cause power struggles and conflict. Channel
members may attempt to disrupt the status quo if they perceive
that the actions of others are working to the detriment of their own
interest. To protect themselves from such action channel members
might attempt to establish positions of power to regain control
over their products, which was lost when responsibility was
delegated.
The main sources of power are financial
strength and strong brand leadership. For
example, the Kellogg Company has
successfully retained power over the
supermarket chains by refusing to supply
‘own label’ products. The Kellogg brands
are strong enough for the company to
control its distribution and production, as
indicated by one of their consistent
advertising themes: ‘We do not make
cereals for anyone else’.
  
4.6.2 Physical distribution management

• Physical distribution management (PDM) is concerned with

transporting finished goods to the customer, stock control,
warehouse management, and order processing. It is also
referred to as logistics. The key task of this element of the
place function is to ascertain the level of service that the
customer in an acceptable condition. Physical distribution, like
promotion, represents a financial cost to the company. The art
of PDM is to achieve a pre-ordained level of service that the
customer requires, then to ensure that this is adhered to and
that the product arrives with the customer in an acceptable
condition. Physical distribution, like promotion, represents a
financial cost to the company. The art of PDM is to achieve a
pre-ordained level of service at a cost that is acceptable to the
profit objectives of the company.
This is a critical area of marketing, because failure
to deliver on time not only negates the rest of the
marketing effort but can also irrevocably lose
customers. PDM is important in two other ways:
1. Depending on the nature of the product, physical
distribution costs can represent as much as 30 per
cent of the cost of sales (mostly the cost of
transportation). Clearly, if distribution savings can
be effected, the company can have a competitive
advantage in terms of pricing.
2. If a company is able to offer a particularly
efficient service to its customers, this can reduce
the customer’s sensitivity to price. Distribution is,
therefore, a most valuable weapon for those
companies whose strategy is one of non-price
competition.
The usual measure of a company’s distribution efficiency is in the order cycle or
lead time, i.e. the length of time that elapses between receipt of an order and
delivery of the goods. Although always a critical factor, this lead time has
increased in importance over the past 25 years as economic pressures have forced
companies to reduce stock levels in order to save on working capital, which helps
to finance stockholding. In most industries, the Onus of stockholding is placed on
the supplier.
Automotive manufacturers have now taken this practice to such an extreme that in
some cases they only take receipt of goods literally hours before they are required.
Such manufacturers operate a production technique known as ‘just-in-time’
manufacturing (JIT). The technique is more correctly termed ‘lean
manufacturing’. The theory is that components are offloaded from transport and
directly marshaled to the production line. Sophisticated statistical techniques are
employed in order to arrive at optimum order quantities and to ensure logistical
co-ordination between raw material supply, production and distribution.
Management is faced with two particular
problems when dealing with physical distribution:
1. It must ensure that the efforts of all concerned
are optimized. This means that effort and
efficiency should be judged upon the end result
and not upon the individual results of separate
departments.
2. The other consideration is known as the total
cost approach to distribution. If a lead-time of five
days is the distributive objective, this might
involve maintaining high stock levels or using an
expensive transport mode. Other managers in the
company may strive to reduce costs in their own
areas of activity, but it must be ensured that these
efforts are not detrimental to achieving the overall
distribution objectives that end customers have
been promised.
It is sufficient at this stage to suggest the following
guidelines for PDM:
1.Managers must decide the level of service that the
company wishes to achieve, using the overall distribution
mix strategy.
2.When the service level has been decided, the company
can examine the most economic method of achieving this.
3.The costs involved must be realistic, but at no time
should the service objective be sacrificed in the interest of
cost saving. We can draw the conclusion that it is not
possible to both maximize service and minimize costs.
 4.7. Personal selling
Personal selling has already been described in its context as a
function of the promotional or communications mix. Selling six,
however, important enough to be considered as a function of
marketing in its own right, even though it is not included separately
as one of the ‘Four Ps’ of the marketing mix. In its promotional role,
selling contributes to the overall effectiveness of the marketing
effort; however, it also has a more fundamental role to play, in that
the act of selling is the end result of all marketing activity.
Whatever functional aspects of marketing an individual may be
involved in, it is important never to lose sight of the fact that the
process of making sales is the means of perpetuating the life of the
company. Sales personnel are frequently (and quite properly)
requested to perform marketing tasks in addition to those of selling.
These may include gathering marketing information or carrying out
public relations activity.
These are valuable duties, but they should never
detract from the primary role of the salesperson: that
of selling the company’s products or services. Selling
is a process of communication. Companies promote a
particular image. This may be one of a small family
firm whose strong point is personal service. Others
may wish to emphasize their size and ability to
provide expert service. A company’s philosophy of
business and its particular merits combine to form a
company message, and it is the job of the salesperson
to communicate this message to customers. Buyers
usually require more than the physical product when
they consider potential suppliers; at the same time,
the salesperson is helper by being able to talk about
the company in addition to the products on offer.
As well as considering their selling skills, it is important
when recruiting sales personnel that companies take into
account how well the applicant ‘fits in’ with the desired
company image and how well the company image will be
transmitted.
The salesperson relies heavily upon the company for
basic support in meeting delivery times or providing
satisfactory levels of quality. The company’s marketing
effort may only go part of the why in reaching the
customer. The efficient projection of the company
message provides a ‘backcloth’ in front of which the
salesperson can carry out his or hr role.
Between the company and customer a ‘communication gap’ might exist. This
can be filled to a limited extent by advertising, but this is not an easy form of
two-way communication. Personal selling fills the gap and completes the
company’s marketing efforts, reinforcing the company message by providing
an interpretation that is personally and specifically tailored to the customer.
In addition to the communication process, the salesperson’s role requires
physical sales to be made. The salesperson must utilize communication as a
means to ‘persuade’ customers that the company’s products can offer
something that is superior to competitive products. Buyers arrange their needs
and requirements according to a scale of preference that is linked (consciously
or subconsciously) to a budget. Where this scale already includes the products
a particular salesperson is offering (as is usually the case), the selling task
requires that a competitive preference scale that is not merely one of financial
negotiation be considered. The word ‘persuasion’ should be interpreted with
caution. It does not imply that to sell is to encourage buyers to purchase items
that they do not really want or which offer no advantage; rather, persuasion
implies that the buyer should be convinced of the advantages that the proposed
product can provide.
Sales personnel are employed to further the communications
process, but the level of direct persuasion required varies
according to the particular sales task. During the process
leading up to a sale (which can vary from minutes to weeks,
months or even years) the salesperson is likely to be
required to adopt different approaches according to the stage
in the buying process that has been reached, or the type of
customer being canvassed.
The typical caricature of the ‘salesman’ usually refers to the
cold canvasser or lead seller. The prominence of such
salespersons has declined because of changing retail
structures, but has re-emerged with the advent of products
and services such as double glazing, cavity-wall insulation,
prefabricated home extensions and life insurance policies
that are ‘one-off’ purchases. The seller, in many such
circumstances, has little or no prior knowledge of his or her
customers and relies heavily upon persuasion.
This mode of selling is unsuitable in industrial situations. Lead selling is
similar, but in this case the seller is supplied with lists of customers who have
expressed at least a potential interest in the product. Such lists might be
compiled from relies to advertisements or names that have been gathered as a
result of a ‘survey’ purporting to be a market research survey.
The real intention of many such ‘surveys’ is to gain names and addresses as
‘leads’ for potential canvassing (this practice is called ‘sugging’, which is short
for ‘selling under the guise of market research’). ‘Canned selling’ is a method
by which the salesperson is allowed very little deviation from an ‘approved
presentation’ that has been based on careful research of customer reactions,
needs and objections, and is a method of presentation that has been proved to be
effective in certain situations. Whenever a customer objection is voiced, the
‘canned sales’ approach attempts to overcome this by a rote-learned
presentation of an answer to the objection. In addition, salespersons are trained
to ask questions that will produce assenting answers, so it will then be more
difficult for the customer to say ‘No’ at the end. This method is often used when
selling goods direct to the public in the retail or home environments
The level of creativity required of the
individual salesperson is low, although his
or her personality is important in ensuring
success. The types of selling discussed
represent the negative image of selling,
which has done much to diminish the
importance and standing of selling as a
profession and as an essential element of
marketing. The vast majority of
salespersons are employed selling on a
business-to-business or development sales
basis. They are involved in competitive
selling.
 A high degree of product knowledge is required,
as well as skill in the techniques of selling. The
salesperson is attempting to achieve a sale in the
face of direct competition with other products.
Much emphasis is placed on building up a basis
for co-operation and trust. The persuasion
element is concerned with convincing the buyer
that the correct company has been chosen with
which to make the business development. The
missionary salesperson performs a similar
function to that just described, except that
whereas development sales are usually concerned
with established products, missionary selling is
more concerned with communicating the
company and product message in new markets
than in securing actual sales.
The salesperson in this context visits customers to
inform and influence rather than to sell; such
selling will then be the task of a competitive seller.
Many large companies employ different personnel
to perform development, missionary and
competitive selling, and indeed it is easy to see
that each task requires a different personality type.
In fact, missionary salespeople have sometimes
been dubbed ‘commando salesmen’. In industrial
markets it is common for the sales force to carry
out all of these tasks, and a variety of skills and
extensive product knowledge is required.
 4.8. Marketing information

Form the costumer’s point of view, the information process is the

least visible of all marketing functions. It is, nevertheless,
fundamental to all marketing activity. If the product is the
cornerstone of marketing, then it must be remembered that
good products accurately reflect the needs and wants of
customers, which can only be ascertained by gathering
information. Information provides the means for a company to
fulfill the marketing concept. The primary need of nay
company is to assess the requirements of the market and then
act accordingly. In order to function efficiently, a company
must augment its information requirements beyond this basic
need.
An examination of the market should encompass
the macro, competitive and public environments.
The company should also address itself to
information that can be made available form its
internal management systems.
The sum of all such information and activity is
grouped together to constitute a formal system
designed to collect, process and report, and this is
known as a marketing information system
(MkIS). The information sources are fed into an
analytical process that guides decision-making
and provides feedback which can then suggest
modifications to the original course of action.
Marketing research is the best-known function of
the information process
It is directly concerned with discovering the needs of customers,
and subsequent testing to ensure these needs have been correctly
interpreted. Techniques exist for pre and post-testing specific
elements of the marketing mix, such as advertising research and
sales research. The pre-testing of products and the prediction of
their penetration into the market also come under these headings.
The activities mentioned so far are categorized as consumer
research. This is in contrast to market research, which focuses on
the marketplace itself, including market size and market share
analysis. These are but some elements that come under the
broader description of marketing research. Marketers should view
the research process as a continuous and comprehensive activity
that involves fact finding, monitoring and problem solving.
Market intelligence is concerned with wider
issues that affect the company, as well as
monitoring a particular market. The monitoring
of environmental factors discussed in chapter 3
is the responsibility of the intelligence system.
Its role is to provide information that precedes
action, and also to forewarn management of any
tendencies that might significantly alter the
market.
A lot of marketing information exists within the
organization itself. Utilizing such information
depends on liaison between the various company
departments so that information is presented in a
useful form for the purposes of marketing
analysis.
Financial and sales data form the basis for
customer and profit analysis. Analysis of
the performance of individual products
builds up a picture of company
performance and provides an indication of
market trends. The various information
functions have been described separately,
but are indivisible in terms of managerial
reliance on them in the decision-making
process. Information does not make the
decisions; it provides the basis for making
them.
The most comprehensive MkIS cannot guarantee that the
correct decisions will be made and that successful marketing
action will result 4.9 summary.
Marketing functions combine together to form a single
strategy. Functional specialists provide a convenient and
practical method for operating the marketing mix, but this
does not detract from the integral nature of marketing mix
management.
It is one of the functions of senior management to ensure
that this integration takes place. Synergy is a word that is
sometimes used to describe the value and the total effect of
the marketing mix. Synergy implies that the combined value
of a group of activities is greater than the sum of their
individual values.
Most people develop a specific interest in a
particular marketing function. The aim of this
chapter has been to ensure that specialism are
always approached in the context of the total
marketing mix.
 CHAPTER V: Market segmentation, targeting and positioning of
marketing
• 5.1. Introduction
Now that we have a better understanding of the nature of
marketing, we can examine the subject in more detail. A
logical starting point is an examination of customers, and
this is the theme of this chapter, along with the next
chapter, which deals with their purchasing behavior.
Market segmentation can be defined as: the process of
breaking down the total market for a product or service
into distinct sub-groups or segments, where each segment
may conceivably represent a distinct target market to be
reached with a distinctive marketing mix.
Marketers realize that, to improve their opportunities
for success in a competitive market environment, they
must focus marketing effort on clearly defined market
targets. The intention is to select those groups of
customers that the company is best able to serve in such
a way that pressure from competition is minimized. The
sequential steps in this process are segmentation,
targeting and positioning. In this chapter we examine
each of these steps, showing how they can be used to
improve the effectiveness of marketing decision-
making. There are increasingly more segmentation
bases available, which means that targeting and
positioning strategies are becoming more meaningful.
5.2. The need for segmentation
We have seen that the essence of the marketing
concept is the idea of placing customer needs at
the centre of the organisation’s decision-making.
It has also been said that the need to adopt this
approach stems from a number of factors,
including increased competition, better informed
and educated consumers, and, perhaps most
importantly, changing patterns of demand.
Primarily it is this change in patterns of demand
that has given rise to the need to segment
markets. Reflect on the products and services
that you purchase.
Do you purchase exactly the same kinds of products as your
friends, or are your purchasing requirements slightly
different? Your friends may have different tastes in clothes
or in the type of holidays they take. Perhaps they purchase
different brands of toothpaste or breakfast cereals. This
obvious example shows that market segmentation and the
subsequent strategies of targeting and positioning start by
recognizing that increasingly, within the total
demand/market for a product, specific tastes, needs and
amounts demanded may differ. We refer to a market that is
characterized by differing specific preference as being
heterogeneous. Market segmentation is disaggregative in
nature – in other words, it breaks down the total differently
behaving market for a product or service into distinct subset
or segments, with customers who share similar demand
preferences being grouped together with each segment.
Effective segmentation is achieved
when customers sharing similar
patterns of demand are grouped
together and where each segment
differs in the pattern of demand from
other segments in the market (i.e.
where the clustering gives rise to
homogeneous demand within each
segment and heterogeneous amongst all
of the segments). Most markets for
consumer and industrial products can
be segmented on some kind of basis.
5.3.Targeted marketing efforts
The fact that most markets are made up of heterogeneous demand segments means
that companies have to decide which segments to serve. Most companies recognize
that they cannot effectively serve all segments in a market. They must instead
target their marketing efforts. Imagine that you are a part of a team developing a
new car. Should the proposed new model be a two, four or five-seated model?
Should it have a 1000, 2000 or 3000 cc engine? Should it have leather, fabric or
plastic seats? The developer has to address these and many other questions. In
deciding these issues, the overriding factor is customer demand- i.e. what are
customer needs? Some customers (segments) may want a five-seated 2000 cc
model with leather upholstery, whilst others may prefer a four seated model with a
1000 cc engine and fabric seats. One solution would be to compromise and
produce a four seated 1500 cc model with leather seats and fabric trim. Clearly,
such a model would go dome way to meeting the requirements of both groups of
buyers. The danger is that, because the needs of neither market segment are
precisely met, most potential customers might purchase from other suppliers who
are prepared to cater for their specific requirements. In short, varied patterns of
demand require that marketers develop specific marketing mixes (i.e. product,
price, promotional and channels appeals).
5.4. Effective segmentation
Ideally, the base (s) used for segmentation should lead to segments that are:
1.Measurable/identifiable. The base(s) should ideally lead to ease of
identification (who is in each segment?) and measurement (how many
potential customers are in each segment?)
2.Accessible. The base (s) used should ideally lead to the marketer being
able to reach selected market targets through marketing efforts.
3.Substantial. The base(s) used should lead to segments that have different
preferences/ needs, and show clear variations in market behavior/response
to specialized marketing efforts. Of the four requirements for effective
segmentation, the last, that segments are meaningful, is very important. It is
an essential prerequisite in identifying and selecting market targets.
Before we examine each of the steps involved in segmentation, targeting
and positioning in more detail, we need to understand and appreciate
further what market segmentation means, and how this relates to our
criteria for effective segmentation.
 5.5. Segmentation bases in consumer product markets
5.5.1 Geographic segmentation
In international marketing, different countries may be deemed to
constitute different market segments. Within a country, a market may be
segmented into regions that normally represent an individual
salesperson’s territory.
5.5.2. Demographic segmentation
This approach consists of a wide variety of bases, and some of the more
common ones are age, income, sex, education, nationality, family size,
family life cycle, social class/ occupation, and type of neighborhood.
Demographic bases constitute the most popular bases for segmentation
in consumer product markets (see Reynolds and E- Adley, 1995, 1997).
The reason for this is that they are often associated with differences in
consumer demand (i.e. they are meaningful).
 5.5.3Lifestyle segmentation
This is referred to as psychographic segmentation. It is based on
the idea that individuals have characteristic modes and patterns
of living that may be reflected in the products and brands they
purchase. For example, some individuals prefer a ‘homely’
lifestyle, whereas others may have a ‘sophisticated’ lifestyle.
Young and Rubicam, the advertising agency, put forward a
formal lifestyle classification called ‘4Cs’, where ‘C’ stands for
‘customer type’. Consumers are put into one of the following
categories:
•Mainstreamers (the largest group, containing in excess of 40 per
cent of the population)
•Aspirers
•Succeders
•Reformers.
 5.5.4. Direct or behavioral segmentation
All the approaches to consumer market segmentation described so far
have been example of associative segmentation that is, they are used
where it is felt that differences in customer needs and purchasing
behavior may be associated with them. For example, if we use age to
segment a market, we are assuming that purchasing behavior in respect
of a certain product is a function of age. Most of the problems that
arise from using associative bases are concerned with the extent to
which the bases are truly associated with a reflection of actual
purchasing behavior. Because of the problems of associative
segmentation, many marketers believe that it is better to use direct
bases for segmenting markets. Such bases take actual consumer
behavior as the starting point for identifying different segments, and
they are therefore referred to as behavioral segmentation bases.
These divide into three categories:
1.Occasions for purchase. Segments are identified on the basis of
differences in the occasions for purchasing the product in question. In
the market for men’s ties, the ‘occasion for purchase’ might include
gift-giving, subscription to clubs or societies, and purchasing a new
shirt or suit.
2.User/usage status. A distinction may be made between ‘heavy’,
‘light’ and ‘non-user’ segments for a product.
3.Benefits sought. This is certainly one of the most meaningful ways
to segment a market. The total market for a product or service is
broken down into segments that are distinguished by the principal
benefit (s) sought by that segment. For example, the household liquid
detergent market might include the following benefit segments:
economy, mildness to hands, cleansing power and germ protection.
 5.5.5. Loyalty status

• A direct approach to segmenting market is the

extent to which different customers are loyal to
certain brands (brand loyalty) or retail outlets
(store loyalty). Identifying segments with
different degrees of loyalty may enable a
company to determine which, if any, of its
prospective customers may be brand-loyalty
prone. Such a market segment is clearly a very
attractive one on which to concentrate any future
marketing effort.
Once convinced of the relative merits of a brand/supplier, such
customers are unlikely to switch brands. Understandably, where
existing brand loyalty is already strong in a market, they would be
new entrant is faced with a particularly difficult marketing problem.
In this situation it may be advisable or necessary to identify and
target segments with low brand loyalty. It is suggested by a number
of marketing writers that consumer fall into one of four categories as
far as loyalty status is concerned:
1.Hard core loyal, who have absolute loyalty to a single brand (e.g.
brands AAAAAA)
2.Soft core loyal, who divide their loyalty between two, or
sometimes more brands (e.g. brands AABABBA).
3.Shifting loyal, who brand-switch, spending some time on one
brand an then moving to another (e.g. brands AAABBB)
4.Switcher, who show no brand loyalty, often purchasing products
that are lowest in price or have a special offer (e.g. brands
BCBAACD).
 5.6. Segmentation bases in industrial product markets
The concept of segmentation, targeting and positioning is the same between
consumer and industrial markets. Segmenting industrial product markets suggest a
number of additional bases and precludes others that are used for consumer markets.
The most frequently encountered bases for segmentation of industrial product
markets are:
•Geographic, e.g. northwest and southeast, Germany and Denmark
•Type of application / end use, e.g. nylon for clothing or that used for parachutes
•Product/ technology, e.g. plastic containers and steel containers
•Type of customer, e.g. manufacturing industry versus public authority
•Customer size, e.g. by customer turnover or by the average value of orders placed
with the company
•Loyalty of customer
•Usage rate, e.g. heavy or light
•Purchasing procedures, e.g. centralized or decentralized, the extent of specification
buying, tender versus non-tender procedures.
Benefits sought, based on the product needs that customers require from their
purchase- e.g. a car might be needed for the company’s representatives, for hiring
out, or as the managing director’s personal car.
Shapiro and Bonoma (1984) have suggested a ‘nested’
approach to industrial market segmentation. They
identified five general segmentation bases arranged in a
nested hierarchy.
1. Demographic variables give a broad description of the
segments and relate to general customer needs and usage
patterns.
2. Operating variables enable a more precise
identification of existing and potential customers within
demographic categories
3.Purchasing approaches looks at customers’ purchasing
practices (e.g. centralized or decentralized purchasing); it
also includes purchasing policies/ criteria and the nature
of the buyer/ seller relationship.
4.Situational factors consider the tactical role of the purchasing
situation, requiring a greater or less detailed knowledge of the
individual buyer.
5.Personal characteristics relate to people who make purchasing
decisions.
As with consumer markets, industrial market segmentation may
be on an indirect (associative) or a direct (behavioral) basis.
Again, a variety of bases may be used together in order to obtain
successively smaller sub-segments of the market. The criteria
given for bases of consumer market segmentation –being
identifiable, accessible, substantial and, most important,
meaningful are equally applicable to industrial market
segmentation.
 5.7. Evaluating and appraising market segments
Having decided on a basis for segmentation and
identifying market segments, the marketer must
then evaluate the various market segments that
have been identified. Overall, segments should be
appraised to contribute to overall organizational
objectives. This in turn requires that each segment
be appraised with respect to factors such as overall
size, projected growth, extent of existing and
potential competition, nature of competitive
strategies, and customer requirements.
 5.8. Selecting specific target markets
This step concerns organizations that decide to pursue a
concentrated or differentiated targeting strategy.
The company must decide which of the segments in the
market it is best able and willing to serve. This decision
must be based on some of the factors outlined,
including company resources, competition, segment
potential and company objectives. Four characteristics
will make a market segment particularly attractive:
1.The segment has sufficient current sales and profit
potential to meet company objectives
2.The segment has the potential for future growth
3.The segment is not over-competitive
4.The segment has some relatively unsatisfied needs
that the company can serve particularly well.
 5.9. Developing product positioning strategies
For each segment in which a company chooses to
operate, it must determine a product positioning
strategy. Product positioning relates to the task of
ensuring that a particular company’s products or
services occupy a predetermined place in selected
target markets, relative to competition in that market.
This process is also called ‘perceptual mapping’ or
‘brand mapping’.
The idea of product/brand positioning is applicable to
both industrial and consumer markets. The key aspects
of this approach are based on a number of
assumptions, which are now explained. All products
and brands have both objective and subjective
attributes that they possess to a greater or lesser
extent.
Imagine a company is proposing to enter the market for
‘instant’ breakfast foods, in which there are already five
competitors A, B,C,D and E. the company should first
establish what customers believe to be the salient attributes
in choosing between brands in this market. In addition, the
perceived position of existing competitors with respect to
these attributes should also be investigated. If the important
attributes have been found to be ‘price’ and ‘taste’. Using
this information, the company must now decide where to
position its product within the market. One possibility is to
position the new brand in the medium-price, medium-taste
part of the market; another, to position it at the low-price,
less sweet taste area). Both of these strategies would give
the new brand distinctiveness, as opposed to positioning the
brand next to one of the established brands, which would
mean intense competition for market share.
5.10. Developing appropriate marketing mixes
This is the final step in the appraisal of segmentation,
targeting and positioning. It is involves the design of
marketing programmes that will support the chosen
positional strategy in the selected target market. The
company must now determine how to apply the ‘Four Ps’ of
its marketing mix- i.e. what price, product, distribution
(place) and promotional strategies will be necessary to
achieve the desired position in the market.
5.11. Summary
Used well, the techniques and concepts described in this
chapter can contribute significantly to overall company
marketing success. Market segmentation, targeting and
positioning decisions are strategic rather than tactical. In
later chapters these areas will be considered in relation to
strategic aspects of marketing planning.
 CHAPTER VI:Buyer behavior
6.1 Introduction
It is interesting to think back five or ten years and compare
ourselves then with the way we are (or think we are) now. Have
our attitudes towards the world around us changed or
remained the same? Do we still like and dislike the same
things? As consumers, we are continually exposed to new
experiences and different influences throughout our lives.
Whilst it is true that some of us are more susceptible to change
and influences than others, nobody goes through like remaining
the same as at birth. Some of our responses to our
environment are the results of our inherent psychological
makeup.
 As our situations change, opportunities often emerge as we
are subject to a wider range of influences to which we may
consciously or subconsciously respond in a positive or
negative manner. Changes in circumstances may arouse
inherent needs or promote completely new needs and wants
in our consumption patterns. The task of marketing is to
identify these needs and wants accurately, then to develop
products and services that will satisfy them. The role of
marketing is not to ‘create’ wants, but to fulfill them. Chapter
2, which discussed the marketing concept, provided some
explanation of what this means in terms of business practice.
For marketing to be successful, it is not sufficient simply to
discover what customers require. It is infinitely more
valuable to find out why it is required.
Only by gaining a deep and comprehensive
understanding of buyer behavior can
marketing’s goals be realized. Such an
understanding works to the mutual
advantage of the consumer and the marketer.
By understanding consumers, marketing
should become better equipped to satisfy
their needs efficiently. This, in turn, should
lead to a company being able to establish a
loyal group of customers with positive
attitudes towards its products
6.2 Definitions
Consumer behavior can be formally defined as: The acts of individuals
directly involved in obtaining and using economic goods and services,
including the decision precede and determine these acts. The underlying
concepts of this chapter form a system in which the individual consumer is
the core, surrounded by an immediate and a wider environment that
influences his or her goals. Such goals are satisfied by consumers passing
through a number of problem-solving stages, eventually leading to
purchasing decisions.
The study and practice of marketing draws on many sources that contribute
theory, information, inspiration and advice.
Pricing, for example, uses economics to provide a framework for price
determination and the associated pricing strategy. In the past, the main
input to the theory of consumer behavior has come from psychology. More
recently, the interdisciplinary importance of consumer behavior has
increased such that sociology, anthropology, economics and mathematics
also contribute.
6.3 Cultural and social influences
If a company does not understand the culture in which the market
operates, it cannot develop products and market them successfully.
Marketers should recognize how culture shapes and influences
behavior. Culture can be defined as a group of complex symbols
and artifacts created by humans and handed down through
generations as determinants and regulators of human behavior in a
given society. These symbols and artifacts include attitudes,
beliefs, values, language and religion. They also include art and
music, food, housing and product preferences. Culture is “learned”
behavior that has been passed down over time. It is reinforced in
our daily lives through the family unit and educational religious
institutions. Cultural influences are powerful, and cannot be easily
classified because they concern unwritten laws about what is
socially acceptable or appropriate in a given society.
 A comparison of Far Eastern culture with that of Western
Europe provides us with an example of two opposing cultures.
Even within Western Europe district cultures exist
•for example, in differences in social etiquette and sense of
humour. Such generally accepted
norms of behavior are called social mores. The importance of
culture is more appropriate to international marketing, and this
is discussed further In later Chapters Much of our life is
directed by customs. Similar to mores in the way they have
developed, customs can be deeply
rooted in society. Customs associated with birth celebrations,
marriages and funerals have changed very little over centuries.
Many customs are so deeply rooted in society that they have not
changed or “evolved” to reflect the existing cultural climate.
Laws relating to Sunday trading and the licensing of alcohol
consumption in the UK are examples of laws that have been
changed to catch up with the liberalizing demands of changing
attitudes within society. Marriage remains an important custom,
but this has been challenged in the UK over the past 25 years.
When couples began to set up home together and raise families
outside of marriage, society, for the most part, adopted an attitude
of condemnation. Today, society has adopted a more
relaxed attitude to those who ignore the convention.
Changes in attitudes usually reflect changes in culture. It is
important to recognize that culture, although powerful, is not
fixed forever. Changes in culture are slow, and are often not fully
assimilated until more than a generation has passed.
The twentieth century has witnessed significant cultural change;
for example, changing attitudes towards work and pleasure.
The idea that it work is “good for the soul” has faded since the
Victorian era. It is no longer accepted that work should be
difficult or injurious to mind or body. Many employers make
great efforts to ensure that the workplace is a pleasant
environment, realizing that this might increase productivity.
Employees more frequently regard work as a means to an end,
rather than a raison d’être. If people have worked to earn
money, it is now more socially acceptable to reward themselves
by spending this on goods or services that give them pleasure.
Many products and services whose function is to provide
enjoyment now rank alongside, in terms of purchasing
necessity, those that provide the necessities of life.
Increased leisure time follows from this changed attitude to
work, as the working week is shorter and paid holiday time has
increased. At home, labor saving devices release more time to
be spent on enjoyment. The amount of leisure time available
influences how, when and what consumers purchase.
A major cultural change in this century that has accelerated
since the 1950s and 1960s is the role of women in society.
Working women in particular have helped to the alter traditional
stereotypes that society has applied to women. Increased
independence and economic power have not only changed the
lives of women, but also influenced society’s and women’s own
perception of their socio-economic role.
Society has also witnessed profound changes in family structure. In sociological
terms, we have moved away from the extended family base towards the
“nuclear family”. Increased mobility of labor has produced a migrant mentality,
with family units tending to move away from their native regions and close
relations. Increased affluence and better transport communications have
increased mobility within regions, creating large suburbs and less-populated
inner urban areas. Average family size is becoming smaller, and couples are
waiting longer before having children.
In many societies, when considering culture we must also consider subcultures.
Immigrant communities have become large enough in many countries to form a
significant proportion of the population of that country. Just as society itself
cannot ignore subcultures, marketers must consider them because of their
interactive influence on society and because, in some cases, they constitute
sufficiently large individual market segments for certain product areas.
Subcultures are often identified on a racial basis, but this a limited view.
Subcultures can exist within the same racial groups common nationality, and
such bases may be geographical, religious or linguistic.
6.4 Specific social influences
6.4.1 Social class
Social class is perhaps the most recognized social influence,
marketing research often uses social class as the main criterion
in identifying market segments, because such a classification
reveals a lot about likely behavior. Traditionally, one of the chief
determinants of social class was income. Although income can
provide a broad indication of the social class to which an
individual is likely to belong, salary structures have altered a lot
during the past 30 years.
Classification of consumers on the basis of “lifestyle” is perhaps
more meaningful. If a group of consumers with approximately
the same income is considered, their behavioral patterns and
lifestyles are likely to vary markedly because these will reflect
the social class to which each belongs.
Social class is an indicator of lifestyle, and its existence exerts
a strong influence on individual consumers and their behavior.
Whatever income level a consumer reaches during a lifetime,
there is evidence to suggest that basic attitudes and preferences
do not change radically.
It would, however, be reasonable to expect the “level of
consumption” to rise in line with income. As consumers, we
usually identify with a particular class or group. Often it is not
the actual social class that is revealing, but that to which the
consumer aspires. People who “cross” social class barriers
usually begin when they are young. Income and/or education
allow younger people to adopt lifestyles that are different to
those of their parents.
 Young consumers tend to absorb the influences of the group to which they
aspire, and gradually reject the lifestyles of their parents and their parents’
friends and relations. For this reason, “occupation” is a useful pointer to social
class. “Eating out” and drinking wine were once pleasures only enjoyed
regularly by the upper echelons of society. Today, wine marketers address a
wide variety of consumers, although a different marketing mix strategy is
designed for each identifiable group of consumers.
A study of social class (like all marketing topics) should be approached without
preconceptions. It is important that the marketer does not associate social
class or social stratification with any derogatory interpretation of the term.
Marketing does not make value judgments in its distinctions of social class; a
“lower” or “higher: social grouping does not imply any inferiority or
superiority. Such a classification is merely an aid to the identification of market
segments and how they should be approached. The marketer should make
decisions on the basis of information revealed by objectively designed
research, at this is the only way changes in behavior can be identified.
6.4.2 Reference groups
A reference group has a more intimate role to play in
influencing the consumer. The reference group is a
group of people whose standards of behavior
influence a person’s attitudes, opinions and values. In
general, people will tend to imitate and seek advice
from those closest to them.
Reference groups can be quite small; for instance, the
family group. The frame of reference can also be
large; for instance, a person involved in a certain
occupation is likely to behave in the manner expected
and accepted by his or her immediate colleagues and
the wider occupational group.
Reference groups are also found in a person’s social life. He or
she may be a member of a club or organization concerned with a
particular hobby or interest. In order to foster a sense of
“belonging”, such individuals are unlikely to deviate too far
from the behavioral norms laid down by the group, whether
these be formal or informal behavioral norms. Secondary school
children provide an example of how reference groups influence
the individual. Although children are strongly influenced by their
family group, they are also keen to “fit in” with their peers, and
it is never long before a new hairstyle, fashion or other fad has
spread through the classrooms.
Not all individuals imitate those in their reference group.
Reference group theory does not suggest that individualism does
not exist, but it does suggest that even individualists will be
aware of what is considered “normal” within their group.
The smaller and more intimate a reference group, the stronger its
influence is likely to be. Within a small social circle, or within the
family, the advice and opinions are termed opinion leaders. There
can also be influences from outside the group. “Snob appeal” is
often due to the existence of opinion leader outside the immediate
reference group, who are emulated by opinion followers.
Some companies make a direct appeal to this “snob” instinct. A
marketing strategy can be based on the assumption that if a
company can make its products acceptable to social leaders and
high-income groups, then other sectors of the population will
follow them. Another variation is deliberately to segment markets
by appealing to create an aura of exclusivity around the target
group, whilst effectively intimidating and isolating those not
targeted. For a number of charge cards, this strategy is reinforced
by income requirements set down for applicants.
American Express provides an example of such a
marketing strategy, and this company also makes appeals
within reference groups (i.e. cardholders) encouraging
them to enlist new members. While snobbery “between”
reference groups is a basis for approaching the consumer,
this is not viable for all products. Snobbery within the
reference groups – for example, the syndrome of keeping
up with the Jones’s – can also be used. Snobbery apart,
influence and information flow on a “horizontal” basis
within the reference group is of greatest value to the
marketer.
6.4.3 The family
Of all the different types of reference group, the family merits
particular attention, as it is the most intimate group. The nature of
the family can be identified by considering the family life cycle.
Eight stages of the life cycle are identified, although many texts
quote different divisions:
1. Unmarried. This carries with it the “young, free and single”
label. Financial and other responsibilities are low, whilst relative
disposable income is high. Young, unmarried consumers tend to
be leisure – orientated, and are opinion leaders in fashion. As
such, they constitute a very important market segment for a wide
range of products.
2. .Newly-married couples – no children. This group does not
have the responsibilities of children Members concentrate
expenditure on those items considered necessary for setting up a
home, and have been dubbed “DINKIES” (“double income, no
kids”).
3 .Young married couples with youngest child under 6 (full nest I). Here,
expenditure is child –orientated. Although spending is high, these is little
“spare” money for luxury items. Much recreational activity takes place in the
home. Such consumers are eager for information and reception to new
product ideas, but are particularly economy-minded.
4 .Married couples with youngest child 6 or over (Full nest II). Children are
still dependent, but expenditure has switched to more durable items for
children, such as bicycles and computers. Fashion clothes purchases for
children become important, and a lot of recreational activity tends to take
place away from the home.
5 .Older married couples still with children at home (Full nest III). The
amount of disposable income may have increased. Often both parents are
working, and children are relatively independent and perhaps working part-
time or fulltime. Parents too are likely to be more independent, with more
time for their own leisure activities. Often consumer durables are replaced at
this stage. Furniture purchase may have an increased aesthetic, rather than
functional, orientation.
6. Older married couples with no children
living with then (Empty vest I). At this stage,
the family unit has been transformed. Income
is likely to be at a peak. These consumer are,
however, likely to be conservative in their
purchasing patters. Thus, whilst spending
power is high, marketers may experience
difficulty in changing existing attitudes and
preferences. They have been dubbed
“WOOPIES”, meaning “well-off alder
person”.
7. Older retired couples (Empty nest II). The family unit has made most of its major
purchases in terms of consumer durables. The thrust of fast-moving consumer goods
(FMCG) marketing is not directly aimed at this group, as their consumption is relatively low
and buying patterns are firmly established. In demographic terms, the number of older and
retired consumers is increasing rapidly and marketers are paying increasing to this group.
Although income has probably reduced significantly, many retire with an occupational
pension, which allows them to lead full and active lives. The tourist industry, in particular, in
increasingly addressing itself to these consumers.
8 .Solitary survivor. Solitary survivors used to be typified by the pensioner whose spouse had
died, but increasingly this category includes divorced people. This latter category is a group
to whom marketing appeals can be made on the basis of their particular circumstances.
Many, having come to terms with their new “single” status, seek a more fulfilling life through
the pursuit of educational, social and leisure activities, and they often like to entertain at
home and be entertained. Within the family unit, the marketer should be conscious of the
need to identity the principal decision-maker and to ascertain the level of influence exerted
on him or her by other family members. Traditional thinking holds that the male takes
responsibility for care, garden and DIY purchases, and that the female makes decisions on
furnishing and kitchen-related purchases. Social changes over recent years have affected
such traditional precepts. Marketers should not approach a market with preconceptions;
their strategies should be based on careful enquiry and research into purchasing
motivations.
6.5 The consumer as an individual
We have considered consumers as occupants of a wider
environment whose behavior is influenced by cultural and
social structures. Specific influences such as reference
groups and the family unit affect consumer behavior. We
now consider the individual principally from an “inner” or
psychological point of view. This will help us to
understand how consumers respond to external influences.
As the consumer is a physical being, it is not difficult to
define characteristics that may provide explanations for
some of those actions described collectively as “behavior”.
Consumers are male or female; some live in towns, some in the
country; they are tall, small, young or old. The psychological state of
the consumer, on the other hand, is more difficult to determine. The
consumer as an individual absorbs information and develops attitudes
and perceptions. A personality also develops. This will affect the needs
that person has, as well as the methods chosen to satisfy them. Any
need-satisfying action is preceded by a motive. Although each human
being is physically and psychologically unique, marketing must
attempt to identify patterns of behavior that are predictable under
given conditions. This increases the marketer’s ability to satisfy human
needs, which is the essential aim of marketing.
The psychology of human behaviour is highly complex. We now focus
on five psychological concepts that are generally recognized as being
most important in understanding buyer behaviour: personality and
the self-concept, motivation, perception, attitudes, and learned
behaviour.
6.5.1 The self-concept and personality
The “self-concept” or “self – image” is an important
determinant of individual behavior because it is
concerned with how we see ourselves and, more
importantly, how we think other people see us. It is
logical to suppose that individuals wish to create a
picture of themselves that will project an image that
is acceptable to their reference groups. This “inner
picture” of the self is communicated to the outside
world by behavior. The behavior that interests
markers is that relating to the outside world by
behavior. The behaviour that interests markers is that
relating to the consumption of goods, such as the
outside world by behavior. The behavior that
interests marketers is that relating to the types of car.
The sum of this behaviour is a “statement” about “self and
the person’s lifestyle. Consumption is a non-verbal form
communication about the self.
The individual will also reinforce his or her image through
verbal statements that express attitudes, feeling and
opinions. Individuals express their self-image in a way that
relates to their inner “ideal” and this promotes acceptance
within a group. The self-statement can also be an
expression of rejection. For example, the music, faction and
values adopted by the so-called “punk” movement of the
early 1980s showed a reference group process in action.
The “punk” movement also rejected much within society
that was considered to be “normal” amongst other reference
groups.
Marketing can make direct appeals to “self-image” particularly
through advertising. Many car advertisements appeals to “self –
image” particularly through advertising. Many car advertisements
appeal to the “executive” whose “self-image” is one of confidence,
success and sophistication. Advertisements for Marlboro cigarettes
have “macho” connotations.
The advertising theme for Guinness is esoteric. Advertising
propositions are changed regularly, but the implication is that
Guinness drinkers are set apart from the “masses” and are
unorthodox in a mysterious way. Guinness bad to do this because the
success of their earlier advertising, with the theme of “Guinness is
good for you” and the implication that “Guinness gives you
strength:, meant that its consumers were typically middle-aged to
older men.
What Guinness wanted was to attract younger consumers
without alienating traditional consumers. Hence they
introduced “extra-cool Guinness”, which is the tradition
product but served at a colder temperature, as well as difficult
to-interpret advertising themes, which started in the early 1990s
with the “mysterious man” who was meant to personify a glass
of Guinness.
Self-image is influenced by social interaction, and people will
make purchases that are consistent with their self-concept in
order to protect and enhance it. We also know that we are
subjected to a changing environment and changing personal
situations, so individuals are involved in a constant process of
evaluating and modifying their self-concept. Personality has a
strong influence on buyer behavior.
It is one of the components of self-concept. This much is
universally accepted, but attempts to define personality
further are less clear cut and more difficult to bring
together. Certainly it is overly simplistic to define
personality merely as an expression of the self-concept, but
we do know that certain purchase decisions are likely to
reflect personality. We would expect the owner of an
ostentatious sports car to have a confident, outgoing
personality, but there is nothing conclusive to provide us
with a specific rule.
Such as assumption could be entirely misplaced. Marketing
must consider personality, because of its close connection
with “self”. Marketers can, however, learn from
psychoanalytical theories of personality, pioneered by
Sigmund Freud.
These suggest that we are born with instinctive desires that
cannot be gratified in a socially acceptable manner and are
thus repressed. Indirect methods of satisfying such desires
are sought by individuals attempting to find an outlet for
repressed urges through socially acceptable channels. The
stated motive may be an acceptable translation or
substitution of the inner desire. The task of marketing is to
appeal to inner needs, whilst providing products that enable
these needs to be satisfied in a socially acceptable way.
6.5.2 Motivation
Motivation can be defined as goal-related behaviour.
Marketers are interested in motives when goals are related to
purchasing activity. Marketers are interested in why consumers
make certain purchases. We know that in order for a motive to
exist there must be a corresponding need. Motives and needs
can be generated and classified in a variety of ways. Some
motives, like hunger, thirst, warmth and shelter, are
physiological; others, such as approval, success and prestige,
are psychological.
Having made this distinction, we can now distinguish between
instinctive motives such as survival and learned motives such
as cleanliness, tidiness and efficiency. Still further, we can
distinguish between rational economic motives and emotional
ones. However, this last distinction is imprecise, as many
purchase decisions are compromises due to economic
restrictions.
Motivations are a complex psychological issue. Most marketers
accept a classification of motives, based on a hierarchy of
needs. Although this classification has been refined, the most
convenient reference model is that developed by A.H. Maslow
in the 1940s (Figure 6.1). He suggest that an individual’s basic
(or lower-order) needs must be relatively well satisfied before
higher needs can begin to influence behaviour. As lower-order
needs are satisfied to an increasing degree, so the individual will
have time and interest to devote to higher needs. Once the basic
physiological needs (e.g. hunger, thirst) are satisfied, the
individual will concentrate on acquiring products and services
which increase social acceptability (e.g. love, sense of
belonging) and status (e.g. esteem, recognition).
Maslow describes the ultimate need as one of self – actualization. When somebody has reached a stage in
life when basic.

Self
actualisatio
n

Esteem

Love and belonging

Safety

Physiological needs

Maslow’s hierarchy of needs (Maslow, 1943)

Needs, love and status have been achieved, then the
overriding motivation is one of acquiring products and
carrying out activities that permit self expression. This may
take the form of hobbies or a series of new purchases that
have been desired for a long period, but have been relegated
until those needs that are lower in the hierarchy have been
satisfied. Within this hierarchy, marketers should
appreciate that enormous differences exist between
individuals. Goals differ widely, so that in the short term an
element of hierarchy stage “hopping” is likely. Moreover, a
product that represents self - actualization for one person may
only satisfy a lesser need for another. So complex is the
question of motivation that it is impractical to devise
marketing strategies based on the hierarchy theory alone.
Motivation research has developed considerably
in recent years, although this more directly
related to specific consumer and product
problems. The hierarchy of needs has general
value in that it suggests that marketers of
consumer products should understand and direct
their effort at the higher needs of their customer.
The theory also provides a useful starting point
when attempting to explain the basic nature of
consumer behaviour.
6.5.3 Perception
Whilst motivation is an indication of willingness to act or respond to
a stimulus, perception concern the meaning that the individual
assigns to that particular stimulus. Marketers are concerned with
influencing a buyer’s perception of their products in relation to
factors like price, quality and risk. The product image is only as good
as the consumer’s perception of it. The product only exists (in
commercial terms) if the consumer perceives that it is capable of
satisfying a need. Any stimulus is received through the five senses
(sight, hearing, smell, taste and touch).
The perception of the stimulus is therefore affected by its physical
nature, by the environment of the individual, and by his or her
psychological condition. Before any form of perception can take
place, it is necessary that the stimulus (in this case the product)
receive attention. An individual is exposed to thousands of stimuli,
most of which receive little or no attention.
Advertisers and promotional experts face a challenge in attempting to
ensure that their particular stimuli receive the individual consumer’s
attention. Having gained that attention the marketer must then attempt
to ensure that it is retained. At this point the task becomes even more
difficult, because perception is constantly selective.
Consumers are only exposed to a limited proportion of all the
marketing stimuli that are available
•they do not read all newspapers and magazines, nor do they visit
every part of a store. Even
when a medium of communication has our attention (e.g. a magazine
or television), we do not read or watch every advertisement that
appears. Individuals have many sources of stimuli competing for their
attention. Thus, an advertisement may only be partially read and
easily forgotten; consumers can only act on information that is
retrained in the mind.
Marketers cannot provide unlimited or “blanket” exposure for their
products, so they attempt to place their stimuli where they think they
are most likely to be well received. This is the basic of media
selection.
6.5.4 Attitudes
Attitudes can be defined as a set of perceptions that an
individual has of an object. In this context, the “object”
could be a person, product or brand, or a company. For
example, our attitude towards imported goods is likely to
be influenced by our feelings about the country of origin,
and possibly by our interpretation of the domestic
economic climate. Similarly, our attitudes towards a
certain store or company are likely to be favorable if the
staffs are particularly helpful, or if we know that some
profits are donated to a worthwhile cause.
As discussed earlier, the influence of reference groups on
the individual tends to be strongly emphasized. Social
interaction plays a major part in attitude formation.
Attitudes may be learned from others.
In particular, many of our attitudes are due to the influence
of the family group; some of the attitudes developed in our
formative years remain with us throughout our lives.
Attitudes can be positive, negative or neutral. In general,
attitudes can be firmly held by individuals, who tend to
resist attacks made on such attitudes. This is not to say that
attitudes never change or cannot be changed. A bad
experience can rapidly alter an attitude from positive to
negative, while a small product modification may generate
a favorable attitude when the previous attitude to the
product was neutral or negative.
Marketers must be aware of the importance of
generating a favorable attitude towards their
companies and products.
Once established in the mind of the consumer,
attitudes are difficult to alter. In a competitive
environment, such a process can work both for and
against a producer or retailer. An attractive
promotion or advertisement may appeal to the
consumer’s emotions and temporarily change
patterns of action, but will not necessarily result in a
change of the basic attitude.
6.5.5 Learned behaviour
Learning results from “experience”. This is an important element
in the study of behaviour because it has the power to change
attitudes and perceptions. Learning not only provokes change,
but is also able to reinforce a change in behaviour. A consumer
may “learn” that certain products are more acceptable than
others to their family or reference group. In an attempt to
promote this acceptability, the purchaser might reinforce the
acceptable purchase with similar repeat purchases.
As marketers realize, a prime objective of the marketing effort is
to influence consumers sufficiently so that they make a first
purchase. The ultimate success of that marketing effort depends
on a succession of repeat purchases. Such learning by “trial and
error principles’ is referred to as “conditioned learning”. Each
time a satisfactory purchase is made, the consumer becomes less
and less likely to deviate from this conditional behaviour.
This type to learning result of information received. The
information source may be a reference group, or a direct
approach to the consumer through advertising, publicity or
promotion.
From the marketer’s viewpoint, learning for the sake of stored
or attitudes, the marketing effort of a particular company
should attempt to direct these changes towards products or
services that are offered for sale. It has been shown that at any
given moment the consumer is subject to the combined and
continuous influences of the socio-cultural environments as
well as to more proximate social interaction and psychological
influences. Having discussed some of the complex issues that
make up consumer behaviour, it is worthwhile to reflect on the
consumer’s fundamental goal.
When consumers buy products, their aim is to achieve satisfaction.
This might appear obvious, but it has two important implications:
1. Those companies who provide most satisfaction will enjoy the
greatest success (the basic of the marketing concept)

2 .Because consumers are constantly engaged in a search for

satisfaction, competition will always have potential appeal. It is not,
therefore, sufficient to provide satisfaction. Companies must strive
to maintain and improve the level of satisfaction that they provide.
Complacency is the worst enemy of the marketer. For the majority
of consumers, it is unlikely that total satisfaction in relation to “all
needs and wants” will ever be achieved. It is possible that
marketing has the theoretical wherewithal to supply satisfaction, but
we must be realistic enough to admit that satisfaction depends, to a
high degree, on the financial status of the consumer.
Throughout their lives, consumers will be subject to a variety of
competing demands that are made on limited financial
resources. The family life cycle discussed in Chapter 5 provides
a good example of changing circumstances. Of necessity,
satisfaction may only be partial and is a compromise.

Of course, we should be careful not to judge satisfaction purely

as a function of “spending power” which is a materialistic
interpretation. It is, however, realistic to suggest that freedom
from financial worries helps us to achieve material satisfaction,
which in turn contributes to complete satisfaction. Marketers
should always remember that consumer goals have an aesthetic
component that concerns quality of life rather than simply the
quantity of products that money can buy.
6.6 Models of consumer buying behaviour
So far we have examined the consumer as an individual in
terms of psychological influences relating to the workings of
the mind. We have also considered wider forces that influence
consumer behaviour. We should consider them as a whole, or
as a series or group of influences that exert themselves
simultaneously and continually on the consumer.
Models of consumer behaviour attempt to do this. They relate
to the total buyer decision process, and to the important issue
of new product adoption. Consumer behaviour is a complex
subject, and behavioral models attempt to reduce this
complexity. Much literature is available on the subject of
consumer behaviour. Our aim is to bring together a series of
simple models that attempt to explain buying or decision
processes in relation to relevant variables.
6.6.1 The buyer decision process
Later we will examines in detail how products are
classified according to the degree of complexity that
their purchase demands, but an example here
suffices to explain the process. We recognize that
the purchase of shower gel (a “fast-moving
consumer good” – FMCG) is less complex for the
consumer than purchasing a new car. Whatever the
buying task and associated degree to complexity
confronting the consumer, it is important to consider
the steps leading to a purchase as a problem-solving
process.
6.7 Organizational buying behaviour
It is common for industrial buying to be thought of as being devoid
of the psychological and emotional connotations attached to
consumer behaviour. After all, industrial purchasers cannot afford the
luxury of “impulse” buying. They are employed to make purchases
for a specific reason. They have budgets, and usually a great deal of
knowledge about what they purchase.
Although there are differences, many parallels can be drawn between
industrial and consumer buying. First, though, note that the heading
of this section is organizational buying behaviour, whereas we are
referring to industrial buying behaviour. Organizational buying is a
wider term, used to cover industrial, retail and public authority
purchasing. However, the principles of organizational buying are, for
our purposes, the same as those for industrial buying. In many
marketing textbooks the terms “organizational buying” and
“industrial buying” are interchanged, although strictly speaking the
latter refers to a narrower context.
6.7.1 Buying situations
Three types of organizational buying situation can be
identified:
1. The new task. This is most challenging for the company’s
purchasing department. The product item may be a new
machine or a new raw material required for a new product.
Although buyers will have professional expertise, they will
be relatively unfamiliar with the product and must engage in
extensive need description, product specification and
supplier search.
2 .Straight rebury purchases. As the description suggests,
these involve little effort and are routine within the current
purchasing structure. It is important to appreciate that this
“routine” is only possible because careful buying in the past
has established a reliable supply pattern.
3. The modified rebury. Here, for a variety of reasons, the
product specification or supplier has to be changed, and a
modified rebury situation arises.
In many ways this can be as challenging as the new task
situation. Although the basic product may be well known, any
change involves risk. Often industrial buyers keep alternative
suppliers as minor suppliers, buying a little from them from time
to time to test their reliability in preparation for greater
participation should the need arise.
With the same risk-reducing goal in mind, product modifications
are usually introduced gradually so that problems can be
resolved before too great a commitment has been made.
The principal difference between consumer and organizational
buying is that the latter usually involves group decision-making.
Here, individuals have different roles in the purchasing process,
and this view was first put forward by Frederick E. Webster Jar
as his notion of the burying centre (Webster and Wind, 1972).
The categories described are, however, more commonly
referred to as the decision making unit (DMU):
•Users are the people who will work with or use the product,
and they are sometimes involved in product specification
•Buyer have authority to sign orders and make the purchase;
they might sometimes help shape the specification, but their
principal role is in supplier negation and selection.
•Deciders are people who make the actual buying decision
(frequently the decider and the buyer is the same person)
•Influencers can affect the buying decision in different ways
(e.g.: technical people may have helped in a major or minor
way to develop the product specification)
•Gatekeepers control the flow of information to and from
people who buy (e.g. the chief buyers secretary or even a
receptionist).
Organizational buyers’ roles vary widely according to the complexity and
size of structure of the company. In technical sales situations, the
salesperson may hardly meet the buyer unit the technical manager is
thoroughly satisfied with the salesperson’s offering. The buyer then takes
over to handle the salesperson’s offering. The buyer then takes over to
handle the commercial aspects of the sale. Many companies employ buyers
who are skilled in purchasing procedures, but who only have limited
technical knowledge of the products being purchased. Other companies
employ buyers for specific product areas. Whatever buying structure is in
operation, the industrial salesperson should realize that the buyer is not
always the final decision maker.
Clearly, the real decision-maker should be the principal target for sales
effort. Purchasing should not only be considered in terms of transactions
between buyers and sellers, because the purchase has repercussions on other
aspects of the company. Sales and marketing managers are, for example,
concerned with product quality and delivery.
Technical and production managers are
concerned with performance. Marketers
should be aware of factors that influence
organizational buyers. Although many are
beyond the control of the seller, it is
essential that problems purchasers face are
understood, and marketing and sales
strategies designed accordingly. While
price is important, it is not the only
influence in industrial purchasing decision-
making. The following Figure highlights
the main tools available to industrial
markets for targeting DMUs.
 Posters
Sales representatives
BUYER DMU
Press advertising
Radio and TV
House
magazines Direct mail
Seminars and BUYER DMU
demonstration
s
Sales
Exhibitions literature

Sponsored Editorial publicity

films/videos
Public relations

Targeting the DMU

Public relations

Figure of highlights the main tools available to industrial markets for

targeting DMUs.
With a move towards companies holding less stock of raw
materials and components in the interests of saving working
capital, reliable delivery is a increasingly vital factor. As
mentioned in Chapter 2, in certain flow-production
manufacturing situations stockholding is theoretically non-
existent, and the system of “just-in-time” (or lean
manufacturing is being increasingly adopted by mass
manufacturers around the world. Buyers require a constant
stream of goods with zero defects. Should defects occur, the
company’s entire production can be stopped, so reliability of
supply is of paramount importance. In these situations
relationships tend to be long term, and it is just as common for
buyers to visit sellers as it is for sellers to visit buyers (the
traditional pattern). Indeed, this very nation has now been
termed reserve marketing, where buyers tend to take the
commercial initiative and actively source suppliers who can
match up to their criteria of reliability of quality and supply
There is even the nation of open accounting, where price
does not enter the equation, as buyers are fully aware of
the price make-up of the components that are being
marketed. In turn, suppliers also know the profit margin of
their customers, and buyers and sellers agree a common
mark-up.
If the supplier then devises a way to make the products
more cheaply without compromising quality, then the
savings from the new process are divided between the
supplier and the customer. Needless to say such
agreements imply long-term relationships, from which the
phrase relationship marketing has been coined. It is
important to acknowledge that buyers are individuals as
well as purchasing professionals. In many industrial
markets, the levels of service and price are such that there
is little to distinguish suppliers.
The personal impression that the single buyer or the DMU
has of a supplier’s image, as well as the personal rapport
that the salesperson can achieve, can profoundly influence
buying decisions. Just as purchasers of consumer goods
are responsive to the actions of sellers, organizational
buyers have individual personalities that sellers must take
into account. Some buyers may be aggressive, devious or
indecisive.
The salesperson cannot afford to adopt a “blanket”
approach to customers. The human factor also extends to
the buyer’s relationships with colleagues within the
organization. Companies themselves have “personalities”,
in more abstract terms of attitudes and policies, which can
make them more or less susceptible to particular sales and
marketing approaches.
6.8 Summary
Whilst we can identify factors common to both consumer
and industrial buying behaviour, we should be clear that
the two markets should be approached differently. The
needs of consumers should be ascertained and the
marketing response communicated largely through
appropriate media. In industrial markets, buyers and sellers
do communicate through media, but they also rely heavily
on personal communication. Industrial buyers work to
obtain satisfaction for the company’s “physical” needs,
whereas consumer behaviour has a psychological basis.
Although industrial buyers have a clear rationale for their
actions, this is not to say that they are insensitive to
psychological influences. This especially important in a
market where the products on the offer are essentially
similar.
 CHAPTER VII: Marketing research
7.1 Introduction
The American Marketing Association (AMA. 1961) defines marketing
research as: “the systematic gathering, recording and analyzing of data
relating to the marketing of goods and services” Kotler (1994) defines it
as: “systematic problem analysis, model building and fact finding for
the purpose of improved decision-making and control in the marketing
of goods and services” Doyle (1994) states that marketing management
consists of five tasks, one of which is marketing research and explains:
“Management has to collect information on the current and potential
needs of customers in the markets chosen, how they buy and what
competitors are offering”. Research attempts to find reliable and
unbiased answers to questions. Marketing research provides ideas and
intentions on many issues. As explained in Chapter 3, in a complex
consumer society there is little direct contact between the producer and
consumer. Marketing research can, by the collection, analysis and
interpretation of facts, find out what it is that people want and ascertain
why want it.
Effective marketing decisions are as good as the information
on which they are based. Decision-making underlies the
management process at every level, and the terms “managing”
and “decision-making” are synonymous. Marketing
management is of course the process of making decisions in
relation to marketing problems. Marketing research is utilized
by marketing management when planning the marketing
strategy of an enterprise. The application of the techniques
and methodology of marketing research is as applicable in the
not for-profit sector as in profit-making organizations. A
disciplined and systematic approach to research methodology
in the area of investigation is needed, and a series of steps
should be taken in developing, planning and executing
research with a view to solving specific problems.
7.2 Main areas of marketing research
The underlying concept is an appreciation of the
fact the fact that to manage a business well, is to
manage its future. Marketing research has a
contribution to make in decisions involving any
area of an organization's marketing mix.
Management needs information about its markets
and competitors, and changes and developments in
the external environment, to aid marketing
decisions, whether these are operations, tactical or
strategic.
7.2.1 Product research
This is generally concerned with all aspects of design,
development and testing of new products, as well as the
improvement and modification of existing products.
Activities include:
•Comparative testing against competitive products
•Test marketing
•Concept testing
•Idea generation and screening
•Product elimination/simplification
•Brand positioning
This last point is particularly important as heavy
competitive pressures of the new millennium make it
important that brand-positioning strategies be effectively
developed, and this research has been particularly advanced
by the Chernatony and Daniels (1994).
7.2.2 Communications research
Fast-moving consumer goods companies in
particular spend a lot of money on marketing
communications. The communications mix
(including personal selling, direct mail, exhibitions,
sponsorship and advertising) can be more
effectively planned as a result of research
information.
Communications research activities include:
•Pre-and post-testing of advertising
•Media planning research
•Readership surveys
•Testing alternative selling techniques
•Exhibition and sponsorship evaluation
7.2.3 Pricing research
Techniques like the “buy-response model” can be used
to:
•Assist in establishing a more market-orientated pricing
strategy
•See what kind of prices consumers associate with
different product variations (e.g. packaging)
•Establish market segments in relation to price
7.2.4 Distribution research
Techniques such as the “retail audit” can monitor the
effectiveness of different types of distribution channels
and detect regional variations. This list is not exhaustive,
but it illustrates the range of areas in which marketing
research can aid decision-making. Other areas include
industrial market research and international market
research.
7.3 Evaluation information
Marketing information can be expensive to obtain (for
example, a national ad hoc survey commissioned from
a large agency). Information is vital to successful
marketing in terms of its generation, processing and
circulation. Extraneous information is often of
problem with marketing research, and this is both
expensive and a waste of time. Therefore the
information function needs to be managed and
controlled like any other area of the company’s
operations, and information should be:
•Reliable
•Relevant to users’ needs
•Adequate for the type of decision being made
•Timely
•Cost-effective to obtain.
 CHAPTER VIII: Sales forecasting
8.1 Introduction
• The act of preparing for the future implies forecasting, consciously
or subconsciously, tomorrow’s condition. In our personal lives, such
predictions are usually made on an informal, subjective basis. If they
turn out to be wrong, we can usually adjust our personal
circumstances. However, we rarely enjoy the same degree of
flexibility in our working lives. There, decisions are usually of a
more formal nature and greater consequence.
• The very nature of managerial decision-making involves forecasting
future conditions. Forecasts may be required for an important “one-
off decision – for example, the company may be considering
expanding by acquisition, diversifying into a totally new market or
modernizing its product process. Such decisions tend to be long tern
and strategic, rather than operational.
In such situations, because of the importance of the decisions
being made it is importance that forecasting receives careful
consideration, meaning an investment of time and money in the
forecasting process. Management decisions are not always
strategic and much of a busy manager’s time is taken up with day-
to-day operational issues, which, although not of the same
magnitude as strategic decisions, are nonetheless important to the
manager because of the proportion of time they occupy.
Management requires forecasting information to assist in making
operational decisions, although the required time horizon for such
forecasts is shorter than for strategic decisions. For example, for
the marketing manager to set monthly sales targets, operational
expense or advertising budgets, he or she may require regular
short-term forecasts for each product, broken down according to
product type, size, color, salesperson’s territory, channel of
distribution, and even by individual customer.
Whatever type of decision is being made, forecasting is required. Forecasting
is a key to success but poor forecasting can lead to high inventories and
associated stockholding costs which must be paid for out of working capital,
or to under-production and unrealized market potential. Stanton et al. (1991)
contend: “The cornerstone of successful planning is forecasting the demand
for a product”. The recognition of the importance of forecasting was first
illustrated by the results of a major research exercise carried out in the United
States by Ledbetter and Cox in 1977. They found that forecasting techniques
were used by 88 per cent of the 500 largest industrial companies in the USA.
It was also established that no other class of planning technique was used as
much as forecasting. Although forecasting is important in most functional
areas of a firm, the forecasting of sales is particularly important. The sales
forecast is the bedrock on which company plans are built, and for this to be
sound the forecast must be built on a film scientific foundation. The central
issue facing businesses is not whether to forecast, but how to forecast. The
forecaster can choose “subjective” or “objective” methods, or a mixture of
both.
8.2 Forecasting terminology
The terminology used in the literature to describe
forecasts can be confusing. Many writers make a
distinction between prediction and forecasting, using
“forecast” to refer to objective, quantitative
techniques, and “predict” to denote subjective
estimates. This distinction is pedantic, and the debate
is a matter of semantics. “Forecast” is of Saxon
origin, meaning “to throw ahead”, implying that there
is something in hand. In the context of this discussion,
it would be historical data that can be extrapolated
into the future. “Predict” is of Latin origin, literally
meaning “to say beforehand”, and empirical basis is
indicated.
Dictionary definitions are unhelpful, a forecast being defined as “a
prophecy or prediction” and prediction, in turn, as “something
predicted, a forecast”. Consequently, the use of the terms subjective and
objective forecast is recommended, and these terms are used
throughout.
The availability of appropriate data is of central importance to the
development of a forecasting system. Depending on the degree of
accuracy required, most forecasting techniques require a considerable
amount of data to be collected and analysed in terms of usefulness and
validity before being used in the forecasting process. Selection of the
most suitable forecasting method from the choice of techniques
available depends on the availability of existing data and/or the
company’s ability to acquire relevant data. For example, a technique
requiring a long historical time series would be of little use if data were
only available for the past year. If the accuracy or validity of data were
questionable, it would not be worthwhile or cost-effective to spend time
and effort using a sophisticated technique known for its precision. In
forecasting, the principle of “garbage in/garbage out” applies; a forecast
will only be as good as the data used in its compilation.
8.3 Data collection
Once the company has decided how much time, energy and
money is to be spent on data collection, it must determine where
it will obtain the data. The most promising sources depend on the
individual situation.
There are two main categories of existing data:
•Internal data generated within the company itself, e.g. previous
company plans, sales statistics and other internal records. For
certain situations this may be sufficient.
•Secondary data from external sources, e.g. government and trade
statistics, and published marketing research surveys.
Both are important, and in many forecasting situations it is
necessary to utilize them both. A third category of data is that
generated specifically for the forecasting task through some form
of marketing research, such as a sample survey, a test marketing
experiment or an observational study. This is usually the most
expensive source of data, and before commencing a full study
should be made of existing data sources, both internal and
external.
8.3.1 Data from the sales department
The sales/marketing is the main point of commercial interaction
between the company and its customers. Consequently, it is the
chief source of information including:
•Sales volume by product and by product group. This
information can be combined to give total sales volume, but it
also allows each product group in the overall product mix to be
evaluated in terms of its contribution to total volume.
• Sales volume by area. This may be divided according to
salesperson territories, standard media areas as used by the Joint
Industry for Television Advertising Research (JICTAR), or other
geographical areas (e.g. countries).
• Sales volumes by market segment. The basis for segmentation
may be regional or, especially in industrial markets, by type of
industry. Such information will give an indication of which
segments are likely to remain static, which are declining, and
which show growth possibilities. Where the firm deals with a
few large customers, segmentation may be by customer, and any
change in demand from any of these may be significant in terms
of forecasting sales.
•Sales volume by type of channel of distribution. Where a company has a
multichannel distribution policy. It is possible to calculate the effectiveness
and profitability of each type of channel. It also allows for trends in the pattern
of distribution to be identified and taken into account in forecasting future
channel requirements. Channel information by geographical area may indicate
a difference in the profitability between various types of channel in different
parts of the country, allowing for geographical differentials. Information
gathered by type of retail outlet, agents, wholesalers and distributors can
contribute to a more realistic forecast. Such information allows marketing to
identify and develop promising channel opportunities, resulting in more
effective channel management.
•Sales volume over time. In terms of actual sales and units sold, this allows
seasonal variations to be identified and inflation and price adjustments to be
taken into consideration.
•Pricing information. Historical information relating to price adjustments
byproduct types allows forecasters to establish the effects of price increases or
decreases on demand. The forecaster is then able to judge the likely effects of
future price changes.
•Communication mix information. The effects of previous advertising campaigns,
sponsorship, direct mail or exhibitions can be assessed. Various levels of
expenditure in marketing communications can be evaluated. This information
will act as a guide to the likely effectiveness of future communication mix
expenditures.
•Sales promotional data. The effectiveness of past promotional campaigns, such
as reduced-price packs, coupons, self-liquidating offers and competitions, can be
assessed. Trade incentives aimed at distributive intermediaries can also be
assessed in terms of their individual influence on sales.
•Sales representatives’ records and reports. As described in Chapter 8, sales
representatives should keep files on “live” customers. Often such records hold
considerable detail, ranging from information, as well as information about the
customer’s firm, its product range, diversification plans and likely future
purchases. Even what the customer last said to the salesperson may be recorded.
In addition, sales representatives make reports to the sales office on such matters
as orders lost to competitors, customers holding future purchasing decisions in
abeyance, and information on quotation that never materialized as orders. This
information is potentially useful to the forecaster.
•Enquiries received and quotations sent. Customers
submit enquiries asking for details of price,
delivery, ect., and records should be kept of verbal
enquiries. Customers make enquiries to a number
of companies. Enquiries lead to a detailed quotation
being submitted to the customer. This information
can be useful to the forecaster, especially if patterns
can be established in the percentage of enquiries
that mature into orders and the time between a
quotation being submitted and an order being
received.
The number of requests for quotations can provide
a guide to economic activity in the marketplace
and, as firms are likely to request quotations from a
number of sources, the number of quotations
successfully converted into orders gives an
indication of the firm’s market share.
8.3.2 Data from other departments
Accounts department
The management accountant will be able to provide
accurate cost data. Other useful information can be
gained from previous management reports.
Management information requirements differ between
firms, but such reports may contain very accurate
information on such matters as:
•Number of new customers in a given period
•Number of withdrawals
•Number of items sold by product in volume and
monetary terms
•Total sales by salesperson, area, division, ect.
Management accounting reports give information on staff
matters such as absenteeism. Such information can be
useful when attempting to accurately forecast production
capacity. Past budgets with variance analysis will show
budgeted figures against actual figures.
The accounts department will also keep statistics on
current operations such as orders received, orders
dispatched and orders on hand. Such information is kept
for internal management information needs, and to fulfill
legal requirement when presenting accounts. This
information may duplicate information help elsewhere, but
may be most accessible in the accounts department. Since
such information has been collected independently, it can
be used as a “check” on information gathered from other
sources.
Purchasing department
Copies of purchase orders, material lists, requisitions, material
status schedule reports and information on suppliers (e.g.
reliability of delivery, lead times, prices) can be useful.
Purchasing will also be able to provide stock control data
relating to re-order levels, buffer and safety stock levels,
economic order quantities and stock-turn by inventory item.
The forecaster may need to take such information into account.
Stock availability and short lead times are part of the general
level of service offered by the firm to customers. Depending
on the service sensitivity of the market, service levels can have
a significant influence on demand. Present and future service
levels will have a bearing on both sales materials management,
as an increase in the level of service would mean stock and a
greater variety of materials being held.
Dispatch department
The dispatch department will have its own
information system detailing goods dispatched and
transportation methods as well as advice notes and
other delivery documents. Such information may
be useful for forecasting in its own right, or act as
a check on information gathered elsewhere.
Production department
The production department should be able to
supply documentation relating to production
control, e.g. copies of works orders, material lists
and design information. Information will be
available on orders placed with the company’s
own workshops, requisitions for materials to
stores, orders subcontracted to other suppliers,
manufacturing times, machine utilization times.
8.3.3 Departmental plans
Not only should historical and current internal information be
available to then forecaster, but this should also include short-,
medium and long-term plans relating to individual departments.
Activity and changes in company policy or methods of operation
already planned could have a considerable bearing on a forecast.
For instance, plans to expand the sales department or to increase
promotional activity will affect a sales forecast. Investment in
capital equipment such as new machine tools or a new material
handling system may significantly affect both materials
requirements and future sales. The sources mentioned are not an
exhaustive list of the sources or types of internal information
available to the forecaster. Other departments (e.g human resource
management, research and development, work study etc.) might
also hold useful information. The choice of source will depend on
the type of forecast required order completion dates.
 CHAPTER IX: Marketing strategy, planning and control
• 9.1 Introduction
• Most companies have adopted the marketing concept over the past 25 years, in
particular the notion of customer orientation. Sometimes, in their pursuit of
customer satisfaction, companies neglect an aspect of marketing that refers to
strategic management – a systematic approach to planning, analysis and control.
Not only does such an approach facilitate customer satisfaction; it also helps to
ensure the firm’s survival by ensuring profitability. Businesses that are less than
totally committed to marketing can be grouped into three categories:
• Those that make no real plans at all
• Those that make plans based on partial, poorly collected or poorly interpreted
marketing informationnn
• Those that make plans but do not adhere to them. Some businesses are directed
by talented leaders who have a “feel” for the market and whose intuitive
decisions lead to success. Intuition is an important ingredient of successful
management, but few of us could say that our intuition is so frequently correct
that we could use it as the basis for the management of a company. Markets
change rapidly, and the intuitive constantly runs risks that are unacceptable to
shareholders as well as to company employees.
•Moreover, if the intuitive leader is suddenly indisposed, what is to
happen?
Some companies merely respond to current demand. Providing that
the order book is full, they see no need for planning. When sales
slowdown, the policy is to put pressure on the sales force to sell
more. Planning systems that not evolved from the origins of
marketing planning are often based on the company’s financial
budgeting process. Available resources are allocated to functional
manager on a haphazard basis.
Why, for instance, the advertising manager has received too much or
too little money during a given period is never queried. Still worse,
there is no facility available to evaluate expenditure in terms of what
it has achieved. So long as the department has not overrun its budget
allocation, everybody is satisfied. Sometimes plans are made but
then changed when somebody has what appears to be a better idea,
and so the process continues. The net result is that none of the plans
are fully developed and evaluated, and true planning is not taking
place at all.
9.2. Formalized planning procedures
9.2.1. Planning is central to marketing
Many managers maintain they have a marketing orientation, but
overlook one fundamental aspect – a formalized planning procedure that
takes into account the firms environment, its internal resources and its
longer-term objectives.
9.2.2. Term in common use
The area of planning can be a source of confusion because of the wide
range of words and titles that are used in its description. In particular,
confusion arises over the meaning of the word “strategy” and its use in
the terms “corporate strategy” and “functional strategy”.
It is valuable at this stage to clarify these terms:
•Planning is simply the process of decision-making that relates to the
future. The term can be used at all levels of company decision-making.
Corporate planning refers specifically to decision-making at the highest
levels of management.
•Decisions made here refer to the total business.
Corporate planning is sometimes referred to as
strategic planning and some older texts refer to it as
long-rang planning. Corporate or strategic planning is
not concerned with forecasting sales, devising
marketing mix strategies or organizing production and
raw material supply to accommodate this forecast.
Corporate planning involves asking: What business
are we really in? is this the right business? What are
our basic objectives? After analysis, strategic plans
can be drown up based on the answers to such
questions.
•Operational or functional planning is the process that
develops the corporate or strategic plan. One strategic
corporate objective may be to enter a new market and achieve
x per cent market share with y per cent return on investment
within two years. Operational planning will indicate how this
should be best achieved (for instance, by adopting a particular
marketing mix strategy and financial allocation).
•The word strategy can be used at an operational level
(product, price or advertising strategy) because it describes
medium-to long-term actions.
•Tactics are actions that bring about temporary modifications
to operational plans (e.g. a price change or an increase in
advertising intensity necessitated by unexpected competitive
action). They are essentially short-term in nature.
•Objectives should be “SMART” (Specific, Measurable,
Achievable, Realistic and Time-related).
There is a hierarchy of planning as follows:
1 Corporate planning
2 Functional (e.g. marketing) planning
3 Sub-functional (e.g. sales) planning.
The above can be expanded as follows:
•Strategic corporate planning
1.Define organizational mission
2.Establish strategic business units (SBUs) (see later for
definition)
3.Anticipate change
•Marketing planning for SBUs
1.Set marketing objectives
2.Develop marketing strategy
3.Make formal marketing plans
•Operational marketing plans
9.3 Strategic planning at the corporate level
The term “corporate planning” has evolved in line with
the increasing size of companies and numbers of multi-
product, multi-market companies. Takeovers, mergers
and multinational activity have created a complex and
wide-ranging business environment, so that larger
companies are indirectly responsible for the direction of
several firms who are involved in various, often
unrelated, marketed, markets. The task is to define a
“corporate mission” or “corporate goal” and develop
plans that enable this to be accomplished. The mission
should be stated in marketing terms so as to encourage
as wide a view of opportunities as is realistic within
resource constraints.
Objectives are defined and communicated to individual parts
of the company, whose managers develop their own plans for
achieving these objectives. Such a process facilitates a
marketing mission rather than a product orientation.
To illustrate marketing evolution, a company whose principal
activity is the manufacture of fountain pens, for example,
should perhaps consider itself to be in the gift market, or
perhaps in the graphics market. In addition to adopting a
marketing orientation, businesses can include a social
dimension in their corporate mission statement (e.g. the
achievement of goals by means of a commitment to reduce
pollution). Whatever the mission, it should serve to generate a
common theme throughout the company and motivate the
workforce towards a common goal.
9.4 Strategic business units (SBUs)
In order to realize corporate objectives, management must break
down areas of responsibilities into identifiable and manageable
units. This facilitates analysis, planning and control. A method of
identifying such business areas is to divide the total business into
“strategic business units” (SBUs) or operational entities to which
corporate strategy is delegated. A major criterion of SBU
management is that SBUs should be easily identifiable. They
should represent the key business areas of the company. Although
it is not always possible to delineate business areas exactly,
ideally SBUs should be single businesses that can be planned
independently of the company’s other businesses.
This suggests that they have an identifiable management with
responsibility for managing and controlling resource allocation,
and direct competitors can be identified. For multi-market or
multi-industry organizations, SBUs may be whole companies in
themselves. Single industry or “product-line dominant”
companies may be able to identify SBUs based on specific
market areas.
9.5 Audit and SWOT
Having defined corporate objectives and identified SBUs, the
company proceeds to the stages of planning outlined in Figure
17.1. The first stage is environmental analysis (sometimes called
the external audit), and it is known the acronym “PEST” analysis
(Political, Economic, Socio-cultural and Technological analysis).
Some authors cite the acronym as “STEP”, as there is no
chronological sequence in the way each factor should be
considered.
Each of these four categories should be investigated in turn. These
separate “PEST” factors were later broadened to include legal
aspects, making the acronym “SLEPT”. Still later, environmental
factors were considered as a separate category; this led to the
acronym becoming “PESTLE”. The latest factor to be included is
ecological, and the acronym has now become “STEEPLE”.
However, it is felt that the introduction of so many extra factors
unnecessarily complicates what is a sound tool of analysis, and for
most situations “PEST” analysis works well.
As well as this external audit, the company also performs
an internal company analysis. In this stage the company
analyses its own internal strengths and weaknesses and
its external opportunities and threats (called “SWOT”
analysis). Strengths and Weaknesses are bullet points
listed from an internal company perspective, and
Opportunities and Threats from an external macro-
environmental viewpoint. This latter part of the analysis
uses information that has already been identified from
the “PEST” analysis. With this information to hand,
planners can consider the strengths and opportunities of
their SBUs, situate them in their respective
environments, and then formulate plans designed to
realize corporate objectives.
 9.6. Industry / market evolution
Porter proposed that the strategies for success are not
necessarily financial coupled with high market share.
•Focus means the company consolidates its efforts on a
small range of products in a markets niche
•Differentiation means to establish a USP or other feature
that the competition cannot match
•Cost leadership means the lowest price in the market
•Stuck in the middle describes companies at the bottom
of the curve. In 1985 Porter further developed his ideas
based on evolutionary stages and whether the company
was a leader or follower, as shown below.
 Growth Maturity and transition to
(Emerging industry) Decline
maturity

Leader Keep ahead Cost leadership; raise Redefine

of the field barriers to entry; scope;

Strategic dater competitors divest

position peripheral

Follower activities;
encourage
departures
Strategic position in
industry life cycle Imitation at Differentiation; focus Differentiat
lower cost; ion; look
joint for new
ventures opportuniti
es
The strategy that should be adopted depends upon whether the
company is a leader or a follower.
The individual evolutionary stages are explained as follows:
•Growth or emerging industry is characterized by conservatism
amongst buyers over the attributes of new products, and the fact that
they might become dated in either function or style.
•Maturity and transition to maturity can mean reduced profit
margins as competitors come in and sales begin to slow. Buyers are
more confident as they are familiar with the product, and
manufacturing emphasis is on features and intangible factors like
image. Attempts should be made to serve specialist market
segments.
•Decline indicates that the market has become saturated. Alternative
products might appear that supplant traditional products, and this is
when companies should look for alternative products.
9.7 Marketing planning at an operational level
9.7.1 Tows matrix
The success of marketing planning at this level depend on a
judicious deployment of the marketing mix. Before a mix
strategy can be developed, operational management must
carefully consider the company’s position in the market again,
with particular emphasis on “SWOT” analysis. A useful tool here
is “TOWS” analysis, which facilitates the formulation of
strategies.
A number of stages are considered:
•Evaluate the influence of environmental factors (STEEPLE
issues) on the company
•Make a diagnosis about the future
•Assess the company’s strengths and weaknesses in relation to
operations management finance and marketing
•Develop strategic options.
9.7.2 Procedure for marketing planning
The whole activity that comprises marketing in a strategic
framework. The strategic planning process should have now taken
place, and an individual plan is required for each SBU or product
line.
According to Abell, in essence the marketing plan should include
the following (Abell, 1979):
•Analysis
•Setting objectives
•Forecasting
•Budgeting
•Organization
•Target selection
•Developing the mix
•Control.
These are now discussed separately in the context of marketing
planning at an operational level.
9.7.3 Analysis
We rely on marketing research to provide a detailed
picture of the market and profiles of potential
consumers. Information is needed about competitive
activity, patterns of distribution, prices, products and
trends. We must also ask potential consumers where
they buy, how they buy, and what they consider to be
problems with current supplies/suppliers. In particular,
we need to know the market size. Within a company,
costs must be analysed and production and distribution
capabilities assessed.
9.7.4 Setting objectives
Based on marketing research/analysis and knowledge of
its internal capabilities, the company must decide on its
objections – i.e. the market position the company will
seek. The objectives of a marketing plan must be realistic,
attainable and specific so that they can be easily
communicated throughout the company. “To increase
sales” or “to increase brand awareness” is meaningless.
More specific (SMART) objective a focus for marketing
effort and permit subsequent evaluations of such effort.
For example, a useful objective would be “to increase
sales by x per cent in market y during period z”.
9.7.5 Forecasting
Forecasting is concerned with future activity, and this distinguishes it from much of
marketing research and marketing control, which are based on analyses of past events.
The precise location of forecasting as a stage in the marketing plan will vary according
to the type of product (new or existing) and the objectives that have been set (purely
marketing based, e.g. increasing brand awareness, or financially based, e.g. reducing
costs or increasing sales). An existing product can be adapted to a different market, so it
is likely (because of ignorance of the market) that forecasting will precede the
objective-setting stage in this case. If we were dealing with an existing product and a
known market, analysis would have provided sufficient information to permit the setting
of objectives. Specific estimation of buyer intentions (i.e. sales forecasting) can then
follow.
The total market potential is estimated, then the information is refined into a specific
company sales forecast. Whatever specific forecasting techniques are used, the net
result is the company’s best estimate of its expected participation in a given market
during a given period (usually one year). The sales forecast (combined with marketing
objectives) thus becomes the basis of planning throughout the company. Planning,
human resources and financial decisions, as well as appropriate marketing mix
strategies, can only be based on anticipated sales. It is emphasized that forecasts are
estimates rather than predictions.
 CHAPTER X: International Marketing
10.1 Introduction
• Trading between nations can be traced back many centuries.
People have always trade goods that were surplus to their
requirements. Early traders recognized that certain goods
and commodities. Regarded as commonplace in their own
countries, were highly sought after by other nations. At the
turn of the nineteenth century, trading was “one-sided” in
the historical context, but the framework that was laid down
fostered the idea of contemporary international trade. During
the twentieth century, as empires eroded, trade between
nations evolved on a fairer and more meaningful “buyer” and
“seller” basis. Some nations possess natural resources in
excess of their needs, which have a value placed on then by
other nations, and this forms the basis of trading.
The marketing concept has developed and been
accepted as a way of business management that is
valid internationally. The pursuit of customer
satisfaction, which is very demanding in home
markets, requires additional skills when operating in
the international sphere. A new marketing mix is often
developed to suit foreign markets, and caters for
differences in language and culture. International
marketing involves precise documentation, and it is
often frustrating when dealing with problems not
normally encountered in home-based marketing. It
can, however, be very rewarding. As the late John F.
Kennedy said: “world trade leads to world peace.”
10.2 Defining subdivisions of international activity
A degree of confusion exists between the terms
“multinational marketing”, “international marketing” and
“exporting”. Multinational marketing refers to a relatively
small number of companies whose business interests,
manufacturing plants, and offices are spread throughout the
world. Although the overall strategic headquarters and
control may be based in an original “parent” country,
multinational companies operate alongside their national
counterparts so that they are not immediately
distinguishable from them. Multinational companies are
not principally exporters; they actually produce and market
goods within the countries that they have chosen to
develop.
The difference between exporting and
international marketing is less clear cut. A
company that engages in simple exporting
considers it to be a peripheral activity. Most firms
have some export involvement, and the term
“exporting” is commonly applied to firms whose
export activity represent less than 20 per cent of
total turnover. This implies that their international
activities are sporadic and lacking in commitment
to the degree of modification they should be
prepared to make to their products and marketing
mix strategy in order to sell successfully in
overseas markets.
A company’s overseas activities can be described as
international marketing once overseas sales account
for more than 20 per cent of turnover, at which point it
is reasonable to assume that a company has made a
firm strategic commitment to overseas involvement.
The term implies that:
•A strategic decision has been taken to enter foreign
markets
•The necessary organizational changes have been
carried out
•Product and marketing mix adaptations for these
markets have been made
•The company has made “mental” and “attitudinal”
adjustments appropriate to an international marketing
strategy.
In essence, international marketing is concerned
with any conscious marketing activity that crosses
national frontiers. Multinational corporations and
exporters (as just defined) represent extremes on
the international marketing scale. Between these
two extremes are firms who market overseas and
who are involved in some way in distributing their
products from home manufacturing bases.
Many companies have developed their overseas
activities by means of licensing agreements or
joint ventures. Such forms of distribution are
discussed later, and the concepts of marketing are
as pertinent to them as to home
manufacturer/overseas customer arrangements
International marketing is not separate from national
marketing; the underlying marketing concept is still valid.
It is considered separately here because of the frequent,
and often essential, requirements for modifications to the
marketing approach. The product may need to be
physically modified, and international marketing might
require the firm to change its internal organization. Even
when products are left physically unchanged; to be
successful overseas it may be necessary to employ
completely different marketing mix strategies from those in
operation in the domestic market.
The “rules” for international marketing are no different
from those applied to basic home-based marketing.
Management must set objectives that the international
strategy should achieve.
This strategy must be implemented through the
marketing mix being organized in a way that is
appropriate to the market being considered. It is
likely that an individual marketing mix strategy
will need to be developed for each market.
Marketing research, advertising and promotion,
packaging or sales management all possess the
same rationale in both markets types; what differs
is the way in which these function s are performed.
The design and implementation of an advertising
campaign or a marketing research survey is often
more difficult in international markets.
Language and culture are the principal areas of difficult in
international can sometimes pose additional problems for
international markets. Language and culture are the principal
areas of difficulty. Physical communication can sometimes
pose additional problems for international marketers. Face-to-
face contact is the best way of conducting negotiations, but
even in a firm that has a large-scale international commitment,
day-to-day international communication can be limited
compared to domestic activities.
Whatever market is considered, the underlying marketing
concept does not change. International marketing can be
demanding, and companies considering international markets
should be aware that additional and different demands are
made in fulfilling what is already a difficult task.
10.3 Why enter overseas markets?
Some firms originate with the intention of seeking
overseas involvement. The products or services
they offer may be so specialized that the domestic
market alone will not provide sufficient sales. This
is common place in industrial markets where, for
example, specialist machinery manufacturers
make relatively few sales because the rate of
repeat purchase is low. Although the value of each
sale may be high, the interval between re-buys
dictates that as wide a market as possible must be
sought. Other firms may start out on the basis of
having identified a buoyant foreign market.
The majority of companies, however, begin their
overseas involvement from the basis of a well-
established home market.
The decision to “go international” can be due to a variety of
reasons, including the following:
•Saturation of the home market. Many companies in mature
markets find that the scope for growth is limited. Competitive
action may be threatening their market share. Overseas
opportunities must be sought to maintain the viability of
existing production capacity. This action might also extend the
life cycle of a product.
•To facilitate growth. The actions of competitors might mean
there is pressure on a company to increase production capacity
and sales volume. Growth markets might present a situation in
which a company that does not grow with market trends
becomes relatively smaller in relation to competition and is
less able to compete in terms of lower costs and innovation.
Access to overseas markets facilitates growth by providing
new outlets for increased production.
•To achieve lower unit costs. The core business may remain
in the domestic market, whilst new markets abroad afford the
opportunity to increase production and lower overall unit
costs. Such cost advantages allow a company to keep pace
with market expansion and may even permit the company to
expand its domestic market share, provided that the returns
on overseas activity are sufficient to make a contribution to
fixed costs and cover the variable costs of increased
production.
•Depressed demand in the home market. Some companies
regard overseas markets as marginal cost areas. At times of
depressed demand in the home market, exporting can
maintain production capacity and make a contribution to
fixed costs.
•The ability to pursue such a “hit-and-run” strategy
depends on the type of market in which the company is
involved. For price sensitive commodity markets, this
is a viable strategy.
However, international marketing is usually depend on
long-term involvement. Companies that turn to export
markets in times of need and return to the home market
when it is convenient are usually unsuccessful. An
indirect advantage of international marketing is that the
company gains a new perspective on its activities.
Involvement in foreign markets gives the firm a
yardstick by which to measure its efforts at home, and
reduces the likelihood of complacency. It also follows
that risk is spread more widely with each new market
that is successfully entered.
10.4 How does international marketing begin?
Implicit in the earlier definition of international marketing activity
was the idea that simple exporting is a pursuit that accounts for only a
small part of a company’s overall affairs. The implication is that
exporting does not involve the company in any major modifications
to its home-based marketing. The term “international marketing” is
used to describe the activities of firms that have made a positive
decision to enter overseas markets and are prepared to implement
whatever is required to achieve success in such markets.
Many firms begin exporting in a passive way. Whilst being
exclusively involved with the home market, they may receive
unsolicited enquiries for their products from abroad. These could be
as a result of a press or magazine article, or simply through “word-of-
mouth”. Such extra business is likely to be welcomed, as long as it
can be undertaken without making any alterations to the existing
marketing structure. Requests for modifications to the product or
payment terms are unlikely to be considered, because these would
detract from the company’s main marketing effort. Such action may
also involve financial commitment that the company feels could be
better employed elsewhere.
When a company’s capacity is not being fully utilized, export
orders will probably be welcomed. As long as marketing
strategy is home-based, these orders will tend to take second
place when the home situation begins to improve. Such sporadic
commitment can continue for a long time, and is a viable policy
as long as customers are prepared to conduct business in this
manner. However, it is in the interests of both buyers and sellers
to establish such a working relationship.
This sporadic type of exporting can provide the basic for further
export involvement. At some point in a company’s life, a
decision has to be made on whether to develop exporting or not.
Clearly, a strong relationship exists between the level of exports
and how far a company is prepared to change in response to
this. As the level of exports grow, a company will become less
passive and more actively involved in exporting, thus taking on
an international marketing orientation.
The company can initiate this growing commitment
gradually by making small changes, but at some stage a
conscious decision should be made to devote more
marketing effort to exports.
The gradual evolution towards export commitment may
be punctuated by the following actions:
•Allocation or engagement of employees with specific
responsibility for internal aspects of exporting such as
export documentation, shipping and basic customer
liaison
•Minor modifications to payment terms and conditions
•Involvement in export marketing research
•Engagement of overseas agent(s) and/or distributor(s)
•Engagement of export sales personnel
•The decision to carry out product modification to suit
individual overseas markets
•Involvement in overseas promotion, including
participation in international trade fairs and exhibitions.
Although a gradual evolution of export activity is
common, some companies make a single decision to
become involved in international marketing without prior
involvement. This may represent a major element of an
expansion strategy that might be achieved by selling
directly to overseas markets or entering into some form
of joint venture.
10.5 The international decision – a strategic commitment
An undertaking to become involved in international marketing is
strategic in nature. As with all aspects of strategic decision-
making, information is needed and careful preparation is essential.
The decision will involve financial outlay and organizational
change.
The company’s first step should be to examine the strategic
alternatives. It may be that some other option is easier to
implement and carries less risk. If an international strategy is the
chosen route, profitability and accessibility to the market should
be thoroughly considered and the markets with the greatest profit
potential should be identified. Some markets might appear to be
highly profitable, but have features that might increase risk. Such
influences may be physical, cultural, government-and/or market-
related.
Some markets might be so well served by
domestic suppliers or existing exporters that
the level of competition might be a barrier to
entry.
The key to making the correct decision is
adequate research. Desk research should
identify potential markets that should then
become the subject of extensive field research.
Marketing research and subsequent market
selection represent one side of the company’s
strategic preparation process.