marketing

1. The act or process of buying and selling in a market.

2. The commercial functions involved in transferring goods from producer to consumer.

The activities of a company associated with buying and selling a product or service. It
includes advertising, selling and delivering products to people. People who work in
marketing departments of companies try to get the attention of target audiences by using
slogans, packaging design, aprice and promotion.

Investopedia Says:
Many people believe that marketing is just about advertising or sales. However, marketing is
everything a company does to acquire customers and maintain a relationship with them. Even
the small tasks like writing thank-you letters, playing golf with a prospective client, returning
calls promptly and meeting with a past client for coffee can be thought of as marketing. The
ultimate goal of marketing is to match a company's products and services to the people who
need and want

Marketing Dictionary: marketing

Process associated with promoting for sale goods or services. The classic components of
marketing are the Four Ps: product, price, place, and promotion-the selection and
development of the product, determination of price, selection and design of distribution
channels (place), and all aspects of generating or enhancing demand for the product,
including advertising (promotion)..

Insurance Dictionary: Marketing

Creation of a demand for a company's products, its distribution, and services for customers
who purchase that product. Actuarial research and development, underwriting efficiency, and
claim payment promptness is of little value if no one is willing to purchase insurance
products. Agency and marketing departments are the focus of all sales activity within an
insurance company, and touch every aspect of a company by generating (1) premium income
for securities, real estate, and mortgage investments; (2) sales for review by the underwriting
department and their issuance by policyholder services; (3) need for data storage and retrieval
by the company's data processing center; (4) legal analysis and decisions by the law
department; and (5) need for corporate planning.

Business Encyclopedia: Marketing

The term market is the root word for the word marketing. Market refers to the location where
exchanges between buyers and sellers occur. Marketing pertains to the interactive process
that requires developing, pricing, placing, and promoting goods, ideas, or services in order to
facilitate exchanges between customers and sellers to satisfy the needs and wants of
consumers. Thus, at the very center of the marketing process is satisfying the needs and
wants of customers.

Needs and Wants

Needs are the basic items required for human survival. Human needs are an essential concept
underlying the marketing process because needs are translated into consumer wants. Human
needs are often described as a state of real or perceived deprivation. Basic human needs take
one of three forms: physical, social, and individual. Physical needs are basic to survival and
include food, clothing, warmth, and safety. Social needs revolve around the desire for
belonging and affection. Individual needs include longings for knowledge and self-
expression, through items such as clothing choices. Wants are needs that are shaped by both
cultural influences and individual preferences. Wants are often described as goods, ideas, and
services that fulfill the needs of an individual consumer. The wants of individuals change as
both society and technology change. For example, when a computer is released, a consumer
may want it simply because it is a new and improved technology. Therefore, the purpose of
marketing is to convert these generic needs into wants for specific goods, ideas, or services.
Demand is created when wants are supported by an individual consumer's ability to purchase
the goods, ideas, or services in question.

Consumers buy products that will best meet their needs, as well as provide the most
fulfillment resulting from the exchange process. The first step in the exchange process is to
provide a product. Products can take a number of forms such as goods, ideas, and services.
All products are produced to satisfy the needs, wants, and demands of individual buyers.

The second step in the satisfaction process is exchange. Exchange occurs when an individual
receives a product from a seller in return for something called consideration. Consideration
usually takes the form of currency. For an exchange to take place, it must meet a number of
conditions. (1) There must be at least two participants in the process. (2) Each party must
offer something of value to the other. (3) Both parties must want to deal with each other. (4)
Both participants have the right to accept or to reject the offer. (5) Both groups must have the
ability to communicate and deliver on the mutual agreement. Thus, the transaction process is
a core component of marketing. Whenever there is a trade of values between two parties, a
transaction has occurred. A transaction is often considered a unit of measurement in
marketing. The earliest form of exchange was known as barter.

US History Encyclopedia: Marketing

Marketing is the multifaceted, systematic approach to selling goods, adopted by every

business and not for-profit agency and group with a message. It attempts to optimize an
organization's ability to make a profit, whether monetary (profits or donations) or electoral.

Marketing encompasses advertising, promotions, product design, positioning, and product

development. Marketing tools include elements such as focus groups, gap analysis, concept
testing, product testing, perceptual maps, demographics, psychographics (lifestyles), and
choice modeling. It is powerfully aided by market research, a science that has become
increasingly complex and sophisticated over the past century or more.

Market research embraces qualitative and quantitative methods. Environmental analysis gives
companies key information about economic conditions, consumer demographics, consumer
lifestyles, industry trends, distribution channels, new technology, employee relations and
supply, foreign markets, corporate image, political and regulatory changes, and key players in
the business. Sophisticated data collection and analysis investigate market segmentation and
target selection, product and advertising positioning, product design, pricing, mass media
advertising, direct marketing, promotion, distribution channels, and sales force allocation.

Market research rarely has a direct impact on income, but provides the essential data to prove
or disprove client preconceptions, resolve disagreements, expose threats, quantify a
population, and qualify an opportunity. The ways that research is used for strategic decision
making determines its relationship to profit and market advance. Marketing has existed in
every age and culture. In the United States, marketing reached its high level of sophistication
as a result of the mass market.

Three overlapping stages have marked the history of our republic. Until roughly the 1880s,
the economy was characterized by market fragmentation. Geographical limitations were
reinforced by the absence of a transportation and communications infrastructure that spanned
the continent. There were hundreds of local markets and very few national brand names.
Profit was determined by low sales volume and high prices.

The Augmented Marketing Mix (AMM or the '17 Ps'), and its
relationship with Search Engine Marketing is covered in the article 'Search Engine
Marketing in Context - is it marketing?' in THE marketing leaders (TM) in 2006. The AMM
contains the original '4 Ps' and an additional 13 new P's:
1. Product
2. Place
3. Price
4. Promotion
5. People (the most important component in the whole supply chain and forgotten by
marketing!)
6. Positioning (where we are in the market and the mind of the customer, true branding
rather than the questionable 'science' to do with brand-brain-wash)
7. Project Management (we all manage different projects and sub-projects, yet this is
not recognised in most business disciplines and teaching)
8. Profit (wow - I mentioned it, it isnt a dirty word if it fits in with the latter 'Ps' below)
9. Process (how we do things, how modern marketing is and should be seen as one
rather than a function or department, or 'a colouring in activity at the end'
10. Priority (we need to prioritise all our options to improve, strategically or tactically
change, what product or service innovations should be introduced etc.)
11. Policy (how we do things around here; how 'customer centric' we really aspire to and
work to be)
12. Physical Evidence (evidential marketing - marrying up all our new innovations and
improvements with real evidence from the customer and not relying on invention or
'creative(s)' - arghh - alone
13. Precision (its more than just targeted marketing, lets stop doing things 'to' the
prospect or customer, but 'with' them - but only offering what they really need, when
they need it, in the context that they will benefit most from it
14. Pervasiveness (marketing has to permeate the organisation as its main process - in a
similar way to which IT has moved from a small department doing funny/fuzzy things
into becoming the lifeblood of the organisation)
15. Pleasant (good at practising corporate social responsibility and recognising both the
marketing ecosystem and the wider world of sustainability and acting responsibly
along the whole supply chain and outside of it)
16. Preside (how we run the business - based on the above)
17. Pivot (but all of this is predicated on a real marketing and customer-centric approach
leads to sustainability and health - but the company must have ALL processes firmly
aligned with customer need as its pivotal point)
Marketing is a social process which satisfies consumers' wants. The term includes
advertising, distribution and selling of a product or service. It is also concerned with
anticipating the customers' future needs and wants, often through market research.

Introduction
A market-focused, or customer-focused, organization first determines what its potential
customers desire, and then builds the product or service. Marketing theory and practice is
justified in the belief that customers use a product or service because they have a need, or
because it provides a perceived benefit.

Two major factors of marketing are the recruitment of new customers (acquisition) and the
retention and expansion of relationships with existing customers (base management). Once a
marketer has converted the prospective buyer, base management marketing takes over. The
process for base management shifts the marketer to building a relationship, nurturing the
links, enhancing the benefits that sold the buyer in the first place, and improving the
product/service continuously to protect the business from competitive encroachments.

For a marketing plan to be successful, the mix of the four "Ps" must reflect the wants and
desires of the consumers in the target market. Trying to convince a market segment to buy
something they don't want is extremely expensive and seldom successful. Marketers depend
on marketing research, both formal and informal, to determine what consumers want and
what they are willing to pay for it. Marketers hope that this process will give them a
sustainable competitive advantage. Marketing management is the practical application of this
process. The offer is also an important addition to the 4P's theory.

Within most organizations, the activities encompassed by the marketing function are led by a
Vice President or Director of Marketing. A growing number of organizations, especially large
US companies, have a Chief Marketing Officer position, reporting to the Chief Executive
Officer.

The American Marketing Association (AMA) states, “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".

Marketing methods are informed by many of the social sciences, particularly psychology,
sociology, and economics. Anthropology is also a small, but growing, influence. Market
research underpins these activities. Through advertising, it is also related to many of the
creative arts. Marketing is a wide and heavily interconnected subject with extensive
publications. It is also an area of activity infamous for re-inventing itself and its vocabulary
according to the times and the culture.

Two Levels of Marketing

Strategic Marketing attempts to determine how an organization competes against its
competitors in a market place. In particular, it aims at generating a competitive advantage
relative to its competitors.

Operational Marketing executes marketing functions to attract and keep customers and to
maximize the value derived for them, as well as to satisfy the customer with prompt services
and meeting the customer expectations. Operational Marketing includes the determination of
the marketing mix

Historical Eras of Marketing

Modern marketing began in the early 1900s. In the twentieth century, the marketing process
progressed through three distinct eras—production, sales, and marketing. In the 1920s, firms
operated under the premise that production was a seller's market. Product choices were nearly
nonexistent because firm managers believed that a superior product would sell itself. This
philosophy was possible because the demand for products outlasted supply. During this era,
firm success was measured totally in terms of production. The second era of marketing,
ushered in during 1950s, is known as the sales era. During this era, product supply exceeded
demand. Thus, firms assumed that consumers would resist buying goods and services deemed
nonessential. To overcome this consumer resistance, sellers had to employ creative
advertising and skillful personal selling in order to get consumers to buy. The marketing era
emerged after firm managers realized that a better strategy was needed to attract and keep
customers because allowing products to sell themselves was not effective. Rather, the
marketing concept philosophy was adopted by many firms in an attempt to meet the specific
needs of customers. Proponents of the marketing concept argued that in order for firms to
achieve their goals, they had to satisfy the needs and wants of consumers. Marketing >
Marketing Concept

The Marketing Concept

The marketing concept is the philosophy that firms should analyze the needs of their
customers and then make decisions to satisfy those needs, better than the competition. Today
most firms have adopted the marketing concept, but this has not always been the case.

In 1776 in The Wealth of Nations, Adam Smith wrote that the needs of producers should be
considered only with regard to meeting the needs of consumers. While this philosophy is
consistent with the marketing concept, it would not be adopted widely until nearly 200 years
later.

To better understand the marketing concept, it is worthwhile to put it in perspective by

reviewing other philosophies that once were predominant. While these alternative concepts
prevailed during different historical time frames, they are not restricted to those periods and
are still practiced by some firms today.

The Production Concept

The production concept prevailed from the time of the industrial revolution until the early
1920's. The production concept was the idea that a firm should focus on those products that it
could produce most efficiently and that the creation of a supply of low-cost products would in
and of itself create the demand for the products. The key questions that a firm would ask
before producing a product were:

• Can we produce the product?

• Can we produce enough of it?

At the time, the production concept worked fairly well because the goods that were produced
were largely those of basic necessity and there was a relatively high level of unfulfilled
demand. Virtually everything that could be produced was sold easily by a sales team whose
job it was simply to execute transactions at a price determined by the cost of production. The
production concept prevailed into the late 1920's.

The Sales Concept

By the early 1930's however, mass production had become commonplace, competition had
increased, and there was little unfulfilled demand. Around this time, firms began to practice
the sales concept (or selling concept), under which companies not only would produce the
products, but also would try to convince customers to buy them through advertising and
personal selling. Before producing a product, the key questions were:

• Can we sell the product?

• Can we charge enough for it?
The sales concept paid little attention to whether the product actually was needed; the goal
simply was to beat the competition to the sale with little regard to customer satisfaction.
Marketing was a function that was performed after the product was developed and produced,
and many people came to associate marketing with hard selling. Even today, many people use
the word "marketing" when they really mean sales.

The Marketing Concept

After World War II, the variety of products increased and hard selling no longer could be
relied upon to generate sales. With increased discretionary income, customers could afford to
be selective and buy only those products that precisely met their changing needs, and these
needs were not immediately obvious. The key questions became:

• What do customers want?

• Can we develop it while they still want it?
• How can we keep our customers satisfied?

In response to these discerning customers, firms began to adopt the marketing concept, which
involves:

• Focusing on customer needs before developing the product

• Aligning all functions of the company to focus on those needs
• Realizing a profit by successfully satisfying customer needs over the long-term

When firms first began to adopt the marketing concept, they typically set up separate
marketing departments whose objective it was to satisfy customer needs. Often these
departments were sales departments with expanded responsibilities. While this expanded
sales department structure can be found in some companies today, many firms have
structured themselves into marketing organizations having a company-wide customer focus.
Since the entire organization exists to satisfy customer needs, nobody can neglect a customer
issue by declaring it a "marketing problem" - everybody must be concerned with customer
satisfaction.

The marketing concept relies upon marketing research to define market segments, their size,
and their needs. To satisfy those needs, the marketing team makes decisions about the
controllable parameters of the marketing mix.

Marketing in the Overall Business

There are four areas of operation within all firms: accounting, finance, management, and
marketing. Each of these four areas performs specific functions. The accounting department
is responsible for keeping track of income and expenditures. The primary responsibility of the
finance department is maintaining and tracking assets. The management department is
responsible for creating and implementing procedural policies of the firm. The marketing
department is responsible for generating revenue through the exchange process. As a means
of generating revenue, marketing objectives are established in alignment with the overall
objectives of the firm.

Aligning the marketing activities with the objectives of the firm is completed through the
process of marketing management. The marketing management process involves developing
objectives that promote the long-term competitive advantage of a firm. The first step in the
marketing management process is to develop the firm's overall strategic plan. The second
step is to establish marketing strategies that support the firm's overall strategic objectives.
Lastly, a marketing plan is developed for each product. Each product plan contains an
executive summary, an explanation of the current marketing situation, a list of threats and
opportunities, proposed sales objectives, possible marketing strategies, action programs, and
budget proposals.

The marketing management process includes analyzing marketing opportunities, selecting

target markets, developing the marketing mix, and managing the marketing effort. In order to
analyze marketing opportunities, firms scan current environmental conditions in order to
determine potential opportunities. The aim of the marketing effort is to satisfy the needs and
wants of consumers. Thus, it is necessary for marketing managers to determine the particular
needs and wants of potential customers. Various quantitative and qualitative techniques of
marketing research are used to collect data about potential customers, who are then
segmented into markets.

International Marketing

International business has been practiced for thousands of years. In modern times, advances
in technology have improved transportation and communication methods; as a result, more
and more firms have set up shop at various locations around the globe. A natural component
of international business is international marketing. International marketing occurs when
firms plan and conduct transactions across international borders in order to satisfy the
objectives of both consumers and the firm. International marketing is simply a strategy used
by firms to improve both market share and profits. While firm managers may try to employ
the same basic marketing strategies used in the domestic market when promoting products in
international locations, those strategies may not be appropriate or effective. Firm managers
must adapt their strategies to fit the unique characteristics of each international market.
Unique environmental factors that need to be explored by firm managers before going global
include trade systems, economic conditions, political-legal, and cultural conditions.

The first factor to consider in the international marketplace is each country's trading system.
All countries have their own trade system regulations and restrictions. Common trade system
regulations and restrictions include tariffs, quotas, embargoes, exchange controls, and non-
tariff trade barriers. The second factor to review is the economic environment. There are two
economic factors which reflect how attractive a particular market is in a selected country:
industrial structure and income distribution. Industrial structure refers to how well developed
a country's infrastructure is while income distributed refers to how income is distributed
among its citizens. Political-legal environment is the third factor to investigate. For example,
the individual and cultural attitudes regarding purchasing products from foreign countries,
political stability, monetary regulations, and government bureaucracy all influence marketing
practices and opportunities. Finally, the last factor to be considered before entering a global
market is the cultural environment. Since cultural values regarding particular products will
vary considerably from one country to another around the world, managers must take into
account these differences in the planning process.

Just as with domestic markets, managers must establish their international marketing
objectives and policies before going overseas. For example, target countries will need to be
identified and evaluated in terms of their potential sales and profits. After selecting a market
and establishing marketing objectives, the mode of entry into the market must be determined.
There are three major modes of entry into international markets: exporting, joint venture, and
direct investment. Exporting is the simplest way to enter an international market. With
exporting, firms enter international markets by selling products internationally through the
use of middlemen. This use of these middlemen is sometimes called indirect exporting. The
second way to enter an international market is by using the joint-venture approach. A joint
venture takes place when firms join forces with companies from the international market to
produce or market a product. Joint ventures differ from direct investment in that an
association is formed between firms and businesses in the international market. Four types of
joint venture are licensing, contract manufacturing, management contracting, and joint
ownership. Under licensing, firms allow other businesses in the international market to
produce products under an agreement called a license. The licensee has the right to use the
manufacturing process, trademark, patent, trade secret, or other items of value for a fee or
royalty. Firms also use contract manufacturing, which arranges for the manufacture of
products to enter international markets. The third type of joint venture is called management
contracting. With this approach, the firms supply the capital to the local international firm in
exchange for the management know-how. The last category of joint venture is joint
ownership. Firms join with the local international investors to establish a local business. Both
groups share joint ownership and control of the newly established business. Finally, direct
investment is the last mode used by firms to enter international markets. With direct
investment, a firm enters the market by establishing its own base in international locations.
Direct investment is advantageous because labor and raw materials may be cheaper in some
countries. Firms can also improve their images in international markets because of the
employment opportunities they create.

In popular usage, "marketing" is the promotion of products, especially advertising and

branding. However, in professional usage the term has a wider meaning of the practice and
science of trading. The American Marketing Association (AMA) states, "Marketing is an
organizational function and a set of processes for creating, communicating and delivering
value to customers and for managing customer relationships in ways that benefit the
organization and its stakeholders."

Marketing practice tends to be seen as a creative industry, which includes advertising,

distribution and selling. It is also concerned with anticipating the customers' future needs and
wants, which are often discovered through market research.

The scientific study of marketing is a wide and heavily interconnected subject with extensive
academic publications. Marketing methods are also informed by many of the social sciences,
particularly psychology, sociology, and economics. Anthropology is also a small, but
growing influence. Market research underpins these activities. Through advertising, it is also
related to many of the creative arts. The marketing literature is also infamous for re-inventing
itself and its vocabulary according to the times and the culture.

Four Ps
In popular usage, "marketing" is the promotion of products, especially advertising and
branding. However, in professional usage the term has a wider meaning which recognizes
that marketing is customer centered. Products are often developed to meet the desires of
groups of customers or even, in some cases, for specific customers. E. Jerome McCarthy
divided marketing into four general sets of activities. His typology has become so universally
recognized that his four activity sets, the Four Ps, have passed into the language.

The four Ps are:

• Product: The product aspects of marketing deal with the specifications of the actual
goods or services, and how it relates to the end-user's needs and wants. The scope of a
product generally includes supporting elements such as warranties, guarantees, and
support.
• Pricing: This refers to the process of setting a price for a product, including discounts.
The price need not be monetary - it can simply be what is exchanged for the product
or services, e.g. time, energy, psychology or attention.
• Promotion: This includes advertising, sales promotion, publicity, and personal selling,
and refers to the various methods of promoting the product, brand, or company.
• Placement or distribution refers to how the product gets to the customer; for example,
point of sale placement or retailing. This fourth P has also sometimes been called
Place, referring to the channel by which a product or services is sold (e.g. online vs.
retail), which geographic region or industry, to which segment (young adults,
families, business people), etc.

These four elements are often referred to as the marketing mix,[1] which a marketer can use to
craft a marketing plan. The four Ps model is most useful when marketing low value consumer
products. Industrial products, services, high value consumer products require adjustments to
this model. Services marketing must account for the unique nature of services. Industrial or
B2B marketing must account for the long term contractual agreements that are typical in
supply chain transactions. Relationship marketing attempts to do this by looking at marketing
from a long term relationship perspective rather than individual transactions.

As a counter to this, Morgan, in Riding the Waves of Change (Jossey-Bass, 1988), suggests
that one of the greatest limitations of the 4 Ps approach "is that it unconsciously emphasizes
the inside–out view (looking from the company outwards), whereas the essence of marketing
should be the outside–in approach". Nevertheless, the 4 Ps offer a memorable and workable
guide to the major categories of marketing activity, as well as a framework within which
these can be used.

Seven Ps

As well as the standard four Ps (Product, Pricing, Promotion and Place), services marketing
calls upon an extra three, totaling seven and known together as the extended marketing mix.
These are:

• People: Any person coming into contact with customers can have an impact on
overall satisfaction. Whether as part of a supporting service to a product or involved
in a total service, people are particularly important because, in the customer's eyes,
they are generally inseparable from the total service . As a result of this, they must be
appropriately trained, well motivated and the right type of person. Fellow customers
are also sometimes referred to under 'people', as they too can affect the customer's
service experience, (e.g., at a sporting event).
 • Process: This is the process(es) involved in providing a service and the behaviour of
people, which can be crucial to customer satisfaction.
• Physical evidence: Unlike a product, a service cannot be experienced before it is
delivered, which makes it intangible. This, therefore, means that potential customers
could perceive greater risk when deciding whether to use a service. To reduce the
feeling of risk, thus improving the chance for success, it is often vital to offer
potential customers the chance to see what a service would be like. This is done by
providing physical evidence, such as case studies, testimonials or demonstrations.

Web 2.0 and Marketing New 4Ps

The original 4Ps concept idea was developed to help marketers manage the four most
important aspect of marketing. With the Internet and the Web 2.0, marketers have needed to
adapt a broader perspective on these elements. Idris Mootee devised a “New 4Ps” model in
2001 to supplement the traditional marketing 4Ps.[2] They are Personalization, Participation,
Peer-to-Peer and Predictive Modeling.

• Personalization: The author here refers to customization of products and services

through the use of the Internet. Early examples include Dell on-line and Amazon.com,
but this concept is further extended with emerging social media and advanced
algorithms. Emerging technologies will continue to push this idea forward.
• Participation: This is to allow customer to participate in what the brand should stand
for; what should be the product directions and even which ads to run. This concept is
laying the foundation for disruptive change through democratization of information.
• Peer-to-Peer': This refers to customer networks and communities where advocacy
happens. The historical problem with marketing is that it is "interruptive" in nature,
trying to impose a brand on the customer. This is most apparent in TV advertising.
These "passive customer bases" will ultimately be replaced by the "active customer
communities". Brand engagement happens within those conversations. P2P is now
being referred as Social Computing and will likely to be the most disruptive force in
the future of marketing.
• Predictive Modeling: This refers to neural network algorithms that are being
successfully applied in marketing problems (both a regression as well as a
classification problem).

Product
Scope

• Breadth -- number of product lines in a range.

• Depth -- number of product items in a product line.

Steps in product design

• Design and development of product ideas.

• Selection of and sifting through product ideas.
• Design and testing of product concept.
• Analysis of profitability of product concept.
 • Design and testing of physical product.

Packaging and trademarks

Requirements of good packaging

• Appropriately designed for target market

• Eye-catching
• Suitable to product
• Compliant with retailers' requirements
• Promotes image of enterprise
• Distinguishable from competitors' products
• Strong, convenient, well-designed
• Point of difference in service and supply of product.
• Difference in uniform product design "the look & feel" from the packaging (the box)
to the product its self.

Forms of packaging

• Specialty packaging -- emphasizes the elegant character of the product

• Packaging for double-use
• Combination packaging -- two or more products packaged in the same container
• Kaleidoscopic packaging -- packaging changes continually to reflect a series or
particular theme
• Packaging for immediate consumption -- to be thrown away after use
• Packaging for resale -- packed, into appropriate quantities, for the retailer or
wholesaler

Significance of a trademark

• Distinguishes one company's goods from those of another

• Serves as advertisement for quality
• Protects both consumers and manufacturers
• Used in displays and advertising campaigns
• Used to market new products

Requirements of a good trademark

• Reflects products' advantages

• Good, simple language
• Easily pronounced and remembered
• Distinct from names of other products
• Easily added to an existing range
• Easily registered for legal protection

Pricing
Pricing refers to the amount of money exchanged for a product. This value is determined by
utility to the consumer in terms of money and/or sacrifice that he is prepared to give for it.

Objectives

• Definite sales volume

• Achieve profit
• Larger market share
• Maintain market share
• Eliminate competition
• Advantages of mass production
• Satisfactory return on capital

Factors influencing price-determination

• Production and distribution costs

• Substitute goods available
• Normal trade practices
• Fixed prices
• Reaction of distributors
• Reaction of consumers
• Nature of demand:
o Elastic
o Inelastic
• Form of market:
o Perfect competition
o Monopolistic competition
o Monopoly
o Oligopoly'

Steps to determine price

• Determine market share to be captured

• Set up price strategy
• Estimate demand
• Evaluate competitors' reactions

Distribution
Channels

• Manufacturer to consumer (most direct)

• Manufacturer to wholesaler to retailer to consumer (traditional)
• Manufacturer to agent to wholesaler to retailer to consumer

Manufacturers
Reasons for direct selling methods

• Manufacturer wants to demonstrate goods.

• Wholesalers, retailers and agents not actively selling.
• Manufacturer unable to convince wholesalers or retailers to stock product.
• High profit margin added to goods by wholesalers and retailers.
• Middlemen unable to transport.

Reasons for indirect selling methods

• Manufacturer does not have the financial resources to distribute goods.

• Distribution channels already established.
• Manufacturer has no knowledge of efficient distribution.
• Manufacturer wishes to use capital for further production.
• Too many consumers in a large area; difficult to reach.
• Manufacturer does not have a wide assortment of goods to enable efficient marketing.

Wholesalers

Reasons for using wholesalers

• Bear risk of selling goods to retailer or consumer

• Storage space
• Decrease transport costs
• Grant credit to retailers
• Able to sell for the manufacturers
• Give advice to manufacturers
• Break down products into smaller quantities

Reasons for bypassing wholesalers

• Limited storage facilities

• Retailers' preferences
• Wholesaler cannot promote products successfully
• Development of wholesalers' own brands
• Desire for closer market contact
• Position of power
• Cost of wholesalers' services
• Price stabilisation
• Need for rapid distribution

Ways of bypassing wholesalers

• Sales offices or branches

• Mail orders
• Direct sales to retailers
• Travelling agents
• Direct Orders

Agents
 • Commission agents work for anyone who needs their services. They do not acquire
ownership of goods but receive del credere commission.
• Selling agents act on an extended contractual basis, selling all of the products of the
manufacturer. They have full authority regarding price and terms of sale.
• Buying agents buy goods on behalf of producers and retailers. They have an expert
knowledge of the purchasing function.
• Brokers specialize in the sale of one specific product. They receive a brokerage.
• Factory representatives represent more than one manufacturer. They operate within
a specific area and sell related lines of goods but have limited authority regarding
price and sales terms.

Promotion
Marketing communications breaks down the strategies involved with marketing messages
into categories based on the goals of each message. There are distinct stages in converting
strangers to customers (seeClient Path Marketing) that govern the communication medium
that should be used.

Advertising

• Paid form of public presentation and expressive promotion of ideas

• Aimed at masses
• Manufacturer may determine what goes into advertisement
• Pervasive and impersonal medium

Functions and advantages of successful advertising

• Task of the salesman made easier

• Forces manufacturer to live up to conveyed image
• Protects and warns customers against false claims and inferior products
• Enables manufacturer to mass-produce product
• Continuous reminder
• Uninterrupted production a possibility
• Increases goodwill
• Raises standards of living (or perceptions thereof)
• Prices decrease with increased popularity
• Educates manufacturer and wholesaler about competitors' offerings as well as
shortcomings in their own.

Objectives

• Maintain demand for well-known goods

• Introduce new and unknown goods
• Increase demand for well-known goods

Requirements of a good advertisement

• Attract attention
• Stimulate interest
 • Create a desire
• Bring about action

Seven steps in an advertising campaign

• Market research
• Setting out aims
• Budgeting
• Choice of media
• Design and wording
• Coordination
• Test results

Personal sales

Oral presentation given by a salesman who approaches individuals or a group of potential

customers:

• Live, interactive relationship

• Personal interest
• Attention and response

Sales promotion

Short-term incentives to encourage buying of products:

• Instant appeal
• Anxiety to sell

Publicity

• Stimulation of demand through press release giving a favourable report to a product

• Higher degree of credibility
• Effectively news
• Boosts enterprise's image

Beyond the 4 Ps
Resources, Relationships, Offerings and Business Models

Marketing in the past focused mainly on basic concepts like the 4 Ps, and primarily on the
psychological and sociological aspects of marketing. Competitive advantage was created by
directly appealing to the needs, wants and behaviors of customers, better than the
competition. Successful marketing was based on who could create the better brand or the
lowest price or the most hype. Marketing in the future will be based on a more strategic
approach to competitive marketing success.[3] Marketers will consciously build and allocate
resources, relationships, offerings and business models that other companies find hard to
match. This does not mean the four P approach is dead, simply that it has been expanded
upon.

Resources

Companies with a greater number of resources than their competitors will have an easier time
competing in the marketplace. Resources include: financial (cash and cash reserves), physical
(plant and equipment), human (knowledge and skill), legal (trademarks and patents),
organizational (structure, competencies, policies), and informational (knowledge of
consumers and competitors). Small companies usually have a harder time competing with
larger corporations because of their disadvantage in resource allocation.

Relationships

Success in business, as in life, is based on the relationships you have with people. Marketers
must aggressively build relationships with consumers, customers, distributors, partners and
even competitors if they want to have success in today's competitive marketplace. There are
four type of relationships (1)win-win (2)win-lose (3)lose-lose (4)lose-win.(customer-vendor)

The marketing strategies that are focused on building and leveraging win-win relationships
are called Community marketing strategies. Some argue that community marketing is not
created, as most marketing is, but rather is the cultivation of a natural social response. Blog
Reference.

Business Models

The concept of product vs. product in competitive marketing is dying. It's slowly becoming
business model vs. business model. Business model innovation can make the competition's
product superiority irrelevant. Business model innovation allows a marketer to change the
game instead of competing on a level playing field.

Customer focus
Many companies today have a customer focus (or customer orientation). This implies that the
company focuses its activities and products on consumer demands. Generally there are three
ways of doing this: the customer-driven approach, the sense of identifying market changes
and the product innovation approach.

In the consumer-driven approach, consumer wants are the drivers of all strategic marketing
decisions. No strategy is pursued until it passes the test of consumer research. Every aspect of
a market offering, including the nature of the product itself, is driven by the needs of potential
consumers. The starting point is always the consumer. The rationale for this approach is that
there is no point spending R&D funds developing products that people will not buy. History
attests to many products that were commercial failures in spite of being technological
breakthroughs.[4]

A formal approach to this customer-focused marketing is known as SIVA[5] (Solution,

Information, Value, Access). This system is basically the four Ps renamed and reworded to
provide a customer focus.
The SIVA Model provides a demand/customer centric version alternative to the well-known
4Ps supply side model (product, price, place, promotion) of marketing management.

Product -> Solution

Promotion -> Information
Price -> Value
Place ->Access

The four elements of the SIVA model are:

- Solution: How appropriate is the solution to the customers problem/need

- Information: Does the customer know about the solution, and if so how, who from, do they
know enough to let them make a buying decision

- Value: Does the customer know the value of the transaction, what it will cost, what are the
benefits, what might they have to sacrifice, what will be their reward?

- Access: Where can the customer find the solution. How easily/locally/remotely can they
buy it and take delivery.

This model was proposed by Chekitan Dev and Don Schultz in the Marketing Management
Journal of the American Marketing Association, and presented by them in Market Leader -
the journal of the Marketing Society in the UK.

The model focuses heavily on the customer and how they view the transaction.

Product focus
In a product innovation approach, the company pursues product innovation, then tries to
develop a market for the product. Product innovation drives the process and marketing
research is conducted primarily to ensure that a profitable market segment(s) exists for the
innovation. The rationale is that customers may not know what options will be available to
them in the future so we should not expect them to tell us what they will buy in the future.
However, marketers can aggressively over-pursue product innovation and try to
overcapitalize on a niche. When pursuing a product innovation approach, marketers must
ensure that they have a varied and multi-tiered approach to product innovation. It is claimed
that if Thomas Edison depended on marketing research he would have produced larger
candles rather than inventing light bulbs. Many firms, such as research and development
focused companies, successfully focus on product innovation (Such as Nintendo who
constantly change the way Video games are played). Many purists doubt whether this is
really a form of marketing orientation at all, because of the ex post status of consumer
research. Some even question whether it is marketing.
 • An emerging area of study and practice concerns internal marketing, or how
employees are trained and managed to deliver the brand in a way that positively
impacts the acquisition and retention of customers (employer branding).

• Diffusion of innovations research explores how and why people adopt new products,
services and ideas.

• A relatively new form of marketing uses the Internet and is called internet
marketing or more generally e-marketing, affiliate marketing, desktop advertising or
online marketing. It typically tries to perfect the segmentation strategy used in
traditional marketing. It targets its audience more precisely, and is sometimes called
personalized marketing or one-to-one marketing.

• With consumers' eroding attention span and willingness to give time to advertising
messages, marketers are turning to forms of Permission marketing such as Branded
content, Custom media and Reality marketing.

• The use of herd behavior in marketing.

In an article entitled "Swarming the shelves: How shops can exploit people's herd
mentality to increase sales", The Economist recently reported a recent conference in
Rome on the subject of the simulation of adaptive human behavior. [6] Mechanisms to
increase impulse buying and get people "to buy more by playing on the herd instinct"
were shared. The basic idea is that people will buy more of products that are seen to
be popular, and several feedback mechanisms to get product popularity information to
consumers are mentioned, including smart-cart technology and the use of Radio
Frequency Identification Tag technology. A "swarm-moves" model was introduced by
a Princeton researcher, which is appealing to supermarkets because it can "increase
sales without the need to give people discounts." Large retailers Wal-Mart in the
United States and Tesco in Britain plan to test the technology in spring 2007 .
Other recent studies on the "power of social influence" include an "artificial music
market in which some 14,000 people downloaded previously unknown songs"
(Columbia University, New York); a Japanese chain of convenience stores which
orders its products based on "sales data from department stores and research
companies;" a Massachusetts company exploiting knowledge of social networking to
improve sales; and online retailers who are increasingly informing consumers about
"which products are popular with like-minded consumers" (e.g., Amazon, eBay).

Marketing Mix
Once a positioning strategy has been determined, marketing managers seek to control the four
basic elements of the marketing mix: product, price, place, and promotion, known as the four
P's of marketing. Since these four variables are controllable, the best mix of these elements is
determined to reach the selected target market.

Price. Price is the cost of the product paid by consumers. This is the only element in the
marketing mix that generates revenue for firms. In order to generate revenue, managers must
consider factors both internal and external to the organization. Internal factors take the form
of marketing objectives, the marketing-mix strategy, and production costs. External factors to
consider are the target market, product demand, competition, economic conditions, and
government regulations. There are a number of pricing strategies available to marketing
managers: skimming, penetration, quantity, and psychological. With a price-skimming
strategy, the price is initially set high, allowing firms to generate maximum profits from
customers willing to pay the high price. Prices are then gradually lowered until maximum
profit is received from each level of consumer. Penetration pricing is used when firms set low
prices in order to capture a large share of a market quickly. A quantity-pricing strategy
provides lower prices to consumers who purchase larger quantities of a product.
Psychological pricing tends to focus on consumer perceptions. For example, odd pricing is a
common psychological pricing strategy. With odd pricing, the cost of the product may be a
few cents lower than a full-dollar value. Consumers tend to focus on the lower-value full-
dollar cost even though it is really priced closer to the next higher full-dollar amount. For
example, if a good is priced at $19.95, consumers will focus on $19 rather than $20.

Place. Place refers to where and how the products will be distributed to consumers. There are
two basic issues involved in getting the products to consumers: channel management and
logistics management. Channel management involves the process of selecting and motivating
wholesalers and retailers, sometimes called middlemen, through the use of incentives. Several
factors are reviewed by firm management when determining where to sell their products:
distribution channels, market-coverage strategy, geographic locations, inventory, and
transportation methods. The process of moving products from a manufacturer to the final
consumer is often called the channel of distribution.

Promotion. The last variable in the marketing mix is promotion. Various promotional tools
are used to communicate messages about products, ideas, or services from firms and their
customers. The promotional tools available to managers are advertising, personal selling,
sales promotion, and publicity. For the promotional program to be effective, managers use a
blend of the four promotional tools that best reaches potential customers. This blending of
promotional tools is sometimes referred to as the promotional mix. The goal of this
promotional mix is to communicate to potential customers the features and benefits of
products.
 Four Ps

In the early 1960s, Professor Neil Borden at Harvard Business School identified a number of
company performance actions that can influence the consumer decision to purchase goods or
services. Borden suggested that all those actions of the company represented a “Marketing
Mix”. Professor E. Jerome McCarthy, also at the Harvard Business School in the early 1960s,
suggested that the Marketing Mix contained 4 elements: product, price, place and promotion.

• Product: The product aspects of marketing deal with the specifications of the actual
goods or services, and how it relates to the end-user's needs and wants. The scope of a
product generally includes supporting elements such as warranties, guarantees, and
support.
• Pricing: This refers to the process of setting a price for a product, including discounts.
The price need not be monetary - it can simply be what is exchanged for the product
or services, e.g. time, energy, psychology or attention.
• Promotion: This includes advertising, sales promotion, publicity, and personal selling,
branding and refers to the various methods of promoting the product, brand, or
company.
• Placement (or distribution): refers to how the product gets to the customer; for
example, point of sale placement or retailing. This fourth P has also sometimes been
called Place, referring to the channel by which a product or services is sold (e.g.
online vs. retail), which geographic region or industry, to which segment (young
adults, families, business people), etc. also referring to how the environment in which
the product is sold in can affect sales.

These four elements are often referred to as the marketing mix,[1] which a marketer can use to
craft a marketing plan.

The four Ps model is most useful when marketing low value consumer products. Industrial
products, services, high value consumer products require adjustments to this model. Services
marketing must account for the unique nature of services.

Industrial or B2B marketing must account for the long term contractual agreements that are
typical in supply chain transactions. Relationship marketing attempts to do this by looking at
marketing from a long term relationship perspective rather than individual transactions.

As a counter to this, Morgan, in Riding the Waves of Change (Jossey-Bass, 1988), suggests
that one of the greatest limitations of the 4 Ps approach "is that it unconsciously emphasizes
the inside–out view (looking from the company outwards), whereas the essence of marketing
should be the outside–in approach". Nevertheless, the 4 Ps offer a memorable and workable
guide to the major categories of marketing activity, as well as a framework within which
these can be used.

Seven Ps

As well as the standard four P's (Product, Pricing, Promotion and Place), services marketing
calls upon an extra three, totaling seven and known together as the extended marketing mix.
[citation needed]
These are:

• People: Any person coming into contact with customers can have an impact on
overall satisfaction. Whether as part of a supporting service to a product or involved
in a total service, people are particularly important because, in the customer's eyes,
they are generally inseparable from the total service . As a result of this, they must be
appropriately trained, well motivated and the right type of person. Fellow customers
are also sometimes referred to under 'people', as they too can affect the customer's
service experience, (e.g., at a sporting event).
• Process: This is the process(es) involved in providing a service and the behaviour of
people, which can be crucial to customer satisfaction.
• Physical evidence: Unlike a product, a service cannot be experienced before it is
delivered, which makes it intangible. This, therefore, means that potential customers
could perceive greater risk when deciding whether to use a service. To reduce the
feeling of risk, thus improving the chance for success, it is often vital to offer
potential customers the chance to see what a service would be like. This is done by
providing physical evidence, such as case studies, testimonials or demonstrations.

new marketing 4Ps

• Personalization: It is here referred customization of products and services through
the use of the Internet. Early examples include Dell on-line and Amazon.com, but this
concept is further extended with emerging social media and advanced algorithms.
Emerging technologies will continue to push this idea forward.
• Participation: This is to allow the customer to participate in what the brand should
stand for; what should be the product directions and even which ads to run. This
concept is laying the foundation for disruptive change through democratization of
information.
• Peer-to-Peer: This refers to customer networks and communities where advocacy
happens. The historical problem with marketing is that it is “interruptive” in nature,
trying to impose a brand on the customer. This is most apparent in TV advertising.
These “passive customer bases” will ultimately be replaced by the “active customer
communities”. Brand engagement happens within those conversations. P2P is now
being referred as Social Computing and is likely to be the most disruptive force in the
future of marketing.
• Predictive modeling: This refers to algorithms that are being successfully applied in
marketing problems (both a regression as well as a classification problem).

Product
Product. The first element in the marketing mix is the product. Products can be either
tangible or intangible. Tangible products are products that can be touched; intangible
products are those that cannot be touched, such as services. There are three basic levels of a
product: core, actual, and augmented. The core product is the most basic level, what
consumers really buy in terms of benefits. For example, consumers do not buy food
processors, per se; rather, they buy the benefit of being able to process food quickly and
efficiently. The next level of the product is the actual product—in the case of the previous
example, food processors. Products are typically sorted according to the following five
characteristics: quality, features, styling, brand name, and packaging. Finally, the augmented
level of a product consists of all the elements that surround both the core and the actual
product. The augmented level provides purchasers with additional services and benefits. For
example, follow-up technical assistance and warranties and guaranties are augmented product
components. When planning new products, firm managers consider a number of issues
including product quality, features, options, styles, brand name, packaging, size, service,
warranties, and return policies, all in an attempt to meet the needs and wants of consumers.

Product focus
In a product innovation approach, the company pursues product innovation, then tries to
develop a market for the product. Product innovation drives the process and marketing
research is conducted primarily to ensure that a profitable market segment(s) exists for the
innovation. The rationale is that customers may not know what options will be available to
them in the future so we should not expect them to tell us what they will buy in the future.
However, marketers can aggressively over-pursue product innovation and try to
overcapitalize on a niche. When pursuing a product innovation approach, marketers must
ensure that they have a varied and multi-tiered approach to product innovation. It is claimed
that if Thomas Edison depended on marketing research he would have produced larger
candles rather than inventing light bulbs. Many firms, such as research and development
focused companies, successfully focus on product innovation (Such as Nintendo who
constantly change the way Video games are played). Many purists doubt whether this is
really a form of marketing orientation at all, because of the ex post status of consumer
research. Some even question whether it is marketing.

• An emerging area of study and practice concerns internal marketing, or how

employees are trained and managed to deliver the brand in a way that positively
impacts the acquisition and retention of customers (employer branding).
• Diffusion of innovations research explores how and why people adopt new products,
services and ideas.
• A relatively new form of marketing uses the Internet and is called Internet marketing
or more generally e-marketing, affiliate marketing, desktop advertising or online
marketing. It typically tries to perfect the segmentation strategy used in traditional
marketing. It targets its audience more precisely, and is sometimes called personalized
marketing or one-to-one marketing.
• With consumers' eroding attention span and willingness to give time to advertising
messages, marketers are turning to forms of permission marketing such as branded
content, custom media and reality marketing.
• The use of herd behavior in marketing.

The Economist reported a recent conference in Rome on the subject of the simulation
of adaptive human behavior.[5] Mechanisms to increase impulse buying and get people
"to buy more by playing on the herd instinct" were shared. The basic idea is that
people will buy more of products that are seen to be popular, and several feedback
 mechanisms to get product popularity information to consumers are mentioned,
including smart-cart technology and the use of Radio Frequency Identification Tag
technology. A "swarm-moves" model was introduced by a Princeton researcher,
which is appealing to supermarkets because it can "increase sales without the need to
give people discounts." Large retailers Wal-Mart in the United States and Tesco in
Britain plan to test the technology in spring 2007 .

Marketing is also used to promote the businesses products and is also a great way of
promoting the business its self.

Other recent studies on the "power of social influence" include an "artificial music
market in which some 14,000 people downloaded previously unknown songs"
(Columbia University, New York); a Japanese chain of convenience stores which
orders its products based on "sales data from department stores and research
companies;" a Massachusetts company exploiting knowledge of social networking to
improve sales; and online retailers who are increasingly informing consumers about
"which products are popular with like-minded consumers" (e.g., Amazon, eBay).

New Product Development

Steps in product design

• Design and development of product ideas.

• Selection of and sifting through product ideas.
• Design and testing of product concept.
• Analysis of business instead of product concept.
• Design and testing of emotional product.

Packaging
Requirements of good packaging

• Functional - effectively contain and protect the contents

• Provide convenience during distribution, sale, opening, use, reuse, etc.
• Be environmentally responsible
• Be cost effective
• Appropriately designed for target market
• Eye-catching (particularly for retail/consumer sales)
• Communicate attributes and recommended use of the product and package
• Compliant with retailers' requirements
• Promotes image of enterprise
• Distinguishable from competitors' products
• Meet legal requirements for product and packaging
• Point of difference in service and supply of product.
• For a perfect product, perfect colour.

Forms of packaging
 • Specialty packaging — emphasizes the elegant character of the product
• Packaging for double-use
• Combination packaging two or more products packaged in the same container
• Kaleidoscopic packaging — packaging changes continually to reflect a series or
particular theme
• Packaging for immediate consumption — to be thrown away after use
• Packaging for resale — packed, into appropriate quantities, for the retailer or
wholesaler

Role of Packaging in Marketing Product and

Organisation

Introduction

Packaging is now generally regarded as an essential component of our modern life

style and the way business is organized. Packaging is the enclosing of a physical
object, typically a product that will be offered for sale. It is the process of preparing
items of equipment for transportation and storage and which embraces preservation,
identification and packaging of products. Packing is recognized as an integral part of
modern marketing operation, which embraces all phases of activities involved in the
transfer of goods and services from the manufacturer to the consumer. Packaging is
an important part of the branding process as it plays a role in communicating the
image and identity of a company.

How can we define Packaging?

Kotler defines packaging as "all the activities of designing and producing the
container for a product." Packaging can be defined as the wrapping material around
a consumer item that serves to contain, identify, describe, protect, display, promote,
and otherwise make the product marketable and keep it clean. Packaging is the
outer wrapping of a product. It is the intended purpose of the packaging to make a
product readily sellable as well as to protect it against damage and prevent it from
deterioration while storing. Furthermore the packaging is often the most relevant
element of a trademark and conduces to advertising or communication.
Functional Requirements

1. Protection and preservation

A basic function of package is to protect and preserve the contents during transit
from the manufacturer to the ultimate consumer. It is the protection during
transport and distribution; From climatic effects (heat and cold, moisture, vapour,
drying atmospheres); from hazardous substances and contaminants; and from
infestation. Protection is required against transportation hazards spillage, dirt,
ingress and egress of moisture, insect infection, contamination by foreign material,
tampering pilferage etc. A package should preserve the contents in 'Factory Fresh'
condition during the period of storage and transportation, ensuring protection from
bacteriological attacks, chemical reaction etc.

2. Containment

Most products must be contained before they can be moved from one place to
another. To function successfully, the package must contain the product. This
containment function of packaging makes a huge contribution to protecting the
environment. A better packaging help to maintain the quality of the product and
reachability of the product in the consumer's hand without spillages It gives better
image to the organisation.

3. Communication

A major function of packaging is the communication of the product. A package must

communicate what it sells. When international trade is involved and different
languages are spoken, the use of unambiguous, readily understood symbols on the
distribution package is essential. It is the interest further that to get appropriate
communication to the consumer about the product, how to use it and other utility
informations. Packaging protects the interests of consumers. Information includes:
quantity; price; inventory levels; lot number; distribution routes; size; elapsed time
since packaging; colour; and merchandising and premium data.

Types of packaging

An important distinction is to be made here between two types of packaging

o Transport packing: The product entering in to the trade need to be packed well
enough to protect against loss damage during handling, transport and storage. Eg:
fiberboard, wooden crate etc.

o Consumer Packing: This packaging holds the required volume of the product for
ultimate consumption and is more relevant in marketing. Eg: beverages, tobacco
etc.

Hazards of Transport

There are four main hazards of transport

* Drops and impacts

* Compression forces
* Vibration
* Climatic variations
Various Mechanical Tests

o Drop Test: This test help to measure the ability of the container and inside
packing materials to provide protection to its contents and to measure the ability of
the container to withstand rough handling.

o Vibration Test: This test is to determine the ability of the container to withstand
vibration and the protection offered by materials used for interior packing.

o Compression Test: This test is carried out, generally, on empty containers, to

measure the ability of the container to resists external compressive loads applied to
faces or applied to diagonally opposite edges or corners.

o Inclined Impact Test: This test help to study the extend of damage in a way of
crushing, breaking, cracking, distortion, and shifting during handling storage and
transport which occurs to the container and its content.

o Rolling Test: This test helps to evaluate the overall strength of the container and
the cushioning material provided inside and any failure of the content.

o Drum test: This test help to evaluate loaded shipping containers with respect to
general overall durability and for the protection afforded to the contents against
certain hazards of handling and shipment.

Various Climatic Tests

o Rain Test: This test is conducted in a simulated rain condition to assess its impact
on the test area for two hours.

o Sand and Dust Test: This test is to evaluate the resistance of a package to the
penetration of sand and dust.

o Salt Spray Test: This test is to evaluate the resistance of a package to corrosion
by salt spray and to serve as a general standard for corrosion.

o Fungus Resistance Test: This test is to evaluate all the materials used in the
fabrication of shipping containers for fungus resistance.

Importance of Cushion Materials

Cushioning is that part of packaging, which protects the article from damage due to
shock and vibration. The main functions of cushioning materials can be detailed as
follows:

o Shock protection against vibration

o Protection against abrasion

o Protection of grease proof and water proof barriers at ponut of contact with solid
blocks

o Protection of moisture vapour barriers at points of contact with sharp edges of the
article itself.

o Protection of small projections

o Filling of void space in the container

o Other secondary purposes

Packaging Cost

The most important aspect when we look into packaging is the packaging cost.
Packaging cost include the following:

* Material cost: It means the cost of the pack and quality control cost.

* Storage and handling cost of empty packages: This include the handling cost
of bulky packages, heavy materials of construction, drums etc.

* Packaging operation costs: This includes the cost involved in operations like,
cleaning the package product filling – closing, labeling – unitizing, stenciling,
handling cylindrical slums etc.

* Storage of filled packages: This includes the cost incurred to shift the goods
from one form of packaging to another.

* Transportation cost of filled packages: This involves the transportation cost by

sea, air etc. (freight by volume)

* Loss and Damage cost: It is related to the loss and damage during operation,
transportation delivery etc.

* Insurance cost: It varies depending on the vulnerability of package

* Effect of packages on sales: The package that influence on sales.

* Obsolescence Cost: This cost involves when changes in the packaging materials,
packages and labels happen.

* Package developmental cost: This include the evaluation cost, pilot test cost,
field testing cost, consumer research cost, feed back cost, final trial cost etc.

Importance of packaging: An Overview

Some of the major significance of packaging can be detailed as follows:

* Can make a product more convenient to use or store, easier to identify or promote
or to send out a message.

* Can make the important difference to a marketing strategy by meeting customers'

needs better.

* Packaging plays a key role in brand promotion and management. Packaging is of

great importance in the final choice the consumer will make, because it directly
involves convenience, appeal, information and branding.

* The paramount concern of packaging is the reachability of the product without any
damage. No matter where and how the products are transported or shipped, they
arrive at the customer's door in working condition without need of repair or
adjustment.

* Packaging is especially important in certain industry where future sales may be

based largely on the quality, integrity and performance of a company's previous
delivery.

Conclusion

The significance of packaging has come to be increasingly recognized in export as

well as in marketing of a wide range of consumer goods and industrial products
within the country. The volume of exports depends not only on the quantity of the
production and prices, but also to a substantial extends on the standards of
packaging adopted for the products. Goods damaged in transit or arriving at the
destination in an unacceptable condition tarnishes the reputation of the
manufacturer as well as the country as a whole, besides colossal wastage of scarce
economic resources. Further, packaging has a crucial role to play in the fetching
higher unit values for our consumer goods (like tea and cashew) through the
substitution of the bulk packs by consumer packs. In the recent past packaging has
been increasingly recognized as a significant factor in the nations export promotion
effort. Effort should be there to understand the importance of packaging there by to
avoid the loss and damage cost incurred during transport and delivery. Keep in mind
that a conscious effort on the part of marketing managers can increase the volume
of sales and there by improve the reputation of the product and organisation.

"Packaging" For Marketing Success - good service key to marketing long-term care facilities

Long-term care facilities in this new millennium must learn how to package their products to
gain a marketing advantage. Packaging makes a product, any product, more attractive and
appealing to customers. When something is attractive and appealing, it is obviously easier to
market and sell.

Perhaps the greatest "packaging" challenge that long-term care facilities face today, and one
that will remain into the foreseeable future, is their overall negative image. The last two years
especially have been extraordinarily difficult, with "horror stories" prominently featured in
the press and broadcast media. Marketing is difficult enough without pre-existing image
problems tagging along. One director of nurses, writing in this magazine not too long ago,
summed it up rather succinctly when she wrote, "Facilities of varying quality are grouped
together in the public's eye into one stereotype across the nation. It is one of neglect, horror
and death. This makes the many good facilities feel like dolphins caught in tuna nets. The
many positive stories simply never make it to public view!"

What Is the Solution?

Every long-term care facility must become involved in trying to improve the industry's
image. The national or state associations can't do it; only individual facilities can. The
administrator of a good nursing facility in Illinois cannot change the image of a bad facility in
Maine. The problem of a negative image might be national, but the solution is local.

It is within the power of each and every administrator to improve the quality of care and
enhance the quality of life their residents receive. Professional associations can give
encouragement and support, but each and every facility must do the actual heavy lifting to
improve its image. If every nursing facility tries to create a favorable impression and is at the
same time committed to providing high-quality care and superior service, then not only will
their image be improved, but their marketing will be made easier as well.

Where Packaging Comes In

Since the product of every nursing facility is some kind of care, then the quality designation
(excellent, fair or substandard) is going to be the packaging feature that makes the product
more or less attractive. For example, two facilities are located in the same part of town. They
both provide skilled nursing care, offer rehabilitative therapies and have a subacute unit. Both
facilities, therefore, are offering the same kind of products. But one facility has a history of
deficiency-free surveys and an outstanding reputation among healthcare professionals in the
area. The other has been repeatedly written about in the local newspaper for patient neglect
and cited by the surveyors for poor care. Which facility should have an easier time marketing
itself?

There are two specific areas of concern for administrators trying to improve their facilities'
image in the community. Both are internal failures but they can cause image and marketing
problems externally: (1) absenteeism and (2) tolerance of mediocre work performance. These
are quality killers and image busters.

Quality care is the result of competent well-trained employees performing daily assignments
consistently well, guided by precise and unequivocal policies and procedures. Quality care
must be universal and not limited to the workings of one department, i.e., nursing. Families
do not buy he work of one department when they admit a loved one into a facility; they
purchase the services of every department. So all de partments must perform their duties
extremely well to reach the status of "high quality."

What good is it marketwise or imagewise if a facility has wonderful nursing care but
deplorable housekeeping, which can be seen and smelled almost instantly? Even with
nursing, what good is it if the facility has high-quality nursing care Monday through Friday
but things go to pot on the weekends or holidays when the nursing assistants fail to show up
(the very days, by the way, that families and members of the community come in to visit)?

Absenteeism destroys both the quality as well as the continuity of care. If unchecked or
tolerated, it can devour entire departments and shifts. If staff is short, skin breaks down and
residents are not repositioned; residents are not changed and kept dry; residents are not
assisted with meals or kept hydrated. Residents are neglected and basic care is not provided
not because the staff doesn't care or because they lack job skills; it's simply because the
facility is short-staffed.

Absenteeism also impacts the facility's ability to maintain census. The admissions
coordinator might be a great sales person--she admits residents. But no sooner are residents
admitted than families get "second thoughts" about their decision because, every time they
visit, their loved one has complaints. When families approach staff, they hear the same old
refrain: "We are short today." Families become fed up and take their loved ones elsewhere.
Empty beds turn up, even thought the marketing and sales functions were carried out
correctly and 'produced an admission
Another enemy of quality care is the. acceptance of mediocre work performance by
supervisors or. department heads. In some facilities, employees are allowed to rush through
their assignments simply to get the job done; in others, time management fails and some
duties and assignments are simply never finished. Either way, quality suffers. Families rarely
remember how fast the 'job was done; they will always remember how well it was done.

Notice that the common denominator in all the horror stories about nursing facilities is not
the age of the building, nor the condition of the' furniture nor the decor or the design. People
don't become upset and outraged by such factors. Rather, the horror stories revolve around
case failures.

Instances of poor care can be traced back to absenteeism or the acceptance of mediocre
performance. Both are management failures.

Quality is a packaging element that makes the product more attractive and appealing. The
better the quality of care, the better the image and the easier it is to market.

Yes, we're back to packaging again. Not only are products packaged, but people, staff and
employees can also be packaged as well. Just as the grade, color, size, design and shape of a
product's package help a customer to stop, look and perhaps even purchase the item, the
grooming, demeanor, attitude and appearance of employees influence a customer greatly.

People-packaging techniques are not new. They have been around for a long time in all
service-oriented businesses. Airlines certainly use packaging techniques to train their flight
attendants on how important it is for them to be friendly, attentive and well groomed. The
bellman who carries your bags when you arrive at the Marriott is certainly not the product.
The product is lodging, but how the bellman treats you makes that product more attractive.

Customer service has become so important because facilities have become almost identical in
what they have to offer. All (or almost all) nursing facilities now have subacute units. All
facilities have private and semiprivate rooms. Every facility has a dining room and perhaps
even a beauty shop. So where can families detect significant difference? It is in the perception
of friendly, attentive service.

Two factors are always considered by every customer: the process and the outcome. Both
must match the customer's expectations for service to be judged satisfactory; both must
exceed expectations for service to bejudged as superior.

When the meal you ordered (outcome) was wonderful (i.e., nicely prepared done exactly as
ordered) but you went through hell to get it (process), i.e., waiter was slow, waiter was
inattentive, you probably won't go back to the restaurant.

When you bring your car to the dealer because of a problem and the service agent greets you
with a smile, calls you by name, arranges for transportation back to your job--you feel great.
Your expectations are high. When you arrive back at the dealership to pick up your car, the
service manager explains what was done. He thanks you for the opportunity to be of service
and hands you your keys. Still very nice. As you pull out into traffic, the car starts to lurch
and hesitate again. The process was fine (you were treated well), but they didn't fix the
problem (bad outcome). It's unlikely you will use them again, either.
Families know when they have been treated well--and when they have been ignored or
treated poorly. Since most lay persons cannot understand, much less evaluate, technical
quality of care components, they are forced to judge quality of care (technical) by the quality
of service that accompanies the care. Your facility can pass one accreditation survey after
another but still provide poor service. Your facility can zip through the state survey but still
fail miserably on service.

It's worth repeating: Service always involves outcomes and process. Both have to be met for
a customer to be merely satisfied; both have to be exceeded to be rated superior.

Healthcare facilities must get serious about in-service training. Posters advising "teamwork"
are not going to get the job done. To ensure quality, train your employees on how to do their
jobs--but then also train them how to enhance customer service.

Let's take a look at some prime examples.

The Nordstrom Way. All newly hired Nordstrom employees on the first day of orientation are
given an Employee Handbook. On the first page they find this message:

Welcome to our company. We're glad to have you join us. Our number one goal is to provide
outstanding customer service. Set your personal and professional goals high. We do. We
insist that you do the same.

What a simple, powerful message. Because Nordstrom is committed to superior customer

service, from their first day on the job, employees understand exceptional service is expected
of them. It's not something "extra" or "additional work"; it's part of the job.

BetsySanders was vice-president and general manager for Nordstrom's Southern California
division. She frequently attended community events and fundraisers for charitable causes.
Invariably on these occasions she would be taken aside by one of her competitors who
wanted to know where Nordstrom found all those wonderfully motivated and helpful
employees. Sanders would always give the same answer. "We get our people from the same
pool you do," she replied, "only we train them according to our expectations."

The Ritz-Carlton Way. Mention the Ritz-Carlton Hotel chain and you know you are talking
about a luxury hotel chain recognized the world over for luxurious accommodations and
outstanding customer service. A lot of its jobs are similar to those found in a healthcare
facility. There are housekeepers who clean rooms and wash toilet bowls. There are men
serving as porters who polish and buff the corridors. There are kitchen staff who scrub pots
and wash dirty dishes.

When the Ritz-Carlton hires housekeepers, they look for people who have had some
experience in hotel housekeeping duties--then they train them to clean rooms the "Ritz-
Carlton way." Near the end of the first interview, after the applicant's background has been
discussed and the job duties explained, the human resources person hands each applicant 5" x
7" card. The card has the Carlton's Creed neatly typed on it.

Each and every Ritz-Carlton Hotel is more than a building made of brick and mortar. It is a
place where the care and comfort of your guests is the highest Priority.
Every employee who works at the Ritz, no matter what department, title, or function, must
pledge and promise to provide the finest personal service to each and every guest.

After the prospective employee reads that card, the hiring manager asks the job seeker simple
question: "Will you pledge and promise to do that?"

Why can't long-term care facilities do the same? If you are as fed up as I am with all the
negativity and poor images surrounding nursing facilities, then don't wait for an association
to do something. Sit down with your department heads and determine three ways the quality
of care will be improved in each department during the next six months. Make friendly,
attentive, responsive service part of every job description. Then you will find, no matter what
services your facility offers, that your marketing is getting easier and easier.

Labelling Considerations | Nutritional Labelling | Universal Product Codes l Designing Your L

| Other Points on Labelling | Packaging for Marketing | Resources

Packaging for Marketing and Visual Appeal

Along with protecting your product from light, oxygen, moisture, and handling, you will want to consi
following when choosing the right package:

• will you have more than one product? If so, you may want to have a "family resemblance" in the packaging of these products (i.e., similar packaging that looks related).

• how the product will be stacked and displayed.

• environmentally friendliness.

• recognition requirements - do you want the consumer to identify your product by package colour or shape? (Be careful with this as fancy, specially designed packaging can get exp

• image communication-for example, snack foods packed in plastic bags communicate fun, entertainment, casual consumption.

• technical requirements - how will the package be filled? Some chutney producers are demanding wide-mouthed squat jars

Downward stretching: introducing a new product into a product line at the lower priced end of the
market. See Product Line Stretching; Two-Way Stretching; Upward Stretching
Trademarks
Significance of a trademark

• Distinguishes one company's goods from those of another

• Serves as advertisement for quality
• Protects both consumers and manufacturers
• Used in displays and advertising campaigns
• Used to market new products

Brands
A brand is a name, term, design, symbol, or other feature that distinguishes products and
services from competitive offerings. A brand represents the consumers' experience with an
organization, product, or service.

A brand has also been defined as an identifiable entity that makes a specific promise of
value.

Branding means creating reference of certain products in consumers mind.

Co-branding involves marketing activity involving two or more products.

A brand is a collection of images and ideas representing an economic producer; more

specifically, it refers to the descriptive verbal attributes and concrete symbols such as a name,
logo, slogan, and design scheme that convey the essence of a company, product or service.
Brand recognition and other reactions are created by the accumulation of experiences with
the specific product or service, both directly relating to its use, and through the influence of
advertising, design, and media commentary. A brand is a symbolic embodiment of all the
information connected to a company, product or service. A brand serves to create
associations and expectations among products made by a producer. A brand often includes an
explicit logo, fonts, color schemes, symbols and sound which may be developed to represent
implicit values, ideas, and even personality. The key objective is to create a relationship of
trust.
The brand, and "branding" and brand equity have become increasingly important components
of culture and the economy, now being described as "cultural accessories and personal
philosophies".

In non-commercial contexts, the marketing of entities which supply ideas or promises rather
than product and services (e.g. political parties or religious organizations) may also be known
as "branding".

Concepts
Some marketers distinguish the psychological aspect of a brand from the experiential aspect.
The experiential aspect consists of the sum of all points of contact with the brand and is
known as the brand experience. The psychological aspect, sometimes referred to as the
brand image, is a symbolic construct created within the minds of people and consists of all
the information and expectations associated with a product or service.

Marketers engaged in branding seek to develop or align the expectations behind the brand
experience (see also brand promise), creating the impression that a brand associated with a
product or service has certain qualities or characteristics that make it special or unique. A
brand is therefore one of the most valuable elements in an advertising theme, as it
demonstrates what the brand owner is able to offer in the marketplace. The art of creating and
maintaining a brand is called brand management. This approach works not only for consumer
goods B2C (Business-to-Consumer), but also for B2B (Business-to-Business), see Philip
Kotler & Waldemar Pfoertsch.

A brand which is widely known in the marketplace acquires brand recognition. When brand
recognition builds up to a point where a brand enjoys a critical mass of positive sentiment in
the marketplace, it is said to have achieved brand franchise. One goal in brand recognition
is the identification of a brand without the name of the company present. For example,
Disney has been successful at branding with their particular script font (originally created for
Walt Disney's "signature" logo), which it used in the logo for go.com.

Consumers may look on branding as an important value added aspect of products or services,
as it often serves to denote a certain attractive quality or characteristic (see also brand
promise). From the perspective of brand owners, branded products or services also command
higher prices. Where two products resemble each other, but one of the products has no
associated branding (such as a generic, store-branded product), people may often select the
more expensive branded product on the basis of the quality of the brand or the reputation of
the brand owner.

Brand name
The brand name is often used interchangeably with "brand", although it is more correctly
used to specifically denote written or spoken linguistic elements of a brand. In this context a
"brand name" constitutes a type of trademark, if the brand name exclusively identifies the
brand owner as the commercial source of products or services. A brand owner may seek to
protect proprietary rights in relation to a brand name through trademark registration.
Advertising spokespersons have also become part of some brands, for example: Mr. Whipple
of Charmin toilet tissue and Tony the Tiger of Kellogg's.The act of associating a product or
service with a brand has become part of pop culture. Most products have some kind of brand
identity, from common table salt to designer clothes.

Brand identity

How the brand owner wants the consumer to perceive the brand - and by extension the
branded company, organisation, product or service. The brand owner will seek to bridge the
gap between the brand image and the brand identity.Brand identity is fundamental to
consumer recognition and symbolizes the brand's differentiation from competitors.

Brand identity may be defined as simply the outward expression of the brand, such as name
and visual appearance.Some practitioners however define brand identity as not only outward
expression (or physical facet), but also in terms of the values a brand carries in the eye of the
consumer. In 1992 Jean-Noel Kapferer developed the Brand Identity Prism, which charts the
brand identity along a constructed source and constructed receiver axis, with externalization
on the one side and internalization on the other. On the externalization side brand identity
consists of "physical facet", "relationship" and "reflected consumer". On the internalization
side brand identity consists of "personality", "culture (values)" and "consumer mentalisation".
In this respect Kapferer positions brand personality as one factor within brand identity.

Brand personality

Brand personality is the attribution of human personality traits to a brand as a way to achieve
differentiation. Such brand personality traits may include seriousness, warmth, or
imagination. Brand personality is usually built through long-term marketing, as well as
packaging and graphics.

Brand promise

Brand promise is a statement from the brand owner to customers, which identifies what
consumers should expect from all interactions with the brand. Interactions may include
employees, representatives, actual service or product quality or performance, communication
etc. The brand promise is often strongly associated with the brand owner's name and/or logo.

The brand promise may be expressed in a "tag line", for example a dining restaurant may
create the following brand promise: "Carl's Steak House -"Our food is the best, but the
memories we help you create are even better."" Other brand owners may develop their brand
promise into a detailed statement on the values, characteristics and behaviour of their brand.
For example BP describes its brand promise as "our fundamental beliefs" which have evolved
over time. BP continues "At the core of BP is an unshakable commitment to integrity, honest
dealing, treating everyone with respect and dignity, striving for mutual advantage and
contributing to human progress."

Brand value

Brand equity or brand value measures the total value of the brand to the brand owner, and
reflects the extent of brand franchise.
A brand can be an intangible asset, used by analysts to rationalize the difference between a
company's "book value" and market value. For example, the market value of a company can
far exceed its tangible assets (physical assets owned by the company, such as stock or
machinery), and its brand value can account for some of the difference. Up to 85 percent of a
company’s market value might be intangible (for example know-how, existing client
relationships), and Interbrand, a brand consultancy, states that tangible assets may account for
less than five percent of a company’s market value, for example in the case of Coca-Cola or
Microsoft.

Brand value, especially in the case of consumer product brands, may arise out of customer
loyalty. Brand value may also arise in terms of staff retention benefits (e.g. the ability of the
company to attract and retain skilled and/or talented employees offering competitive salaries).

Brand value can be negatively influenced. For example, in 1999 Nike's brand value was
estimated at 8 billion US$. Facing media exposure and consumer boycotts over supply chain
issues, Nike's brand value declined in following two years to 7.6 billion US$, and rose back
to 9.26 billion US$ in 2004 after Nike addressed its supply chain issues.

Campaigning groups may deliberately target a company’s brand value to force a company
into adopting a certain position or practices. Some campaign groups have thought to do this
by deliberately subverting a brand’s image, logo or message, creating a negative association
among consumers. This attack may be visual, as pioneered by groups such as Adbusters, or
focusing on the message. For example, BP’s “Beyond Petroleum” branding is subverted by
campaigners into headline such as “BP: Beyond Petroleum or Beyond Preposterous?” or “BP
must move beyond petroleum as profits soar“.

Brand monopoly
In economic terms the "brand" is, in effect, a device to create a "monopoly" — or at least
some form of "imperfect competition" — so that the brand owner can obtain some of the
benefits which accrue to a monopoly or unique point of sale, particularly those related to
decreased price competition. In this context, most "branding" is established by promotional
means. However, there is also a legal dimension, for it is essential that the brand names and
trademarks are protected by all means available. The monopoly may also be extended, or
even created, by patent, copyright, trade secret (e.g. secret recipe), and other sui generis
intellectual property regimes (e.g.: Plant Varieties Act, Design Act).

In all these contexts, retailers' "own label" brands can be just as powerful. The "brand",
whatever its derivation, is a very important investment for any organization. RHM (Rank
Hovis McDougall), for example, have valued their international brands at anything up to
twenty times their annual earnings.

Branding policies
There are a number of possible policies:

Company name
Often, especially in the industrial sector, it is just the company's name which is promoted
(leading to one of the most powerful statements of "branding"; the saying, before the
company's downgrading, "No one ever got fired for buying IBM").

In this case a very strong brand name (or company name) is made the vehicle for a range of
products (for example, Mercedes-Benz or Black & Decker) or even a range of subsidiary
brands (such as Cadbury Dairy Milk, Cadbury Flake or Cadbury Fingers in the United
States).

Individual branding

Each brand has a separate name (such as Seven-Up or Nivea Sun (Beiersdorf)), which may
even compete against other brands from the same company (for example, Persil, Omo, Surf
and Lynx are all owned by Unilever).

Attitude branding

Attitude branding is the choice to represent a larger feeling, which is not necessarily
connected with the product or consumption of the product at all. Marketing labeled as attitude
branding include that of Nike, Starbucks, The Body Shop, Safeway, and Apple Computer.[1]
In the 2000 book, No Logo, attitude branding is described by Naomi Klein as a "fetish
strategy".

"A great brand raises the bar -- it adds a greater sense of purpose to the experience, whether it's the
challenge to do your best in sports and fitness, or the affirmation that the cup of coffee you're drinking
really matters." - Howard Schultz (president, ceo and chairman of Starbucks

"No-brand" branding

Recently a number of companies have successfully pursued "No-Brand" strategies, examples

include the Japanese company Muji, which means "No label, quality goods" in English.
Although there is a distinct Muji brand, Muji products are not branded. This no-brand
strategy means that little is spent on advertisement or classical marketing and Muji's success
is attributed to the word-of-mouth, a simple shopping experience and the anti-brand
movement. Other brands which are thought to follow a no-brand strategy are American
Apparel, which like Muji, does not brand its products.

Derived brands
In this case the supplier of a key component, used by a number of suppliers of the end-
product, may wish to guarantee its own position by promoting that component as a brand in
its own right. The most frequently quoted example is Intel, which secures its position in the
PC market with the slogan "Intel Inside".

Brand development
In terms of existing products, brands may be developed in a number of ways:

Brand extension
The existing strong brand name can be used as a vehicle for new or modified products; for
example, many fashion and designer companies extended brands into fragrances, shoes and
accessories, home textile, home decor, luggage, (sun-) glasses, furniture, hotels, etc.

Mars extended its brand to ice cream, Caterpillar to shoes and watches, Michelin to a
restaurant guide, Adidas and Puma to personal hygiene. Dunlop extended its brand from tires
to other rubber products such as shoes, golf balls, tennis racquets and adhesives.

There is a difference between brand extension and line extension. When Coca-Cola launched
"Diet Coke" and "Cherry Coke" they stayed within the originating product category: non-
alcoholic carbonated beverages. Procter & Gamble (P&G) did likewise extending its strong
lines (such as Fairy Soap) into neighboring products (Fairy Liquid and Fairy Automatic)
within the same category, dish washing detergents.

Multi-brands

Alternatively, in a market that is fragmented amongst a number of brands a supplier can

choose deliberately to launch totally new brands in apparent competition with its own
existing strong brand (and often with identical product characteristics); simply to soak up
some of the share of the market which will in any case go to minor brands. The rationale is
that having 3 out of 12 brands in such a market will give a greater overall share than having 1
out of 10 (even if much of the share of these new brands is taken from the existing one). In its
most extreme manifestation, a supplier pioneering a new market which it believes will be
particularly attractive may choose immediately to launch a second brand in competition with
its first, in order to pre-empt others entering the market.

Individual brand names naturally allow greater flexibility by permitting a variety of different
products, of differing quality, to be sold without confusing the consumer's perception of what
business the company is in or diluting higher quality products.

Once again, Procter & Gamble is a leading exponent of this philosophy, running as many as
ten detergent brands in the US market. This also increases the total number of "facings" it
receives on supermarket shelves. Sara Lee, on the other hand, uses it to keep the very
different parts of the business separate — from Sara Lee cakes through Kiwi polishes to
L'Eggs pantyhose. In the hotel business, Marriott uses the name Fairfield Inns for its budget
chain (and Ramada uses Rodeway for its own cheaper hotels).

Cannibalization is a particular problem of a "multibrand" approach, in which the new brand

takes business away from an established one which the organization also owns. This may be
acceptable (indeed to be expected) if there is a net gain overall. Alternatively, it may be the
price the organization is willing to pay for shifting its position in the market; the new product
being one stage in this process.

Small business brands

Branding a small or medium sized business (SME) follows essentially the same principle a
branding larger corporation. The main differences being that small businesses usually have a
smaller market and have less reach than larger brands. Some people argue that it is not
possible to brand a small business, however there are many examples of small businesses that
became very successful due to branding.
Own brands and generics
With the emergence of strong retailers the "own brand", a retailer's own branded product (or
service), also emerged as a major factor in the marketplace. Where the retailer has a
particularly strong identity (such as Marks & Spencer in the UK clothing sector) this "own
brand" may be able to compete against even the strongest brand leaders, and may outperform
those products that are not otherwise strongly branded.

Concerns were raised that such "own brands" might displace all other brands (as they have
done in Marks & Spencer outlets), but the evidence is that — at least in supermarkets and
department stores — consumers generally expect to see on display something over 50 per
cent (and preferably over 60 per cent) of brands other than those of the retailer. Indeed, even
the strongest own brands in the UK rarely achieve better than third place in the overall
market.

This means that strong independent brands (such as Kellogg's and Heinz), which have
maintained their marketing investments, are likely to continue their strong performance.
More than 50 per cent of UK FMCG brand leaders have held their position for more than two
decades, although it is arguable that those which have switched their budgets to "buy space"
in the retailers may be more exposed.

The strength of the retailers has, perhaps, been seen more in the pressure they have been able
to exert on the owners of even the strongest brands (and in particular on the owners of the
weaker third and fourth brands). Relationship marketing has been applied most often to meet
the wishes of such large customers (and indeed has been demanded by them as recognition of
their buying power). Some of the more active marketers have now also switched to 'category
marketing' - in which they take into account all the needs of a retailer in a product category
rather than more narrowly focusing on their own brand.

At the same time, probably as an outgrowth of consumerism, "generic" (that is, effectively
unbranded) goods have also emerged. These made a positive virtue of saving the cost of
almost all marketing activities; emphasizing the lack of advertising and, especially, the plain
packaging (which was, however, often simply a vehicle for a different kind of image). It
would appear that the penetration of such generic products peaked in the early 1980s, and
most consumers still appear to be looking for the qualities that the conventional brand
provides.

History
Although connected with the history of trademarks[14] and including earlier examples which
could be deemed "protobrands" (such as the marketing puns of the "Vesuvinum" wine jars
found at Pompeii), brands in the field of mass-marketing originated in the 19th century with
the advent of packaged goods. Industrialization moved the production of many household
items, such as soap, from local communities to centralized factories. When shipping their
items, the factories would literally brand their logo or insignia on the barrels used, extending
the meaning of "brand" to that of trademark.

Bass & Company, the British brewery, claims their red triangle brand was the world's first
trademark. Lyle’s Golden Syrup makes a similar claim, having been named as Britain’s
oldest brand, with its green and gold packaging having remained almost unchanged since
1885.

Cattle were branded long before this; the term "maverick", originally meaning an unbranded
calf, comes from Texas rancher Samuel Augustus Maverick who, following the American
Civil War, decided that since all other cattle were branded, his would be identified by having
no markings at all.

Factories established during the Industrial Revolution, generating mass-produced goods and
needed to sell their products to a wider market, to a customer base familiar only with local
goods. It quickly became apparent that a generic package of soap had difficulty competing
with familiar, local products. The packaged goods manufacturers needed to convince the
market that the public could place just as much trust in the non-local product. Campbell soup,
Coca-Cola, Juicy Fruit gum, Aunt Jemima, and Quaker Oats were among the first products to
be 'branded', in an effort to increase the consumer's familiarity with their products. Many
brands of that era, such as Uncle Ben's rice and Kellogg's breakfast cereal furnish illustrations
of the problem.

Around 1900, James Walter Thompson published a house ad explaining trademark

advertising. This was an early commercial explanation of what we now know as branding.
Companies soon adopted slogans, mascots, and jingles which began to appear on radio and
early television. By the 1940s, manufacturers began to recognize the way in which consumers
were developing relationships with their brands in a social/psychological/anthropological
sense.

From there, manufacturers quickly learned to build their brand's identity and personality (see
brand identity and brand personality), such as youthfulness, fun or luxury. This began the
practice we now know as "branding" today, where the consumers buy "the brand" instead of
the product. This trend continued to the 1980s, and is now quantified in concepts such as
brand value and brand equity. Naomi Klein has described this development as "brand
equity mania". In 1988, for example, Phillip Morris purchased Kraft for six times what the
company was worth on paper; it was felt that what they really purchased was its brand
name.

Marlboro Friday

April 2, 1993 - marked by some as the death of the brand[1] - the day Phillip Morris declared
that they were to cut the price of Marlboro cigarettes by 20%, in order to compete with
bargain cigarettes. Marlboro cigarettes were notorious at the time for their heavy advertising
campaigns, and well-nuanced brand image. In response to the announcement Wall street
stocks nose-dived for a large number of 'branded' companies: Heinz, Coca Cola, Quaker
Oats, PepsiCo. Many thought the event signalled the beginning of a trend towards "brand
blindness" (Klein 13), questioning the power of "brand value".

Pricing
Pricing refers to the amount of money exchanged for a product. This value is determined by
utility to the consumer in terms of money and/or sacrifice that the consumer is prepared to
give for it.
Objectives

• Increase sales volume

• Increase revenue
• Achieve or increase profits
• Increase or maintain market share
• Eliminate competition
• Achieve advantages of mass production

Factors influencing price-determination

• Production and distribution costs

• Substitute goods available
• Normal trade practices
• Fixed prices
• Reaction of distributors
• Reaction of consumers
• Nature of demand:
o elastic/inelastic
• Form of market:
o Perfect competition
o Monopolistic competition
o Monopoly
o Oligopoly

Steps to determine price

• Determine market share to be captured

• Set up price strategy
• Estimate demand

Evaluate competitors' reactions Pricing Strategies.

There are many ways to price a product. Let's have a look at some of them and try to
understand the best policy/strategy in various situations. See also eMarketing Price.

Premium Pricing.
Use a high price where there is a uniqueness about the product or service. This approach is
used where a a substantial competitive advantage exists. Such high prices are charge for
luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights.

Penetration Pricing.
The price charged for products and services is set artificially low in order to gain market
share. Once this is achieved, the price is increased. This approach was used by France
Telecom and Sky TV.

Economy Pricing.
This is a no frills low price. The cost of marketing and manufacture are kept at a minimum.
Supermarkets often have economy brands for soups, spaghetti, etc.

Price Skimming.
Charge a high price because you have a substantial competitive advantage. However, the
advantage is not sustainable. The high price tends to attract new competitors into the market,
and the price inevitably falls due to increased supply. Manufacturers of digital watches used a
skimming approach in the 1970s. Once other manufacturers were tempted into the market and
the watches were produced at a lower unit cost, other marketing strategies and pricing
approaches are implemented.

Premium pricing, penetration pricing, economy pricing, and price skimming are the four
main pricing policies/strategies. They form the bases for the exercise. However there are
other important approaches to pricing.

Psychological Pricing.
This approach is used when the marketer wants the consumer to respond on an emotional,
rather than rational basis. For example 'price point perspective' 99 cents not one dollar.

Product Line Pricing.

Where there is a range of product or services the pricing reflect the benefits of parts of the
range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole
package $6.

Optional Product Pricing.

Companies will attempt to increase the amount customer spend once they start to buy.
Optional 'extras' increase the overall price of the product or service. For example airlines will
charge for optional extras such as guaranteeing a window seat or reserving a row of seats next
to each other.

Captive Product Pricing

Where products have complements, companies will charge a premium price where the
consumer is captured. For example a razor manufacturer will charge a low price and recoup
its margin (and more) from the sale of the only design of blades which fit the razor.
Product Bundle Pricing.
Here sellers combine several products in the same package. This also serves to move old
stock. Videos and CDs are often sold using the bundle approach.

Promotional Pricing.
Pricing to promote a product is a very common application. There are many examples of
promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing.
Geographical pricing is evident where there are variations in price in different parts of the
world. For example rarity value, or where shipping costs increase price.

Value Pricing.
This approach is used where external factors such as recession or increased
competition force companies to provide 'value' products and services to
retain sales e.g. value meals at McDonalds. Pricing Methods

Four models for calculating your pricing

As we said earlier, there is no "one right way" to calculate your pricing. Once you've
considered the various factors involved and determined your objectives for your pricing
strategy, now you need some way to crunch the actual numbers. Here are four ways to
calculate prices:

• Cost-plus pricing - Set the price at your production cost, including both cost of goods
and fixed costs at your current volume, plus a certain profit margin. For example,
your widgets cost $20 in raw materials and production costs, and at current sales
volume (or anticipated initial sales volume), your fixed costs come to $30 per unit.
Your total cost is $50 per unit. You decide that you want to operate at a 20% markup,
so you add $10 (20% x $50) to the cost and come up with a price of $60 per unit. So
long as you have your costs calculated correctly and have accurately predicted your
sales volume, you will always be operating at a profit.

• Target return pricing - Set your price to achieve a target return-on-investment

(ROI). For example, let's use the same situation as above, and assume that you have
$10,000 invested in the company. Your expected sales volume is 1,000 units in the
first year. You want to recoup all your investment in the first year, so you need to
make $10,000 profit on 1,000 units, or $10 profit per unit, giving you again a price of
$60 per unit.

• Value-based pricing - Price your product based on the value it creates for the
customer. This is usually the most profitable form of pricing, if you can achieve it.
The most extreme variation on this is "pay for performance" pricing for services, in
 which you charge on a variable scale according to the results you achieve. Let's say
that your widget above saves the typical customer $1,000 a year in, say, energy costs.
In that case, $60 seems like a bargain - maybe even too cheap. If your product reliably
produced that kind of cost savings, you could easily charge $200, $300 or more for it,
and customers would gladly pay it, since they would get their money back in a matter
of months. However, there is one more major factor that must be considered.

• Psychological pricing - Ultimately, you must take into consideration the consumer's
perception of your price, figuring things like:

o Positioning - If you want to be the "low-cost leader", you must be priced

lower than your competition. If you want to signal high quality, you should
probably be priced higher than most of your competition.

o Popular price points - There are certain "price points" (specific prices) at
which people become much more willing to buy a certain type of product. For
example, "under $100" is a popular price point. "Enough under $20 to be
under $20 with sales tax" is another popular price point, because it's "one bill"
that people commonly carry. Meals under $5 are still a popular price point, as
are entree or snack items under $1 (notice how many fast-food places have a
$0.99 "value menu"). Dropping your price to a popular price point might mean
a lower margin, but more than enough increase in sales to offset it.

o Fair pricing - Sometimes it simply doesn't matter what the value of the
product is, even if you don't have any direct competition. There is simply a
limit to what consumers perceive as "fair". If it's obvious that your product
only cost $20 to manufacture, even if it delivered $10,000 in value, you'd have
a hard time charging two or three thousand dollars for it -- people would just
feel like they were being gouged. A little market testing will help you
determine the maximum price consumers will perceive as fair.

Now, how do you combine all of these calculations to come up with a price? Here are some
basic guidelines:

• Your price must be enough higher than costs to cover reasonable variations in
sales volume. If your sales forecast is inaccurate, how far off can you be and still be
profitable? Ideally, you want to be able to be off by a factor of two or more (your
sales are half of your forecast) and still be profitable.

• You have to make a living. Have you figured salary for yourself in your costs? If
not, your profit has to be enough for you to live on and still have money to reinvest in
the company.

• Your price should almost never be lower than your costs or higher than what
most consumers consider "fair". This may seem obvious, but many entrepreneurs
seem to miss this simple concept, either by miscalculating costs or by inadequate
market research to determine fair pricing. Simply put, if people won't readily pay
enough more than your cost to make you a fair profit, you need to reconsider your
business model entirely. How can you cut your costs substantially? Or change your
product positioning to justify higher pricing?
Pricing is a tricky business. You're certainly entitled to make a fair profit on your product,
and even a substantial one if you create value for your customers. But remember, something
is ultimately worth only what someone is willing to pay for it.

Pricing Policy: Seven Factors to Consider

Does your pricing maximize your revenue opportunities? A recent episode of "The
Apprentice" underscores the importance of packaging and merchandising to pricing and,
ultimately, profitability.

Two teams competed to sell the most M-Azing candy bars. The winners packaged the chocolate
with the "Amazing Sisters," two attractive blondes in short skirts. The augmented offering sold for
a whopping $5, yielding higher profits than the other team's candy.

The losing team undermined the value of its product with a combination of generic pricing, an
established $3 price for a basic candy bar; anxiety pricing, whatever customers were willing to pay
(under the $3 price point); and "flasher pricing," $20 for a view of a contestant's underwear with a
candy bar.

Like the contestants, marketers too often underestimate the strategic importance of pricing. As a
result, they don't optimize revenue potential. To avoid this, examine your offering's benefits, both
tangible and intangible, in fulfilling the consumer's specific needs. Consider how you can move
your product from generic, including only its core physical attributes, to augmented, including
additional features to enhance the offering and enabling you to charge more. In doing so, be
careful how customers perceive the offering.

To increase annual subscriptions, for example, an online publishing client considered bundling
subscriptions with $25 worth of merchandise its target market valued. The merchandise retailed
on its Web site. The strategy instead decreased the value of my client's subscription in subscribers'
eyes. Customers considered the subscription worth the full subscription price -- but minus the
merchandise value.

Pricing Factors to Consider

• Determine primary and secondary market segments. This helps you better
understand the offering's value to consumers. Segments are important for positioning and
merchandising the offering to ensure maximized sales at the established price point.

• Assess the product's availability and near substitutes. Underpricing hurts your
product as much as overpricing does. If the price is too low, potential customers will think it
can't be that good. This is particularly true for high-end, prestige brands. One client underpriced
its subscription product, yielding depressed response and lower sales. The firm underestimated
the uniqueness of its offering, the number of close substitutes, and the strength of the
consumer's bond with the product. As a result, the client could increase the price with only
limited risk to its customer base. In fact, the initial increase resulted in more subscribers as the
new price was more in line with its consumer-perceived value.

• Survey the market for competitive and similar products. Consider whether new
products, new uses for existing products, or new technologies can compete with or, worse,
leapfrog your offering. Examine all possible ways consumers can acquire your product. I've
worked with companies that only take into account direct competitors selling through identical
channels. Don't limit your analysis to online distribution channels.

Competitors may define your price range. In this case, you can price higher if consumers
perceive your product and/or brand is significantly better; price on parity if your product has
better features; or price lower if your product has relatively similar features to existing
products. An information client faced this situation with a premium product. Its direct
 competitors established the price for a similar offering. As the third player in this segment, its
choices were price parity with an enhanced offering or a lower price with similar features.

• Examine market pricing and economics. A paid, ad-free site should generate more
revenue than a free ad-supported one, for example. In considering this option, remember to
incorporate the cost of forgone revenue, especially as advertisers find paying customers more
attractive.

To gain additional insight from this analysis, observe consumers interacting with your product to
better understand their connection to it. This can yield insights into how to package and
promote the offering that can affect on pricing, features, and incentives.

• Calculate the internal cost structure and understand how pricing interacts with
the offering. I recommended a content client promote its advertising-supported free e-zines to
incent readers to register. The client believed the e-zines had no value as the content was
repurposed from another product, so it didn't advertise them. Yet the repurposed content was
exactly what readers viewed as a benefit. By undervaluing its offering, the client missed an
opportunity to increase registrations and, hence, advertising revenues with a product that
effectively had no development costs.

• Test different price points if possible. This is important if you enter a new or untapped
market, or enhance an offering with consumer-oriented benefits. To determine price,
MarketingExperiments.com tested three different price points for a book. It found the highest
price yielded the greatest product revenue. Interestingly, the middle price yielded greater
revenue over time, as it generated more customers to whom other related products could be
marketed.

• Monitor the market and your competition continually to reassess pricing. Market
dynamics and new products can influence and change consumer needs.

Pricing is tricky, as "The Apprentice" contestants learned. Optimally, you should test to
determine the best price and understand long-term goals. Determine price based on a number
of factors. Most important is what potential customers are willing to pay and their value to
your company over time. You don't want to hear, "You're fired," when it comes to pricing
policies.

distribution - introduction

Distribution (or "Place") is the fourth traditional element of the marketing mix. The other three are
Product, Price and Promotion.

The Nature of Distribution Channels

Most businesses use third parties or intermediaries to bring their products to market. They try to
forge a "distribution channel" which can be defined as

"all the organisations through which a product must pass between its point of production and
consumption"

Why does a business give the job of selling its products to intermediaries? After all, using
intermediaries means giving up some control over how products are sold and who they are sold to.

The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They
have the contacts, experience and scale of operation which means that greater sales can be
achieved than if the producing business tried run a sales operation itself.

Functions of a Distribution Channel

The main function of a distribution channel is to provide a link between production and
consumption. Organisations that form any particular distribution channel perform many key
functions:

Information Gathering and distributing market research and intelligence - important

for marketing planning
Promotion Developing and spreading communications about offers
Contact Finding and communicating with prospective buyers
Matching Adjusting the offer to fit a buyer's needs, including grading, assembling
and packaging
Negotiation Reaching agreement on price and other terms of the offer
Physical distribution Transporting and storing goods
Financing Acquiring and using funds to cover the costs of the distribution channel
Risk taking Assuming some commercial risks by operating the channel (e.g. holding
stock)
All of the above functions need to be undertaken in any market. The question is - who performs
them and how many levels there need to be in the distribution channel in order to make it cost
effective.

Numbers of Distribution Channel Levels

Each layer of marketing intermediaries that performs some work in bringing the product to its final
buyer is a "channel level". The figure below shows some examples of channel levels for consumer
marketing channels:

In the figure above, Channel 1 is called a "direct-marketing" channel, since it has no intermediary
levels. In this case the manufacturer sells directly to customers. An example of a direct marketing
channel would be a factory outlet store. Many holiday companies also market direct to consumers,
bypassing a traditional retail intermediary - the travel agent.

The remaining channels are "indirect-marketing channels".

Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The
consumer electrical goods market in the UK is typical of this arrangement whereby producers such
as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Dixons and
Currys which then sell the goods to the final consumers.
Channel 3 contains two intermediary levels - a wholesaler and a retailer. A wholesaler
typically buys and stores large quantities of several producers goods and then breaks into the
bulk deliveries to supply retailers with smaller quantities. For small retailers with limited
order quantities, the use of wholesalers makes economic sense. This arrangement tends to
work best where the retail channel is fragmented - i.e. not dominated by a small number of
large, powerful retailers who have an incentive to cut out the wholesaler. A good example of
this channel arrangement in the UK is the distribution of drugs.

distribution - types of distribution intermediary

Introduction

There is a variety of intermediaries that may get involved before a product gets from the original
producer to the final user. These are described briefly below:

Retailers

Retailers operate outlets that trade directly with household customers. Retailers can be classified
in several ways:

• Type of goods being sold( e.g. clothes, grocery, furniture)

• Type of service (e.g. self-service, counter-service)
• Size (e.g. corner shop; superstore)
• Ownership (e.g. privately-owned independent; public-quoted retail group
• Location (e.g. rural, city-centre, out-of-town)
• Brand (e.g. nationwide retail brands; local one-shop name)

Wholesalers

Wholesalers stock a range of products from several producers. The role of the wholesaler is to sell
onto retailers. Wholesalers usually specialise in particular products.

Distributors and dealers

Distributors or dealers have a similar role to wholesalers – that of taking products from producers
and selling them on. However, they often sell onto the end customer rather than a retailer. They
also usually have a much narrower product range. Distributors and dealers are often involved in
providing after-sales service.

Franchises

Franchises are independent businesses that operate a branded product (usually a service) in
exchange for a licence fee and a share of sales.

Agents

Agents sell the products and services of producers in return for a commission (a percentage of the
sales revenues)

Distribution - Channel Strategy

The following table describes the factors that influence the choice of distribution channel by a
business:
Influence Comments
Market An important market factor is "buyer behaviour"; how do buyer's want to purchase
factors the product? Do they prefer to buy from retailers, locally, via mail order or perhaps
over the Internet? Another important factor is buyer needs for product
information, installation and servicing. Which channels are best served to provide
the customer with the information they need before buying? Does the product need
specific technical assistance either to install or service a product? Intermediaries
are often best placed to provide servicing rather than the original producer - for
example in the case of motor cars.

The willingness of channel intermediaries to market product is also a factor.

Retailers in particular invest heavily in properties, shop fitting etc. They may
decide not to support a particular product if it requires too much investment (e.g.
training, display equipment, warehousing).

Another important factor is intermediary cost. Intermediaries typically charge a

"mark-up" or "commission" for participating in the channel. This might be deemed
unacceptably high for the ultimate producer business.

Producer A key question is whether the producer have the resources to perform the functions
factors of the channel? For example a producer may not have the resources to recruit,
train and equip a sales team. If so, the only option may be to use agents and/or
other distributors.

Producers may also feel that they do not possess the customer-based skills to
distribute their products. Many channel intermediaries focus heavily on the
customer interface as a way of creating competitive advantage and cementing the
relationship with their supplying producers.

Another factor is the extent to which producers want to maintain control over how,
to whom and at what price a product is sold. If a manufacturer sells via a retailer,
they effective lose control over the final consumer price, since the retailer sets the
price and any relevant discounts or promotional offers. Similarly, there is no
guarantee for a producer that their product/(s) are actually been stocked by the
retailer. Direct distribution gives a producer much more control over these issues.

Product Large complex products are often supplied direct to customers (e.g. complex
factors medical equipment sold to hospitals). By contrast perishable products (such as
frozen food, meat, bread) require relatively short distribution channels - ideally
suited to using intermediaries such as retailers.
Distribution Intensity

THE RETAIL DISTRIBUTION CHANNEL

E arly in 2005, IBM Business Consulting Services released a survey that

compiled in-depth interviews with more than 100 sales, marketing, and
merchandising executives at over 20 consumer products and retail
companies. Only 9 percent of the retailers felt their suppliers had “a good understanding”
of their business objectives. The gist of the survey was that
retailers felt the product manufacturers have focused their efforts on the end
users of the products (the consumers), without giving as much priority to
the needs of the other members of their distribution channels—namely, the
retailers to whom they sell.1

There are several types of participants that make up a distribution channel, so

let’s begin by listing them, as in Chapter 1 with supply chain participants. You
will notice some overlap because, as also previously mentioned, retailers belong
to several (or many) different supply chains, each group focused on making
and marketing different products.
Retailers
The characteristic that sets a retailer apart from other members of its distribution
channel is that the retailer is the party who ultimately sells the product to
its end user or consumer. As you know if you’ve ever shopped for anything,
32 Chapter 2 The Retail Distribution Channel
In addition to a supply chain, manufacturers and retailers participate in another
give-and-take relationship known as a distribution channel or marketing channel.
A distribution channel is similar to, but different than, a supply chain. The distribution
channel is where the “deals” are made to buy and sell products. Sales, negotiations,
and ordering are done by these companies, or departments within
companies. Then the supply chain kicks in, to do the “physical” work of manufacturing,
transporting, and storing the goods; and facilitating the sales with services
like consumer research, extending credit, and providing other services related to
making the products attractive to customers and encouraging their ultimate sale.
In this chapter, you will learn about
_ The members of a distribution channel and their functions
_ How retailers fit into distribution channels
_ How channel relationships are managed
_ Strategic alliances
One of the catchphrases of the last decade or so is “B2B,” short for “business-tobusiness.”
This is a type of distribution channel in which the end consumer is
a business, not an individual.
The lines do blur between modern-day distribution channels and supply chains.
But we will attempt to keep them separate as we describe the functions of each in
relation to the other.
PARTICIPANTS IN THE
DISTRIBUTION CHANNEL
retailers come in many shapes and sizes, so to speak. Retailers may be grouped
according to any of the following four categories:
_ Ownership. Every brick-and-mortar retailer can be classified as a large, national
chain store; a smaller, regional chain store; an independent retailer;
or a franchisee.
_ Pricing philosophy. Stores are generally either discounters or full-price
retailers. Within the “discounter” category, there are several subcategories
such as factory outlets, consignment stores, dollar stores, specialty discount
stores, warehouse membership clubs, and so on.
_ Product assortment. The breadth and depth of product lines carried by
the store depends a lot on its ownership. An Ann Taylor store, for example,
sells Ann Taylor branded clothing—not much breadth of product line there,
but extensive depth in that line. A Kmart, on the other hand, carries thousands
of brands, but perhaps does not have much depth (not many brands)
in any given category of product.
_ Service level. The more exclusive or specialized the store, the more types of
services it will generally offer—from a name-branded credit card, to on-site
alterations, to liberal return policies for its loyal customers. With the “big
box” discounters, on the other hand, customers pay for convenience and bypass
traditional service, by bagging their own groceries and the like.
These distinctions between various types of stores will be important as we
discuss their participation in certain distribution channels.
Wholesalers
Wholesalers are intermediaries or middlemen who buy products from manufacturers
and resell them to the retailers. They take the same types of financial
risks as retailers, since they purchase the products (thereby taking legal responsibility
for them), keep them in inventory until they are resold to retailers,
and may arrange for shipment to those retailers. Wholesalers can gather product
from around a country or region, or can buy foreign product lines by becoming
importers.
The term “wholesale” is often used to describe discount retailers (as in
“wholesale clubs”), but discounters are retailers, not technically wholesalers.
And in B2B channels, wholesalers may be called distributors.
Agents and Brokers
Agents (sometimes called brokers) are also intermediaries who work between
suppliers and retailers (or in B2B channels), but their agreements are different,
in that they do not take ownership of the products they sell. They are
independent sales representatives who typically work on commission based
Participants in the Distribution Channel 33
on sales volume, and they can sell to wholesalers as well as retailers. In B2B
arrangements, this means they sell to distributors and end users.
Resident sales agents are good examples in retail. They reside in the
country to which they sell products, but the products come from a variety of
foreign manufacturers. The resident sales agent represents those manufacturers,
who pay the agent on commission. A resident sales agent does not always
have merchandise warehoused and ready to sell, but he or she does have product
samples for which orders can be placed and is responsible for bringing the
items through the importation process.
Retailers that don’t have the money, time, or manpower to send someone
overseas for manufacturers’ site visits to check out the new product lines can
depend on a resident sales agent to do the job.
Buying offices can also be considered a type of agent or broker, since they
earn their money pairing up retailers with product lines from various manufacturers.
The Need for Distribution Channels
Why are all these layers needed in distribution? Why can’t a producer simply
sell to a retailer, who sells to a consumer? It’s a fair question, and in some cases,
that is exactly how it happens. But the fact is that many producers are either
too small or too large to handle all the necessary functions themselves to get
their products to market.
Consider the small, specialty manufacturer who is terrific at making fine
leather handbags but may not have the expertise to market its products as well
as it makes them, or they may not have the money to hire a team of full-time
salespeople to court the customers and secure the orders. An intermediary
who works for several small, noncompeting firms can easily handle those functions
cost-effectively. An intermediary who specializes in importing and exporting
can handle the intricacies of customs paperwork, overseas shipping,
and foreign markets, too.
Conversely, large companies need intermediaries because they are also in
the business of manufacturing, not marketing. Turning out tens of thousands
of cases of soft drinks, for instance, do you think Pepsi has time to take and fill
individual orders from households? Channel members like wholesalers and retailers
are useful because they are best at specific aspects of sales in their markets,
leaving the manufacturers to do what they do best—which is turn out the
best possible product.
Having a distribution channel breaks the whole buying and selling process
and all its related negotiations into manageable tasks, each performed by companies
that specialize in certain skills. Using an import wholesaler, for example,
can be handy because they know the laws and customs of the suppliers’ nations;
and they generally offer their own lines of credit so the retailer won’t have
34 Chapter 2 The Retail Distribution Channel
We’ll set aside business-to-business channels for now and look at the four simple
types of retail distribution channels for consumer products:
_ Direct channel. This is when the same company that manufactures a
product sells it directly to the consumer or end user. Dell, as mentioned in
Chapter 1, is a direct channel marketer. Mail-order catalog sales companies,
like Lands’ End, are also direct channel sellers.
_ Retailer channel. This is when the producer sells to the retailer, and the
retailer sells to the consumer.
_ Wholesaler channel. Intermediaries play a role here, as the manufacturer
sells to a wholesaler . . . who sells to a retailer . . . who sells to the consumer.
_ Agent or broker channel. The most complex arrangement involves several
transactions, often because the merchandise is being imported. The
producer sells to an agent . . . who sells to a wholesaler . . . who sells to a retailer
. . . who finally sells to the consumer or end user.
_ Dual channel or multiple channel. This term refers to the use of two
or more channels to sell products to different types of customers. A lawnmower
manufacturer, for example, might sell some product lines at retail
and others to commercial lawn care companies, each requiring different intermediary
services.
How Channels Are Chosen
Although retailers drive distribution channels, it is not usually the retailer who
makes the decision to utilize one channel over the others. The producer of the
Types of Channels 35
to deal with currency exchange or negotiate payment terms with a bank in
another country.
Another advantage of the distribution channel is its ability to even out the
natural ebbs and flows of a supply chain. This comes from the ability of some
channel members to store excess goods until they are needed, and to stockpile
goods in anticipation of seasonal sales peaks. Depending on how close their
relationships,
channel members may also work together to purchase goods or
services in greater quantity at discounts, passing the savings on to customers.
Even for consumers, the distribution chain is handy—beyond handy, in
fact! It has become a necessity in our society. What if there were no supermarkets,
for instance? Can you imagine how much more time and money you
would spend having to buy every item at its source? How practical would it be
to run out to the nearest farm to pick up a quart of milk and some salad ingredients
on your way home from work?
TYPES OF CHANNELS
product makes this decision. There are several characteristics of product lines
that make them more or less appropriate for a particular type of channel.
Briefly, these characteristics can be summarized as follows:
_ The products themselves. If a product is perishable, like many grocery
items, it requires the shortest, most direct distribution channel—which
means the fewest possible intermediaries along the way. If a product is customized,
like an expensive assembled-to-order computer system, it also benefits
from a short distribution channel. There is no need for intermediaries
when a customer orders a custom product directly from the company that
makes it.
Long distribution channels correspond to small purchases, either because
the retailer doesn’t carry much inventory or the consumer buys the
item in small quantities.
_ The type of customer.Who are the customers, what do they need and expect
from their shopping experience, and where are they willing to go to buy
this type of product? How much quantity do they buy at a time? A channel
may be chosen because it best reflects the end users’ buying habits.
Business-to-business customers have completely different needs and buying
habits than individual consumers.
_ Market size. This factor encompasses two things: the population of an area
and whether it is urban or rural. It is easier to sell direct to customers in a
large city with lots of potential outlets for a product line. The more widely
dispersed the stores, the more logical the dependence on agents and
wholesalers—or on multiple retailers in different cities—to keep product
sales strong and steady.
_ The producer’s level of control. Most top-dollar clothing designers and
fragrance manufacturers do not want their products showing up anywhere
and everywhere. They’ve worked hard to build an exclusive reputation, and
they expect their distribution channel to work just as hard to protect and enhance
their upscale image. These producers will choose a distribution channel
that ensures no discount merchants have access to their lines, and they
will count on the members of their channel to honor their wishes and not
make bargain “deals.”
_ The size of the producing company. A producer is likely to sell direct
when the company is large enough to handle the additional responsibilities
that intermediaries would otherwise provide—credit to customers, warehouses
for their own goods, the ability to hire and train their own sales representatives.
Smaller producers require a larger distribution chain in order
to fill these roles.
_ The size of the retailers. A segment of the industry that is fragmented,
with most of the stores operating as single units, requires the distribution
channel to be longer. This was the case in the 1980s with video rental
36 Chapter 2 The Retail Distribution Channel
stores, for example, until Blockbuster Video opened and began its climb to
dominate the market.
Types of Distribution within Channels
The channel members may handle different portions of the transaction, but
they must all agree on the end result—that the product(s) will be placed in the
market in the manner desired by the producer or manufacturer, and that
placement of the product(s) meets the contractual agreements of producer,
retailer, and everyone in-between.
Once a channel is selected, the distribution strategy can take three different
forms. They are listed as follows, from most restrictive to least restrictive—and
remember, in retail, the term “restrictive” does not automatically have a negative
connotation.
There are three broad options - intensive, selective and exclusive distribution:

Exclusive distribution is an extreme form of selective distribution in which only one

wholesaler, retailer or distributor is used in a specific geographical area.

_ Exclusive distribution is thought of most frequently for high-dollar products

such as luxury cars or Rolex watches, but the fact is that even small-ticket
items like toys are considered exclusive when they are in high demand.
In an exclusive distribution agreement, one retail store or chain of stores
has the legal right to market and sell the product line in a geographic area.
Exclusive distribution is sometimes requested by the retailer, not the producer,
to ensure that the retailer has something unique, that customers
can’t get anywhere else. This may also mean the retailer commits to not
selling any products that are going to compete with the line. In exchange,
the producer or manufacturer offers sales assistance, training, point-of-purchase
materials, and other perks to the exclusive distributor.
Such a distribution arrangement can work toward the “exclusive” image
of the product (because it’s harder to get), the retailer (for having “the only
ones” available), and the manufacturer (by implying that the company is
interested in marketing “quality, not quantity.”)
In B2B commerce, exclusive distribution works well for extremely specialized
product lines, such as heavy equipment or high-tech products, ordered
to the customer’s specifications and budgeted for in advance of the purchase.
.

Selective distribution involves a producer using a limited number of outlets in a geographical

area to sell products. An advantage of this approach is that the producer can choose the most
appropriate or best-performing outlets and focus effort (e.g. training) on them. Selective
distribution works best when consumers are prepared to "shop around" - in other words - they have
a preference for a particular brand or price and will search out the outlets that supply.
_ Selective distribution means the retailers are carefully screened, and only a few
are permitted to carry the product line. As with exclusive distribution, part of
the goal here is to enhance the image of the product by making it harder (but
certainly not impossible!) to obtain. This allows the retailer to charge full
price. The ladies’ clothing industry is full of selective distribution agreements
between designer labels and so-called “finer” department stores. (The producers
may have other, lower-priced merchandise lines to sell to discounters;
but these are generally sold under separate, secondary brand names.)

COMPANIESGO?
The fact is that modern-day companies are often forced to participate in distribution
channels for practical reasons—not really because they want to be
“part of the team.” They need the efficiency and the economy of scale, although
in some ways, this kind of cooperation runs counter to the tough,
competitive side of traditional retailing.
Channel cooperation would be ideal—a joint effort of all the members to
create a supply chain that is flexible, gives each partner a competitive advantage,
and ultimately provides the best product and related services to the customer.
However, whether you’re selling candy bars or luxury automobiles,
conflict does occur when the members of a distribution channel choose different
ways to operate within the system, have differing goals, or balk at sharing
Channel Relationships .

Intensive distribution aims to provide saturation coverage of the market by using all available
outlets. For many products, total sales are directly linked to the number of outlets used (e.g.
cigarettes, beer). Intensive distribution is usually required where customers have a range of
acceptable brands to chose from. In other words, if one brand is not available, a customer will
simply choose another
_ Intensive distribution is the closest thing to blanket coverage in retail, a “you
can find it anywhere” theory of marketing. Snack items, like candy and soft
drinks, are great examples of intensive distribution—their individual unit
prices are so low that thousands must be sold to make a profit.
Ironically, this intensive product availability requires a large and complex
distribution channel in order to cover all the sales outlets, from supermarkets
and convenience stores to vending machines and restaurants. Manufacturers
of these products depend heavily on their wholesalers to handle the sales
functions—and will drop a wholesaler who is not performing well based on
sales figures—which makes this type of wholesaling very competitive.
their own products within the companies sell to. The retailers share inventory and sales
numbers,
so the supplier can keep the inventory stocked at the right levels.
Retailers continuously weigh the costs and benefits of sharing data and working
together. Do they
work with only a small group of trusted suppliers and allow them to manage their own
inventory
in-store? Can they risk the downsides of working with only a few suppliers, when things
like labor
strikes, sudden price hikes, or production problems might leave the stores in the lurch?
And there are more nagging questions: Can they risk confidential information being
leaked to competitors?
How open should they be with other channel members? It is very hard for companies to
develop the level of credibility and trust needed to establish tight working relationships.
In the
meantime, they do realize the benefits of sharing tools and skills that allow them to
analyze data
and make decisions.
Like so many other aspects of business, information sharing is a trade-off.
CHANNEL RELATIONSHIPS
information. Areas of potential channel conflict are many. They can arise
naturally from competition between multiple members of the same channel—
retailers or wholesalers—who carry the same product line. They will also occur
when retailers have service issues with the products and want to handle
returns, repairs, or exchanges differently (say, more generously) than what the
manufacturer is willing to do. A very common source of channel conflict is a
producer’s decision to either increase or decrease prices. The wholesalers take
the flack about it from retailers—who, in turn, must listen to consumers’ complaints,
at least in the case of price hikes.

There is a hierarchy in all distribution channels, whether the participants

like it or not. The company that has the most authority in the channel is referred
to as the channel leader or channel captain. In this case, “authority”
means the partner’s ability to either influence or control the behavior of
any of the other partners in the channel.
It’s safe to say that no one in any distribution channel or supply chain wields
as much authority in retail today as Wal-Mart. The world’s largest retailer literally
treats its suppliers like extensions of its own business—manufacturers and
wholesalers have free access to real-time data about how their product lines
are selling at any Wal-Mart store, any time. Sharing this information allows the
suppliers to plan their production runs, make their importing decisions, and so
on. Hundreds of manufacturers have offices in Bentonville, Arkansas, just to be
conveniently located for Wal-Mart, and they consider it a small price to pay for
increased access to their giant retail partner. In exchange, this Channel Captain
Extraordinaire can require extraordinary things of its smaller partners, from
price cuts to the acquisition and use of expensive new technology like radio frequency
identification.
In business-to-business channels, Ford is known for its incredibly collaborative
relationships with suppliers, who do more than provide materials and
parts—they help design the vehicles Ford produces.2 Similarly, any manufacturer
that uses a Just-In-Time (JIT) system, with offices for supplier representatives
on-site in its plants, has forged a unique type of channel relationship.
Like any kind of power, channel leadership can be wielded to the benefit
or detriment of the other companies. Wal-Mart’s situation aside, channel captains
may take the lead in negotiating with a participating company that is not
fulfilling its responsibilities—orders are late; the company hasn’t updated its
computer systems; it may be struggling financially; the CEO is uncommunicative
or argumentative. Whatever the case, if the end result is that it’s bogging
down everyone else in the channel, then something must be done.
It is important to note that in a distribution channel, any of the participants
can refuse to do business with any of the others—as long as someone
amenable to the entire group is tapped to take over the role that the ousted business
has played. This game of “musical chairs” is difficult at best, and disastrous
at worst. It’s better for everyone if the participants can figure out how to get
along.
The Retail Distribution Channel
Companies participate in distribution channels, which determine their supply
chain relationships. Channel members negotiate with each other and offer
complementary resources and services to move products “down the line”
from manufacturers to consumers. Then, the supply chain partners provide
the raw materials and logistics to meet the channel requirements.
Retail distribution channels consist of some combination of producers or
manufacturers, agents or brokers, wholesalers or distributors, importers, and
retailers. Each step along the channel has a specific purpose that is met by one
or more member companies. Distribution channels are important because
they allow for a continuous flow of product despite the natural peaks and
slumps experienced in manufacturing and sales. They also provide efficiency,
economies of scale, and cost savings to members of the channel. The types
Strategic Alliances
A third and similar partnership arrangement between separate companies
with products or skills to share is the strategic alliance, which allows them
to share the use of already-established distribution channels in pursuit of business
growth in new markets. Retailers have been forging strategic alliances
since the 1950s, and the pace continues unabated today as stores continue to
branch into international sales.
A strategic alliance is more than two companies holding shares of each
others’ stock, or ordering merchandise jointly for added buying power. In order
to be truly strategic, the alliance must have all three of the following characteristics:
1. It must be collaborative. It should not involve the stronger channel
member barking orders to the weaker one.
2. It must be horizontal. That is, it must be forged between companies of
the same type, two retailers or two wholesalers.
3. It must be beneficial to both. This requires common objectives and the
willingness to communicate and share knowledge.
A promising collaboration would be the alliance of two similar types of retailers
in two different countries to share product lines, invest in technology together,
and learn from each other. In so doing, they use each others’ distribution
channels in the new country.
Retailers commonly belong to several strategic alliances. They offer a way
to share the risks of business expansion that, if undertaken separately, the
individual companies may lack the time, money, or expertise to manage.

Distribution (Place)
Channels

• Manufacturer to consumer (most direct)

• Manufacturer to wholesaler to retailer to consumer (traditional)
• Manufacturer to agent to retailer to consumer (current)
• Manufacturer to agent to wholesaler to retailer to consumer
• Manufacturer to agent to consumer ( ex : DCL,AMWAY )

Manufacturers

Reasons for direct selling methods

• Manufacturer wants to demonstrate goods.

• Wholesalers, retailers and agents not actively selling.
• Manufacturer unable to convince wholesalers or retailers to stock product.
• High profit margin added to goods by wholesalers and retailers.
• Middlemen unable to transport.
• It also lets the consumer to be able to know how it works.

Reasons for indirect selling methods

• Manufacturer does not have the financial resources to distribute goods.

• Distribution channels already established.
 • Manufacturer has no knowledge of efficient (specific) distribution.
• Manufacturer wishes to use capital for further production.
• Too many consumers in a large area; difficult to reach.
• Manufacturer does not have a wide assortment of goods to enable efficient marketing.
• Direct on-selling advantages.

Wholesalers

Reasons for using wholesalers

• Bear risk of selling goods to retailer or consumer

• Storage space
• Decrease transport costs
• Grant credit to retailers
• Able to sell for the manufacturers
• Give advice to manufacturers
• Break down products into smaller quantities

Reasons for bypassing wholesalers

• Limited storage facilities

• Retailers' preferences
• Wholesaler cannot promote products successfully
• Development of wholesalers' own brands
• Desire for closer market contact
• Position of power
• Cost of wholesalers' services
• Price stabilisation
• Need for rapid distribution
• Make more money

Ways of bypassing wholesalers

• Sales offices or branches

• Mail orders
• Direct sales to retailers
• Traveling Agents
• Direct Orders
• Specific channel

Agents

• Commission agents work for anyone who needs their services. They do not acquire
ownership of goods but receive del credere commission.
• Selling agents act on an extended contractual basis, selling all of the products of the
manufacturer. They have full authority regarding price and terms of sale.
• Buying agents buy goods on behalf of producers and retailers. They have an expert
knowledge of the purchasing function.
• Brokers specialize in the sale of one specific product. They receive a brokerage.
 • Factory representatives represent more than one manufacturer. They operate within
a specific area and sell related lines of goods but have limited authority regarding
price and sales terms.

PROMOTION
Marketing communications breaks down the strategies involved with marketing messages
into categories based on the goals of each message. There are distinct stages in converting
strangers to customers that govern the communication medium that should be used.

Advertising

• Paid form of public presentation and expressive promotion of ideas

• Aimed at masses
• Manufacturer may determine what goes into advertisement
• Pervasive and impersonal medium

Functions and advantages of successful advertising

• Task of the salesman made easier

Objectives

• Maintain demand for well-known goods

• Introduce new and unknown goods
• Increase demand for well-known goods/products/services

Requirements of a good advertisement

• Attract attention (awareness)

• Stimulate interest
• Create a desire
• Bring about action

Eight steps in an advertising campaign

• Market research
• Setting out aims
• Budgeting
• Choice of media (television, newspaper/magazines, radio, web, outdoor)
• Choice of actors (New Trend)
• Design and wording
• Co-ordination
• Test results

Personal sales

Oral presentation given by a salesman who approaches individuals or a group of potential

customers:
 • Live, interactive relationship
• Personal interest
• Attention and response
• Interesting presentation

Sales promotion

Short-term incentives to encourage buying of products:

• Instant appeal
• Anxiety to sell

An example of this is coupons or a sale. People are given an incentive to buy, but it does not
build customer loyalty, nor encourage repeat buys in the future. A major drawback of sales
promotion is that it is easily copied by competition. It cannot be used as a sustainable source
of differentiation.

Marketing Public Relations (MPR)

• Stimulation of demand through press release giving a favourable report to a product

• Higher degree of credibility
• Effectively news
• Boosts enterprise's image

Customer focus
Many companies today have a customer focus (or customer orientation). This implies that the
company focuses its activities and products on consumer demands. Generally there are three
ways of doing this: the customer-driven approach, the sense of identifying market changes
and the product innovation approach.

In the consumer-driven approach, consumer wants are the drivers of all strategic marketing
decisions. No strategy is pursued until it passes the test of consumer research. Every aspect of
a market offering, including the nature of the product itself, is driven by the needs of potential
consumers. The starting point is always the consumer. The rationale for this approach is that
there is no point spending R&D funds developing products that people will not buy. History
attests to many products that were commercial failures in spite of being technological
breakthroughs.

A formal approach to this customer-focused marketing is known as SIVA (Solution,

Information, Value, Access). This system is basically the four Ps renamed and reworded to
provide a customer focus.

The SIVA Model provides a demand/customer centric version alternative to the well-known
4Ps supply side model (product, price, place, promotion) of marketing management.

Product → Solution
Promotion → Information

Price → Value

Place → Access

The four elements of the SIVA model are:

1. Solution: How appropriate is the solution to the customer's problem/need?

2. Information: Does the customer know about the solution? If so, how and from whom
do they know enough to let them make a buying decision?
3. Value: Does the customer know the value of the transaction, what it will cost, what
are the benefits, what might they have to sacrifice, what will be their reward?
4. Access: Where can the customer find the solution? How easily/locally/remotely can
they buy it and take delivery?

This model was proposed by Chekitan Dev and Don Schultz in the Marketing Management
Journal of the American Marketing Association, and presented by them in Market Leader -
the journal of the Marketing Society in the UK.

The model focuses heavily on the customer and how they view the transaction.

Marketing plan
A marketing plan is a written document that details the necessary actions to achieve one or
more marketing objectives. It can be for a product or service, a brand, or a product line.
Marketing plans cover between one and five years.

A marketing plan may be part of an overall business plan. Solid marketing strategy is the
foundation of a well-written marketing plan. While a marketing plan contains a list of actions,
a marketing plan without a sound strategic foundation is of little use.

The marketing planning process

In most organizations, "strategic planning" is an annual process, typically covering just the
year ahead. Occasionally, a few organizations may look at a practical plan which stretches
three or more years ahead.

To be most effective, the plan has to be formalized, usually in written form, as a formal
`marketing plan'. The essence of the process is that it moves from the general to the specific;
from the overall objectives of the organization down to the individual action plan for a part of
one marketing programme. It is also an interactive process, so that the draft output of each
stage is checked to see what impact it has on the earlier stages - and is amended accordingly.

Marketing planning aims and objectives

Behind the corporate objectives, which in themselves offer the main context for the
marketing plan, will lay the 'corporate mission'; which in turn provides the context for these
corporate objectives. This `corporate mission' can be thought of as a definition of what the
organization is; of what it does: 'Our business is …'.

This definition should not be too narrow, or it will constrict the development of the
organization; a too rigorous concentration on the view that `We are in the business of making
meat-scales', as IBM was during the early 1900s, might have limited its subsequent
development into other areas. On the other hand, it should not be too wide or it will become
meaningless; `We want to make a profit' is not too helpful in developing specific plans.

Abell suggested that the definition should cover three dimensions: 'customer groups' to be
served, 'customer needs' to be served, and 'technologies' to be utilized . Thus, the definition of
IBM's `corporate mission' in the 1940s might well have been: `We are in the business of
handling accounting information [customer need] for the larger US organizations [customer
group] by means of punched cards [technology].' Perhaps the most important factor in
successful marketing is the `corporate vision'. Surprisingly, it is largely neglected by
marketing textbooks; although not by the popular exponents of corporate strategy - indeed, it
was perhaps the main theme of the book by Peters and Waterman, in the form of their
`Superordinate Goals'. 'In Search of Excellence' said: "Nothing drives progress like the
imagination. The idea precedes the deed." If the organization in general, and its chief
executive in particular, has a strong vision of where its future lies, then there is a good chance
that the organization will achieve a strong position in its markets (and attain that future). This
will be not least because its strategies will be consistent; and will be supported by its staff at
all levels. In this context, all of IBM's marketing activities were underpinned by its
philosophy of `customer service'; a vision originally promoted by the charismatic Watson
dynasty.

The emphasis at this stage is on obtaining a complete and accurate picture. In a single
organization, however, it is likely that only a few aspects will be sufficiently important to
have any significant impact on the marketing plan; but all may need to be reviewed to
determine just which 'are' the few.

In this context some factors related to the customer, which should be included in the material
collected for the audit, may be:

• Who are the customers?

• What are their key characteristics?

• What differentiates them from other members of the population?

• What are their needs and wants?

• What do they expect the `product' to do?

• What are their special requirements and perceptions?

• What do they think of the organization and its products or services?

 • What are their attitudes?

• What are their buying intentions?

A `traditional' - albeit product-based - format for a `brand reference book' (or, indeed, a
`marketing facts book') was suggested by Godley more than three decades ago:

1. Financial data --Facts for this section will come from management accounting,
costing and finance sections.
2. Product data --From production, research and development.
3. Sales and distribution data - Sales, packaging, distribution sections.
4. Advertising, sales promotion, merchandising data - Information from these
departments.
5. Market data and miscellany - From market research, who would in most cases act as a
source for this information.

His sources of data, however, assume the resources of a very large organization. In most
organizations they would be obtained from a much smaller set of people (and not a few of
them would be generated by the marketing manager alone). It is apparent that a marketing
audit can be a complex process, but the aim is simple: 'it is only to identify those existing
(external and internal) factors which will have a significant impact on the future plans of the
company'.

It is clear that the basic material to be input to the marketing audit should be comprehensive.
Accordingly, the best approach is to accumulate this material continuously, as and when it
becomes available; since this avoids the otherwise heavy workload involved in collecting it
as part of the regular, typically annual, planning process itself - when time is usually at a
premium. Even so, the first task of this `annual' process should be to check that the material
held in the current `facts book' or `facts files' actually 'is' comprehensive and accurate, and
can form a sound basis for the marketing audit itself.

The structure of the facts book will be designed to match the specific needs of the
organization, but one simple format - suggested by Malcolm McDonald - may be applicable
in many cases. This splits the material into three groups:

1. 'Review of the marketing environment'. A study of the organization's markets,

customers, competitors and the overall economic, political, cultural and technical
environment; covering developing trends, as well as the current situation.
2. 'Review of the detailed marketing activity'. A study of the company's marketing mix;
in terms of the 7 Ps - (see below)
3. 'Review of the marketing system'. A study of the marketing organization, marketing
research systems and the current marketing objectives and strategies.

The last of these is too frequently ignored. The marketing system itself needs to be regularly
questioned, because the validity of the whole marketing plan is reliant upon the accuracy of
the input from this system, and `garbage in, garbage out' applies with a vengeance.

• 'Portfolio planning'. In addition, the coordinated planning of the individual products

and services can contribute towards the balanced portfolio.
 • '80:20 rule'. To achieve the maximum impact, the marketing plan must be clear,
concise and simple. It needs to concentrate on the 20 per cent of products or services,
and on the 20 per cent of customers, which will account for 80 per cent of the volume
and 80 per cent of the `profit'.

• '7 Ps': Product, Place, Price and Promotion, Physical Environment, People, Process.
The 7 Ps can sometimes divert attention from the customer, but the framework they
offer can be very useful in building the action plans.

It is only at this stage (of deciding the marketing objectives) that the active part of the
marketing planning process begins'.

This next stage in marketing planning is indeed the key to the whole marketing process. The
marketing objectives state just where the company intends to be; at some specific time in
the future. James Quinn succinctly defined objectives in general as: "Goals (or objectives)
state 'what' is to be achieved and 'when' results are to be accomplished, but they do not state
'how' the results are to be achieved".

They typically relate to what products (or services) will be where in what markets (and must
be realistically based on customer behaviour in those markets). They are essentially about the
match between those 'products' and 'markets'. Objectives for pricing, distribution, advertising
and so on are at a lower level, and should not be confused with marketing objectives. They
are part of the marketing strategy needed to achieve marketing objectives.

To be most effective, objectives should be capable of measurement and therefore

'quantifiable'. This measurement may be in terms of sales volume, money value, market
share, percentage penetration of distribution outlets and so on. An example of such a
measurable marketing objective might be `to enter the market with product Y and capture 10
per cent of the market by value within one year'. As it is quantified it can, within limits, be
unequivocally monitored; and corrective action taken as necessary.

The marketing objectives must usually be based, above all, on the organization's financial
objectives; converting these financial measurements into the related marketing
measurements.

He went on to explain his view of the role of `policies', with which strategy is most often
confused: "Policies are rules or guidelines that express the 'limits' within which action should
occur.

Simplifying somewhat, marketing strategies can be seen as the means, or `game plan', by
which marketing objectives will be achieved and, in the framework that we have chosen to
use, are generally concerned with the 7 Ps. Examples are:

Price- The amount of money needed to buy products

Product- The actual product

Promotion (advertising)- Getting the product known

Placement- Where the product is located

People- Represent the business

Physical environment- The ambience, mood, or tone of the environment

Process- How do people obtain your product

In principle, these strategies describe how the objectives will be achieved. The 7 Ps are a
useful framework for deciding how the company's resources will be manipulated
(strategically) to achieve the objectives. It should be noted, however, that they are not the
only framework, and may divert attention from the real issues. The focus of the strategies
must be the objectives to be achieved - not the process of planning itself. Only if it fits the
needs of these objectives should you choose, as we have done, to use the framework of the 7
Ps.

The strategy statement can take the form of a purely verbal description of the strategic
options which have been chosen. Alternatively, and perhaps more positively, it might include
a structured list of the major options chosen.

One aspect of strategy which is often overlooked is that of 'timing'. Exactly when it is the best
time for each element of the strategy to be implemented is often critical. Taking the right
action at the wrong time can sometimes be almost as bad as taking the wrong action at the
right time. Timing is, therefore, an essential part of any plan; and should normally appear as a
schedule of planned activities.

Having completed this crucial stage of the planning process, you will need to re-check the
feasibility of your objectives and strategies in terms of the market share, sales, costs, profits
and so on which these demand in practice. As in the rest of the marketing discipline, you will
need to employ judgement, experience, market research or anything else which helps you to
look at your conclusions from all possible angles.

Detailed plans and programmes

At this stage, you will need to develop your overall marketing strategies into detailed plans
and programmes. Although these detailed plans may cover each of the 7 Ps, the focus will
vary, depending upon your organization's specific strategies. A product-oriented company
will focus its plans for the 7 Ps around each of its products. A market or geographically
oriented company will concentrate on each market or geographical area. Each will base its
plans upon the detailed needs of its customers, and on the strategies chosen to satisfy these
needs.

Again, the most important element is, indeed, that of the detailed plans; which spell out
exactly what programmes and individual activities will take place over the period of the plan
(usually over the next year). Without these specified - and preferably quantified - activities
the plan cannot be monitored, even in terms of success in meeting its objectives.

It is these programmes and activities which will then constitute the `marketing' of the
organization over the period. As a result, these detailed marketing programmes are the most
important, practical outcome of the whole planning process. These plans should therefore be:
 • Clear - They should be an unambiguous statement of 'exactly' what is to be done.

• Quantified - The predicted outcome of each activity should be, as far as possible,
quantified; so that its performance can be monitored.

• Focused - The temptation to proliferate activities beyond the numbers which can be
realistically controlled should be avoided. The 80:20 Rule applies in this context too.

• Realistic - They should be achievable.

• Agreed - Those who are to implement them should be committed to them, and agree
that they are achievable.

The resulting plans should become a working document which will guide the campaigns
taking place throughout the organization over the period of the plan. If the marketing plan is
to work, every exception to it (throughout the year) must be questioned; and the lessons
learned, to be incorporated in the next year's plan.

Content of the marketing plan

A marketing plan for a small business typically includes Small Business Administration
Description of competitors, including the level of demand for the product or service and the
strengths and weaknesses of competitors

1. Description of the product or service, including special features

2. Marketing budget, including the advertising and promotional plan
3. Description of the business location, including advantages and disadvantages for
marketing
4. Pricing strategy
5. Market Segmentation

Medium-sized and large organizations

1. Executive Summary
2. Situational Analysis
3. Opportunities / Issue Analysis - SWOT Analysis
4. Objectives
5. Strategy
6. Action Programme (the operational marketing plan itself for the period under
review)
7. Financial Forecast
8. Controls

In detail, a complete marketing plan typically includes:

1. Title page
2. Executive Summary
3. Current Situation - Macroenvironment
o economy
 o legal
o government
o technology
o ecological
o sociocultural
o supply chain
4. Current Situation - Market Analysis
o market definition
o market size
o market segmentation
o industry structure and strategic groupings
o Porter 5 forces analysis
o competition and market share
o competitors' strengths and weaknesses
o market trends
5. Current Situation - Consumer Analysis [4]
o nature of the buying decision
o participants
o demographics
o psychographics
o buyer motivation and expectations
o loyalty segments
6. Current Situation - Internal
o company resources
 financial
 people
 time
 skills
o objectives
 mission statement and vision statement
 corporate objectives
 financial objective
 marketing objectives
 long term objectives
 description of the basic business philosophy
o corporate culture
7. Summary of Situation Analysis
o external threats
o external opportunities
o internal strengths
o internal weaknesses
o Critical success factors in the industry
o our sustainable competitive advantage
8. Marketing research
o information requirements
o research methodology
o research results
9. Marketing Strategy - Product
o product mix
 o product strengths and weaknesses
 perceptual mapping
o product life cycle management and new product development
o Brand name, brand image, and brand equity
o the augmented product
o product portfolio analysis
 B.C.G. Analysis
 contribution margin analysis
 G.E. Multi Factoral analysis
 Quality Function Deployment
10. Marketing Strategy - segmented marketing actions and market share objectives
o by product,
o by customer segment,
o by geographical market,
o by distribution channel.
11. Marketing Strategy - Price
o pricing objectives
o pricing method (eg.: cost plus, demand based, or competitor indexing)
o pricing strategy (eg.: skimming, or penetration)
o discounts and allowances
o price elasticity and customer sensitivity
o price zoning
o break even analysis at various prices
12. Marketing Strategy - promotion
o promotional goals
o promotional mix
o advertising reach, frequency, flights, theme, and media
o sales force requirements, techniques, and management
o sales promotion
o publicity and public relations
o electronic promotion (eg.: Web, or telephone)
o word of mouth marketing (buzz)
o viral marketing
13. Marketing Strategy - Distribution
o geographical coverage
o distribution channels
o physical distribution and logistics
o electronic distribution
14. Implementation
o personnel requirements
 assign responsibilities
 give incentives
 training on selling methods
o financial requirements
o management information systems requirements
o month-by-month agenda
 PERT or critical path analysis
o monitoring results and benchmarks
o adjustment mechanism
 o contingencies (What if's)
15. Financial Summary
o assumptions
o pro-forma monthly income statement
o contribution margin analysis
o breakeven analysis
o Monte Carlo method
o ISI: Internet Strategic Intelligence
16. Scenarios
o Prediction of Future Scenarios
o Plan of Action for each Scenario
17. Appendix
o pictures and specifications of the new product
o results from research already completed

Measurement of Progress
The final stage of any marketing planning process is to establish targets (or standards) so that
progress can be monitored. Accordingly, it is important to put both quantities and timescales
into the marketing objectives (for example, to capture 20 per cent by value of the market
within two years) and into the corresponding strategies.

Changes in the environment mean that the forecasts often have to be changed. Along with
these, the related plans may well also need to be changed. Continuous monitoring of
performance, against predetermined targets, represents a most important aspect of this.
However, perhaps even more important is the enforced discipline of a regular formal review.
Again, as with forecasts, in many cases the best (most realistic) planning cycle will revolve
around a quarterly review. Best of all, at least in terms of the quantifiable aspects of the plans,
if not the wealth of backing detail, is probably a quarterly rolling review - planning one full
year ahead each new quarter. Of course, this does absorb more planning resource; but it also
ensures that the plans embody the latest information, and - with attention focused on them so
regularly - forces both the plans and their implementation to be realistic.

Plans only have validity if they are actually used to control the progress of a company: their
success lies in their implementation, not in the writing'.

Performance analysis
The most important elements of marketing performance, which are normally tracked, are:

Sales analysis

Most organizations track their sales results; or, in non-profit organizations for example, the
number of clients. The more sophisticated track them in terms of 'sales variance' - the
deviation from the target figures - which allows a more immediate picture of deviations to
become evident.. `Micro- analysis', which is a nicely pseudo-scientific term for the normal
management process of investigating detailed problems, then investigates the individual
elements (individual products, sales territories, customers and so on) which are failing to
meet targets.
Market share analysis

Few organizations track market share though it is often an important metric. Though absolute
sales might grow in an expanding market, a firm's share of the market can decrease which
bodes ill for future sales when the market starts to drop. Where such market share is tracked,
there may be a number of aspects which will be followed:

• overall market share

• segment share - that in the specific, targeted segment
• relative share -in relation to the market leaders
• annual fluctuation rate of market share

Expense analysis

The key ratio to watch in this area is usually the `marketing expense to sales ratio'; although
this may be broken down into other elements (advertising to sales, sales administration to
sales, and so on).

Financial Analysis

The `bottom line' of marketing activities should at least in theory, be the net profit (for all
except non-profit organizations, where the comparable emphasis may be on remaining within
budgeted costs). There are a number of separate performance figures and key ratios which
need to be tracked:

• gross contribution<>net profit

• gross profit<>return on investment
• net contribution<>profit on sales

There can be considerable benefit in comparing these figures with those achieved by other
organizations (especially those in the same industry); using, for instance, the figures which
can be obtained (in the UK) from `The Centre for Interfirm Comparison'. The most
sophisticated use of this approach, however, is typically by those making use of PIMS (Profit
Impact of Management Strategies), initiated by the General Electric Company and then
developed by Harvard Business School, but now run by the Strategic Planning Institute.

The above performance analyses concentrate on the quantitative measures which are directly
related to short-term performance. But there are a number of indirect measures, essentially
tracking customer attitudes, which can also indicate the organization's performance in terms
of its longer-term marketing strengths and may accordingly be even more important
indicators. Some useful measures are:

• market research - including customer panels (which are used to track changes over
time)
• lost business - the orders which were lost because, for example, the stock was not
available or the product did not meet the customer's exact requirements
• customer complaints - how many customers complain about the products or services,
or the organization itself, and about what
Use of Marketing Plans

A formal, written marketing plan is essential; in that it provides an unambiguous reference

point for activities throughout the planning period. However, perhaps the most important
benefit of these plans is the planning process itself. This typically offers a unique opportunity,
a forum, for `information-rich' and productively focused discussions between the various
managers involved. The plan, together with the associated discussions, then provides an
agreed context for their subsequent management activities, even for those not described in the
plan itself.

Budgets as Managerial Tools

The classic quantification of a marketing plan appears in the form of budgets. Because these
are so rigorously quantified, they are particularly important. They should, thus, represent an
unequivocal projection of actions and expected results. What is more, they should be capable
of being monitored accurately; and, indeed, performance against budget is the main (regular)
management review process.

The purpose of a marketing budget is, thus, to pull together all the revenues and costs
involved in marketing into one comprehensive document. It is a managerial tool that balances
what is needed to be spent against what can be afforded, and helps make choices about
priorities. It is then used in monitoring performance in practice.

The marketing budget is usually the most powerful tool by which you think through the
relationship between desired results and available means. Its starting point should be the
marketing strategies and plans, which have already been formulated in the marketing plan
itself; although, in practice, the two will run in parallel and will interact. At the very least, the
rigorous, highly quantified, budgets may cause a rethink of some of the more optimistic
elements of the plans.

Approaches to budgeting

Many budgets are based on history. They are the equivalent of `time-series' forecasting. It is
assumed that next year's budgets should follow some trend that is discernible over recent
history. Other alternatives are based on a simple `percentage of sales' or on `what the
competitors are doing'.

However, there are many other alternatives - Ven:

• Affordable - This may be the most common approach to budgeting. Someone,

typically the managing director on behalf of the board, decides what is a `reasonable'
promotional budget; what can be afforded. This figure is most often based on
historical spending. This approach assumes that promotion is a cost; and sometimes is
seen as an avoidable cost.
• Percentage of revenue - This is a variation of `affordable', but at least it forges a link
with sales volume, in that the budget will be set at a certain percentage of revenue,
and thus follows trends in sales. However, it does imply that promotion is a result of
sales, rather than the other way round.
Both of these methods are seen by many managements to be `realistic', in that they reflect the
reality of the business strategies as those managements see it. On the other hand, neither
makes any allowance for change. They do not allow for the development to meet emerging
market opportunities and, at the other end of the scale, they continue to pour money into a
dying product or service (the `dog').

• Competitive parity - In this case, the organization relates its budgets to what the
competitors are doing: for example, it matches their budgets, or beats them, or spends
a proportion of what the brand leader is spending. On the other hand, it assumes that
the competitors know best; in which case, the service or product can expect to be
nothing more than a follower.
• Zero-based budgeting - In essence, this approach takes the objectives, as set out in the
marketing plan, together with the resulting planned activities and then costs them out.
Differences between marketing and business plans.

Industrial marketing
Industrial marketing is the marketing of goods and services from one business to another.
The word "industrial" has connotations of heavy machinery, mining, construction etc. but
"industrial marketing" is not confined to these types of business activities. Broadly (and
inadequatly) marketing could be split into consumer marketing (B2C "Business to
Consumer") and industrial marketing (B2B "Business to Business").

B2B Business to Business (or "Industrial")

Typical examples of a B2B selling process are...

• An organization is seeking to build a new warehouse building. After carefully

documenting their requirements, it obtains three proposals from suitable construction
firms and after a long process of evaluation and negotiation it places an order with the
organization that it believes has offered the best value for money.
• An organization has significant need for legal services and obtains submissions from
two law firms. Analysis of the proposals and subsequent discussions determines that
there is no price advantage to placing all of the work with one firm and the decision is
made to split the work between the two firms based on an evaluation of each firm's
capabilities.
• A sales representative makes an appointment with a small organization that employs
22 people. He demonstrates a photocopier/fax/printer to the office administrator. After
discussing the proposal with the business owner it is decided to sign a contract to
obtain the machine on a fully maintained rental and consumables basis with an
upgrade after 2 years.

The main features of the B2B selling process are...

• Marketing is one-to-one in nature. It is relatively easy for the seller to identify a

prospective customer and to build a face-to-face relationship.
• High value considered purchase.
 • Purchase decision is typically made by a group of people ("buying team") not one
person.
• Often the buying/selling process is complex and includes many stages (for example;
request for expression of interest, request for tender, selection process, awarding of
tender, contract negotiations, and signing of final contract).
• Selling activities involve long processes of prospecting, qualifying, wooing, making
representations, preparing tenders, developing strategies and contract negotiations.

B2C Business to Consumer (or "Consumer")

Examples of the B2C selling/buying process are...

• A family are at home on a Sunday night and are watching television. An

advertisement appears that advertises home delivered pizza. The family decides to
order a pizza.
• Walking down a supermarket aisle, a single man aged in his early 30's sees a hair care
product that claims to reduce dandruff. He pick's the product and adds it to his
shopping cart.
• A pensioner visits her local shopping mall. She purchases a number of items including
her favourite brand of tea. She has bought the same brand of tea for the last 18 years.

The main features of the B2C selling process are...

• Marketing is one-to-many in nature. It is not practical for sellers to individually

identify the prospective customers nor meet them face-to-face.
• Lower value of purchase.
• Decision making is quite often impulsive (spur of the moment) in nature.
• Greater reliance on distribution (getting into retail outlets).
• More effort put into mass marketing (One to many).
• More reliance on branding.
• Higher use of main media (television, radio, print media) advertising to build the
brand and to achieve top of mind awareness.

Blurring between the definitions

As in all things, the definitions are not clear cut. For example, an organisation that sells
electronic components may seek to distribute its products through marketing channels),
and be selling relatively low value products. However, the final purchaser is still a
business. Equally there are big ticket items purchased by non-business consumers
(houses and motor vehicles being the obvious examples). However, even though these
definitions are blurred, sales and marketing activities aimed at B2B are distinctly
different from B2C (as outlined above).

Competitive tendering
Industrial marketing often involves competitive tendering (see tender, tendering). This is a
process where a purchasing organisation undertakes to procure goods and services from
suitable suppliers. Due to the high value of some purchases (for example buying a new
computer system, manufacturing machinery, or outsourcing a maintenance contract) and the
complexity of such purchases, the purchasing organisation will seek to obtain a number of
bids from competing suppliers and choose the best offering. An entire profession (strategic
procurement) that includes tertiary training and qualifications has been built around the
process of making important purchases. The key requirement in any competitive tender is to
ensure that...

• The business case for the purchase has been completed and approved.
• The purchasing organisation's objectives for the purchase are clearly defined.
• The procurement process is agreed upon and it conforms with fiscal guidelines and
organisational policies.
• The selection criteria have been established.
• A budget has been estimated and the financial resources are available.
• A buying team (or committee) has been assembled.
• A specification has been written.
• A preliminary scan of the market place has determined that enough potential suppliers
are available to make the process viable (this can sometimes be achieved using an
expression of interest process).
• It has been clearly established that a competitive tendering process is the best method
for meeting the objectives of this purchasing project. If (for example) it was known
that there was only one organisation capable of supplying; best to get on with talking
to them and negotiating a contract.

Because of the significant value of many purchases, issues of probity arise. Organisations
seek to ensure that awarding a contract is based on "best fit" to the agreed criteria, and not
bribery, corruption, or incompetence.

Bidding process

Suppliers who are seeking to win a competitive tender go through a bidding process. At its
most primitive, this would consist of evaluating the specification (issued by the purchasing
organisation), designing a suitable proposal, and working out a price. This is a "primitive"
approach because...

• There is an old saying in industrial marketing; "if the first time you have heard about
a tender is when you are invited to submit, then you have already lost it."
• While flippant, the previous point illustrates a basic requirement for being successful
in competitive tendering; it is important to develop a strong relationship with a
prospective customer organisation well before they have started the formal part of
their procurement process.
• Non-tender purchasing

Not all industrial sales involve competitive tendering. Tender processes are time consuming
and expensive, particularly when executed with the aim of ensuring probity. Government
agencies are particularly likely to utilise elaborate competitive tendering processes due to the
expectation that they should be seen at all times to be responsibly and accountably spending
public monies. Private companies are able to avoid the complexity of a fully transparent
tender process but are still able to run the procurement process with some rigour.

Developing a sales strategy/solution selling/technical

selling
The "art" of technical selling (solution selling) follows a three stage process...

• Stage 1: Sell the appointment: Never sell over the telephone. The aim of the first
contact with a propsective purchaser is to sell the appointment. The reason is simple;
industrial sales are complex, any attempt to sell over the phone will trivialise your
product or service and run the risk of not fully understanding the customer's need.
• Stage 2: Understand their needs: The best method of selling is to minimise the
information about your goods or services until you have fully understood your
customer's requirements.
• Stage 3: Develop and propose a solution. The solution is (of course) developed from
your (or the firm that you represent's) product or service offerings.

The important point about solution selling is that it is essential not to sell the solution before
you understand the customer's requirements; otherwise you are highly likely to unwittingly
sell them on how ill-suited your solution is to meeting their requirements. To illustrate;
imagine a couple seeking the services of an architect start their first meeting with the
inevitable "we want to build a house." If the architect leapt in at that point and proceeded to
show them his favourite design influence "the Mediterranean look" only to discover that they
hate "Mediterranean" and wanted something "a bit more Frank Lloyd Wright" he will have
gone most of the way toward alienating the sale. You can see that if he had "kept his powder
dry" for a bit longer and first discovered what they were looking for, he could have better
understood which way to skew his pitch. He was equally capable of designing in a Frank
Lloyd Wright style.

The marketing function is able to support this solution sell through tactics like account-based
marketing – understanding the requirements of a specific target organization and building a
marketing program around these. As research shows, sales success is heavily weighted
towards suppliers who can understand their audience before selling to them (in UK research,
77 per cent of senior decision-makers believe that the marketing approaches made by new
suppliers are poorly targeted and make it easy to justify staying with their current supplier).

From cannon fodder to preferred tenderer

The term "cannon fodder" derives from the World Wars and refers to the massing of
undertrained and recently recruited troops sent to the fronts to face the enemy. It was noted
that such troops invariably had a short survival rate but provided the tactical advantage of
distracting the enemy while professional soldiers mounted a flanking manoeuvre and came
around from the side or from behind the enemy. In adopting the term to Industrial Marketing
it means those bids being submitted that have no chance of winning but are involved to make
up the numbers (you can't have only one bid in a "competitive" tender process; that wouldn't
satisfy the requirements of probity (for example in government tenders, or for private
enterprise the requirement to "truly test the market" and to "keep them honest"). The reader
might be wondering why anybody would go to all of the work of submitting a tender when
they had no chance of winning; for the same reason that troops were sent in to battle to die;
they thought they had a real chance.

The key features of a successful industrial sales organisation

In industrial marketing the personal selling is still very effective because many products must
be customized to suit the requirements of the individual customer. Indicators such as the sales
tunnel give information on the expected sales in the near future, the hit rate indicates whether
the sales organization is busy with promising sales leads or it is spending too much effort on
projects that are eventually lost to the competition or that are abandoned by the prospect.

The internet and B2B marketing

The "dotcom" boom and bust of the late 90's saw significant attempts to develop a new
retailing business model; on-line shopping. Many entrepreneurs (and their investors)
discovered that merely having a website (no matter how innovative) was insufficient to
generate sales; the amount of conventional main media advertising required to promote the
sites burnt cash at a faster rate than they could generate through on-line sales. They also
presumed that consumers would eschew the irksome shopping experience (driving, parking,
poor service etc.) for the wonder and convenience of shopping on-line. Some did; but not in
sufficient numbers. There were many unforeseen problems and apart from some notable
exceptions (Amazon.com and others) the B2C online model was a spectacular failure.
However, the same cannot be said of B2B selling where some quite impressive results have
been achieved.

Guerrilla marketing
The term guerrilla marketing was coined by Jay Conrad Levinson in his 1984 book
Guerrilla Marketing as an unconventional system of promotions on a very low budget, by
relying on time, energy and imagination instead of big marketing budgets. The term has since
entered the popular vocabulary to also describe aggressive, unconventional marketing
methods generically.

Introduction
Levinson's books include hundreds of "Guerrilla Marketing weapons," but they also
encourage the guerrilla marketeer to be creative and devise his own unconventional methods
of promotion. The marketeer uses all of his or her contacts, both professional and personal,
and must examine his company and its products, looking for sources of publicity. Many
forms of publicity can be very inexpensive, others are free.
Levinson says that when implementing guerrilla marketing tactics, small size is actually an
advantage instead of a disadvantage. Small businesses and entrepreneurs are able to obtain
publicity more easily than large companies; they are closer to their customers and
considerably more agile.

Yet ultimately, according to Levinson, the Guerrilla Marketeer must "deliver the goods". In
The Guerrilla Marketing Handbook, he states: "In order to sell a product or a service, a
company must establish a relationship with the customer. It must build trust and support. It
must understand the customer's needs, and it must provide a product that delivers the
promised benefits."

Levinson identifies the following principles as the foundation of guerrilla marketing:

• Guerrilla Marketing is specifically geared for the small business and entrepreneur.
• It should be based on human psychology instead of experience, judgment, and
guesswork.
• Instead of money, the primary investments of marketing should be time, energy, and
imagination.
• The primary statistic to measure your business is the amount of profits, not sales.
• The marketer should also concentrate on how many new relationships are made each
month.
• Create a standard of excellence with an acute focus instead of trying to diversify by
offering too many diverse products and services.
• Instead of concentrating on getting new customers, aim for more referrals, more
transactions with existing customers, and larger transactions.
• Forget about the competition and concentrate more on cooperating with other
businesses.
• Guerrilla Marketers should always use a combination of marketing methods for a
campaign.
• Use current technology as a tool to empower your business.

Associated marketing trends

The term Guerrilla Marketing is now often used more loosely as a descriptor for non-
traditional media, such as:

• Viral marketing -- through social networks

• Ambient marketing
• Presence marketing
• Grassroots marketing
• Wild Posting Campaigns
• Alternative marketing
• Buzz marketing -- word of mouth marketing
• Undercover marketing -- subtle product placement
• Astroturfing -- releasing company news to imitate grassroots popularity
• Experiential marketing -- interaction with product
• Tissue-pack marketing
Guerrilla marketing was initially used by small and medium size (SMEs) businesses, but it is
now increasingly adopted by large businesses.

Controversy
Aqua Teen Hunger Force

On 31 January 2007, several guerrilla-marketing magnetic light displays in and around the
city of Boston, Massachusetts, were mistaken for possible explosive devices. Several subway
stations, bridges, and a portion of Interstate 93 were closed as police examined, removed, and
in some cases, destroyed the devices. The suspicious objects were revealed to be ads
depicting the Mooninites, Ignignokt and Err, characters from the Cartoon Network's latenight
Adult Swim animated television series Aqua Teen Hunger Force.

Messages On Hold Cricket

In December 2007, a staff member of on hold advertising company, took a life-size placard
of cricket legend Shane Warne wearing a branded t-shirt and the company’s tell-tale ‘giant
hand’ outside the West Australian Cricket Ground at the 3rd Ashes Test. The act of ambush
marketing was noticed and the staff member issued a fine for ‘displaying a sign without a
permit’, sparking a nationwide debate over wearing clothing with brand names.

MARKET Segmentation
In order to better manage the marketing effort and to satisfy the needs and wants of
customers, many firms place consumers into groups, a process called market segmentation. In
this process, potential customers are categorized based on different needs, characteristics, or
behaviors. Market segments are evaluated as to their attractiveness or potential for generating
revenue for the firm. Four factors are generally reviewed to determine the potential of a
particular market segment. Effective segments are measurable, accessible, substantial, and
actionable. Measurability is the degree to which a market segment's size and purchasing
power can be measured. Accessibility refers to the degree to which a market segment can be
reached and served. Substantiality refers to the size of the segment in term of profitability for
the firm. Action ability refers to the degree to which a firm can design or develop a product to
serve a particular market segment.

Consumer characteristics are used to segment markets into workable groups. Common
characteristics used for consumer categorizations include demographic, geographic,
psychographic, and behavioral segmentation. Demographic segmentation categorizes
consumers based on such characteristics as age, gender, income level, and occupation. It is
one of the most popular methods of segmenting potential customers because it makes it
relatively easy to identify potential customers. Categorizing consumers according to their
locations is called geographic segmentation. Consumers can be segmented geographically
according to the nations, states, regions, cities, or neighborhoods in which they live, shop,
and/or work. Psychographic segmentation uses consumers' activities, interests, and opinions
to sort them into groups. Social class, lifestyle, or personality characteristics are
psychographic variables used to categorize consumers into different groups. In behavioral
segmentation, marketers divide consumers into groups based on their knowledge, attitudes,
uses, or responses to a product.
Once the potential market has been segmented, firms need to station their products relative to
similar products of other producers, a process called product positioning. Market positioning
is the process of arranging a product so as to engage the minds of target consumers. Firm
managers position their products in such a way as to distinguish it from those of competitors
in order to gain a competitive advantage in the marketplace. The position of a product in the
marketplace must be clear, distinctive, and desirable relative to those of its competitors in
order for it to be effective.

Coverage Strategies
There are three basic market-coverage strategies used by marketing managers:
undifferentiated, differentiated, and concentrated. An undifferentiated marketing strategy
occurs when a firm focuses on the common needs of consumers rather than their different
needs. When using this strategy, producers design products to appeal to the largest number of
potential buyers. The benefit of an undifferentiated strategy is that it is cost-effective because
a narrow product focus results in lower production, inventory, and transportation costs. A
firm using a differentiated strategy makes a conscious decision to divide and target several
different market segments, with a different product geared to each segment. Thus, a different
marketing plan is needed for each segment in order to maximize sales and, as a result,
increase firm profits. With a differentiated marketing strategy, firms create more total sales
because of broader appeal across market segments and stronger position within each segment.
The last market coverage strategy is known as the concentrated marketing strategy. The
concentrated strategy, which aims to serve a large share of one or a very few markets, is best
suited for firms with limited resources. This approach allows firms to obtain a much stronger
position in the segments it targets because of the greater emphasis on these targeted
segments. This greater emphasis ultimately leads to a better understanding of the needs of the
targeted segments.

Britannica Concise Encyclopedia: marketing Activities that direct the flow of goods and
services from producers to consumers. In advanced industrial economies, marketing
considerations play a major role in determining corporate policy. Once primarily concerned
with increasing sales through advertising and other promotional techniques, corporate
marketing departments now focus on credit policies (see credit), product development,
customer support, distribution, and corporate communications. Marketers may look for
outlets through which to sell the company's products, including retail stores, direct-mail
marketing, and wholesaling. They may make psychological and demographic studies of a
potential market, experiment with various marketing strategies, and conduct informal
interviews with target audiences. Marketing is used both to increase sales of an existing
product and to introduce new products.

Mass Marketing

Spurred by a communications revolution and the completion of a national railroad network

that by 1900 consisted of more miles of track than the rest of the world combined, a national
mass market emerged. Technological innovation mushroomed, and a small number of firms
realized economies of scale previously undreamed of. Giant corporations (or a small cluster
of corporations) dominated single industries. Companies were able to produce goods in high
volume at low prices. By 1900, firms followed the logic of mass production as they sought to
create a "democracy of desire" by universalizing the availability of products.
Mass production required the development of mass marketing as well as modern
management, a process spurred by analysis of the depression of the 1870s, when unsold
inventory was blamed in part for the depth of the crisis, and the depression of the 1890s,
when the chaos of market competition spurred efforts to make the market more predictable
and controllable.

As the mass market emerged, manufacturers and retailers developed a range of instruments to
shape and mold the market. National brand names like the Singer Sewing Machine from the
1860s, Coca-Cola from the 1890s, Wrigley's Chewing Gum after 1907, and Maxwell House
coffee around the same time heralded the "golden age of brand names." Advertising also
came into its own during the early decades of the twentieth century. The first advertising
agency was established in 1869 as N. W. Ayer and Son. John Wanamaker placed the first
full-page advertisement in a newspaper in 1879. Advertising media were powerfully
supplemented by the use of subway cars, electric trolleys, trams, billboards, and the explosion
in magazine sales. Further developments came after the 1890s with flashing electric signs,
and in 1912 "talking signs" that allowed copy to move swiftly along boards from right to left
first appeared on Broadway in New York City. By 1910, photo technology and color
lithography revolutionized the capacity to reproduce images of all kinds.

Forward integration into wholesaling also aided mass marketing, beginning in the 1870s and
1880s with meat packers like Gustavus Swift. Franchise agreements with retailers were one
key to the success of companies such as Coca-Cola. Another feature in the success of mass
marketing was the creation and implementation of sales programs made possible by the
spread of modern management structures and the division of corporate functions. In 1911,
with the appointment of its first director of commercial research, the Curtis Publishing
Company instituted the systematic analysis of carefully collected data. Hart, Shafner, and
Marx became the largest manufacturer of men's suits in America by the 1910s through
research that suggested producing suits for fourteen different male body types and
psychographic appeals in its advertising. During and after the 1920s, as the social sciences
matured, sweeping improvements in statistical methodology, behavioral science, and
quantitative analysis made market research more important and accurate. Through these
means—as well as coherent production and marketing plans—a mass market was created by
World War II. However, consumerism as understood in the beginning of the twenty-first
century did not triumph until after 1950.

Market Segmentation

The final stage of the twentieth-century market in America has been characterized as "market
segmentation." Fully developed in the 1970s and 1980s, firms sought competitive advantage
through the use of demographics and psychographics to more accurately pinpoint and
persuade consumers of their products. Price was determined not so much by how cheaply
something could be sold, but more by the special value a particular market placed upon the
goods, independent of production costs.

General Motors (GM) pioneered market segmentation in the 1920s, as it fought and beat Ford
for the biggest market share of the booming automobile business. Henry Ford was an
exemplar of mass marketing. He had pioneered the marketing of the automobile so that it
could be within the reach of almost all Americans. Standardized models were produced
quickly, identically, and only in black, which dropped the cost of car buying from $600 in
1905 to $290 by 1924. In nineteen years of production, his Model T sold to 15.5 million
customers. By 1924, thanks largely to Ford, the number of cars produced in the United States
was greater than 4 million, compared to 180,000 in 1910. Due to his methods, by 1921 Ford
sold 55 percent of all new cars in America. In trying to compete with Ford, GM first tried
merging with rivals to create a larger market force, but then embraced individuality. It was in
the 1920s that annual modifications to automobile models were introduced. GM made not
one model to suit all, but a number of different models to suit differing pocketbooks. It
looked at the market not as an undifferentiated whole, but as a collection of segments with
differing requirements and desires to be satisfied. GM made the ownership of automobiles
both a status symbol and stylish. By 1927, Ford's market share had been cut to 25 percent,
and Ford was forced to retool and try to catch up with GM.

By the 1960s, as consumer values shifted because of social change, marketers and advertisers
sought ways to reach a more segmented society. Generational differences became much more
important. Further changes, after 1970, meant that marketers needed to be much more
sensitive to the differences between groups of Americans and their values. Serious foreign
competition in American markets during the 1970s and 1980s also spurred innovation in
market research, product design, and marketing generally. Television's Nielsen ratings
offered one instrument, and more sophisticated polling techniques another. The ability to
identify who watched what shows according to age, gender, and ethnic background led to
more targeted advertising and a leap in TV advertising, from $12 billion in 1960 to $54.5
billion in 1980. By 1985, advertisers had developed eight consumer clusters for women
alone, and over forty lifestyle groups.

By the 1990s, children, teens, and seniors were similarly analyzed. In 1997, it was estimated
that "kid power" accounted for sales of over $200 billion per year. Age segmentation among
children received particular attention, as researchers took into account neurological, social,
emotional, and moral development. Testing determined the relative perception of visual and
verbal information at different ages and developmental stages. Humor and gender differences
were also studied to make marketing more successful. Deregulation of children's
programming in the 1980s led to cartoons becoming merchandising vehicles. By 1987, about
60 percent of all toys sold in the United States were based on licensed characters from
television, movies, or books.

Market research also determined the kinds of junk mail that went to each individual and how
advertising would appear on the Internet or on television. During the 1980s and 1990s, more
sophisticated research developed as patterns of credit card spending were analyzed, television
was deregulated into cable and satellite channels, and Internet usage was identified.

Despite the end of a long post–World War II economic expansion, after 1970 consumer
spending continued to grow, largely the result of consumerism; newer, easier forms of
obtaining credit; and segmented marketing; which seized a generation of Americans who
were born into the first generalized age of affluence in America. Consumer spending jumped
from $70.8 billion in 1940 to $617 billion in 1970. The U.S. Census Bureau reported in 2001
that retail sales just for the fourth quarter accounted for $861 billion, a remarkable figure,
given the slowdown in economic growth in the preceding thirty years.

The development of marketing during the twentieth century matched and aided American
economic growth and was symbiotic with the triumph of consumerism. The creation of a
"democracy of desire" came to characterize American society and its values. It was a
distinctive quality that influenced the attitudes of the rest of the world toward the United
States, as the strength of marketing smoothed its economic dominance around the planet.

in economics, that part of the process of production and exchange that is concerned with the
flow of goods and services from producer to consumer. In popular usage it is defined as the
distribution and sale of goods, distribution being understood in a broader sense than the
technical economic one. Marketing includes the activities of all those engaged in the transfer
of goods from producer to consumer—not only those who buy and sell directly, wholesale
and retail, but also those who develop, warehouse, transport, insure, finance, or promote the
product, or otherwise have a hand in the process of transfer. In a modern capitalist economy,
where nearly all production is intended for a market, such activities are just as important as
the manufacture of the goods. It is estimated in the United States that approximately 50% of
the retail price paid for a commodity is made up of the cost of marketing.

Evolution of Modern Marketing

In a subsistence-level economy there is little need for exchange of goods because the division
of labor is at a rudimentary level: most people produce the same or similar goods.
Interregional exchange between disparate geographic areas depends on adequate means of
transportation. Thus, before the development of caravan travel and navigation, the exchange
of the products of one region for those of another was limited. The village market or fair, the
itinerant merchant or peddler, and the shop where customers could have such goods as shoes
and furniture made to order were features of marketing in rural Europe. The general store
superseded the public market in England and was an institution of the American country
town.

In the United States in the 19th cent. the typical marketing setup was one in which
wholesalers assembled the products of various manufacturers or producers and sold them to
jobbers and retailers. The independent store, operated by its owner, was the chief retail
marketing agency. In the 20th cent. that system met stiff competition from chain stores,
which were organized for the mass distribution of goods and enjoyed the advantages of large-
scale operation. Today large chain stores dominate the field of retail trade. The concurrent
advent of the motor truck and paved highway, making possible the prompt delivery of a
variety of goods in large quantities, still further modified marketing arrangement, and the
proliferation of the automobile has expanded the geographic area in which a consumer can
make retail purchases.

Modern Marketing

At all points of the modern marketing system people have formed associations and eliminated
various middlemen in order to achieve more efficient marketing. Manufacturers often
maintain their own wholesale departments and deal directly with retailers. Independent stores
may operate their own wholesale agencies to supply them with goods. Wholesale houses
operate outlets for their wares, and farmers sell their products through their own wholesale
cooperatives. Recent years have seen the development of wholesale clubs, which sell retail
items to consumers who purchase memberships that give them the privilege of shopping at
wholesale prices. Commodity exchanges, such as those of grain and cotton, enable businesses
to buy and sell commodities for both immediate and future delivery.
Methods of merchandising have also been changed to attract customers. The one-price
system, probably introduced (1841) by A. T. Stewart in New York, saves sales clerks from
haggling and promotes faith in the integrity of the merchant. Advertising has created an
international market for many items, especially trademarked and labeled goods. In 1999 more
than $308 billion was spent on advertising in the United States alone. The number of
customers, especially for durable goods, has been greatly increased by the practice of
extending credit, particularly in the form of installment buying and selling. Customers also
buy through mail-order catalogs (much expanded from the original catalog sales business of
the late 1800s), by placing orders to specialized “home-shopping” television channels, and
through on-line transactions (“e-commerce”) on the Internet.

Services are marketed in much the same manner as goods and commodities. Sometimes a
service, like that of a repair person or physician, is marketed through the same act that
produces it. Personal services may also be brokered by employment agencies, booking agents
for concert or theatrical performers, travel agents, and the like. Methods of marketing now
include market research, motivational research, and other means of determining consumer
acceptability of a product before the producer decides to manufacture and market it on a large
scale. Market research, often conducted by means of telephone interviews with consumers, is
a major industry in itself, with the top 50 U.S. marketing firms tallying revenues of $5.9
billion in 1998..

Criticism of marketing
Some aspects of marketing, especially promotion, are the subject of criticism. It is especially
problematic in classical economic theory, which is based on the assumption that supply and
demand are independent. However, product promotion is an attempt coming from the supply
side to influence demand. In this way producer market power is attained as measured by
profits that would not be realized under a free market. Then the argument follows that non-
free markets are imperfect and lead to production and consumption of suboptimal amounts of
the product.

Critics acknowledge that marketing has legitimate uses in connecting goods and services to
the consumers who want them. Critics also point out that marketing techniques have been
used to achieve morally dubious ends by businesses, governments and criminals. Critics see a
systemic social evil inherent in marketing. Marketing is accused of creating ruthless
exploitation of both consumers and workers by treating people as commodities whose
purpose is to consume.

Most marketers believe that marketing techniques themselves are amoral. While it is ethically
neutral, it can be used for negative purposes, such as selling unhealthy food to obese people
or selling SUVs in a time of global warming, but it can also have a positive influence on
consumer welfare.

The Observer’s survey among 1,206 UK adult consumers in 2001 highlighted some of the
stark changes our society has gone through in the last two decades. This raises a question on
the effectiveness of the CIM’s definition of marketing (anticipating, identifying and
satisfying customer needs profitably), mainly in consumer marketing. There are similar
concerns in industrial markets, also known as business-to-business or B2B. Industrial market
segmentation attempts to provide some answers.
Core marketing elements such as segmentation, targeting and positioning are still relevant in
the modern (or post-modern) world. However, they are complex topics that need a high level
of effort, intelligent thinking as well as resources to be implemented successfully. A
definitive statement cannot be made whether the conventional marketing concept is
applicable in today’s environment. Its relevance is very much situational and depends on
many factors such as the product, the segment, time, location, political and economic
conditions and the inner workings of a company.

However, some scholars such as Stephen Brown challenge the marketing concept in an
extreme language. Their statements, sometimes unfair, are relevant, which is why Post-
Modern Marketing 2 was chosen as a key reference point for this chapter.

On the one hand Brown makes positive statements about marketing, e.g. “marketing is
endowed with considerable personal charm and has enjoyed more than its fair share of
conquests” (Brown, 1998:16); and “indeed, the increasing academic attention that is being
devoted to marketing and consumption-related phenomena by non-business disciplines such
as sociology, anthropology and history; far from being the second-hand rose of the
scholarship, marketing is now something of a fashion leader’

On the other hand, he condemns marketing by saying “marketing has to decide whether to
expose its intellectual nakedness or press itself against the searing heat of postmodernism” ;
and using quotes such as “mid-life crisis” ; “in decline; failing; anachronistic; being
abandoned; no longer appropriate; in an unprecedented state of crisis; delivered nothing of
value; failure; confusion; misunderstanding; occasional inexplicable hitting of the jackpot”.

This apparent love-hate relationship is proof in itself that even a skeptics find it difficult to
deny the contribution that marketing has made and can make to customer satisfaction and
economic value. It has contributed to both customers’ and suppliers’ quality of life by
selecting profitable customer satisfaction as its sole objective. The marketing concept,
together with other business disciplines, helped the UK to make the transition from a 19th-
century manufacturing economy to a modern model of success in the service industry,
creating an economic growth period never seen before in the United Kingdom.

Marketing has helped create value through customized products, no-questions-asked refund
policies, comfortable cars, environmental attention, shopkeepers’ smile, and guaranteed
delivery dates. Even some government departments address the public not as ‘the Queen’s
subjects’ or ‘the applicants’ any more but as ‘customers.' Of course all of the above is done
for economic or political gain, for better or worse. Despite all this achievement, to dismiss
marketing as a failure is unfair.

Marketing also helps companies avoid unnecessary R&D, operational and sales costs by
helping to develop products because customers want them, not for the sake of innovation.
Another success is the now commonly implemented value-pricing principle, whereby a
product or service is sold for the price the customer is willing to pay, not on a cost-plus basis.
This way, both suppliers and customers get a fair deal.

In the context of segmentation, Brown suggests that “the traditional, linear, step-by-step
marketing model of analysis, planning, implementation and control no longer seems
applicable, appropriate or even pertinent to what is actually happening on the ground”. If Mr.
Brown had studied “the ground” before making his statement, he would have realised that
companies are successful the world over precisely because they implement this model.

They segment their markets, relate their products and services to them, define their value
proposition and serve their customers accordingly. Examples are General Electric, HSBC,
PriceWaterhouseCoopers, Smiths Aerospace, BAE Systems, BOC Edwards, Weir Group and
the BT Group to name but a few. A brief visit to their websites can make this point clear.

Stephen Brown also has a constructive suggestion: “I reckon we need more passion in
marketing, not less; it is time we banished banishing passion from works of marketing
scholarship”. This refers mainly to promotion, which is only one element within the
marketing concept. The truth is that marketing today leads the way in segmentation,
innovation, pricing, product management, distribution, and last but not least, promotion.

After all the contribution as well as further potential, to deny its successes and try to reduce it
to only promotion is a great injustice to the marketing profession as well as to academic
insight. Contrary to Brown’s suggestion in his final paragraph, we need objectivity, rigour,
quantification, models, relationships, paradigm shifts and (some application of) science.

Marketing Information Systems

To understand the proper role of information systems one must examine what managers do
and what information they need for decision making. We must also understand how
decisions are made and what kinds of decision problems can be supported by formal
information systems. One can then determine whether information systems will be valuable
tools and how they should be designed.

Chapter Objectives
This chapter has the purpose of leading the reader towards:

• An understanding of the different roles managers play and how marketing information
systems can support them in these roles

• An appreciation of the different types and levels of marketing decision making

• A knowledge of the major components of a marketing information system

• An awareness of the often under-utilised internal sources of information available to

enterprises

• An ability to clearly distinguish between marketing research and marketing intelligence,

and

• An understanding of the nature of analytical models within marketing information system.

Structure of the Chapter

The chapter opens with a wide-ranging discussion of the functions of management, the
various types and levels of decision that marketing managers must make. This then
comprises the first half of the chapter whilst the second pan deals with the main components
of a marketing information systems.. Internal reporting systems, marketing research
systems, marketing intelligence systems and analytical model banks are all discussed.

The Functions of Management

Clearly, information systems that claim to support managers cannot be built unless one
understands what managers do and how they do it. The classical model of what managers
do, espoused by writers in the 1920's, such as Henry Fayol, whilst intuitively attractive in
itself, is of limited value as an aid to information system design. The classical model
identifies the following 5 functions as the parameters of what managers do:

1. Planning
2. Organising
3. Coordinating
4. Deciding
5. Controlling

Such a model emphasises what managers do, but not how they do it, or why. More recently,
the stress has been placed upon the behavioural aspects of management decision making.
Behavioural models are based on empirical evidence showing that managers are less
systematic, less reflective, more reactive and less well organised than the classical model
projects managers to be. For instance, behavioural models describe 6 managerial
characteristics:

• High volume, high speed work

• Variety, fragmentation, brevity
• Issue preference current, ad hoc, specific
• Complex web of interactions, contacts
• Strong preference for verbal media.

Such behavioural models stress that managers work at an unrelenting pace and at a high
level of intensity. This is just as true for managers operating in the developing world as in the
developed world. The nature of the pressures may be different but there is no evidence that
they are any less intense. The model also emphasises that the activities of managers is
characterised by variety, fragmentation and brevity. There is simply not enough time for
managers to get deeply involved in a wide range of issues. The attention of managers
increase rapidly from one issue to another, with very little pattern. A problem occurs and all
other matters must be dropped until it is solved. Research suggests that a manager's day is
characterised by a large number of tasks with only small periods of time devoted to each
individual task.

Managers prefer speculation, hearsay, gossip in brief, current, up-to-date, although

uncertain information. Historical, certain, routine information receives less attention.
Managers want to work on issues that are current, specific and ad hoc.

Managers are involved in a complex and diverse web of contacts that together act as an
information system. They converse with customers, competitors, colleagues, peers,
secretaries, government officials, and so forth. In one sense, managers operate a network of
contacts throughout the organisation and the environment.
Several studies have found that managers prefer verbal forms of communication to written
forms. Verbal media are perceived to offer greater flexibility, require less effort and bring a
faster response. Communication is the work of the manager, and he or she uses whatever
tools are available to be an effective communicator.

Despite the flood of work, the numerous deadlines, and the random order of crises, it has
generally been found that successful managers appear to be able to control their own
affairs. To some extent, high-level managers are at the mercy of their subordinates, who
bring to their attention crises and activities that must be attended to immediately.
Nevertheless, successful managers are those who can control the activities that they choose
to get involved in on a day-to-day basis. By developing their own long-term commitments,
their own information channels, and their own networks, senior managers can control their
personal agendas. Less successful managers tend to be overwhelmed by problems brought
to them by subordinates.

Managerial Roles
Mintzberg suggests that managerial activities fall into 3 categories: interpersonal, information
processing and decision making. An important interpersonal role is that of figurehead for the
organisation. Second, a manager acts as a leader, attempting to motivate subordinates. Lastly,
managers act as a liaison between various levels of the organisation and, within each level,
among levels of the management team.

A second set of managerial roles, termed as informational roles, can be identified. Managers
act as the nerve centre for the organisation, receiving the latest, most concrete, most up-to-
date information and redistributing it to those who need to know.

A more familiar set of managerial roles is that of decisional roles. Managers act as
entrepreneurs by initiating new kinds of activities; they handle disturbances arising in the
organisation; they allocate resources where they are needed in the organisation; and they
mediate between groups in conflict within the organisation.

In the area of interpersonal roles, information systems are extremely limited and make only
indirect contributions, acting largely as a communications aid in some of the newer office
automation and communication-oriented applications. These systems make a much larger
contribution in the field of informational roles; large-scale MIS systems, office systems, and
professional work stations that can enhance a manager's presentation of information are
significant. In the area of decision making, only recently have decision support systems and
microcomputer-based systems begun to make important contributions.

While information systems have made great contributions to organisations, until recently
these contributions have been confined to narrow, transaction processing areas. Much work
needs to be done in broadening the impact of systems on professional and managerial life.

Decision Making
Decision making is often seen as the centre of what managers do, something that engages
most of a managers time. It is one of the areas that information systems have sought most
of all to affect (with mixed success). Decision making can be divided into 3 types: strategic,
management control and operations control.
Strategic decision making: This level of decision making is concerned with deciding on the
objectives, resources and policies of the organisation. A major problem at this level of
decision making is predicting the future of the organisation and its environment, and
matching the characteristics of the organisation to the environment. This process generally
involves a small group of high-level managers who deal with very complex, non-routine
problems.

For example, some years ago, a medium-sized food manufacturer in an East African country
faced strategic decisions concerning its range of pasta products. These products constituted
a sizeable proportion of the company's sales turnover. However, the company was suffering
recurrent problems with the poor quality of durum wheat it was able to obtain resulting in a
finished product that was too brittle. Moreover, unit costs were shooting up due to
increasingly frequent breakdowns in the ageing equipment used in pasta production. The
company faced the decision whether to make a very large investment in new machinery or
to accept the offer of another manufacturer of pasta products, in a neighbouring country, that
it should supply the various pasta products and the local company put its own brand name
on the packs. The decision is strategic since the decision has implications for the resource
base of the enterprise, i.e. its capital equipment, its work force, its technological base etc.
The implications of strategic decisions extend over many years, often as much as ten to
fifteen years.

Management control decisions: Such decisions are concerned with how efficiently and
effectively resources are utilised and how well operational units are performing.
Management control involves close interaction with those who are carrying out the tasks of
the organisation; it takes place within the context of broad policies and objectives set out by
strategic planners.

An example might be where a transporter of agricultural products observes that his/her

profits are declining due to a decline in the capacity utilisation of his/her two trucks. The
manager (in this case the owner) has to decide between several alternative courses of
action, including: selling of trucks, increasing promotional activity in an attempt to sell the
spare carrying capacity, increasing unit carrying charges to cover the deficit, or seeking to
switch to carrying products or produce with a higher unit value where the returns to transport
costs may be correspondingly higher. Management control decisions are more tactical than
strategic.

Operational control decisions: These involve making decisions about carrying out the "
specific tasks set forth by strategic planners and management. Determining which units or
individuals in the organisation will carry out the task, establishing criteria of completion and
resource utilisation, evaluating outputs - all of these tasks involve decisions about
operational control.

The focus here is on how the enterprises should respond to day-to-day changes in the
business environment. In particular, this type of decision making focuses on adaptation of
the marketing mix, e.g. how should the firm respond to an increase in the size of a
competitor's sales force? should the product line be extended? should distributors who sell
below a given sales volume be serviced through wholesalers rather than directly, and so on.

Within each of these levels, decision making can be classified as either structured or
unstructured. Unstructured decisions are those in which the decision maker must provide
insights into the problem definition. They are novel, important, and non-routine, and there is
no well-understood procedure for making them. In contrast, structured decisions are
repetitive, routine, and involve a definite procedure for handling them so that they do not
have to be treated each time as if they were new.
Structured and unstructured problem solving occurs at all levels of management. In the past,
most of the success in most information systems came in dealing with structured,
operational, and management control decisions. However, in more recent times, exciting
applications are occurring in the management and strategic planning areas, where problems
are either semi-structured or are totally unstructured.

Making decisions is not a single event but a series of activities taking place over time.
Suppose, for example, that the Operations Manager for the National Milling Corporation is
faced with a decision as to whether to establish buying points in rural locations for the grain
crop. It soon becomes apparent that the decisions are likely to be made over a period of
time, have several influences, use many sources of information and have to go through
several stages. It is worth considering the question of how, if at all, information systems
could assist in making such a decision. To arrive at some answer, it is helpful to break down
decision making into its component parts.

The literature has described 4 stages in decision making: intelligence, design, choice and
implementation. That is, problems have to be perceived and understood; once perceived
solutions must be designed; once solutions are designed, choices have to be made about a
particular solution; finally, the solution has to be implemented.

Intelligence involves identifying the problems in the organisation: why and where they occur
with what effects. This broad set of information gathering activities is required to inform
managers how well the organisation is performing and where problems exist. Management
information systems that deliver a wide variety of detailed information can be useful,
especially if they are designed to report exceptions. For instance, consider a commercial
organisation marketing a large number of different products and product variations.
Management will want to know, at frequent intervals, whether sales targets are being
achieved. Ideally, the information system will report only those products/product variations
which are performing substantially above or below target.

Designing many possible solutions to the problems is the second phase of decision making.
This phase may require more intelligence to decide if a particular solution is appropriate.
Here, more carefully specified and directed information activities and capabilities focused on
specific designs are required.

Choosing among alternative solutions is the third step in the decision making process. Here
a manager needs an information system which can estimate the costs, opportunities and
consequences of each alternative problem solution. The information system required at this
stage is likely to be fairly complex, possibly also fairly large, because of the detailed analytic
models required to calculate the outcomes of the various alternatives. Of course, human
beings are used to making such calculations for themselves, but without the aid of a formal
information system, we rely upon generalisation and/or intuition.

Implementing is the final stage in the decision making process. Here, managers can install a
reporting system that delivers routine reports on the progress of a specific solution, some of
the difficulties that arise, resource constraints, and possible remedial actions. Table 9.1
illustrates the stages in decision making and the general type of information required at each
stage.

Table 9.1 Stages in the decision making process

Stage of Decision Making Information Requirement

1 Intelligence Exception reporting
2 Design Simulation prototype
3 Choice "What-if simulation
4 Implementation Graphics, charts

In practice, the stages of decision making do not necessarily follow a linear path from
intelligence to design, choice and implementation. Consider again the problem of balancing
the costs and benefits of establishing local buying points for the National Milling Corporation.
At any point in the decision making process it may be necessary to loop back to a previous
stage. For example, one may have reached stage 3 and all but decided that having
considered the alternatives of setting up no local buying points, local buying points in all
regions, districts or villages, the government decides to increase the amounts held in the
strategic grain reserve. This could cause the parastatal to return to stage 2 and reassess the
alternatives. Another scenario would be that having implemented a decision one quickly
receives feedback indicating that it is not proving effective. Again, the decision maker may
have to repeat the design and/or choice stage(s).

Thus, it can be seen that information system designers have to take into account the needs
of managers at each stage of the decision making process. Each stage has its own
requirements.

Components of a marketing information system

A marketing information system (MIS) is intended to bring together disparate items of data
into a coherent body of information. An MIS is, as will shortly be seen, more than raw data or
information suitable for the purposes of decision making. An MIS also provides methods for
interpreting the information the MIS provides. Moreover, as Kotler's1 definition says, an MIS
is more than a system of data collection or a set of information technologies:

"A marketing information system is a continuing and interacting structure of people,

equipment and procedures to gather, sort, analyse, evaluate, and distribute pertinent, timely
and accurate information for use by marketing decision makers to improve their marketing
planning, implementation, and control".

Figure 9.1 illustrates the major components of an MIS, the environmental factors monitored
by the system and the types of marketing decision which the MIS seeks to underpin.

Figure 9.1 The marketing information systems and its subsystems

The explanation of this model of an MIS begins with a description of each of its four main
constituent parts: the internal reporting systems, marketing research system, marketing
intelligence system and marketing models. It is suggested that whilst the MIS varies in its
degree of sophistication - with many in the industrialised countries being computerised and
few in the developing countries being so - a fully fledged MIS should have these
components, the methods (and technologies) of collection, storing, retrieving and processing
data notwithstanding.

Internal reporting systems: All enterprises which have been in operation for any period of
time nave a wealth of information. However, this information often remains under-utilised
because it is compartmentalised, either in the form of an individual entrepreneur or in the
functional departments of larger businesses. That is, information is usually categorised
according to its nature so that there are, for example, financial, production, manpower,
marketing, stockholding and logistical data. Often the entrepreneur, or various personnel
working in the functional departments holding these pieces of data, do not see how it could
help decision makers in other functional areas. Similarly, decision makers can fail to
appreciate how information from other functional areas might help them and therefore do not
request it.

The internal records that are of immediate value to marketing decisions are: orders received,
stockholdings and sales invoices. These are but a few of the internal records that can be
used by marketing managers, but even this small set of records is capable of generating a
great deal of information. Below, is a list of some of the information that can be derived from
sales invoices.

• Product type, size and pack type by territory

• Product type, size and pack type by type of account
• Product type, size and pack type by industry
• Product type, size and pack type by customer
• Average value and/or volume of sale by territory
• Average value and/or volume of sale by type of account
• Average value and/or volume of sale by industry
• Average value and/or volume of sale by sales person

By comparing orders received with invoices an enterprise can establish the extent to which it
is providing an acceptable level of customer service. In the same way, comparing
stockholding records with orders received helps an enterprise ascertain whether its stocks
are in line with current demand patterns.

Marketing research systems: The general topic of marketing research has been the prime
' subject of the textbook and only a little more needs to be added here. Marketing research is
a proactive search for information. That is, the enterprise which commissions these studies
does so to solve a perceived marketing problem. In many cases, data is collected in a
purposeful way to address a well-defined problem (or a problem which can be defined and
solved within the course of the study). The other form of marketing research centres not
around a specific marketing problem but is an attempt to continuously monitor the marketing
environment. These monitoring or tracking exercises are continuous marketing research
studies, often involving panels of farmers, consumers or distributors from which the same
data is collected at regular intervals. Whilst the ad hoc study and continuous marketing
research differs in the orientation, yet they are both proactive.

Marketing intelligence systems: Whereas marketing research is focused, market

intelligence is not. A marketing intelligence system is a set of procedures and data sources
used by marketing managers to sift information from the environment that they can use in
their decision making. This scanning of the economic and business environment can be
undertaken in a variety of ways, including2

Unfocused The manager, by virtue of what he/she reads, hears and watches exposes him/herself to
scanning information that may prove useful. Whilst the behaviour is unfocused and the manager
has no specific purpose in mind, it is not unintentional

Semi-focused Again, the manager is not in search of particular pieces of information that he/she is
scanning actively searching but does narrow the range of media that is scanned. For instance, the
manager may focus more on economic and business publications, broadcasts etc. and
pay less attention to political, scientific or technological media.

Informal This describes the situation where a fairly limited and unstructured attempt is made to
search obtain information for a specific purpose. For example, the marketing manager of a firm
considering entering the business of importing frozen fish from a neighbouring country
may make informal inquiries as to prices and demand levels of frozen and fresh fish.
There would be little structure to this search with the manager making inquiries with
traders he/she happens to encounter as well as with other ad hoc contacts in ministries,
international aid agencies, with trade associations, importers/exporters etc.

Formal This is a purposeful search after information in some systematic way. The information
search will be required to address a specific issue. Whilst this sort of activity may seem to share
the characteristics of marketing research it is carried out by the manager him/herself
rather than a professional researcher. Moreover, the scope of the search is likely to be
narrow in scope and far less intensive than marketing research

Marketing intelligence is the province of entrepreneurs and senior managers within an

agribusiness. It involves them in scanning newspaper trade magazines, business journals
and reports, economic forecasts and other media. In addition it involves management in
talking to producers, suppliers and customers, as well as to competitors. Nonetheless, it is a
largely informal process of observing and conversing.

Some enterprises will approach marketing intelligence gathering in a more deliberate fashion
and will train its sales force, after-sales personnel and district/area managers to take
cognisance of competitors' actions, customer complaints and requests and distributor
problems. Enterprises with vision will also encourage intermediaries, such as collectors,
retailers, traders and other middlemen to be proactive in conveying market intelligence back
to them.

Marketing models: Within the MIS there has to be the means of interpreting information in
order to give direction to decision. These models may be computerised or may not. Typical
tools are:

• Time series sales modes

• Brand switching models
• Linear programming
• Elasticity models (price, incomes, demand, supply, etc.)
• Regression and correlation models
• Analysis of Variance (ANOVA) models
• Sensitivity analysis
• Discounted cash flow
• Spreadsheet 'what if models

These and similar mathematical, statistical, econometric and financial models are the
analytical subsystem of the MIS. A relatively modest investment in a desktop computer is
enough to allow an enterprise to automate the analysis of its data. Some of the models used
are stochastic, i.e. those containing a probabilistic element whereas others are deterministic
models where chance plays no part. Brand switching models are stochastic since these
express brand choices in probabilities whereas linear programming is deterministic in that
the relationships between variables are expressed in exact mathematical terms.

Chapter Summary
Marketing information systems are intended to support management decision making.
Management has five distinct functions and each requires support from an MIS. These are:
planning, organising, coordinating, decisions and controlling.

Information systems have to be designed to meet the way in which managers tend to work.
Research suggests that a manager continually addresses a large variety of tasks and is able
to spend relatively brief periods on each of these. Given the nature of the work, managers
tend to rely upon information that is timely and verbal (because this can be assimilated
quickly), even if this is likely to be less accurate then more formal and complex information
systems.

Managers play at least three separate roles: interpersonal, informational and decisional.
MIS, in electronic form or otherwise, can support these roles in varying degrees. MIS has
less to contribute in the case of a manager's informational role than for the other two.

Three levels of decision making can be distinguished from one another: strategic, control (or
tactical) and operational. Again, MIS has to support each level. Strategic decisions are
characteristically one-off situations. Strategic decisions have implications for changing the
structure of an organisation and therefore the MIS must provide information which is precise
and accurate. Control decisions deal with broad policy issues and operational decisions
concern the management of the organisation's marketing mix.

A marketing information system has four components: the internal reporting system, the
marketing research systems, the marketing intelligence system and marketing models.
Internal reports include orders received, inventory records and sales invoices. Marketing
research takes the form of purposeful studies either ad hoc or continuous. By contrast,
marketing intelligence is less specific in its purposes, is chiefly carried out in an informal
manner and by managers themselves rather than by professional marketing researchers.

Key Terms
Deterministic models
Internal reports
Marketing intelligence
Model banks
Operational decisions
Stochastic models
Strategic decisions
Tactical plans

Review Questions
1. What are stochastic models?
2. Name the four components of an MIS.
3. What were the functions of management that Henry Fayol identified?
4. To which management role does the textbook suggest MIS has least to contribute?
5. What are the 3 levels of decision making outlined in this chapter?
6. According to Kotler, what are the contributing elements to an MIS? it
7. Which elements of the marketing environment are mentioned in the chapter?
8. What differences are there between marketing research and marketing intelligence?

The Role Of Marketing Research

Chapter Objectives
Structure Of The Chapter
The role and limitations of marketing research
A definition of marketing research
The purpose of the research
Clear, concise, attainable, measurable and quantifiable objectives
The need to set a time horizon for marketing research
A reporting period
The research proposal
Step 1: Problem definition
Step 2: Hypothesis generation
Step 3: Decision on type of study
Step 4: Decision on data collection method
Step 5: Development of an analysis plan
Step 6: Data collection
Step 7: Analysis of data
Step 8: Drawing conclusions and making recommendations
Chapter Summary
Key Terms
Review Questions
Chapter References
In essence, management is about decision making. Decision is invariably surrounded by
uncertainties and, therefore, risks. Marketing research is charged with helping to reduce
such uncertainties, "...but will never remove it. At best, marketing research will increase the
probability that the decisions which management has to take will help attain the
organisation's marketing objectives.

Chapter Objectives
The objectives of this chapter are to:

• Define the role of marketing research in decision making

• Outline the contents of a research brief
• Outline the contents of a research proposal, and
• Explain in detail each of the principal steps in research design.

Structure Of The Chapter

This chapter begins by explaining the limitations of marketing research in so much that it
serves to reduce rather than remove the risks attendant to decision making. The discussion
proceeds to an outline of the research brief which has to be drawn up for the guidance of the
individual or group charged with executing the study. At this point, the researcher has to
respond to the brief with a research design. In this text an eight step research design is
proposed and the reader will find a fairly thorough discussion of each of these steps within
the chapter.

The role and limitations of marketing research

"Marketing research does not make decisions and it does not guarantee success". Marketing
managers may seek advice from marketing research specialists, and indeed it is important
that research reports should specify alternative courses of action and the probability of
success, where possible, of these alternatives. However, it is marketing managers who
make the final marketing decision and not the researcher. The second observation, that
marketing research does not guarantee success, is simply a recognition of the environment
within which marketing takes place. In the fields of science and engineering researchers are
often working with deterministic models of the world where y = f(x). That is, x is a necessary
and sufficient condition for y to occur. For instance, an increase in pressure is usually
necessary and sufficient to bring about a rise in air temperature. In the social sciences, and
this includes marketing and marketing research, the phenomenon under investigation rarely,
if ever, lends itself to deterministic modelling. Consider the marketing problem of determining
how much to spend on promotion in order to achieve a given market share. The link
between promotional expenditure and sales is not so direct as that between pressure and
temperature. There are a great many more intervening variables, including: the media used,
the effectiveness of the promotional message, the length and frequency of the campaign,
not to mention the many dimensions of the product, price and distribution. Marketing
researchers work with probabilistic models of the form:

y = f(x1)..(fx2)...f(xn)...

This reflects the fact that in order for a target market share to be reached some promotion
(amount unknown) is necessary but will not be sufficient, on its own, to achieve the target.
Y is a function of a number of variables and the interactions between them. The model is
further complicated by the fact that these interactions are themselves often not understood.
It is for these reasons that marketing researchers cannot guarantee that decisions based on
their information will always prove 'successful'. Rather the best that a competent researcher
and a well designed study will be able to offer is a reduction in the amount of uncertainty
surrounding the decision.

A definition of marketing research

Green and Tull1 have defined marketing research as follows:

"Marketing research is the systematic and objective search for, and analysis of, information
relevant to the identification and solution of any problem in the field of marketing."

The key words in this definition are; systematic, objective and analysis. Marketing research
seeks to set about its task in a systematic and objective fashion. This means that a detailed
and carefully designed research plan is developed in which each stage of the research is
specified. Such a research plan is only considered adequate if it specifies: the research
problem in concise and precise terms, the information necessary to address the problem,
the methods to be employed in gathering the information and the analytical techniques to be
used to interpret it.

Maintaining objectivity in marketing research is essential if marketing management is to have

sufficient confidence in its results to be prepared to take risky decisions based upon those
results. To this end, as far as possible, marketing researchers employ the scientific method.
The characteristics of the scientific method are that it translates personal prejudices, notions
and opinions into explicit propositions (or hypotheses). These are tested empirically. At the
same time alternative explanations of the event or phenomena of interest are given equal
consideration.

Not many years ago an agricultural engineering company developed an improved rice milling
machine. The machine was introduced into Thailand where existing rice milling machines
were of a design which resulted in a high percentage of brokens (broken kernels). The new
rice mill produced a negligible percentage of brokens. Intuitively a successful product would
be predicted, launched with hardly any need for marketing research when the new mill had
such obvious advantages over existing products. The agricultural engineering company went
through the expensive and time-consuming process of importing the machine into Thailand.
They set up extensive distribution and servicing facilities only to be surprised when the mill
failed to gain acceptance. In Thailand, smallholders take their rice to a miller.

Since they do not have sufficient cash to pay for milling their rice they get paid in 'brokens'.
The miller then sells the 'brokens' for animal feed. The more effective milling machine simply
did not fit into the Thai rice processing system. The company's assessment of the market
was hardly objective. They saw the 'brokens' as a problem which their product solved. The
prospective customer did not see it as a problem at all.

The third of the key terms in the definition given a little earlier was analytical. The marketing
researcher's task goes beyond the collecting of data. He/she must also interpret the data in
terms of what the it means to the organisation which commissioned the research. Knowing
that 60% of those interviewed thought that product A was superior to product B is, in itself, of
little value. The organisation needs to know the alternative ways it can respond to this data.
Data is equivalent to the raw materials of manufacturing; it has to be converted into
information before it becomes useful in decision making. The process of convening data into
information is achieved through analysis.

Although the need for precision and thoroughness in marketing research has been stressed
here, it is to be remembered that, in practice, there is a perpetual conflict between the
demands of expediency and the search for truth. The reality is that management is
frequently under pressure to make timely decisions. Therefore management often seeks
answers through marketing research in the shortest time possible and, moreover, at
minimum cost. On such occasions its methods tend to be less theoretically rigorous and its
analysis more superficial.

The market research brief

Marketing research can be concerned with any of a variety of aspects of the market: the
product, sales, buyer behaviour, promotion, distribution, pricing, packaging, etc. Since the
researcher cannot investigate everything about a market, he/she must be selective. The
question remains as to how the researcher decides where to focus the study, and to what
depth each issue should be investigated. The answer should lie in a document called the
research brief. The research design is a set of guidelines given to the researcher by the
person(s) who have commissioned the research and/or the individual(s) who are to make
use of the results in their decision making. The brief must inform the researcher which
aspects of the market are particularly important. In particular, the research brief should
include:

• the purpose of the research

• the objectives stated in a clear, concise, attainable, measurable and quantifiable way
• a time horizon
• a resource allocation, including the budget and facilities
• a reporting period.

Each of these components of the brief is explained in a little more detail in the section that
follows.

The purpose of the research

It is not at all unusual for marketing managers to neglect to tell the researcher the precise
purpose of the research. They often do not appreciate the need to do so. Instead, they
simply state what they think they need to know. This is not quite the same thing. To
appreciate the difference consider the case of the marketing research agency which was
contacted by the International Coffee Organisation (ICO) and asked to carry out a survey of
young people in the age group 15-24. They wanted information on the coffee drinking habits
of these young people: how much coffee they drank, at what times of day, with meals or
between meals, instant or ground coffee, which other beverages they preferred and so on. In
response, the research organisation developed a set of wide-ranging proposals which
included taking a large random sample of young people.

In fact much of the information was interesting rather than important. Important information is
that information which directly assists in making decisions and the ICO had not told the
research company the purpose of the research. The initial reason for the study had been a
suspicion, on the part of the ICO, that an increasing percentage of young people were
consuming beverages other than coffee, particularly soft drinks, and simply never developed
the coffee drinking habit. Had this been explained to the research company then it is likely
that their proposals would have been radically different. To begin with, the sample would
have been composed of 15-24 year old non-coffee drinkers rather than a random sample of
all 15-24 year olds. Second, the focus would have been non-coffee drinking habits rather
than coffee drinking habits.

Unless the purpose of the research is stated in unambiguous terms it is difficult for the
marketing researcher to translate the decision-maker's problem into a research problem and
study design.

Clear, concise, attainable, measurable and quantifiable

objectives
Suppose that the marketing manager states that he needs to know the potential market for a
new product his/her organisation has been developing. At first glance this might appear to
meet all of the requirements of being clear, concise, attainable, measurable and quantifiable.
In practice it would possibly meet only one of these criteria, i.e. it is concise!

Here is another case to be considered. A small engineering firm had purchased a prototype
tree-lifter from a private research company. This machine was suitable for lifting semi-mature
trees, complete with root-ball intact, and transplanting such trees in another location. It was
thought to have potential in certain types of tree nurseries and plantations.

The problem with the objective is that the marketing manager needs to know the potential
market for the new tree-lifter is that it is not attainable. One could find out how many tree-
lifters were currently being sold but this is not the same as the objective set by the marketing
manager. The market potential for any new brand is a function of at least 4 things, as shown
in Figure 1.1.

Figure 1.1 The components of market potential

It was possible to test customer reaction to the concept of the new tree-lifter by showing
pictures, line drawings and by supplying product specifications to prospective buyers.
However, since the company had not decided their pricing policy an important element could
not be tested. In large measure, it was also possible to gauge the likely reaction from
competitors. The researchers began by looking at the basis of competition to determine
whether it was on price, product quality or unique product features. The researchers were
able to look at precedents. They examined the pattern of response on past occasions when
one or other of those companies already in the market had launched a new product. An
audit of the environment was undertaken too, but the missing component was the
company's' own plans for exploiting the market. Since the company had no involvement in
the agricultural engineering sector, prior to acquiring the rights to the tree-lifter, they had no
agreements with distributors, no idea of which, if any, of the distributors would be prepared
to stock their product; they had no salesmen trained in selling into this industry and so on.
The product's potential depended very much on such initiatives.
The solution would have been to undertake a study which would have described the market
in detail in terms of customers, competitors and the environment. The company could then
have put a marketing plan together and conducted a follow-up study to test their propositions
out on the marketplace.

The need to set a time horizon for marketing research

Inevitably there are deadlines which the marketing research activity must fit and these must
be stated clearly at the outset of the research. As was said earlier, because of time
pressures, management is often seeking quick answers from marketing research. If the
researcher is aware of the time constraints then this will become an overriding factor when
he/she plans the research design. He or she is likely to put forward a design which is less
elegant, and gives rise to less precise information but delivers the results on schedule.

A resource allocation, including the budget and facilities

There are essentially two approaches to establishing the resource allocation to a particular
marketing research exercise. Management can start with the problem and work out how
much it will cost to solve it. Alternatively, they can decide how much the management can
afford to spend, at the time, and seek the best answer they can for the time, money and
manpower allocated. In practice the decision-makers prefer the latter approach and the
researchers the former. In the end, some kind of compromise develops. The researcher
rarely gets all of what he/she judges is required to reach a satisfactory conclusion but if the
research proposal is well thought out and persuasively presented some concessions can be
obtained.

Whichever the approach to resource allocation adopted, it is imperative that the researcher
is aware of the financial and other constraints within which he/she must complete the work.

A reporting period
The researcher must also know from the outset of the study the points in time when interim
reports are required, if any, and the deadline for the final report. The form of interim reports
should also be specified at the outset, whether verbal or written, and whether presentations
are to be made to a group (nature and size of the group) or an individual.

In addition there are several characteristics of a good research brief and these are that it:

• means the same thing to all concerned

• does not ask for irrelevant information

• defines the relevant populations to be measured

• identifies the correct variables to be measured

• specifies the degree of accuracy really needed within the main results

• specifies an order of priorities when the sample has to be broken down for the purposes of
analysing data for subgroups, and
• does not pre-judge the selection of research techniques and procedures.

The research proposal

Having received the research brief, the researcher responds with a research proposal. This
is a document which develops after having given careful consideration to the contents of the
research brief. The research proposal sets out the research design and the procedures to be
followed. The eight steps are set out in figure 1.2. These are only briefly discussed here
since the remainder of this textbook consists of a detailed explanation of each step.

Figure 1.2 The research design

Step 1: Problem definition

The point has already been made that the decision-maker should clearly communicate the
purpose of the research to the marketing researcher but it is often the case that the
objectives are not fully explained to the individual carrying out the study. Decision-makers
seldom work out their objectives fully or, if they have, they are not willing to fully disclose
them. In theory, responsibility for ensuring that the research proceeds along clearly defined
lines rests with the decision-maker. In many instances the researcher has to take the
initiative.

In situations, in which the researcher senses that the decision-maker is either unwilling or
unable to fully articulate the objectives then he/she will have to pursue an indirect line of
questioning. One approach is to take the problem statement supplied by the decision-maker
and to break this down into key components and/or terms and to explore these with the
decision-maker. For example, the decision-maker could be asked what he has in mind when
he uses the term market potential. This is a legitimate question since the researcher is
charged with the responsibility to develop a research design which will provide the right kind
of information. Another approach is to focus the discussions with the person commissioning
the research on the decisions which would be made given alternative findings which the
study might come up with. This process frequently proves of great value to the decision-
maker in that it helps him think through the objectives and perhaps select the most important
of the objectives.

Whilst seeking to clarify the objectives of the research it is usually worthwhile having
discussions with other levels of management who have some understanding of the
marketing problem and/or the surrounding issues. Other helpful procedures include
brainstorming, reviews of research on related problems and researching secondary sources
of information as well as studying competitive products. Kerlinger 2 suggests that a well-
defined marketing research problem tends to have three common characteristics as shown
in figure 1.3.

Step 2: Hypothesis generation

Whilst it is true that the purpose of research is to address some question, nonetheless one
does not test research questions directly. For example, there may be interest in answering
the question: "Does a person's level of education have any bearing upon whether or not
he/she adopts new products?" Or, "Does a person's age bear any relation to brand loyalty
behaviour?". Research questions are too broad to be directly testable. Instead, the question
is reduced to one or more hypotheses implied by these questions.

Figure 1.3 Characteristics of a sound definition of the research problem

A hypothesis is a conjectural statement regarding the relation between two or more

variables. There are two key characteristics which all hypotheses must have: they must be
statements of the relationship between variables and they must carry clear implications for
testing the stated relations. These characteristics imply that it is relationships, rather than
variables, which are tested; the hypotheses specify how the variables are related and that
these are measurable or potentially measurable. Statements lacking any or all of these
characteristics are not research hypotheses. For example, consider the following hypothesis:
"Red meat consumption increases as real disposable incomes increase."

This is a relation stated between one variable, "red meat consumption", and another
variable, "disposable incomes". Moreover, both variables are potentially measurable. The
criteria have been met. However for the purposes of statistical testing it is more usual to find
hypotheses stated in the so-called null form, e.g.

"There is no relationship between red meat consumption and the level of disposable
incomes."

Consider a second hypothesis:

"There is no relationship between a farmer's educational level and his degree of

innovativeness with respect to new farming technologies."

Again there is a clear statement of the relationship being investigated but there are question
marks over the measurability with respect to at least one of the variables i.e. "...a farmer's
degree of innovativeness." We may also encounter difficulties in agreeing an appropriate
measure of the other variable, i.e. "level of education". If these problems can be resolved
then we may indeed have a hypothesis.

Hypotheses are central to progress in research. They will direct the researcher's efforts by
forcing him/her to concentrate on gathering the facts which will enable the hypotheses to be
tested. The point has been made that it is all too easy when conducting research to collect
"interesting data" as opposed to "important data". Data and questions which enable
researchers to test explicit hypotheses are important. The rest are merely interesting.

There is a second advantage of stating hypotheses, namely that implicit notions or

explanations for events become explicit and this often leads to modifications of these
explanations, even before data is collected.

On occasion a given hypotheses may be too broad to be tested. However, other testable
hypotheses may be deduced from it. A problem really cannot be solved unless it is reduced
to hypothesis form, because a problem is a question, usually of a broad nature, and is not
directly testable.

Step 3: Decision on type of study

Marketing research can be carried out on one of three levels: exploratory, descriptive or
causal.

Figure 1.4 Three types of marketing research study

Exploratory research: The chief purpose of exploratory research is to reach a better

understanding of the research problem. This includes helping to identify the variables which
should be measured within the study. When there is little understanding of the topic it is
impossible to formulate hypotheses without some exploratory studies. For example, crop
residues such a straw are high in lignin (a wood-like substance) and low in nutrients. This
makes them a poor animal feed since the lignin acts against digestibility and the low nutrient
content means poor food value. However, if treated in a strong alkali, plus a little heat, the
lignin breaks down and the nutrient content increases. A company was established to exploit
this technology and did so successfully for 4 seasons. After this period sales began to slow
down. Three other manufacturers had entered the market by this time. The company, Animal
Feed Systems, did not know whether the whole industry had slowed down or if only their
product was suffering. Nor did they know if the problem was temporary in that perhaps the
market comprised of "early adopters" had been saturated but it was only a matter of time
before other farmers began to buy their systems when they saw how well they worked. It
was also possible that if a problem did exist it could lie in any one of a number of areas:
animal populations might be declining, distributors may not be promoting the product
aggressively, customers may be experiencing difficulties in getting the chemicals, and so on
and on.

This is a good example of a situation where insufficient knowledge prevented the

development of clear objectives, since the problem could not be articulated with any
precision and therefore research of an exploratory nature was required. Such research can
take the form of literature searches, informal personal interviews with distributors and
users/non-users of the product and/or focus group interviews with farmers and/or
distributors.

Exploratory research is intended to help researchers formulate a problem in such a way that
it can be researched and suggest testable hypotheses.

Descriptive research: As the name suggests, descriptive research is concerned with

describing market characteristics and/or marketing mix characteristics. Typically, a
descriptive study specifies the number and size of market segments, the alternative ways in
which products are currently distributed, listing and comparison of the attributes and features
of competitive products, etc.

This type of study can involve the description of the extent of association between variables.
For example, the researcher may observe that there is an association between the
geographical location of consumers and their tendency to consume red meat. Note that the
researcher is able to describe the relationship rather than explain it. Nonetheless if the
relationship between the two is fairly stable this descriptive information may be sufficient for
the purposes of prediction. The researcher may, for example, be able to predict how fast the
per capita consumption of red meat is likely to rise over a given time period.

The principal difference between exploratory and descriptive research is that, in the case of
the latter, specific research questions have been formulated before the research is
undertaken. When descriptive research is conducted the researcher must already know a
great deal about the research problem, perhaps because of a prior exploratory study, and is
in a position to clearly define what he/she wants to measure and how to do it.

Causal research: Causal research deals with the "why" questions. That is, there are
occasions when the researcher will want to know why a change in one variable brings about
a change in another. If he/she can understand the causes of the effects observed then our
ability to predict and control such events is increased.

In summary then there are three distinct types of marketing research study: exploratory,
descriptive and causal. The purpose of each is summarised in figure 1.4. In some cases, a
research programme will be of one kind or another, but in other instances these three
typologies will represent phases within a single marketing research investigation.

Step 4: Decision on data collection method

The next set of decisions concerns the method(s) of data gathering to be employed. The
main methods of data collection are secondary data searches, observation, the survey,
experimentation and consumer panels. Each of these topics is dealt with later on, so they
are simply noted here.

Figure 1.5 Data collection methods

Step 5: Development of an analysis plan

Those new to marketing research often intuitively believe that decisions about the
techniques of analysis to be used can be left until after the data has been collected. Such an
approach is ill-advised. Before interviews are conducted the following checklist should be
applied:

• Is it known how each and every question is to be analysed? (e.g. which univariate or
bivariate descriptive statistics, tests of association, parametric or nonparametric hypotheses
tests, or multivariate methods are to be used?)

• Does the researcher have a sufficiently sound grasp of these techniques to apply them
with confidence and to explain them to the decision-maker who commissioned the study?

• Does the researcher have the means to perform these calculations? (e.g. access to a
computer which has an analysis program which he/she is familiar with? Or, if the calculations
have to be performed manually, is there sufficient time to complete them and then to check
them?)

• If a computer program is to be used at the data analysis stage, have the questions been
properly coded?

• Have the questions been scaled correctly for the chosen statistical technique? (e.g. a t-test
cannot be used on data which is only ranked)

There is little point in spending time and money on collecting data which subsequently is not
or cannot be analysed. Therefore consideration has to be given to issues such as these
before the fieldwork is undertaken.

Step 6: Data collection

At this stage the researcher is ready to go into the field and collect data. The various issues
relating to data collection constitute the main body of the text and therefore, are not dwelt
upon here.

Step 7: Analysis of data

The word 'analysis' has two component parts, the prefix 'ana' meaning 'above' and the Greek
root 'lysis' meaning 'to break up or dissolve'. Thus data analysis can be described as:

"...a process of resolving data into its constituent components, to reveal its characteristic
elements and structure."

Where the data is quantitative there are three determinants of the appropriate statistical
tools for the purposes of analysis. These are the number of samples to be compared,
whether the samples being compared are independent of one another and the level of data
measurement.

Suppose a fruit juice processor wishes to test the acceptability of a new drink based on a
novel combination of tropical fruit juices. There are several alternative research designs
which might be employed, each involving different numbers of samples.

Test Comparing sales in a test market and the market share of the product it is Number of
A targeted to replace. samples = 1
Test Comparing the responses of a sample of regular drinkers of fruit juices to Number of
B those of a sample of non-fruit juice drinkers to a trial formulation. samples = 2
Test Comparing the responses of samples of heavy, moderate and infrequent fruit Number of
C juice drinkers to a trial formulation. samples = 3

The next consideration is whether the samples being compared are dependent (i.e. related)
or independent of one another (i.e. unrelated). Samples are said to be dependent, or related,
when the measurement taken from one sample in no way affects the measurement taken
from another sample. Take for example the outline of test B above. The measurement of the
responses of fruit juice drinkers to the trial formulation in no way affects or influences the
responses of the sample of non-fruit juice drinkers. Therefore, the samples are independent
of one another. Suppose however a sample were given two formulations of fruit juice to
taste. That is, the same individuals are asked first to taste formulation X and then to taste
formulation Y. The researcher would have two sets of sample results, i.e. responses to
product X and responses to product Y. In this case, the samples would be considered
dependent or related to one another. This is because the individual will make a comparison
of the two products and his/her response to one formulation is likely to affect his/her reaction
or evaluation of the other product.

The third factor to be considered is the levels of measurement of the data being used. Data
can be nominal, ordinal, interval or ratio scaled. Table 1.1 summarises the mathematical
properties of each of these levels of measurement.

Once the marketing researcher knows how many samples are to be compared, whether
these samples are related or unrelated to one another and the level of measurement then
the selection of the appropriate statistical test is easily made. To illustrate the importance of
understanding these connections consider the following simple, but common, question in
marketing research. In many instances the age of respondents will be of interest. This
question might be asked in either of the two following ways:

Please indicate to which of the following age categories you belong

(a)

15-21 years ___

22 - 30 years ___
Over 30 years ___

(b)

How old are you? ___ Years

Table 1.1 Levels of measurement

Measurement Measurement Level Examples Mathematical properties
scale
Nominal Frequency counts Producing grading Confined to a small number of
categories tests using the mode and
frequency
Ordinal Ranking of items Placing brands of cooking oil Wide range of nonparametric
in order of preference tests which test for order
Interval Relative differences of Scoring products on a 10 Wide range of parametric tests
magnitude between point scale of like/dislike
items
Ratio Absolute differences of Stating how much better one All arithmetic operations
magnitude product is than another in
absolute terms.

Choosing format (a) would give rise to nominal (or categorical) data and format (b) would
yield ratio scaled data. These are at opposite ends of the hierarchy of levels of
measurement. If by accident or design format (a) were chosen then the analyst would have
only a very small set of statistical tests that could be applied and these are not very powerful
in the sense that they are limited to showing association between variables and could not be
used to establish cause-and-effect. Format (b), on the other hand, since it gives the analyst
ratio data, allows all statistical tests to be used including the more powerful parametric tests
whereby cause-and-effect can be established, where it exists. Thus a simple change in the
wording of a question can have a fundamental effect upon the nature of the data generated.
Figure 1.6 provides a useful guide to making that final selection.

Figure 1.6 Selecting statistical tests

The individual responsible for commissioning the research may be unfamiliar with the
technicalities of statistical tests but he/she should at least be aware that the number of
samples, their dependence or independence and the levels of measurement does affect how
the data can be analysed. Those who submit marketing research proposals involving
quantitative data should demonstrate an awareness of the factors that determine the mode
of analysis and a capability to undertake such analysis.

Marketing researchers have to plan ahead for the analysis stage. It often happens that data
processing begins whilst the data gathering is still underway. Whether the data is to be
analysed manually or through the use of a computer program, data can be coded, cleaned
(i.e. errors removed) and the proposed analytical tests tried out to ensure that they are
effective before all of the data has been collected.

Another important aspect relates to logistics planning. This includes ensuring that once the
task of preparing the data for analysis has begun there is a steady and uninterrupted flow of
completed data forms or questionnaires back from the field interviewers to the data
processors. Otherwise the whole exercise becomes increasingly inefficient. A second
logistical issue concerns any plan to build up a picture of the pattern of responses as the
data comes flowing in. This may require careful planning of the sequencing of fieldwork. For
instance, suppose that research was being undertaken within a particular agricultural region
with a view to establishing the size, number and type of milling enterprises which had
established themselves in rural areas following market liberalisation. It may be that the West
of the district under study mainly wheat is grown whilst in the East it is maize which is the
major crop. It would make sense to coordinate the fieldwork with data analysis so that the
interim picture was of either wheat or maize milling since the two are likely to differ in terms
of the type of mill used (e.g. hammer versus plate mills) as well as screen sizes and end use
(e.g. the proportions prepared for animal versus human food).

Step 8: Drawing conclusions and making

recommendations
The final chapter of this textbook is devoted to the topic of report writing. However, it is
perhaps worth noting that the end products of marketing research are conclusions and
recommendations. With respect to the marketing planning function, marketing research
helps to identify potential threats and opportunities, generates alternative courses of action,
provides information to enable marketing managers to evaluate those alternatives and
advises on the implementation of the alternatives.

Too often marketing research reports chiefly comprise a lengthy series of tables of statistics
accompanied by a few brief comments which verbally describe what is already self-evident
from the tables. Without interpretation, data remains of potential, as opposed to actual use.
When conclusions are drawn from raw data and when recommendations are made then
data is converted into information. It is information which management needs to reduce the
inherent risks and uncertainties in management decision making.

Customer oriented marketing researchers will have noted from the outset of the research
which topics and issues are of particular importance to the person(s) who initiated the
research and will weight the content of their reports accordingly. That is, the researcher
should determine what the marketing manager's priorities are with respect to the research
study. In particular he/she should distinguish between what the manager:

• must know
• should know
• could know

This means that there will be information that is essential in order for the marketing manager
to make the particular decision with which he/she is faced (must know), information that
would be useful to have if time and resources within the budget allocation permit (should
know) and there will be information that it would be nice to have but is not at all directly
related to the decision at hand (could know). In writing a research proposal, experienced
researchers would be careful to limit the information which they firmly promise to obtain, in
the course of the study, to that which is considered 'must know' information. Moreover, within
their final report, experienced researchers will ensure that the greater part of the report
focuses upon 'must know' type information.

Chapter Summary
Marketing research serves marketing management by providing information which is
relevant to decision making. Marketing research does not itself make the decisions, nor does
it guarantee success. Rather, marketing research helps to reduce the uncertainty
surrounding the decisions to be made. In order to do so effectively, marketing research has
to be systematic, objective and analytical.

The manager or other individual initiating the research must provide guidance to the
researcher in the form of a research brief. This document should state the purpose of the
research, its objectives, the time by which it must be completed, the budget to which the
researcher must work in developing the research design and the timing and frequency of
any interim reports which the researcher is expected to make.

Having read, questioned and understood the research brief the onus is then upon the
marketing researcher to respond by preparing the research design. Research design begins
with an accurate and, as far as is possible, precise definition of the problem. This is followed
by the generation of hypotheses. There will then be an intermediate stage whereby the
hypotheses are restated in a testable form, i.e. the null form. This will probably only be done
if it is intended that statistical analysis is to be undertaken. Where the research is more
qualitative in nature then it is still recommended that hypotheses should be developed.
These should include alternative hypotheses; depending upon what is already known about
the research problem one of three types of study might be undertaken, i.e. an exploratory
study, a descriptive study or a causal study. Before proceeding further, the researcher has to
develop an analysis plan. It is only when the analysis plan has been considered that
fieldwork, in the form of data collection, should be undertaken. The final step in the research
design would be to write the report. Customer oriented marketing researchers will have
noted from the outset of the research which topics and issues are of particular importance to
the person(s) who initiated the research and will weight the content of their reports
accordingly.

Key Terms
Analysis plan
Causal research
Continuous research
Descriptive research
Exploratory research
Hypotheses
Interval scales
Nominal scales
Ordinal Scales
Primary research
Ratio scales
Research brief
Research design
Research proposal
Secondary research

Review Questions
From your knowledge of the material in this chapter, give brief answers to the following
questions below.

1 Name the 3 key words used in the definition of marketing research by Green, Tull and
Albaum.

2. Define the term 'hypothesis'.

3. What are the 3 types of research described in this chapter?

4. What are the main items of information which should be included in a research brief?
5. Name the 3 factors which determine which is the appropriate statistical test to conduct on
data obtained from a random sample.

6. What is the aim of exploratory research?

7. Name 4 characteristics of a good research brief.

8. Why is it important to devise a data analysis plan before collecting the data

Chapter : Sampling In Marketing Research

Chapter Objectives
Structure Of The Chapter
Random sampling
Systematic sampling
Stratified samples
Sample sizes within strata
Quota sampling
Cluster and multistage sampling
Area sampling
Sampling and statistical testing
The null hypothesis
Type I errors and type II errors
Example calculations of sample size
Chapter Summary
Key Terms
Review Questions
Chapter References

Following decisions about how data is to be collected the next consideration is how to select
a sample of the population of interest that is truly representative. At the same time, the
requirement that samples be representative of the population from which they are drawn has
to be offset against time and other resource considerations. This being the case, choices
have to be made between the mathematically superior probabilistic sampling methods and
the more pragmatic non-probability sampling methods.

Chapter Objectives
This chapter serves to teach the reader to:

• Distinguish between probabilistic and non-probabilistic sampling methods

• Understand the bases for stratifying samples
• Make an informed choice between random and quota samples
• Comprehend multistage sampling, and
• Appreciate the use of area or aerial sampling.

Structure Of The Chapter

The early part of the chapter outlines the probabilistic sampling methods. These include
simple random sampling, systematic sampling, stratified sampling and cluster sampling.
Thereafter, the principal non-probability method, quota sampling, is explained and its
strengths and weaknesses outlined. The statistical aspects of sampling are then explored. A
number of illustrative calculations are presented.

Two major principles underlie all sample design. The first is the desire to avoid bias in the
selection procedure; the second is to achieve the maximum precision for a given outlay of
resources. Bias in the selection can arise:

• if the selection of the sample is done by some non-random method i.e. selection is
consciously or unconsciously influenced by human choice

• if the sampling frame (i.e. list, index, population record) does not adequately cover the
target population

• if some sections of the population are impossible to find or refuse to co-operate.

These cause selection or sample bias and can only be avoided if a random method is used.
Other designs, to be described shortly, can retain the essential element of randomness but
manage to increase precision by incorporating various restrictions and refinements. Figure
7.1 gives an overview of the sampling methods that are either explained within this chapter
or are explored in the exercises which accompany this textbook.

Figure 7.1 Methods of sampling

It can be seen that there is a dichotomy - probability and non probability sampling methods.
The text which follows explains these methods in some detail, and highlights the advantages
and disadvantages of each method.

Random sampling
Random, or probability sampling, gives each member of the target population a known and
equal probability of selection. The two basic procedures are:

1 the lottery method, e.g. picking numbers out of a hat or bag

2 the use of a table of random numbers.

Systematic sampling
Systematic sampling is a modification of random sampling. To arrive at a systematic sample
we simply calculate the desired sampling fraction, e.g. if there are 100 distributors of a
particular product in which we are interested and our budget allows us to sample say 20 of
them then we divide 100 by 20 and get the sampling fraction 5. Thereafter we go through
our sampling frame selecting every 5th distributor. In the purest sense this does not give rise
to a true random sample since some systematic arrangement is used in listing and not every
distributor has a chance of being selected once the sampling fraction is calculated. However,
because there is no conscious control of precisely which distributors are selected, all but the
most pedantic of practitioners would treat a systematic sample as though it were a true
random sample.

Figure 7.2 Systematic sampling as applied to a survey of retailers

Systematic sampling
Population = 100 Food Stores
Sample desired = 20 Food Stores
a. Draw a random number 1-5.
b. Sample every Xth store.
Sample Numbered Stores
1 1, 6, 11, 16, 21... 96
2 2 7, 12 17, 22... 97
3 3, 8, 13 18, 23... 98
4 4, 9, 14 19, 24... 99
5 5, 10, 15, 20, 25... 100

Stratified samples
Stratification increases precision without increasing sample size. Stratification does not imply
any departure from the principles of randomness it merely denotes that before any selection
takes place, the population is divided into a number of strata, then random samples taken
within each stratum. It is only possible to do this if the distribution of the population with
respect to a particular factor is known, and if it is also known to which stratum each member
of the population belongs. Examples of characteristics which could be used in marketing to
stratify a population include: income, age, sex, race, geographical region, possession of a
particular commodity.

Stratification can occur after selection of individuals, e.g. if one wanted to stratify a sample of
individuals in a town by age, one could easily get figures of the age distribution, but if there
is no general population list showing the age distribution, prior stratification would not be
possible. What might have to be done in this case at the analysis stage is to correct
proportional representation. Weighting can easily destroy the assumptions one is able to
make when interpreting data gathered from a random sample and so stratification prior to
selection is advisable. Random stratified sampling is more precise and more convenient than
simple random sampling.

When stratified sampling designs are to be employed, there are 3 key questions which have
to be immediately addressed:

1 The bases of stratification, i.e. what characteristics should be used to subdivide the
universe/population into strata?

2 The number of strata, i.e. how many strata should be constructed and what stratum
boundaries should be used?

3 Sample sizes within strata, i.e. how many observations should be taken in each stratum?

Bases of stratification

Intuitively, it seems clear that the best basis would be the frequency distribution of the
principal variable being studied. For example, in a study of coffee consumption we may
believe that behavioural patterns will vary according to whether a particular respondent
drinks a lot of coffee, only a moderate amount of coffee or drinks coffee very occasionally.
Thus we may consider that to stratify according to "heavy users", "moderate users" and "light
users" would provide an optimum stratification. However, two difficulties may arise in
attempting to proceed in this way. First, there is usually interest in many variables, not just
one, and stratification on the basis of one may not provide the best stratification for the
others. Secondly, even if one survey variable is of primary importance, current data on its
frequency is unlikely to be available. However, the latter complaint can be attended to since
it is possible to stratify after the data has been completed and before the analysis is
undertaken. The only approach is to create strata on the basis of variables, for which
information is, or can be made available, that are believed to be highly correlated with the
principal survey characteristics of interest, e.g. age, socio-economic group, sex, farm size,
firm size, etc.

In general, it is desirable to make up strata in such a way that the sampling units within
strata are as similar as possible. In this way a relatively limited sample within each stratum
will provide a generally precise estimate of the mean of that stratum. Similarly it is important
to maximise differences in stratum means for the key survey variables of interest. This is
desirable since stratification has the effect of removing differences between stratum means
from the sampling error.

Total variance within a population has two types of natural variation: between-strata variance
and within-strata variance. Stratification removes the second type of variance from the
calculation of the standard error. Suppose, for example, we stratified students in a particular
university by subject speciality - marketing, engineering, chemistry, computer science,
mathematics, history, geography etc. and questioned them about the distinctions between
training and education. The theory goes that without stratification we would expect variation
in the views expressed by students from say within the marketing speciality and between the
views of marketing students, as a whole, and engineering students as a whole. Stratification
ensures that variation between strata does not enter into the standard error by taking
account of this source in drawing the sample.

Number of strata

The next question is that of the number of strata and the construction of stratum boundaries.
As regards number of strata, as many as possible should be used. If each stratum could be
made as homogeneous as possible, its mean could be estimated with high reliability and, in
turn, the population mean could be estimated with high precision. However, some practical
problems limit the desirability of a large number of strata:

1 No stratification scheme will completely "explain" the variability among a set of

observations. Past a certain point, the "residual" or "unexplained" variation will dominate,
and little improvement will be effected by creating more strata.

2 Depending on the costs of stratification, a point may be reached quickly where creation of
additional strata is economically unproductive.

If a single overall estimate is to be made (e.g. the average per capita consumption of coffee)
we would normally use no more than about 6 strata. If estimates are required for population
subgroups (e.g. by region and/or age group), then more strata may be justified.

Sample sizes within strata

Proportional allocation: Once strata have been established, the question becomes, "How
big a sample must be drawn from each?" Consider a situation where a survey of a two-
stratum population is to be carried out:
Stratum Number of Items in Stratum
A 10,000
B 90,000

If the budget is fixed at $3000 and we know the cost per observation is $6 in each stratum,
so the available total sample size is 500. The most common approach would be to sample
the same proportion of items in each stratum. This is termed proportional allocation. In this
example, the overall sampling fraction is:

Thus, this method of allocation would result in:

Stratum A (10,000 × 0.5%) = 50
Stratum B (90,000 × 0.5%) = 450

The major practical advantage of proportional allocation is that it leads to estimates which
are computationally simple. Where proportional sampling has been employed we do not
need to weight the means of the individual stratum when calculating the overall mean. So:

sr = W1 1 + W2 2 + W3 3 + - - - Wk k

Optimum allocation: Proportional allocation is advisable when all we know of the strata is
their sizes. In situations where the standard deviations of the strata are known it may be
advantageous to make a disproportionate allocation.

Suppose that, once again, we had stratum A and stratum B, but we know that the individuals
assigned to stratum A were more varied with respect to their opinions than those assigned to
stratum B. Optimum allocation minimises the standard error of the estimated mean by
ensuring that more respondents are assigned to the stratum within which there is greatest
variation.

Quota sampling
Quota sampling is a method of stratified sampling in which the selection within strata is non-
random. Selection is normally left to the discretion of the interviewer and it is this
characteristic which destroys any pretensions towards randomness.

Quota v random sampling

The advantages and disadvantages of quota versus probability samples has been a subject
of controversy for many years. Some practitioners hold the quota sample method to be so
unreliable and prone to bias as to be almost worthless. Others think that although it is clearly
less sound theoretically than probability sampling, it can be used safely in certain
circumstances. Still others believe that with adequate safeguards quota sampling can be
made highly reliable and that the extra cost of probability sampling is not worthwhile.

Generally, statisticians criticise the method for its theoretical weakness while market
researchers defend it for its cheapness and administrative convenience.

Main arguments against: Quota sampling

1 It is not possible to estimate sampling errors with quota sampling because of the absence
of randomness.

Some people argue that sampling errors are so small compared with all the other errors and
biases that enter into a survey that not being able to estimate is no great disadvantage. One
does not have the security, though, of being able to measure and control these errors.

2 The interviewer may fail to secure a representative sample of respondents in quota

sampling. For example, are those in the over 65 age group spread over all the age range or
clustered around 65 and 66?

3 Social class controls leave a lot to the interviewer's judgement.

4 Strict control of fieldwork is more difficult, i.e. did interviewers place respondents in groups
where cases are needed rather than in those to which they belong.

Main arguments for: quota sampling

1 Quota sampling is less costly. A quota interview on average costs only half or a third as
much as a random interview, but we must remember that precision is lost.

2 It is easy administratively. The labour of random selection is avoided, and so are the
headaches of non-contact and callbacks.

3 If fieldwork has to be done quickly, perhaps to reduce memory errors, quota sampling may
be the only possibility, e.g. to obtain immediate public reaction to some event.

4. Quota sampling is independent of the existence of sampling frames.

Cluster and multistage sampling

Cluster sampling: The process of sampling complete groups or units is called cluster
sampling, situations where there is any sub-sampling within the clusters chosen at the first
stage are covered by the term multistage sampling. For example, suppose that a survey is to
be done in a large town and that the unit of inquiry (i.e. the unit from which data are to be
gathered) is the individual household. Suppose further that the town contains 20,000
households, all of them listed on convenient records, and that a sample of 200 households is
to be selected. One approach would be to pick the 200 by some random method. However,
this would spread the sample over the whole town, with consequent high fieldwork costs and
much inconvenience. (All the more so if the survey were to be conducted in rural areas,
especially in developing countries where rural areas are sparsely populated and access
difficult). One might decide therefore to concentrate the sample in a few parts of the town
and it may be assumed for simplicity that the town is divided into 400 areas with 50
households in each. A simple course would be to select say 4 areas at random (i.e. 1 in 100)
and include all the households within these areas in our sample. The overall probability of
selection is unchanged, but by selecting clusters of households, one has materially simplified
and made cheaper the fieldwork.

A large number of small clusters is better, all other things being equal, than a small number
of large clusters. Whether single stage cluster sampling proves to be as statistically efficient
as a simple random sampling depends upon the degree of homogeneity within clusters. If
respondents within clusters are homogeneous with respect to such things as income, socio-
economic class etc., they do not fully represent the population and will, therefore, provide
larger standard errors. On the other hand, the lower cost of cluster sampling often outweighs
the disadvantages of statistical inefficiency. In short, cluster sampling tends to offer greater
reliability for a given cost rather than greater reliability for a given sample size.

Multistage sampling: The population is regarded as being composed of a number of first

stage or primary sampling units (PSU's) each of them being made up of a number of second
stage units in each selected PSU and so the procedure continues down to the final sampling
unit, with the sampling ideally being random at each stage.

The necessity of multistage sampling is easily established. PSU's for national surveys are
often administrative districts, urban districts or parliamentary constituencies. Within the
selected PSU one may go direct to the final sampling units, such as individuals, households
or addresses, in which case we have a two-stage sample. It would be more usual to
introduce intermediate sampling stages, i.e. administrative districts are sub-divided into
wards, then polling districts.

Area sampling
Area sampling is basically multistage sampling in which maps, rather than lists or registers,
serve as the sampling frame. This is the main method of sampling in developing countries
where adequate population lists are rare. The area to be covered is divided into a number of
smaller sub-areas from which a sample is selected at random within these areas; either a
complete enumeration is taken or a further sub-sample.

Figure 7.3 Aerial sampling

A grid, such as that shown above, is drawn and superimposed on a map of the area of
concern. Sampling points are selected on the basis of numbers drawn at random that equate
to the numbered columns and rows of the grid.

If the area is large, it can be subdivided into sub-areas and a grid overlayed on these. Figure
7.4 depicts the procedures involved. As in figure 7.3 the columns and rows are given
numbers. Then, each square in the grid is allocated numbers to define grid lines. Using
random numbers, sampling points are chosen within each square. Figure 7.4 gives an
impression of the pattern of sampling which emerges.

Figure 7.4 Multistage aerial sampling

Suppose that a survey of agricultural machinery/implement ownership is to be made in a

sample of rural households and that no comprehensive list of such dwellings is available to
serve as a sampling frame. If there is an accurate map of the area we can superimpose
vertical and horizontal lines on it, number these and use them as a reference grid. Using
random numbers points can be placed on the map and data collected from households
either on or nearest to those points. A variation is to divide the area into "parcels" of land.
These "parcels" (the equivalent of city blocks) can be formed using natural boundaries e.g.
hills or mountains, canals, rivers, railways, roads, etc. If sufficient information is known about
an area then it is permissible to construct the "parcels" on the basis of agro-ecosystems.

Alternatively, if the survey is of urban households then clusters of dwellings such as blocks
bounded by streets can be identified. This can serve as a convenient sampling frame. The
town area is then divided into blocks and these blocks are numbered and a random sample
of them is selected. The boundaries of the blocks must be well defined, easily identifiable by
field workers and every dwelling must be clearly located in only one block. Streets, railway
lines and rivers make good boundaries.

Sampling and statistical testing

Research is conducted in order to determine the acceptability (or otherwise) of hypotheses.
Having set up a hypothesis, we collect data which should yield direct information on the
acceptability of that hypothesis. This empirical data requires to be organised in such a
fashion as to make it meaningful. To this end, we organise it into frequency distributions and
calculate averages or percentages. But often, these statistics on their own mean very little.
The data we collect often requires to be compared and when comparisons have to be made,
we must take into account the fact that our data is collected from a sample of the population
and is subject to sampling and other errors. The remainder of this paper is concerned with
the statistical testing of sample data. One assumption which is made is that the survey
results are based on random probability samples.

The null hypothesis

The first step in evaluating sample results is to set up a null hypothesis (Ho). The null
hypothesis is a hypothesis of no differences. We formulate it for the express purpose of
rejecting it. It is formulated before we collect the data (a priori). For example, we may wish to
know whether a particular promotional campaign has succeeded in increasing awareness
amongst housewives of a certain brand of biscuit. Before the campaign we have a certain
measure of awareness, say x%. After the campaign we obtain another measure of the
awareness, say y%. The null hypothesis in this case would be that "there is no difference
between the proportions aware of the brand, before and after the campaign",

Since we are dealing with sample results, we would expect some differences; and we must
try and establish whether these differences are real (i.e. statistically significant) or whether
they are due to random error or chance.

If the null hypothesis is rejected, then the alternative hypothesis may be accepted. The
alternative hypothesis (H1) is a statement relating to the researchers' original hypothesis.
Thus, in the above example, the alternative hypothesis could either be:

a. H1: There is a difference between the proportions of housewives aware of the brand,
before and after the campaign,
or

b. H1: There is an increase in the proportion of housewives aware of the brand, after the
promotional campaign.

Note that these are clearly two different and distinct hypotheses. Case (a) does not indicate
the direction of change and requires a TWO-TAILED test. Case (b), on the other hand,
indicates the predicted direction of the difference and a one-tailed test is called for. The
situation when a one-tailed test is used are:

(a) comparing an experimental product with a currently marketed ones

(b) comparing a cheaper product which will be marketed only if it is not inferior to a current
product.
Parametric tests and non-parametric tests

The next step is that of choosing the appropriate statistical test. There are basically two
types of statistical test, parametric and non-parametric. Parametric tests are those which
make assumptions about the nature of the population from which the scores were drawn (i.e.
population values are "parameters", e.g. means and standard deviations). If we assume, for
example, that the distribution of the sample means is normal, then we require to use a
parametric test. Non-parametric tests do not require this type of assumption and relate
mainly to that branch of statistics known as "order statistics". We discard actual numerical
values and focus on the way in which things are ranked or classed. Thereafter, the choice
between alternative types of test is determined by 3 factors: (1) whether we are working with
dependent or independent samples, (2) whether we have more or less than two levels of the
independent variable, and (3) the mathematical properties of the scale which we have used,
i.e. ratio, interval, ordinal or nominal. (These issues are covered extensively in the data
analysis course notes).

We will reject Ho, our null hypothesis, if a statistical test yields a value whose associated
probability of occurrence is equal to or less than some small probability, known as the critical
region (or level). Common values of this critical level are 0.05 and 0.01. Referring back to
our example, if we had found that the observed difference between the percentage of
housewives aware of the brand from pre-to-post-campaign could have arisen with probability
0.01 and if we had set our significance level in advance at 0.05, then we would accept the
Ho. If, on the other hand, we found the probability of this difference occurring was 0.02 then
we would reject the null hypothesis and accept our alternative hypothesis.

Type I errors and type II errors

The choice of significance level affects the ratio of correct and incorrect conclusions which
will be drawn. Given a significance level there are four alternatives to consider:

Figure 7.5 Type I and type II errors

Correct Conclusion Incorrect Conclusion

Accept a correct hypothesis Reject a correct hypothesis
Reject an incorrect hypothesis Accept an incorrect hypothesis

Consider the following example. In a straightforward test of two products, we may decide to
market product A if, and only if, 60% of the population prefer the product. Clearly we can set
a sample size, so as to reject the null hypothesis of A = B = 50% at, say, a 5% significance
level. If we get a sample which yields 62% (and there will be 5 chances in a 100 that we get
a figure greater than 60%) and the null hypothesis is in fact true, then we make what is
known as a Type I error.

If however, the real population is A = 62%, then we shall accept the null hypothesis A = 50%
on nearly half the occasions as shown in the diagram overleaf. In this situation we shall be
saying "do not market A" when in fact there is a market for A. This is the type II error. We
can of course increase the chance of making a type I error which will automatically decrease
the chance of making a type II error.

Obviously some sort of compromise is required. This depends on the relative importance of
the two types of error. If it is more important to avoid rejecting a true hypothesis (type I error)
a high confidence coefficient (low value of x) will be used. If it is more important to avoid
accepting a false hypothesis, a low confidence coefficient may be used. An analogy with the
legal profession may help to clarify the matter. Under our system of law, a man is presumed
innocent of murder until proved otherwise. Now, if a jury convicts a man when he is, in fact,
innocent, a type I error will have been made: the jury has rejected the null hypothesis of
innocence although it is actually true. If the jury absolves the man, when he is, in fact, guilty,
a type II error will have been made: the jury has accepted the null hypothesis of innocence
when the man is really guilty. Most people will agree that in this case, a type I error,
convicting an innocent man, is the more serious.

In practice, of course, researchers rarely base their decisions on a single significance test.
Significance tests may be applied to the answers to every question in a survey but the
results will be only convincing, if consistent patterns emerge. For example, we may conduct
a product test to find out consumers preferences. We do not usually base our conclusions
on the results of one particular question, but we ask several, make statistical tests on the
key questions and look for consistent significances. We must remember that when one
makes a series of tests, some of the correct hypotheses will be rejected by chance. For
example, if 20 questions were asked in our "before" and "after" survey and we test each
question at the 5% level, then one of the differences is likely to give significant results, even
if there is no real difference in the population.

No mention is made in these notes of considerations of costs of incorrect decisions.

Statistical significance is not always the only criterion for basing action. Economic
considerations of alternative actions is often just as important.

These, therefore, are the basic steps in the statistical testing procedure. The majority of tests
are likely to be parametric tests where researchers assume some underlying distribution like
the normal or binomial distribution. Researchers will obtain a result, say a difference
between two means, calculate the standard error of the difference and then ask "How far
away from the zero difference hypothesis is the difference we have found from our
samples?"

To enable researchers to answer this question, they convert their actual difference into
"standard errors" by dividing it by its standard deviation, then refer to a chart to ascertain the
probability of such a difference occurring.

Example calculations of sample size

1. Suppose a researcher wishes to measure a population with respect to the percentage of
persons owning a maize sheller. He/she may have a rough idea of the likely percentage, and
wishes the sample to be accurate to within 5% points and to be 95% confident of this
accuracy.

2. Consider the standard error of a percentage:

Assume that the researcher hazards a guess that the likely percentage of ownership is 30%.

Then,
But 2. [SE(p)] must equal 5% (the level of accuracy required)

i.e.

i.e.
It is necessary to take a sample of, say, 340 (rounding up).

Generally, then, for percentages, the sample size may be calculated using:

for accuracy at the 95% level.

Case 1: In a census taken 6 years ago, 60% of farms were found to be selling horticultural
produce direct to urban markets. Recently a sample survey has been carried out on 1000
farms and found 70% of them were selling their horticultural produce to urban centres direct.

Situation: Population statistics (P = 60%) are known

Question: Has there been a change in 6 years or is the higher percentage (p = 70%) found
due to sampling error?

When the population value is known, we can know the sampling error and we use this error
for the purpose of our statistical test. The standard error of a percentage is always pq/n, but
in this case the researcher puts p, the population value, in the formula and uses the size of
the sample, n, to ascertain the standard error of the estimate, p = 70%.

The null hypothesis for this case is: "There is no difference between the sample percentage
of farms selling direct to urban areas and the population percentage of farms found to be
selling direct 6 years ago" (i.e. the sample we have drawn comes from the population on
which the census was carried out and there has been no change in the 6 years).

This must be a 2-tailed test as it could not be assumed that there would either be more or
less farms selling produce direct six years later.

Standard error PQ where Q=100 P

Statistical test:

N.B. This has infinite degrees of freedom.

t=6.45

If reference is made to the table for a two-tailed test with infinite degrees of freedom, it can
be seen that t = 3.29 which shows that there is only a 1/1000 chance of our result (p = 70%)
being due to sampling error, since 6.45 > 3.29. Researchers realise that the probability of
this having occurred because of sampling error must be even smaller than 1/1000. Thus
they are able to say that the probability that the percentage of households selling direct is
now 70% is at least 999/1000 and that the null hypothesis is refuted at beyond 1/1000 level
of significance. If researchers claim this, they shall be wrong less than 1 in 1000 times.

Case 2:. Six months ago, it was found from a sample survey that 20% of shoppers in a
certain urban area buy fresh fruit from street vendors rather than established shops or
supermarkets. A second survey, independent of the earlier one, is carried out on 500
respondents and it is found that 24% of them buy fresh fruit and vegetables regularly from
street vendors. Is there any real difference?

Situation: The two surveys are carried out on different occasions, so the two samples may
well be subject to different amounts of error. Due to this researchers use both estimates of
error.

Question: Has the percentage of gift shoppers changed?

Null hypothesis: There is no difference in the percentages of housewives buying from street
_ vendors six months ago and now. This is a 2-tailed test.

Six months ago Now

P1 = 20% P2 = 24%
n1 = 200 n2 = 500
Standard error of

Since P1 is independent of P2

S.E.

= 3.3%

Test of significance

N.B. This has infinite degrees of freedom.

Since 1.18 < 1.64, the difference is not significant at even 1/10 (10%) level, so the null
hypothesis is not refuted and researchers do not accept that there is any significant change
in the percentage of women buying fresh fruit and vegetables from street vendors.

Case 3: 54% of rural housewives are found, in a sample of 200, to include fish in their
family's weekly diet. However, in a sample of 100 urban housewives only 33% said that fish
was a regular part of their diet.

Situation: The same commodity is being investigated on the same occasion by listing two
parts of a population.

Question: Is there any difference between rural and urban housewives in their regular
consumption of fish?

Null hypothesis: There is no difference between the two social class groups in their regular
consumption of fish. This is a two-tailed test.

ABC DE
no. = 33 = c1 no. = 108 = c2
P1 = 33% P2 = 54%
n1=100 n2=200

Standard error of

where
N.B. Researchers take an average value of p, since they believe both the rural and urban
families to be alike and the circumstances of measurement of p1 and p2 are exactly the
same.

S.E.

So

= 6.1

Significant test

t= 3.44

(N.B. This has infinite degrees of freedom).

Since 3.44 > 3.29, the two-tailed t-value for 1/1000 level of significance for 0 degrees of
freedom, the null hypothesis is refuted at beyond the 1/1000 level. Thus the difference in fish
consumption between rural and urban housewives is significant at beyond 1/1000 level.

Case 4:. 200 housewives are interviewed in June to determine their purchases of a canned
fruit juice. Two months later, after an intensive promotional campaign, they are re-
interviewed with the same object.

Situation: The same sample is interviewed on two different occasions (or assessing two
different products).

Question: Is there any difference in purchases of the product between June and
September?

Null There is no difference in purchases of the product between June and September (A
hypothesis: two-tailed test).
June September
Purchases % 20 32 Sample size = n = 200
The last term under the square root sign = 2 × Covariance of the two assessments, the term
which takes into consideration how each person behaves both in June and September.

= 3.54

Significance test

This has infinite degrees of freedom.

Since 3.39 > 3.29 with 0.0 degrees of freedom, the difference between the June and
September purchases is significant at beyond the 1/1000 or 0.1% level, (i.e. the null
hypothesis is refuted at this level).

Confidence intervals for the mean

Sometimes the task is one of estimating a population value from a sample mean, rather than
testing hypotheses. For example, suppose from a sample of 100 farmers it is found that their
average monthly purchases of the Insecticide Bugdeath were 10.5 litres. It cannot assume
that simply because the sample mean was 10.5 litres that this is necessarily a good estimate
of the average purchases of all farmers in the population. Indeed, samples do not and
cannot give point estimates, like 10.5 litres. Rather a sample will give a range within which it
is thought the true population value lies. To calculate this range researchers need to know
the standard deviation as well as the mean. The standard deviation is calculated as follows:

Suppose a small sample of say 8 farmers is taken and asked how much Bugdeath they
bought each month. Their responses appear in table 7.1 below. Their mean consumption is
10.5 litres per month. In the middle column you will see that researchers have subtracted
each of the individual values from the mean. In the end column these values have been
squared and summed to give the total variance.

Table 7.1 Calculating the mean and standard deviation

X Consumption in litres
-X ( - X2)
5 -5.5 30.25
8 -2.5 6.25
8 -2.5 6.25
11 0.5 0.25
11 0.5 0.25
11 0.5 0.25
14 3.5 12.25
16 5.5 30.25
X=10.5 Total variance = 86.00

To calculate the standard deviation researchers divide the total variance by the sample size
to obtain the standard deviation i.e.

From the standard deviation researchers must now calculate the standard error if they are to
project from what are sample figures to the population. The standard error is calculated by
dividing the standard deviation by the square root of the sample size, viz:

Thus the estimate is that the average consumption is 10.5 litres plus or minus 2.83 litres,
i.e., it is estimated that most farmers buy somewhere between 7.67 litres and 13.33 litres.
This is the best estimate that can be given on the basis of such a small sample.

As those who have studied elementary statistics will know, only 68% of the values under a
normal distribution curve lie between ±1 standard deviation. In other words, researchers can
only be 68% sure that the true consumption level is between 7.67 and 13.33 litres. If
researchers want to be 95% sure of a correct prediction then they must multiply their
standard error by 1.96. (Students may have to be reminded that if they look up their
statistical tables they will see that 95% of the area under the curve equates to a Z value of
1.96.)

Thus, the calculation becomes:

(Standard Error)
Confidence Interval = 10.5 ± 1.96 × 2.83
=10.5±5.5
=5 to 17 litres

So, researchers are 95% confident that the true value of farmers' usage of Bugdeath is
between 5 and 17 litres. This example serves to show the mechanics of the confidence
interval calculation and the poor estimates we get from small sample sizes.

Students who have had a basic training in statistics will also know that if they wanted to be
99% confident then the Z value would be 2.57 rather than 1.96.

Chapter Summary
Two major principles underlie all sample design: the desire to avoid bias in the selection
procedure and to achieve the maximum precision for a given outlay of resources. Sampling
bias arises when selection is consciously or unconsciously influenced by human choice, the
sampling frame inadequately covers the target population or some sections of the population
cannot be found or refuse to co-operate.

Random, or probability sampling, gives each member of the target population a known and
equal probability of selection. Systematic sampling is a modification of random sampling. To
arrive at a systematic sample we simply calculate the desired sampling fraction and take
every nth case.

Stratification increases precision without increasing sample size. There is no departure from
the principles of randomness. It merely denotes that before any selection takes place, the
population is divided into a number of strata, then a random sample is taken within each
stratum. It is only possible to stratify if the distribution of the population with respect to a
particular factor is known, and if it is also known to which stratum each member of the
population belongs. Random stratified sampling is more precise and more convenient than
simple random sampling. Stratification has the effect of removing differences between
stratum means from the sampling error. The best basis would be the frequency distribution
of the principal variable being studied. Some practical problems limit the desirability of a
large number of strata: (1) past a certain point, the "residual" variation will dominate, and
little improvement will be effected by creating more strata (2) a point may be reached where
creation of additional strata is economically unproductive. Sample sizes within strata are
determined either on a proportional allocation or optimum allocation basis.

Quota sampling is a method of stratified sampling in which the selection within strata is non-
random. Therefore, it is not possible to estimate sampling errors. Some argue that sampling
errors are so small compared with all the other errors and biases that not being able to
estimate standard errors is no great disadvantage. The interviewer may fail to secure a
representative sample of respondents in quota sampling, e.g. are those in the over 65 age
group spread over all the age range or clustered around 65 and 66? Social class controls
leave a lot to the interviewer's judgments. Strict control of fieldwork is more difficult, i.e. did
interviewers place respondents in groups where cases are needed rather than in those to
which they belong.

A quota interview on average costs only half or a third as much as a random interview, the
labour of random selection is avoided, and so are the headaches off non-contact and call-
backs, and if fieldwork has to be quick, perhaps to reduce memory errors, quota sampling
may be the only possibility. Quota sampling is independent of the existence of sampling
frames.

The process of sampling complete groups or units is called cluster sampling. Where there is
sub-sampling within the clusters chosen at the first stage, the term multistage sampling
applies. The population is regarded as being composed of a number of first stage or primary
sampling units (PSU's) each of them being made up of a number of second stage units in
each selected PSU and so the procedure continues down to the final sampling unit, with the
sampling ideally being random at each stage. Using cluster samples ensures fieldwork is
materially simplified and made cheaper. That is, cluster sampling tends to offer greater
reliability for a given cost rather than greater reliability for a given sample size. With respect
to statistical efficiency, larger numbers of small clusters is better - all other things being
equal - than a small number of large clusters.

Multistage sampling involves first selecting the PSU, then the final sampling units such as
individuals, households or addresses:
Area sampling is basically multistage sampling in which maps, rather than lists or registers,
serve as the sampling frame. This is the main method of sampling in developing countries
where adequate population lists are rare.

Key Terms
Area sampling
Cluster sampling
Confidence intervals
Degrees of freedom
Multistage sampling
Non-parametric tests
Null hypothesis
Parametric tests
Proportional allocation
Quota sampling
Random number
Random sampling
Sample mean
Significance test
Standard errors
Stratified samples
Systematic sampling
Type I errors and type II errors

Review Questions
1. Define the term 'random sampling'
2. Name the 3 non-probability sampling methods shown in the opening section of the
chapter.
3. What are the 3 key questions to be posed when employing stratified sampling?
4. Explain the term 'proportional allocation'.
5. Outline the arguments against quota sampling.
6. Explain the term 'primary sampling units 'PSUs'
7. Define the term null hypothesis'.
8. What are the 2 types of statistical tests?
9. Explain the meaning of a 'type I error'.

10. Which Z value equates to a 95% confidence level?

The Marketing Environment.

The marketing environment surrounds and impacts upon the organization. There
are three key perspectives on the marketing environment, namely the 'macro-
environment,' the 'micro-environment' and the 'internal environment'.
The micro-environment
This environment influences the organization directly. It includes suppliers that
deal directly or indirectly, consumers and customers, and other local
stakeholders. Micro tends to suggest small, but this can be misleading. In this
context, micro describes the relationship between firms and the driving forces
that control this relationship. It is a more local relationship, and the firm may
exercise a degree of influence.
The macro-environment
This includes all factors that can influence and organization, but that are out of
their direct control. A company does not generally influence any laws (although it
is accepted that they could lobby or be part of a trade organization). It is
continuously changing, and the company needs to be flexible to adapt. There
may be aggressive competition and rivalry in a market. Globalization means that
there is always the threat of substitute products and new entrants. The wider
environment is also ever changing, and the marketer needs to compensate for
changes in culture, politics, economics and technology.

The internal environment.

All factors that are internal to the organization are known as the 'internal
environment'. They are generally audited by applying the 'Five Ms' which are
Men, Money, Machinery, Materials and Markets. The internal environment is as
important for managing change as the external. As marketers we call the process
of managing internal change 'internal marketing.'
Essentially we use marketing approaches to aid communication and change
management.
The external environment can be audited in more detail using other approaches
such as SWOT Analysis, Michael Porter's Five Forces Analysis or PEST Analysis.

PEST Analysis.
What is PEST Analysis?
It is very important that an organization considers its environment before
beginning the marketing process. In fact, environmental analysis should be
continuous and feed all aspects of planning. The organization's marketing
environment is made up of:
1. The internal environment e.g. staff (or internal customers), office technology,
wages and finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors,
suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces,
Sociocultural forces, and Technological forces. These are known as PEST factors.

Political Factors.
The political arena has a huge influence upon the regulation of businesses, and
the spending power of consumers and other businesses. You must consider
issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your business?
3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN,
or others?
Economic Factors.
Marketers need to consider the state of a trading economy in the short and long-
terms. This is especially true when planning for international marketing. You
need to look at:
1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic Product (GDP) per
capita, and so on.
Sociocultural Factors.
 The social and cultural influences on business vary from country to country. It is
very important that such factors are considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?
Technological Factors.
Technology is vital for competitive advantage, and is a major driver of
globalization. Consider the following points:
1. Does technology allow for products and services to be made more cheaply and
to a better standard of quality?
2.Do the technologies offer consumers and businesses more innovative products
and services such as Internet banking, new generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet,
flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with consumers
e.g. banners, Customer Relationship Management (CRM), etc?

The Product Life Cycle

A product's life cycle (PLC) can be divided into several stages characterized by the revenue
generated by the product. If a curve is drawn showing product revenue over time, it may take
one of many different shapes, an example of which is shown below:

Product Life Cycle Curve

The life cycle concept may apply to a brand or to a category of product. Its duration may be
as short as a few months for a fad item or a century or more for product categories such as the
gasoline-powered automobile.
Product development is the incubation stage of the product life cycle. There are no sales and
the firm prepares to introduce the product. As the product progresses through its life cycle,
changes in the marketing mix usually are required in order to adjust to the evolving
challenges and opportunities.

Introduction Stage

When the product is introduced, sales will be low until customers become aware of the
product and its benefits. Some firms may announce their product before it is introduced, but
such announcements also alert competitors and remove the element of surprise. Advertising
costs typically are high during this stage in order to rapidly increase customer awareness of
the product and to target the early adopters. During the introductory stage the firm is likely to
incur additional costs associated with the initial distribution of the product. These higher
costs coupled with a low sales volume usually make the introduction stage a period of
negative profits.

During the introduction stage, the primary goal is to establish a market and build primary
demand for the product class. The following are some of the marketing mix implications of
the introduction stage:

• Product - one or few products, relatively undifferentiated

• Price - Generally high, assuming a skim pricing strategy for a high profit margin as
the early adopters buy the product and the firm seeks to recoup development costs
quickly. In some cases a penetration pricing strategy is used and introductory prices
are set low to gain market share rapidly.
• Distribution - Distribution is selective and scattered as the firm commences
implementation of the distribution plan.
• Promotion - Promotion is aimed at building brand awareness. Samples or trial
incentives may be directed toward early adopters. The introductory promotion also is
intended to convince potential resellers to carry the product.

Growth Stage

The growth stage is a period of rapid revenue growth. Sales increase as more customers
become aware of the product and its benefits and additional market segments are targeted.
Once the product has been proven a success and customers begin asking for it, sales will
increase further as more retailers become interested in carrying it. The marketing team may
expand the distribution at this point. When competitors enter the market, often during the
later part of the growth stage, there may be price competition and/or increased promotional
costs in order to convince consumers that the firm's product is better than that of the
competition.

During the growth stage, the goal is to gain consumer preference and increase sales. The
marketing mix may be modified as follows:

• Product - New product features and packaging options; improvement of product

quality.
 • Price - Maintained at a high level if demand is high, or reduced to capture additional
customers.
• Distribution - Distribution becomes more intensive. Trade discounts are minimal if
resellers show a strong interest in the product.
• Promotion - Increased advertising to build brand preference.

Maturity Stage

The maturity stage is the most profitable. While sales continue to increase into this stage,
they do so at a slower pace. Because brand awareness is strong, advertising expenditures will
be reduced. Competition may result in decreased market share and/or prices. The competing
products may be very similar at this point, increasing the difficulty of differentiating the
product. The firm places effort into encouraging competitors' customers to switch, increasing
usage per customer, and converting non-users into customers. Sales promotions may be
offered to encourage retailers to give the product more shelf space over competing products.

During the maturity stage, the primary goal is to maintain market share and extend the
product life cycle. Marketing mix decisions may include:

• Product - Modifications are made and features are added in order to differentiate the
product from competing products that may have been introduced.
• Price - Possible price reductions in response to competition while avoiding a price
war.
• Distribution - New distribution channels and incentives to resellers in order to avoid
losing shelf space.
• Promotion - Emphasis on differentiation and building of brand loyalty. Incentives to
get competitors' customers to switch.

Decline Stage

Eventually sales begin to decline as the market becomes saturated, the product becomes
technologically obsolete, or customer tastes change. If the product has developed brand
loyalty, the profitability may be maintained longer. Unit costs may increase with the
declining production volumes and eventually no more profit can be made.

During the decline phase, the firm generally has three options:

• Maintain the product in hopes that competitors will exit. Reduce costs and find new
uses for the product.
• Harvest it, reducing marketing support and coasting along until no more profit can be
made.
• Discontinue the product when no more profit can be made or there is a successor
product.

The marketing mix may be modified as follows:

• Product - The number of products in the product line may be reduced. Rejuvenate
surviving products to make them look new again.
 • Price - Prices may be lowered to liquidate inventory of discontinued products. Prices
may be maintained for continued products serving a niche market.
• Distribution - Distribution becomes more selective. Channels that no longer are
profitable are phased out.
• Promotion - Expenditures are lower and aimed at reinforcing the brand image for
continued products.

Limitations of the Product Life Cycle Concept

The term "life cycle" implies a well-defined life cycle as observed in living organisms, but
products do not have such a predictable life and the specific life cycle curves followed by
different products vary substantially. Consequently, the life cycle concept is not well-suited
for the forecasting of product sales. Furthermore, critics have argued that the product life
cycle may become self-fulfilling. For example, if sales peak and then decline, managers may
conclude that the product is in the decline phase and therefore cut the advertising budget, thus
precipitating a further decline.

Nonetheless, the product life cycle concept helps marketing managers to plan alternate
marketing strategies to address the challenges that their products are likely to face. It also is
useful for monitoring sales results over time and comparing them to those of products having
a similar life cycle.

Combined Summaries of some

Product Life Cycle Management Articles
1.Stages of the product life 2. Industry versus product 3. Objectives From Producer,
cycle life cycle Customer and Society
Perspectives
4. Relationships over the 5. Benefits of the PLC 6. Why companies are
product life cycle perspective reluctant to use the life cycle
concept.
7. Life cycle strategies 8. Stages of the product life 9. Four components of Life
cycle Cycle Management
10. Producers Costs 11. Final Customer Product 12. Trade-off investment
Life Cycle Costs study
13. Ways to estimate life 14. Problems created by 15. PLC Graphic
cycle costs traditional focus
16. Learning Curve Models

Stages of The Product Life Cycle - Susman 1989

Marketing or Sales Perspective

 Startup Growth Maturity Decline Abandon

The length and sequence between the stages is not predictable. Could have one of
the following:

Startup Decline Abandon

Startup Growth Decline Abandon

Startup Growth Maturity Decline Abandon

Startup Growth Maturity Revitalization Decline Abandon

Startup Growth Maturity Revitalization Decline Revitalization Decline

Abandon

Production Perspective

Conception Design Development Production Logistical Support

Customer or Consumption Perspective

Operations Support Disposal

Note the difference between Revenue Producing Life Versus Consumable Life
Perspectives

Revenue producing life - producer’s perspective

Consumable life - consumer’s perspective.

Industry Life Cycle Versus Product Life Cycle

Industry examples - Automobiles, Steel

Product examples - Pontiacs, Edsels

Product classes, forms and brands, e.g., Automobiles, convertibles, Pontiacs

Objectives From Producer, Customer and Society Perspectives

Perspective Objective Methods

Producer Maximizing life cycle profits Revenue enhancement and
cost reduction (See Susman’s
Exhibit 2)

Customer Maximize performance Perform life cycle trade-off

relative to price and after studies (See White &
purchase costs Ostwald 1976)

Society - Government Minimize externalities - e.g., Laws, regulation, fines etc.

pollution, unsafe products

Relationships over the Products Life Cycle*

Production Conception, Production & Production & Production Production &

Stages Design & Logistical Logistical & Logistical Logistical
Development Support Support Support Support

Marketing Startup Startup Growth Maturity Decline,

Stages Revitalize or
Abandon

Strategic Design for low Sales growth Sales growth. Profits Cash flows&
objectives production & profits
consumption
costs.

Performance Quality Quality Quality Price Price

indicators

Expense High Product High Product Moderate Moderate Low Product

indicators R&D, R&D, Product R&D, Product R&D, R&D, Process
Moderate Moderate High Process High Process R&D,
Process R&D Process R&D R&D, R&D, Advertising
&Advertising, Advertising Moderate andPlant &
Low Plant & and Plant & Advertising Equipment.
Equipment. Equipment. and Plant &
Equipment.

Profits Zero Negative, but Positive & Peak then Decrease.

increasing. Increasing for decrease.
innovator.
Profits vary
depending on
company’s
position in the
industry.
Risks High Lower market
technological risk for
risk for innovator. High
innovator. market risk
fornon-
innovator.

Traditional R&D treated as Measures Measures Measures Measures

costing period costs. production production production production
costs. costs. costs. costs.

Life cycle Measures Measures Measures Measures Measures

costing product design production, production, production, production,
& process logistical logistical logistical logistical
innovations to support costs & support costs & support costs support costs &
lower consumption consumption & consumption
fabrication & costs. costs. consumption costs.
assembly costs costs.
e.g., parts
reduction, snap
together parts.

Benefits of Product Life Cycle Perspective

The life cycle perspective:

1. Recognizes that maximizing revenue and minimizing costs at every stage might
not maximize profits over the product life cycle. For example, standardizing the
product design to lower costs sacrifices flexibility. Charging high prices to enhance
revenue invites competitors to enter. Supports a forward pricing strategy based on
the experience (learning) curve.

2. Provides a long term perspective that produces decisions that lead to better long
term results. For example, the life cycle concept recognizes that actions taken in
the design and development stages to generate revenue and lower costs provide
long run benefits.

3. Supports the value chain concept while traditional cost accounting supports the
value added concept. Traditional accounting systems measure only production
costs or the value added by production.

4. Recognizes that customer consumption costs are important. The ratio of the
operating and support costs to the acquisition costs of a product is an important
consideration for the customer. This shows that low consumption costs must be
designed into the product.
5. Helps provide better information for investment decisions, i.e., related to the
long run and value chain.

Places emphasis on designing products to lower fabrication and assembly costs,

such as reducing the number of parts, using more molded parts - plastic and snap
together parts, and common interchangeable parts.

The PLC perspective also places emphasis on lower logistical support costs such as
storing finished goods, delivering products to customers and installing products
and training customers to use them.

CAM-I Cost Breakdown Structure

1. By life cycle stage.

2. By function within stages.
3. By activities within functions.
4. By tasks within activities.

Total Life Cycle Costs = Sum of the costs across all the life cycle stages.

Why companies are reluctant to use the life cycle concept.

1. Short term mentality.

2. Cash flow problems.
3. High hurdle (discount) rates used for investment justification.
4. Lack of data needed to understand the product life cycle.
5. Benefits not distributed evenly to functional groups. For example, purchasing,
quality control or maintenance may shrink as a result of designing more reliable
products.

Life cycle strategies

1. Standardize the product quickly and compete on the basis of low cost.
2. Modify the product continuously and compete on the basis of product
uniqueness.
Charge premium prices.

Stages in the Product Life Cycle (Czyzewski & Hull 1991)

Startup Growth Maturity Harvest

 A product life cycle budgeting system is an improvement over traditional
budgeting because the underlying assumptions change over the products life cycle
stages.

Four Components of Life Cycle Management (Adamany & Gonsalves 1994)

1. The Life Cycle Model has Seven Stages

Analysis Startup Entry Build or Growth Maturity Decline Withdrawal

2. A Balanced Set of Performance Measures - refers to balancing process

measurements and results measurements based on the critical success factors at
each stage.

Factors Critical at Each Stage T

Critical
Analysis Startup Entry Growth Maturity Decline Withdrawal
Factor

Time T T T

Customer
requirements
&
satisfaction T T T T
quality

Target
T T T T T T
pricing

Resource
requirements T T T T

Continuous
improvement T T T T

Cash flow T T T T T T T

3. Advanced Cost Management Systems (based on a process view of the business)

provide the link between the budgeting process and the reporting process.

4. Portfolio Theory - allows managers to evaluate a company’s investments as a

whole. The portfolio approach helps managers smooth the peaks and valleys of the
 investment cycle. For example, it helps show how mature, cash generating
investments can be used to fund startup, cash using investments.

It is also helpful in planning resource requirements and budgets at each functional

level, as well as measuring the effects of various "investment kickers".

Producers Costs - (Artto 1994)

1. Product conception.
2. Design.
3. Product & process development.
4. Production.
5. Logistics.
6. Marketing.
7. Service.
8. Guarantees.

Final Customer Product Life Cycle Costs (Artto 1994)

1. Purchase price.
2. Cost of delivery problems and delay.
3. Installation costs.
4. Operating costs.
5. Support costs.
6. Maintenance & revitalization costs.
7. Net disposal costs.

Life Cycle Costing Trade-off Study - Consumption Perspective (White and

Ostwald 1976)

The life cycle concept is obviously important from the consumption perspective. A
trade-off investment study is illustrated below based on an example provided by
White and Ostwald (1976). An aerospace firm requested bids on a vacuum
chamber designed to simulate high altitude pressures for electronic equipment.
Two vendors submitted bids and data that are used in the cost calculations in the
table. To keep it simple, they used a two year life for the equipment and did not
discount the cash flows. The idea was to illustrate the type of analysis that needs to
be performed.

Product Product from Vendor A Product from Vendor B

Characteristics Data* Costs Data* Costs

Product price $200,000 $170,000

Life 2 years 2 years

Installation costs 3,000 4,000

Labor requirements 1 man 2 men

Labor rate $8 per hour $8 per hour

Machine run time 2,920 per year 2,920 per year

Labor costs (2,920)($8)(2yrs) 46,720 (2,920)(2 men)($8)(2yrs) 93,440

Maintenance labor $6 per hour $6 per hour

rate

Corrective 500 hours 300 hours

maintenance:

Mean time between

failures. 1 week (i.e., 40 hours) 2 weeks i.e., 80 hours.

Mean time to repair. (2,920÷500)(40)($6)(2yrs) (2,920÷300)(80)($6)(2yrs)

Costs (Round 2,880 9,600

cycles)

Preventive
maintenance:
CycleDowntime After 160 hours of use. After 180 hours of use.

Cost (Round cycles) 4 hours per service 8 hours per service.

(2,920÷160)(4)($6)(2) 864 (2,920÷180)(80)($6)(2yrs) 15,360

Parts & Supplies

cost (% of product 1% 2,000 2% 3,400
price)

Input power:
Kilowatt hours per
machine hour. 8 kilowatt hours 9 kilowatt hours

Cost per kilowatt $.025 (2,920)(8kwh)(.025) $.025 (2,920)(9kwh)(.025)

hour. (2yrs) (2yrs)

1,168 1,314
Power costs

Total $256,632 $297,114

* Data from vendor specifications and local management estimates.

A note on Shields and Young 1991

80-85% of the life cycle costs are committed early in the products life cycle. $1
spent on pre-manufacturing activities can save $8-$10 on manufacturing and post
manufacturing costs.
(See CAM-I Figure 2-3 and Figure 2-4).

Shields and Young make a distinction between life cycle costs and whole life
costs. Life cycle costs include the producers cost. Whole life costs include the
consumers costs as well as the producers costs.

There are three ways to estimate life cycle costs:

1. Analogy - estimate costs based on similar component or product.

2. Parametric models - use non-linear regression models.

3. Industrial engineering and cost accounting - estimate costs of DM, DL and the
usual overhead application.

Consumer Perspective

Purchase Operating Support Maintenance Disposal

Societal Perspective

Disposal costs plus externality costs, e.g., health costs from pollution.

Problems created by traditional focus:

1. Vertical organizations have a myopic focus - need horizontal communication

and control.

2. Too much hierarchy. Need flatter organizational structures.

3. Too little employee participation - need employee empowerment.

4. Over the wall structures - need cross-functional teams including both design and
manufacturing engineers. (See the Hertenstein & Platt summary).

5. Standard cost for planning and control. Need to eliminate variance analysis.
Need target cost strategy.
The Process-Product Matrix

Two articles by Hayes and Wheelwright combine the stages of the process life
cycle with the stages of the product life cycle. In the first article the emphasis is on
competitive strategy, i.e., how to compete. In the second article the authors
emphasize how to deal with changes in the competitive environment. Both articles
use the process-product matrix illustrated below as a basis for discussing strategy.
The matrix shows a different view of the product life cycle than most of the articles
mentioned above. The idea conveyed in the matrix is that products tend to evolve
from low volume, one of a kind specialty items, to multiple low volume products,
to higher volume major products, and in some cases to higher-volume
commodities. Although some products do not evolve in this way, many do move
down the diagonal of the matrix as indicated by the arrows. For more on the
process-product matrix see the Hayes & Wheelwright summaries.

Services marketing
Services marketing has incurred an explosive amount of scholarly research in the last 20
years, however since 1986 there has been no debate concerning the notion that services are
distinct from products, and thus deserve a special approach, a set of concepts and a body of
knowledge (Brown, Fisk, & Bitner, 1994). This essay will explain the distinguishing features
of services marketing, giving examples where possible. It will begin by defining services
marketing and giving some background knowledge on its divergence from product
marketing. It will then examine the four characteristics of services, and then finish with an
explanation of the extra P's found in the services marketing mix.

In the last century there has been a large shift in marketing thought; evolving from a goods-
dominated view, in which tangible output and discrete transactions were the focus, to a
service-dominant view, in which intangibility, exchange processes, and relationships are
central (Vargo & Lusch, 2004). Vargo and Lusch define services as the application of
specialized competences (knowledge and skills) through deeds, processes, and performances
for the benefit of another entity or the entity itself. Four idiosyncratic features of services will
now be given, highlighting why services marketing is different from basic product marketing.

Arguably the most distinguishing feature about services is their intangibility. Services are
defined in (Zeithaml, Bitner, & Gremler, 2006) as "deeds, processes, and performances".
None of these are physical objects in which a customer can take ownership of, even though
during a service physical evidence will be apparent in the form of things like medicine the
doctors prescribes to you, the photo taken of you riding the rollercoaster, or the food on
your plate in a restaurant. This invisibility creates a number of issues for marketers. Firstly
there is no stock, making it hard to manage supply and demand. Secondly services cannot be
shown or displayed to customers, making it hard for marketers to advertise the quality of the
service. And finally, because services don't physically exist, there is difficulty in patenting
them, making it easy for other firms to copy your service.

Another notable aspect about products is that on average they stay the same. If you buy a
Ford Focus here in Australia, and then go and buy the same model in America, chances are
they will both be exactly the same. Services are different in that they are heterogeneous,
meaning they differ with each use. For example a wildlife tour will never be the same twice,
not only because of the random and unpredictable nature of the animals, but the guide may be
in a different mood, the weather will have changed, and there will be different customers
each time. These factors make it harder to consistently give quality service, which is
important to marketers because customers will have a particular set of expectations in mind,
based primarily on what was promoted in the service and previous experiences in the
particular industry.

Another distinguishable feature about services is the fact that it's both produced and
consumed at the same time, as opposed to products where customers do not see how the
product is manufactured. A good metaphor for this is being at the theatre. Consumers can be
compared to an audience, where they watch actors (employees) perform on stage (physical
location like a business store) amongst props (physical objects like chairs, tables, pot plants
etc). The actors are 'live' and performing (producing) at the same time as the audience are
watching (consuming). This brings us to the concept of interactive marketing. In a service,
operational staff carries out much of the marketing function (Klassen, Russel, & Chrisman,
1998), and marketers are left to the advertising and promotion.

The final distinction that differentiates services from products is their perishability. While
some products perish very quickly (like water balloons), services simply cannot be stored,
saved, resold or returned at all. Marketers main concern would be the procedure for when
things do not go as planned. Customers cannot simply return the service and ask for another
one; it is up to the service provider to offer the customer some kind of compensation. If
passengers are forced to wait a long time for their flight, employees could provide free coffee
and refreshments while they wait, in an attempt to make up for their failing service.

With product marketing the marketing mix includes the four P's; product, price, place and
promotion. Services use the same elements plus three more to help account for their unique
nature.

Firstly there is people, which comprise of everyone that influences the buyer's perceptions,
including the buyer themselves. Customers have an active role in the production, and thus can
influence the outcome of their own service or the service of others. For example a large
family with screaming children interrupting a young couples romantic dinner at a restaurant.
Every person is important to the marketer, no matter how small their role may be. Consider
an IT professional who installs computers in people's homes. During that installation the
buyer may form an opinion of the service provider as a whole based purely on that IT
professionals performance. Sometimes a person is the sole service provider, for example a
dentist or lawyer, making their performance and appearance critical to gaining a high
perceived quality of service.

The sixth 'P' is physical evidence, which is the environment in which the service is delivered
and where the firm and customer interact. It also includes any physical objects that assist in
the delivery of the service. define it as the environment and its instruments. With some
services customers may find it hard to judge the quality of the service, especially with
credence service's like financial advisors or legal advice. It is crucial that marketing managers
address consumer fears regarding risk that results before, during, and after consumption of
credence services. Since the customer does not have the knowledge or experience to judge
the actual service, they instead turn their attention to other things, including the physical
evidence of service quality. This would usually come in the form of a professional looking
workspace, however would change with each service provider. For example in a doctors
surgery cleanliness would be expected.

Finally there is the service process, including the procedures, mechanisms and flow of
activities by which the service is delivered. When purchasing a service, customers often have
a set of expectations of the process of the service, and when these are not met, the perceived
quality of service drops. For example in white water rafting a customer might be dissatisfied
if, when they arrived, they were told they had to carry the raft to the top of the river first. The
process is important because people participate in it, unlike products, where the process is
behind doors.

Services represent at least 70% of the nation's total GDP for at least 5 countries, including the
United Kingdom and Australia, making it a hot topic for not only marketers, but anyone
competing in the business world. Services are distinguished from products by four
characteristics; intangibility, they are heterogeneous, there is simultaneous production and
consumption, and their perishability. Services marketing differs from product marketing from
the fact that three extra P's are added to the original marketing mix; people, physical evidence
and process.

Services Marketing and the Extended Marketing Mix (7P's).

What is services marketing?
 A service is the action of doing something for someone or something. It is largely
intangible (i.e. not material). A product is tangible (i.e. material) since you can touch
it and own it. A service tends to be an experience that is consumed at the point
where it is purchased, and cannot be owned since is quickly perishes. A person could
go to a café one day and have excellent service, and then return the next day and
have a poor experience. So often marketers talk about the nature of a service as:
Inseparable - from the point where it is consumed, and from the provider of the
service. For example, you cannot take a live theatre performance home to consume
it (a DVD of the same performance would be a product, not a service).

Intangible - and cannot have a real, physical presence as does a product. For
example, motor insurance may have a certificate, but the financial service itself
cannot be touched i.e. it is intangible.
Perishable - in that once it has occurred it cannot be repeated in exactly the same
way. For example, once a 100 metres Olympic final has been run, there will be not
other for 4 more years, and even then it will be staged in a different place with many
different finalists.

Variability- since the human involvement of service provision means that no two
services will be completely identical. For example, returning to the same garage time
and time again for a service on your car might see different levels of customer
satisfaction, or speediness of work.
Right of ownership - is not taken to the service, since you merely experience it.
For example, an engineer may service your air-conditioning, but you do not own the
service, the engineer or his equipment. You cannot sell it on once it has been
consumed, and do not take ownership of it.

Western economies have seen deterioration in their traditional manufacturing

industries, and a growth in their service economies. Therefore the marketing mix has
seen an extension and adaptation into the extended marketing mix for services, also
known as the 7P's - physical evidence, process and people.

Service Marketing Mix

Having discussed the characteristics of a service, let us now look at the marketing mix of a
service.

The service marketing mix comprises off the 7’p’s. These include:
• Product
• Price
• Place
• Promotion
•
• People
• Process
• Physical evidence.

Lets now look at the remaining 3 p’s:

People

An essential ingredient to any service provision is the use of appropriate staff and people.
Recruiting the right staff and training them appropriately in the delivery of their service is
essential if the organisation wants to obtain a form of competitive advantage. Consumers
make judgements and deliver perceptions of the service based on the employees they interact
with. Staff should have the appropriate interpersonal skills, aptititude, and service knowledge
to provide the service that consumers are paying for. Many British organisations aim to apply
for the Investors In People accreditation, which tells consumers that staff are taken care off
by the company and they are trained to certain standards.

People are the most important element of any service or experience. Services tend to
be produced and consumed at the same moment, and aspects of the customer
experience are altered to meet the 'individual needs' of the person consuming it. Most
of us can think of a situation where the personal service offered by individuals has
made or tainted a tour, vacation or restaurant meal. Remember, people buy from
people that they like, so the attitude, skills and appearance of all staff need to be first
class. Here are some ways in which people add value to an experience, as part of the
marketing mix - training, personal selling and customer service.

Training.
All customer facing personnel need to be trained and developed to maintain a high
quality of personal service. Training should begin as soon as the individual starts
working for an organization during an induction. The induction will involve the person
in the organization's culture for the first time, as well as briefing him or her on day-
to-day policies and procedures. At this very early stage the training needs of the
individual are identified. A training and development plan is constructed for the
individual which sets out personal goals that can be linked into future appraisals. In
practice most training is either 'on-the-job' or 'off-the-job.' On-the-job training
involves training whilst the job is being performed e.g. training of bar staff. Off-the-
job training sees learning taking place at a college, training centre or conference
 facility. Attention needs to be paid to Continuing Professional Development (CPD)
where employees see their professional learning as a lifelong process of training and
development.
Personal Selling
There are different kinds of salesperson. There is the product delivery salesperson.
His or her main task is to deliver the product, and selling is of less importance e.g.
fast food, or mail. The second type is the order taker, and these may be either
'internal' or 'external.' The internal sales person would take an order by telephone, e-
mail or over a counter. The external sales person would be working in the field. In
both cases little selling is done. The next sort of sales person is the missionary.
Here, as with those missionaries that promote faith, the salesperson builds goodwill
with customers with the longer-term aim of generating orders. Again, actually closing
the sale is not of great importance at this early stage. The forth type is the technical
salesperson, e.g. a technical sales engineer. Their in-depth knowledge supports them
as they advise customers on the best purchase for their needs. Finally, there are
creative sellers. Creative sellers work to persuade buyers to give them an order. This
is tough selling, and tends to o ffer the biggest incentives. The skill is identifying the
needs of a customer and persuading them that they need to satisfy their previously
unidentified need by giving an order.
Customer Service
Many products, services and experiences are supported by customer services teams.
Customer services provided expertise (e.g. on the selection of financial services),
technical support(e.g. offering advice on IT and software) and coordinate the
customer interface (e.g. controlling service engineers, or communicating with a
salesman). The disposition and attitude of such people is vitally important to a
company. The way in which a complaint is handled can mean the difference between
retaining or losing a customer, or improving or ruining a company's reputation.
Today, customer service can be face-to-face, over the telephone or using the
Internet. People tend to buy from people that they like, and so effective customer
service is vital. Customer services can add value by offering customers technical
support and expertise and advice.

Process

Refers to the systems used to assist the organisation in delivering the service. Imagine you
walk into Burger King and you order a Whopper Meal and you get it delivered within 2
minutes. What was the process that allowed you to obtain an efficient service delivery?
Banks that send out Credit Cards automatically when their customers old one has expired
again require an efficient process to identify expiry dates and renewal. An efficient service
that replaces old credit cards will foster consumer loyalty and confidence in the company.

Process is another element of the extended marketing mix, or 7P's.There are a

number of perceptions of the concept of process within the business and marketing
literature. Some see processes as a means to achieve an outcome, for example - to
achieve a 30% market share a company implements a marketing planning process.
Another view is that marketing has a number of processes that integrate together to
create an overall marketing process, for example - telemarketing and Internet
marketing can be integrated. A further view is that marketing processes are used to
control the marketing mix, i.e. processes that measure the achievement marketing
objectives. All views are understandable, but not particularly customer focused.
For the purposes of the marketing mix, process is an element of service that sees the
customer experiencing an organisation's offering. It's best viewed as something that
your customer participates in at different points in time. Here are some examples to
help your build a picture of marketing process, from the customer's point of view.
 Going on a cruise - from the moment that you arrive at the dockside, you are
greeted; your baggage is taken to your room. You have two weeks of services from
restaurants and evening entertainment, to casinos and shopping. Finally, you arrive
at your destination, and your baggage is delivered to you. This is a highly focused
marketing process.

Booking a flight on the Internet - the process begins with you visiting an airline's
website. You enter details of your flights and book them. Your ticket/booking
reference arrive by e-mail or post. You catch your flight on time, and arrive refreshed
at your destination. This is all part of the marketing process.
At each stage of the process, markets:

• Deliver value through all elements of the marketing mix. Process, physical evidence
and people enhance services.
• Feedback can be taken and the mix can be altered.
• Customers are retained, and other serves or products are extended and marked to
them.
• The process itself can be tailored to the needs of different individuals, experiencing a
similar service at the same time.

Processes essentially have inputs, throughputs and outputs (or outcomes). Marketing
adds value to each of the stages. Take a look at the lesson on value chain analysis to
consider a series of processes at work.

Physical Evidence

Where is the service being delivered? Physical Evidence is the element of the service mix
which allows the consumer again to make judgements on the organisation. If you walk into a
restaurant your expectations are of a clean, friendly environment. On an aircraft if you travel
first class you expect enough room to be able to lay down!
Physical evidence is an essential ingredient of the service mix, consumers will make
perceptions based on their sight of the service provision which will have an impact on the
organisations perceptual plan of the service.

Physical evidence is the material part of a service. Strictly speaking there are no
physical attributes to a service, so a consumer tends to rely on material cues. There
are many examples of physical evidence, including some of the following:
 • Packaging.
• Internet/web pages.
• Paperwork (such as invoices, tickets and despatch notes).
• Brochures.
• Furnishings.
• Signage (such as those on aircraft and vehicles).
• Uniforms.
• Business cards.
• The building itself (such as prestigious offices or scenic headquarters).
• Mailboxes and many others . . . . . .

A sporting event is packed full of physical evidence. Your tickets have your team's
logos printed on them, and players are wearing uniforms. The stadium itself could be
impressive and have an electrifying atmosphere. You travelled there and parked
quickly nearby, and your seats are comfortable and close to restrooms and store. All
you need now is for your team to win!

Some organisations depend heavily upon physical evidence as a means of marketing

communications, for example tourism attractions and resorts (e.g. Disney World),
parcel and mail services (e.g. UPS trucks), and large banks and insurance companies
(e.g. Lloyds of London).

To summarise service marketing looks at:

The Characteristics of a service that are:
(1) Lack of ownership
(2) Intangibility
(3) Inseparability
(4) Perishability
(5) Heterogeneity.

The Service marketing mix involves analysing the 7’p of marketing involving, Product, Price,
Place, Promotion, Physical Evidence, Process and People.

To certain extent managing services are more complicated then managing products, products
can be standardised, to standardise a service is far more difficult as there are more input
factors i.e. people, physical evidence, process to manage then with a product.