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BACKGROUND TO PRINCIPLES OF MARKETING

INTRODUCTION TO MARKETING Every business, service or product oriented organization must complete its operation by disposing of its products or rendering its services to the customers. Various marketing concepts hold that customers will generally not buy a product they dont know or they have not been asked/convinced to buy. It is therefore the role of the marketing function in any business to fill this gap and complete the business operation. Definition of Marketing The Chartered Institute of Marketing of the United Kingdom defines marketing as, The management process which identifies, anticipates, and supplies customer needs efficiently and profitably. Kibera (1996) defines marketing as the performance of business and non-business activities which attempt to satisfy a target individual or group needs and wants for mutual benefit or benefits. Kotler (2006), the American marketing guru provides the definition of marketing as A social and managerial process whereby individuals and groups obtain what they need and want through creating and exchanging products and value with others. Kotler and Armstrong (2008) define marketing as The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

Core Marketing Concepts 1. Needs The basic concept underlying marketing is that of human needs. Needs comprise of those things that human beings feel they cannot do without e.g. food, clothing, shelter, safety, education etc. 2. Wants Are forms of human needs that improve on their well being but which they can do without. Wants are the form of human needs taken as they are shaped by culture and individual personality for example urbanites want Television sets. 3. Demand Demand is the quantity of a commodity that consumers are willing and able to buy at a given price over a given time period other factors held constant. When a want is backed by buying power it becomes demand. 4. 5. Product Is anything that can be offered to satisfy needs or wants. It can be tangible or intangible. Market A constituency of potential customers sharing particular needs or wants and who might be willing and able to engage in exchange to satisfy that need or want. A market also refers to where buyers and sellers meet to transact. 6. 7. Marketing offer Is a combination of products or service presented to the market to satisfy a need or a want. Value and Satisfaction Value is the ability of a commodity to satisfy human wants. It also refereed to as quality or utility. Customers look for value in a product before paying for it. The ability of a product to meet customer expectations results in customer satisfaction. 8. Exchange Is the act of obtaining a desired object from someone by offering something in return. 2

9. 10.

Transaction An exchange of values between two or more parties, where either party gains. Marketing Management Is the art and science of choosing target markets and building relationships with them.

What is marketed? 1. 2. 3. 4. 5. Goods Services Events Experiences Persons 6. Places 7. Properties 8. Organizations 9. Information 10. Ideas

MARKETING PHILOSOPHIES A marketing philosophy according to Kotler (2006) is a marketing logic which an organisation uses to relate to its market. Marketing has evolved overtime starting from days when firms concentrated in production to meet excess demand, to modern days when firms strive to meet customer expectation in the face of increased competition. This historical evolution of marketing is discussed in five competing concepts as follows. The competing concepts are also referred to as marketing philosophies. 1. The Production Concept It is the idea that consumers will buy products which are highly available and affordable. Therefore businesses managers should concentrate on achieving high production efficiency, low costs, and mass distribution. They assume that consumers are primarily interested in product availability and low prices. Though one of the oldest marketing concepts it is still widely adopted by leading firms like e.g. Coca cola The Product Concept This concept holds that consumers will favour products that offer the best quality, performance and features. Therefore the organisation should devote its energy in making continuous improvements to the product e.g. Auto mobile industry

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However overemphasis on product development might also lead to marketing myopia. Marketing myopia refers to a mistake of paying more attention to specific product features a company offers than to the benefits and experiences produced.

3.

The Selling Concept The idea that consumers will not buy enough of the organizations products unless the organisation undertakes large scale selling and promotional effort This concept is typically practiced by unsought goods providers e.g. Insurance services. Marketing Concept The marketing management philosophy holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfaction better than competitors do. Under this concept, customer satisfaction is the path to sales and profits. Hence the slogan, the customer is the king as is adopted by some organisations. Customer driven companies undertake massive marketing research on customer needs and desires, gather new product and service ideas and test product improvements. The Selling and Marketing Concepts Contrasted Starting Point The selling Concept Factory Existing Products Selling and Promoting Profits Through
sales volume

4.

Focus

Means

Ends

Market

Customer Needs

Intergrated marketing

Profits through
Customer

satisfaction

The marketing Concept

5.

Societal Marketing Concept Holds that customers will favour products and services that attempt to promote the values of the society, hence the emergence of corporate social responsibility in the recent past as a core marketing strategy e.g. Safaricom, Celtel, KCB. It is a principle of enlightened marketing that holds that a company should make good marketing decisions by considering consumers wants, the companys requirements, consumers long run interests and societys long run interests. Society (Human welfare)

Societal marketin g concept

Consumer (Wants satisfaction)

Company (Profits)

CUSTOMER RELATIONSHIP MARKETING (CRM) CRM is defined as the overall process of building and maintaining profitable ties between organizations and customers by delivering superior customer values and satisfaction. Overtime, relationship marketing has grown and replaced transactional marketing as summarized in the table below. Transactional marketing (One way communication) Focus on a single sale Product features oriented Short time scale Little customer service Limited customer commitment Moderate customer contact Quality is the concern of production Relationship marketing (Two way communication) Focus on customer retention Orientation on product benefits Long timescale High customer service High customer commitment High customer contact Quality is the concern of all

CRM therefore involves attracting, retaining and growing customers. Basic Tenets of CRM To effectively manage customer relationship, marketers normally employ the following three approaches: 1. Customer Value and Satisfaction Customer perceived value is the customers evaluation of the difference between the benefits and costs of a marketing offer relative to those of the competing offers. Whereas the customer

may not be accurate in judging the cost and values, they would always want to maximize their benefits at minimum cost. Customer satisfaction refers to a products perceived If the

performance as compared to the buyers expectation.

products performance falls short of expectation the customer is dissatisfied and vice versa. Smart companies aim at delighting customers by exceeding their expectation. 2. Customer loyalty and retention Satisfied customers produce several benefits to the company including (a) (b) (c) (d) (e) (f) They are less price sensitive. They spread a favourably word of mouth to others about the company They remain loyal for a longer time. They buy a wider range of products They cost less to service as they are familiar with the product and business design They exhibit strong Lifetime Customer Value (LCV) as the customer grows through the loyalty ladder from prospect, to customer, to client to a supporter, and finally to an advocate as shown below

Hence for companies to retain their customers for a longer period, they must aim high in satisfying their needs and wants. 3. Growing share of customers Marketers are pre-occupied by the want to increase their share of customers i.e. the share they get of the customers purchasing in their product categories. To increase share of customers, (a) (b) Firms can offer greater variety to current customers Train employees to cross sell - Cross selling means getting more business from current customers of one product by selling them additional offering e.g. offering a customer who comes to buy a suit, a shirt, tie, a belt and shoes.

Brainstorming Session

Zero defects. The following story is well known but it is worth repeating. An IBM plant in Windsor, Ontario, is said to have ordered a shipment of components from a Japanese firm, specifying an acceptable quality level (AQL) of three defective components per 10,000 shipped. In a covering letter accompanying the shipment, the Japanese company apologized and said it had met with great difficulty producing these defective parts, and had been unable to understand why they were required. They wrote: We Japanese have hard time understanding North American business practices, but the three defective parts per 10,000 have been included and are wrapped separately. Hope this pleases. Challenge Do you think it was fair for the Japanese firm to have supplied the defective parts? Why? The Concept of De-marketing Most companies in the hotel industry have trouble meeting demand during peak usage times. In this and other excess demand situations a need to carry out activities that may discourage the high demand is necessary. This is called De-marketing. De-marketing it. MARKETING MANAGEMENT AND THE MARKETING MIX is marketing to reduce demand temporarily or

permanently. The aim is not to destroy demand but to reduce or shift

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Marketing management aims at designing strategies that will build profitable relationships with the target customers. To do so every organization endeavors to adopt an effective marketing mix. The marketing mix is a combination of controllable, tactical marketing tools that a firm blends to produce the response it wants in the target market. The marketing mixes consist of everything the firm can do to influence the demand for its product. The many possibilities can be collected into four groups of variables also known as the four Ps of marketing mix i.e. product, price, place and promotion. The conventional 4 Ps of marketing have since been expanded to 7 Ps as : Marketing Mix Product Description

The goods and services on offer and their quality, feature, and design. Price That which consumers are willing to pay to get a unit of the product or services Place The distribution methodology of the products or service to the market place or target market Promotion The selling activity used to motivate the customers and entice them to buy more of the product People People are the human beings who drive product or service delivery Process The framework that is followed in the marketing and delivery of products and services Physical The tangible elements of services, ideas or any evidence other intangible products put on offer MARKETING CHALLENGES IN THE NEXT MILLENNIUM There have been a number of concerns of marketing in this highly dynamic global world and these must constitute the bulk of challenges that a marketing student must also face. 1. Growth of Non profit Marketing Schools, Hospitals, churches, the Army, the police and Museums are now practicing marketing, an activity that was the preserve of highly competitive profit making enterprises.

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Challenges in these fields include: Declining enrolment, Competition, Cost of service and Public relation 2. Rapid Globalisation It is definite that today the world has become a global village. That which used to be exclusively for a particular market and culture is now a product of the entire universe with the improved transport and communication systems. When blending the Marketing Mix, we must now take into consideration the variable and diversified global preferences. 3. The Challenging World Economy A larger part of the world is becoming poorer and making the global economy growth sluggish. This is a big challenge on pricing and quality. Wal-Mart for instance echoes that they sell for less. Why? Because they are aware of the challenge. 4. The Call for More Ethics and Social Responsibility People dont just buy successful products but ethically produced and sold products. The society would want to know how they benefit from a product they buy. 5. The New Marketing Landscape The new marketing landscape loudly screams, The Customer is everything. The past theoretical and highly academic texts of marketing are being challenged with the new teaching and gospel represented by a number of publications whose titles tell clearly of the new marketing landscape, for instance: The Customer Driven Company, The customer is always right, Keep the Customer, Customer for Life Total customer service: The Ultimate weapon.

6. The New Digital Age The explosive growth in computers, telecommunication, information, transportation and other technologies has had a major impact on the ways companies bring value to their customers Advancement in technology has seen the marketer adopt new approaches such as videoconferencing, internet marketing, customer 12

database management, interactive Television, cell phones, websites etc.

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MARKETING ENVIRONMENT A companys marketing environment consists of factors and forces that may affect marketing managements ability to built and maintain successful relationship with customers. The marketing environment offers both opportunities and threats. Successful companies are those that adapt to the environmental changes quickly and turn the threats to opportunities of growth. Marketers understand their environments by conducting environmental scanning. Environmental scanning is the practice of keeping track of external changes that can affect markets including the demand for goods and services of an organization. The marketing environment has two broad dimensions: (a) (b) Micro environment Macro environment

THE MICRO MARKETING ENVIRONMENT These are factors very close to the company that affects its abilities to service its customers. The internal forces include; the company, supplier, customer markets, publics and marketing intermediaries. 1. The Company The marketing manager is influenced by the other company departments; hence he/she must work closely with them.

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Top management for instance sets the companys mission, objectives, broad strategies and policies the marketing and finance departments sources for funds to carry out the marketing plan. The R&D department focuses on designing products that are attractive and satisfy customer needs. Purchasing department worries about getting quality material input, while production department produces the desired product. All these departments interdependent on each other

and impact on the marketing departments plans and actions. 2. The Suppliers Suppliers provide the resources needed by the company to produce its goods and services. Marketing managers must watch supply availability to avoid deficiency of the product in the market. Marketers should monitor price trends of their key inputs e.g. petroleum products, rubber, etc. rising supply costs translates to increased production cost which forces selling price to go up. 3. Customer Markets A customer is one who buys a companys final product in exchange for a monetary value. Marketers must understand the types of customer markets and where possible use price discrimination on these markets. explained below: (a) (b) Consumer markets Consist of individuals and firms that buy goods and services for final consumption. Industrial markets Buys goods and services for further processing or for use in their production process. 15 Five types of markets are

(c) (d)

Resellers markets Buys goods and services to resell at a profit. Government markets Made up of government agencies that buy goods and services to produce public goods or services.

(e)

International markets Consist of buyers in other countries including consumers, producers, resellers and governments.

4.

Publics Publics are groups that have an actual or potential interest in an organisations ability to achieve its marketing objectives. They include: (a) Financial Publics They influence the ability of a firm to obtain funds for conducting its marketing programs. They include banks, investment houses and stockholders. (b) Media publics Include newspapers, magazines, radio and television stations that carry news, features and editorial opinion. The marketer must know how to interact with the media for regular coverage of the organisation. (c) Government publics Marketers must always consult the company (d) lawyers on issues of product safety, advertisement etc. Citizen action publics A companys public relations sector must stay in term with consumers and consumer action groups and attend to their concerns. (e) Internal publics Includes workers, management, volunteers, board of director etc. motivate their internal publics. Companies must

It motivates marketing

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force strive hard to attaining the set goals and this spills over to external publics. 5. Marketing Intermediaries These are forces that can help the company promote, sell and distribute its products to the final buyer. They include resellers, physical distribution firms and marketing service agencies. (a) Resellers Are distribution channel firms that help the company find customers e.g. wholesalers, distributors, retailers (Nakumatt, Uchumi, Tuskys). These organizations often have enough monopsony power to dictate terms or even shut the manufacturer out of large markets. (b) Physical distribution firms (transporters) Are firms that help the company move its goods from the point of manufacturer to the final consumers. The marketer must balance factors like costs, delivery time and safety. (c) Marketing service agencies Are research firms (Steadman Group), advertising agencies, (Adopt A Light, Eagles Outdoor, Monier Outdoor, The Scann Group), media houses (Nation, Standard, Royal Media, KBC) and marketing consultants. Such firms help the company promote and The marketer target its products to the right markets. before choosing a marketing agency. MACRO MARKETING ENVIRONMENT Macro marketing environmental are factors that are outside the companys control and often pose threats or provide opportunities to

must consider price, service quality, target market etc.

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the company.

The external forces are often discussed under the

PLEST or PEST frame work as follows: 1. 2. 3. 4. 5. 1. Political Legal environment Economic environment Social environment (demographic environment) Technological environment Political and Legal factors These comprises of laws, regulations, government agencies and social pressure groups that include and limit various organizational marketing effort. Every marketing activity is subject to a wide range of laws and regulations. These legislations have been enacted for the following reasons: (a) (b) To protect companies from each other e.g. patent rights. To protect consumers from unfair business practices e.g. labels on cigarettes smoking kills , dont drink and drive (c) To protect consumers from overpricing e.g. laws requiring banks to charge up to a given interest rate. 2. Marketers need to know the major laws protecting consumers, society and competition. Economic Environment These are factors that affect consumer buying power and spending pattern. 18

Marketers must understand economic trends. are high.

During

periods of boom (prosperity), production and employment Consumers demand more goods and services. of inflation, prices rise faster than They spend freely on basic and luxury goods. During periods production of goods. Consumers income is not sufficient to sustain them hence low demand for goods/services During periods of recession, production and employment decreases, this is followed by reduced consumption of luxury goods as people stick to the basic needs only. During recovery, production starts to increase, unemployment decreases and consumers start spending more money in their purchases. Hence times marketers of engage boom, in aggressive firms marketing adopt the campaign, during periods of recession and decline and in economic some Demarketing concept. Demarketing is an effort to reduce demand for a product. An increase in government taxes automatically reduces consumers disposable income. Marketers must understand the implication of a VAT tax increase from 16% to 18% for instance. 3. Demographic Environment Demography is the study of human population in terms of size, density, location, age, gender, race, etc. The (a) (b) growing world population for instance has the following implications to a marketer: A growing population means growing human needs to satisfy. Depending on the populations purchasing power, it may mean growing marketing opportunities. 19

Marketers therefore have to keep close track of the demographic trends because people make up markets both at home and abroad.

Marketers have to track changes in age, family structures, geographic population shifts, population diversity etc.

4.

Technological Environment Refers to forces that create new technologies, new products and market opportunities e.g. internet, mobile phones, computers, credit cards, television, etc. New technologies create new markets and opportunities. Companies that do not keep up with technological change soon find their products having been rendered obsolete. Through research and development, companies are able to produce practical and affordable versions of products.

5.

The Competitive Environment A firms competitors are those organizations who produce and sell similar or identical products/service to those of the firm. Successful firms are those that provide greater customer value and satisfaction relative to competition. Marketers must gain strategic advantage by positioning their product offerings strongly against competitors offerings. Economists describe three main types of competition: (i) Pure competition Occurs when similar products are offered, there are many buyers and sellers, the

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sellers can freely enter the market or exit it and both buyers and sellers have free access to information. Marketers must understand firms under perfect competition take prices as given by the market and that any marketing effort they engage only creates awareness and might not affect the quantity demanded directly e.g. the cooking oil industry in Kenya is made up of Bidco, Unilever, Kapa, Pwani etc. (ii) Monopolistic competition Occurs when there are a few large sellers in the market. No free entry or exit from the market, information does not flow freely and each firm has full control of its demand curve. Firms limit quantity supplied and charge high prices to maximize profits. e.g. Celtel, Safaricom and Telcom. (iii) Oligopoly Occurs where products are similar but differentiated. There are a few sellers and no free flow of information. Firms have full control of their prices such that a price reduction by one firm is quickly followed by competing firms to secure their market share but a price increment by one oligopolist is not necessarily followed by the other firms. e.g. Shell, Kenol Kobil, Total, Caltex, in the oil business in Kenya. Competition largely poses the problem of pricing that the marketer must always try to resolve. The other competitive forces are threat of new entrants, threat of substitute products and bargaining power of suppliers.( See Porters Model).

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ANALYSING THE COMPETITIVE ENVIRONMENT There are two models commonly employed in analysis of the competitive marketing environment of the organization: 1. Competitive Forces Model 2. SWOT analysis MICHAEL PORTER AND THE COMPETITIVE FORCES MODEL The competitive forces model was developed by Michael Porter of Harvard University in 1980. He argues that the intensity of competition in an industry is neither a matter of coincidence or bad luck, but rather the way the industry is structured. He therefore identifies FIVE forces that he says influence the nature of competition in an industry. These include: 1. 2. 3. 4. 5. Threats of entry The supplier power Buyer power Substitute products Rivalry (jockeying for positions)

SWOT ANALYSIS SWOT model is a summary of the pertinent characteristics of the marketing environment that may affect the future business plans of a business. SWOT is an acronym standing for: 1. Strengths 2. Weaknesses 3. Opportunities 4. Threats.

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GROUP ASSIGNMENT a) Distinguish information [10 marks] b) Identify one organisation of your choice, and discuss how they would go about conducting a marketing research to solve a problem they are currently faced with.( Use the marketing research process). [20 marks] REQUIRED To be done in Groups of Five Typed using Times New Roman font 12 Cover page Attach reference page i.e. Harvard system of referencing Spiral Bound One report written and Submitted Two weeks from Today between marketing intelligence and marketing

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CONSUMER BUYING BEHAVIOUR Consumer buyer behaviour is the behaviour exhibited by the final users Individuals and households who buy goods and services for personal consumption. Customer versus Consumer A customer is one who buys the product from the seller. The consumer is one who finally uses the product for own satisfaction. For instance a mother buys ice-cream and the child eats the ice-cream. The mother is the customer and the child the ultimate consumer. Marketers must understand the consumer buying behavior and the customer buying behaviuor. Basic Model of Consumer Behaviour The central question that concerns marketers is how do consumers respond to the various marketing efforts the company employs? A company that is able to precisely understand and supply customer expectation of value tends to have an advantage over competition. The model of buyer behaviour below has been presented by Kotler (2006) in an attempt to explain the consumer buyer behaviour.

Marketing and other Stimuli Marketing Product Price Place Promotion Other Buyers Black Box Economy Technology Political n Cultural Process Buyer Characteristics Buyer Decisio

Buyer Response Product Choice Brand Choice Dealer Choice Purchase Choice Purchase amount

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The figure shows that the marketing stimuli and other factors enter the buyer black box and produce certain responses. Marketers stimuli consist of all the marketing effort of an organization broadly captured in the four Ps of Product, Price, Place and Promotion. Other stimuli include major forces and events in the buyers environment i.e. economic, technology, political and cultural forces. After receiving a stimuli the buyers the enter a black box during which the buyer thinks, weighs, chooses and makes a decision. The decision making process is influenced by buyer characteristics as discussed below. The decision made is displayed in the buyer response comprising of choosing a product, brand, dealer, purchase and quantity to purchase. Marketers attempt to understand how the stimuli are converted to response, and often manipulate the external stimuli to favour their marketing offer. CHARACTERISTICS AFFECTING CONSUMER BUYING BEHAVIOUR The character of a consumer will largely be affected by the following factors: 1. 2. 3. 4. 1. Cultural factors Social factors Personal factors Psychological factors Cultural Factors

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The marketer must understand the role played by the buyers culture, subculture and social class. (a) Culture Culture affects a persons wants and behaviour. Growing up in a society a child learns basic values, perceptions, wants and behaviours from the family and other important institutions e.g. different cultures assign different meanings to colour. White is usually associated with purity and cleanliness in Western communities. However it can signify death in Asian countries. signify his wife has been unfaithful. (b) Subculture Subculture include nationalities, religions, racial groups, and geographic regions. Many subcultures make up important market segments and marketers often design products tailored to their needs e.g the Black Americans in the United States are strongly motivated by quality and selection. They place more importance on brand names and are more brand loyal. (c) Social class Social classes are societys relatively permanent and ordered divisions whose members share similar values, interests and behaviours e.g. of social class: upper class, middle class, lower class. Social class is determined by many factors like income, occupation, education, wealth and other variables. Marketers are interested in social class because people within a given social class tend to exhibit similar buying behaviour. Social classes show distinct product and brand preferences in areas like clothing, home furnishings, automobiles etc. 26 Also according to Taiwan culture, a man puts on green cloths to

2.

Social Factors The buyers behaviour may also be influenced by social factors, such as groups, the family, social roles and status. (a) Groups - Groups are combinations of two or more people who have come together or interact to accomplish individual or mutual goals. A group member is influenced by the other members as he/she strives to belong. Marketers try to identify the Reference reference groups of their target markets.

groups expose a person to new behaviours, lifestyles and create pressure to conform e.g. a group of young people can be attracted to the football game and would wish to put on branded products just like the football player whom they wish to imitate. (b) Family Marketers are interested in the roles and influence of the husband, wife, children and house help on the purchase of different products and service. In most families, the wife is the main buyer of food, household products and clothes. The husband is the main buyer f hardware, car or even a home. However changes in the market trend have seen women take up the reverse roles. Children and house helps are the main consumers of T.V. adverts and may from time to time influence the family buying decisions. (c) Roles and Status 27

A role consist of the activities a person is expected to perform according to the people around them e.g Mary is a daughter to her parents, she plays the role of a daughter, in her family, she plays the role of a wife, in her company she plays the role of the brand manager. Each of her roles influences her buying behaviour. 3. Personal factors These are common individual characteristics that can influence ones behaviour or decisions. They include the buyers age and life cycle stage, occupation, economic situation, lifestyle, personality and self concept.

(a)

Age and Lifecycle Stage Marketers often define their target markets in terms of the life-cycle stage and develop appropriate products and marketing plans for each stage. Traditionally family life-cycle include young singles,

married couples with children, and the elderly. Markets strive to capture brand loyalty of consumers at a young age and develop long term relationship. (b) Economic Situation Economic situation of an individual affect his/her buying ability. A high income earner has more income to spend and a low income earner has little income to spend. Marketers of income sensitive goods watch trends in 28

personal income, savings and interest rates. even redesign their products. (c) Lifestyle

During

economic recession, marketers must re-price reposition or

Lifestyle is a persons pattern of living as expressed in his or her activities, interest and opinions. Marketers classify people based on how they spend their money and time as follows: (i) (ii) (iii) Status oriented buyers Base their purchases on the actions and opinions of others. Action oriented buyers Are driven by their desire for acting, risk taking and variety. Principle oriented buyers Consumers who buy based on their views of the world. Based on lifestyle, consumers can also be classified as: (i) (ii) Actualisers People with so many resources that they can indulge in any of the orientations above. Achievers People with middle income and just enough resources. They strive to be actualisers and are often status oriented. (iii) (iv) Strivers People with little resources and are principle oriented. Strugglers People with too few or no resources. They are often not included in any consumer orientation. Lifestyle study is used by marketers to design appropriate adverts for each class of consumers. (e) Personality and Self-concept

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Personality

is

the

distinguishing

psychological

characteristic that leads to relatively consisted and lasting responses to ones own environment. Personality can be described as self-confident, dominant, social, defensive, adaptable and aggressive. Personality is useful in analyzing consumer behaviour for certain products e.g. coffee marketers have discovered that heavy coffee drinkers are highly sociable. 4. Psychological Factors A persons buying choices are further influenced by motivation, perception, learning, beliefs and attitudes. (a) Motivation A motive (drive) is a need that is sufficiently pressing to direct the person to seek satisfaction. Many marketers develop adverts bearing in mind their products ability to quench the buyers motive e.g. the Pepsi slogan dear for more, The Sprite advert obey your thirst, Nakumatt slogan You need it you get it, Toyota Pickup advert, Shujaa wa Kazi etc. (b) Perception Perception is the process by which people select, organize and interpret information for form a meaningful picture of the world. There are three perceptual processes: (i) (ii) Selective attention Selective distortion

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(iii)

Selective retention

Selective attention is the tendency for people to screen out most of the information to which they are exposed e.g. consumers in Kenya are exposed to over 1,000 adverts everyday. Do they pay attention to any of them? Marketers must strive to capture consumer attention. Selective distortion is the tendency of people to Marketers must try and understand the and how this will affect

interpret information in a way that will support what they already believe. mindset of consumers

interpretations of adverts and sales information. Selective retention is the tendency of people to retain information that supports their attitudes and beliefs. This explains why marketers use so much drama and repetition in sending messages to their market e.g. action hits pain hard, Doom advert etc. (c) Learning Learning describes changes in an individuals behaviour arising from experience. Most human behaviour is learned. Learning occurs through the interplay of drives, stimuli, cues, responses and reinforcement e.g if a consumer buys a Nokia phone, if his experience with the phone is rewarding he will in future reinforce this behaviour by buying it again. But if it is not rewarding he will not reinforce the need for that product. (d) Beliefs

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A belief is a descriptive thought that a person has about something e.g. Kenyans have an attitude that Nissan cars are not durable on Kenyan roads and are highly in favour of Toyota cars. These beliefs may be based on real knowledge, opinion or faith. Marketers must understand the beliefs that people

formulate about a specific product because the belief make up product and brand images. If some beliefs are wrong and prevent purchase, a marketer launches a campaign to correct them e.g. the Jik advert on detergents that bleach and tear your garments, the Nissan X-trail advert that depicts Nissan on rough roads. (e) Attitudes Attitude is a persons consistently favourable or unfavourable evaluation, feelings and tendencies toward an object or idea e.g. people have the attitude that Japanese electronics are quality products while Chinese electronics are poor quality products. A marketer must understand peoples attitudes and try to change them to their benefit.

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TYPES OF BUYING-DECISION BEHAVIOUR There are four types of buying behaviour: 1. 2. 3. 4. Complex buying behaviour Dissonance reducing buying behaviour. Habitual buying behaviour Variety seeking buying behaviour High Involvement Significant brands Few Complex Low Involvement seeking

buying Variety

difference between behaviour

buying behaviour buying

difference Dissonance reducing Habitual buying behaviour behaviour

between brands

Complex Buying Behaviour This is a buying behaviour characterized by high consumer

involvement in a purchase and significant perceived differences among brands. The consumer involvement is high when the product is expensive, risky, purchased infrequently and it is highly self expressive. Hence the consumer has a lot to learn about the product e.g. buying a computer, car etc. The buyer first develops beliefs about the product, then attitudes, and then makes a thoughtful purchase choice. Marketers of high involvement products must help buyers learn about the product benefits and features. They can do this by availing a catalogue or describing the brands benefits using print media. 33

Dissonance Reducing Buying Behaviour This is a buying behaviour that occurs when consumers are highly involved with an expensive infrequent or risky purchase, but sees little difference among brands e.g. buying a music system, a carpet etc. A consumer buying a music system may face a high involvement decision because the system is expensive and self-expressive yet buyers may think all the music systems in a given price range are the same. After purchase a consumer might experience post-purchase The marketers must provide after sales dissonance (discomfort).

services and reassure the consumers that all is well. Habitual Buying Behaviour It is a consumer buying behaviour characterized by low consumer involvement and a few significant perceived brand differences. For example bread. Consumers have little involvement in this product category, they simply go to a shop and pick a loaf of bread. If they keep buying the same brand, it is out of habit rather than strong brand loyalty. Consumers appear to have low involvement with low priced products. Because buyers are not committed to any brands, marketers of lowinvolvement products will use price and sales promotions to create brand familiarity. Television ads are more effective in such promotions.

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Variety-Seeking Buying Behaviour This is a consumer buying behaviour characterized by low consumer involvement but significant perceived brand differences. For example cooking fat. A consumer may buy Kasuku brand without much evaluation then evaluate the brand during consumption. Next time the consumer may buy Tily, yet another time Kimbo. dissatisfaction. For such products, the marketing strategy may differ for the market leader and for followers. The market leader will try to encourage habitual buying behaviour by dominating shelf space, running frequent reminder adverts e.g. Kimbo, Kasuku. Challenging firms will encourage variety seeking by offering lower prices, special deals, and free samples e.g. Mpishi Poa. CONSUMER BUYING ROLES Purchasing decisions are made by various people from the initiation of a purchase idea to the final purchase of the product. The following are the various roles in the consumer buying process: 1. The Initiator This is the person who first suggest or thinks of the idea of a particular product or service. 2. The Influencer This is the person in the active buying process whose views or advice influence the buying decision. 3. The Decider This is the person who finally makes the final buying decisions, or any part of it. This includes the decisions on whether to buy, when to buy, how to buy and from whom to buy. 35 Brand switching occurs for the sake of variety rather than because of

4.

The buyer This is the person who finally makes the actual buying. He carries out the actual and physical purchase of the object.

5.

The User This is the person who uses the purchased product. In marketing there is a great need to differentiate between the customer and consumer of the product.

A marketer must know these roles in order to help him/her develop a systematic way of evaluating and negotiating a purchase especially for organizational markets. THE BUYER DECISION PROCESS A consumer goes through a series of rational steps in the buying decision process. These include: 1. Need Recognition At this decision stage, the buyer recognizes a problem or need. The buyer senses a difference between his actual state and some desired state. A need can be triggered by internal stimuli when one of the persons needs e.g. hunger, thirst, desire etc. rises to a level high enough to become a drive. The need can also be triggered by external stimuli like an advert or a sales person talking of the product.

36

The marketer at this stage should carry out market research to understand consumer needs and looks for ways of satisfying them. 2. Information Search The stage in which the consumer is aroused to search for more information. The consumer may move from a state of active information search to a state of heightened attention where the consumer actively seeks information from: (a) (b) (c) (d) Personal sources (family, friends, neighbors) Commercial dealers) Public sources (mass media, consumer awareness org.) Experimental sources (handling, examining, using the product) Companies have realized that people who ask others (word of mouth sources) end in buying. It is convincing and a more cost effective strategy. 3. Evaluation of Alternatives At this stage, the consumer uses information to evaluate alternative brands in the choice set. Consumers sometimes make careful calculations and logical thinking of the product benefits and features (complex buying behaviour). At other times, consumers do little or no evaluation, instead they buy on impulse and rely on intuition. Some other times consumers make buying decisions on their own, sometimes they turn to friends, consumer guides or salespeople. sources (advertising, salespeople,

37

Marketers should study buyers to find out how they actually evaluate brand alternatives. 4. Purchase Decisions At this stage, the buyer makes a decision of which brand to buy. Two factors may influence the buyers decision at this stage: (a) (b) Others attitude over the product i.e. view of in

friends/relatives Unexpected situational changes e.g. change product price, change in buyers income etc. 5. Post-purchase Behaviour At this stage, the consumers take further action after purchasing the product based on their satisfaction or dissatisfaction. If the product falls short of expectations, the consumer is disappointed (cognitive dissonance). If it meets expectations, the consumer is satisfied, if it exceeds expectations, the consumer is delighted. Marketers must at all times strive to satisfy the consumer in order to retain the existing customers and get new customers. THE BUYING DECISION PROCESS FOR A NEW PRODUCT A new product is a good or service or idea that is perceived by some potential customers as new. 38

New products take sometime before they are finally adopted for use by the consumers. The process through which a new idea or product is received and consequently accepted is referred to as the adoption process. Adoption Process This is the mental process through which an individual passes from first hearing about an innovation to final acceptance of the product. Stages in the Adoption Process Consumers go through five stages in the process of adopting a new product: (i) (ii) (iii) Awareness The consumer gets to know of the new product, but lacks information about it. Interest The consumer seeks information about the new product. Evaluation On receiving additional information on the product, the potential consumer make a consideration as to whether trying out the new product makes sense. (iv) (v) Trial The consumer makes a trial of the new product on a small scale. This is to help in estimation of the products value. Adoption On receiving full satisfaction after the trial, the consumer decides to make full use and adoption of the new product. Adoption Rate of a New Product

39

According to Rogers theory of innovation, people differ greatly in their readiness to try new products. There are five groups of people based on their adoption rate. (i) (ii) Innovators Are venturesome. They try new ideas as soon as they get to know of it irrespective of the risk. Early adopters They are guided by respect. They are opinion leaders in their communities and adopt new ideas early but carefully. (iii) (iv) (v) Early majority They are rarely leaders but they adopt new ideas before the average person. The late majority Are skeptical individuals. They adopt an innovation only after a majority of people have tried it. Laggards Are traditions bound They are suspicious of changes and adopt the innovation only when it has become something of a tradition itself. Rogers classified these grioupings as shown below:

34% Early Majority 3% Innovators 14% Early Adopters

34% Late Majority 16% Laggards

In general, innovators and early adopters are relatively younger, better educated, and higher income than late adopters and non adopters. Marketers with new innovations should research the characteristics of

40

innovators and early adopters and should direct marketing efforts towards them.

INDUSTRIAL MARKETING It is the managerial effort directed toward satisfying wants and needs of organization through the exchange process. It also referred to as Business to Business Marketing Definition of industrial goods These are goods intended for use in the making of other products or for rendering a service in the operation of a business or institutional enterprise. Examples of Industrial goods: steel, cement, mechanical equipment, factory tools, office desks etc The General Characteristics of the Business Markets 1. Has fewer buyers in number 2. Has larger buyers in terms of quantity demanded 3. Has close suppliers to buyer relationship 4. Has geographical concentration of buyers 5. Buying is derived demand dependent 6. Inelastic demand: not affected by price much 7. Fluctuating demand 8. Professional purchasing 9. Has several buying influences 10.Direct purchasing: not via intermediaries 11.Possibility of purchase reciprocity

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Who

influences

the

buying

process

in

organization?

(Participants) 1. The Initiator Is the person who first identifies a need to buy within the organization 2. The User The organization members who use the product and service 3. The Influencer: Those individuals inside or outside the organization who influence the decisions process by providing information on criteria for evaluating buying alternatives or by establishing product specifications. Includes Technical people like Design Engineers, Quality Control Inspectors etc. 4. The Approvers Include individuals who agree to the buying decision based on resource availability mostly fro the Finance department. 5. The Decider Those organizational members who have formal or informal authority to actually make the buying decision e.g. the CEO 6. The Buyer Is an organizational member with formal authority to select the suppliers and implement the procedures involved in purchasing e.g. Purchasing officer 7. Gatekeepers Are organizational members who control the flow of information into the buying centre e.g. The Purchasing Manager, Secretary, Receptionist etc The Seven are also referred to as the buying centers. Buying centers are key groups of persons within the organization who influence the decisions on what is bought in the organization.

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1.

Buying managers in industrial markets are known to assume some common of roles in a buying process. These roles are classified into six groups. identify and discuss them

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CUSTOMER DRIVEN MARKETING STRATEGY


Companies today recognize the fact that they cannot appeal to all buyers in the market place in the same way. Thus firms have moved away from mass marketing to target marketing i.e. identifying market segments selecting one of them and developing products and marketing programmes tailored to them. The major steps toward designing a market driven marketing strategy include: (i) (ii) (iii) (iv) Market Segmentation Market Targeting Market Positioning Differentiation

MARKET SEGMENTATION Market segmentation means dividing a market into distinct groups with distinct needs, characteristics or behaviour who might require separate products or market mixes. A market segment is a group of customers who respond in a similar way to a given set of marketing effort. The main strategies used in segmenting consumer markets are; Geographic, Demographic, behavioral and economic factors (a) Geographic Factors

Geographic segmentation means dividing a market into different geographical units such as nations, states, regions, cities, etc.

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Many companies in Kenya segment the country into five regions, Nairobi, Mountain, Rift Valley, Nyanza and Coastal. Companies do localize their products, advertising, promotion and sales efforts to fit the needs of individual regions e.g. Daily National Nairobi edition. (b) Demographic Segmentation

Divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality. Using these variables, the market could be segmented as follows: Based on age (children, youth, and adults), based on income (high income, middle income, low income), and based on gender (for men, women). Most cosmetic products are specially designed, promoted and advertised to reinforce the feminine image e.g. Nivea. (c) Behavioural Segmentation Divides buyers into groups based on their knowledge, attitudes, uses or response to a product. include: (i) Occasion segmentation Divides the market into groups according to occasions when buyers get the idea to buy, actually buy or use the purchased item e.g. coffee for cold season. The segments that emerge

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(ii)

Benefit Segmentation Divides the market into groups according to the benefits that consumers seeks from the product e.g for a laundry detergent like Omo, Sunlight, Jik, etc. customer are segmented on the basis of benefits sought e.g. The product gives benefits like cleaning, fabric softening, strengthening and fresh smell.

(iii)

Loyalty Status A market can be segmented by consumer loyalty. Consumers can be loyal to brands (Nike), stores (Nakumatt, Wal-mart, Bata) and companies (Toyota, Ford). Buyers can be divided according to loyalty as; completely loyal, somewhat loyal or not loyal. A company can target the less loyal customers and turn them to loyal customers.

(d)

Economic Factors Segments the market based on the economic strength of the people. The market could be grouped into; upper market, medium range and lower market. A shop in Moi Avenue could be in the upper market, a shop on Tom Mboya Street medium range and a shop in River Road lower market.

Importance of Segmentation (a) Its an acknowledgement that people are different and special (b)It helps marketers define customer needs more precisely (c) Helps marketers in developing market mixes and products to meet need (d)Helps in the allocation of resources because segments differ in sizes (e) Provides segments 46 better evaluation of marketing performance in

Requirements for effective segmentation 1. 2. Measurable The size, purchasing power and profiles of segments can be measured. Accessible The market segment can be reached and served. E.g if your target market is school going students, the best time to advertise is in the evenings. 3. Substantial The market segments should be large and profitable enough to serve e.g Toyota targets the African market with economical cars, because the larger populations are medium income earners. 4. Differentiable The segments are conceptually distinguishable and respond differently to different market mix elements and programs e.g people in rural areas are price sensitive and averse to highly price urnanites are less price sensitive. 5. Actionable Effective programs can be designed for attracting and serving the segments. MARKET TARGETING A target market is a set of buyers sharing common needs or characteristics that the company decides to serve e.g. wholesalers who stock cooking oil products could be a target market for a cooking oil manufacturer like Bidco. Market Targeting Strategies After analyzing the various segments, the company must then decide on the method to use in approaching the market. The strategies for selecting a target market include: 47

(i) (ii) (iii) (iv)

Undifferentiated marketing Differentiated marketing Concentrated marketing Micromarketing

Undifferentiated Marketing (Mass Marketing) This is a situation in which a firm decides to ignore the various market segments and go for the whole market with one type of product using one form of marketing mix e.g. mass advertising of Equity Bank, mass distribution of Jogoo maize flour, mass promotional campaigns of CocaCola. The main advantage of this strategy is that it is a cost saving approach The main undoing of this strategy includes: Makes a firm unimaginative Makes a firm vulnerable to competition

Differentiated Marketing (Segmented Marketing) Using this strategy, a firm decides to target several market segments and designs separated offers or market mix for each e.g. Toyota has differentiated markets as follows: (i) (ii) Toyota Prado/Lexus For consumers who care about size, strength, safety and not price. Toyota Corolla For consumers who care about fuel consumption and are price sensitive. The main advantage of this strategy is that may yield financial success with economies of scale in production and marketing.

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The main disadvantage of this strategy is that it is very costly strategy. The high cost originates from; Product design cost, promotion costs for different markets, inventory cost for various markets, research cost amongst others. Concentrated Marketing (Niche Marketing) This is a strategy where a firm selects a market niche and concentrates on it. It involves offering one product to one specific group. Is especially appealing when company resources are limited. Instead of going after small share of large markets, the firm goes after a large share of one or a few segments or niches e.g. KCB has branches all over the country, I & M Bank, has branches only in cities i.e. Nairobi, Kisumu, Mombasa. I & M is applying niche marketing. Micromarketing (One to One Marketing) Micromarketing is the practice of tailoring products and marketing programmes to suit the tastes of specific individuals and locations. It is broadly divided into local marketing and individual marketing. Local marketing is tailoring brands and promotions to the needs and wants of local customer groups i.e. cities, neighborhoods or specific stores Individual marketing is the tailoring of products and marketing programs to the needs and preferences of individual, customers also called one to one marketing. DIFFERENTIATION AND POSITIONING

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Product positioning means the way the product is defined by consumers on important attributes i.e. the place the product occupies in the mind of the consumers relative to competitors products. One positioning expert once commented that products are created in the factory, but brands are created in the mind Toyota 110 is positioned as an economical car, Volvo positions on safety and Mercedes is a luxuriuorise car, Hummer positioned on a very high performance with a price tag to match. Examples of positioning slogans: (a) Safaricom: The better option (b)Nakumatt: You need it weve got it (c) Nation newspaper: The Truth (d)Mash : We lead the leaders (e) Kenya Airways: The pride of Africa (f) Lexus: The passionate pursuit of excellence (g)Mercedes: In a perfect world, everyone would drive a Mercedes The Nature of Positioning Positioning assumes that consumers compare products along important features. To simplify the buying process, consumers organize companies, products and services into categories and position them in their minds Positioning must clearly indicate these features lest it fails. The marketer must position the market offer so that it gives them the greatest possible advantage Marketers must come up with excellent positioning maps. A positioning map is an effort of the marketer to show consumer

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perception of their brands versus competing products on important dimensions. Positioning must be built around a differentiation gimmick Marketing mix is used to facilitate positioning

Poor Positioning May Lead to: 1. Undesirable positioning: head on with stronger competition 2. Undesirable position: Position without demand from customers 3. Fuzzy positioning: Nobody knows what the distinctive feature really is. 4. No positioning: Nobody has heard of the positioning Bases for Positioning a Product 1. 2. 3. 4. 5. 6. 7. Benefits Price and quality combination Uses and application Product user position Product class position Positioning against Competitor (comparative) Origin positioning

Choosing a Differentiation and Positioning Strategy Positioning task takes four steps: (1) Identifying a set of possible competitive advantages (2) Choosing the right competitive advantages (3) Selecting an overall positioning strategy (4) Developing a Position Statement (1) Identifying Possible Competitive Advantage A competitive advantage is an advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices.

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A companys marketing offer must be differentiated from those of competitors along the lines of product attributes, services quality, channels, people or physical evidence.

The company must constantly compare the customer satisfaction of its products, prices, channels and promotion with those of chosen competitors.

(2)

Choosing the Right Competitive Advantage Sometimes a company realizes that it has several advantages compared to competitors. It then has to choose how many differences to promote and which ones. HOW MANY DIFFERENCES TO PROMOTE Often companies choose one unique feature and insist that they are number one in that area. But a company can also promote a number of differences. WHICH DIFFERENCES TO PROMOTE Not all differences are worth promoting. A difference is worth establishing to the extent that it satisfies the following criteria: Important, Distinctive, Superior, Communicable, preemptive (robust), affordable and profitable.

(3)

Selecting an overall positioning strategy The full positioning of a brand is called value positioning. Value positioning tells the customer everything about the benefits they will get from a brand. There are four approaches to value positioning i.e. More for more(pay more get more value), more for same, the same for less, less for much less and more for less.

(3)

Developing a Position Statement A positioning statement summarizes company or brand A good positioning statement should follow this form: 52

positioning. -

To (target segment and need) our (customers), our (brand) is (concept) the best in the market (point of difference). e.g to all trendy men, Sir Henrys Suits offers the latest designer suits, specially tailored to fit the modern fashion and a look of elegance. Non compares with us in mens wear. Sir Henrys, the best a man can get. Challenges of Positioning (a) Over positioning (b)Under positioning (c) Confused positioning (d)Doubtful positioning: Buyers cannot believe Tools to Facilitate Positioning 1. Advertising 2. Pricing 3. Personnel 4. Product features 5. Branding 6. Slogan 7. Service environment

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MARKETING INFORMATION SYSTEMS AND MARKETING RESEARCH Marketing Information System (MIS) Two definitions of a marketing information system (MIS) are: (a) A structured, interacting complex of persons, machines and procedures designed to generate an orderly flow of pertinent information, collected from both intra- and extra-firm sources, for use as the basis for decision making in specified responsibility areas of marketing management. (b) A system that consists of people, equipment, and procedures to gather, sort, analyse, evaluate and distribute needed, timely and accurate information to marketing decision-makers. (Phillip Kotler). These definitions imply that MIS is a system that is carefully designed to process and avail pertinent and timely information to marketingdecision makers. The Components of MIS A firm's marketing information system usually consists of four main components: Internal Records System, Marketing Intelligence System, Marketing Research System, and Marketing Decision Support System. (a) Internal Records System (Internal Database) The most basic information system used by marketing managers is the "internal records system" or internal database". Internal 54

records information" is information gathered from sources within the organisation to evaluate marketing performance and to detect marketing problems and opportunities. This information may be largely derived from accounting database and may include reports on sales, prices, accounts opening and closures, customers' financial information and so on. (b) Marketing Intelligence System (External Database) While the internal records system supplies marketing managers with "results data", the marketing intelligence system supplies managers with "happenings data". Marketing intelligence information is everyday information about developments in the marketing environment that helps marketing managers prepare and adjust marketing plans. In many respects the marketing intelligence system can be regarded as the "external database" of MIS because it covers all types of information collected from external sources. It may take the form of press cuttings, trade journals, discussions and information from competing organizations or subscriptions to some specified external database. (c) Marketing Research System The marketing research system is that component of the MIS which gathers information by means of deliberate planned focused studies on specific marketing problems facing the organisation. Besides information from internal and marketing intelligence sources, marketing managers often need focused studies of specific problems and opportunities. For example, they may need a market survey, a product-preference test, a sales forecast by region or an advertising-effectiveness study. 55

Marketing research information is used to identify and define marketing opportunities and problems, to generate, refine, and evaluate marketing actions; to monitor marketing performance; and to improve understanding of the marketing process.

(d)

Marketing Decision Support System The marketing decision support system consists of a series of analytical techniques which enable marketing managers to process, interpret and make full use of information provided by the other three sources. Various statistical tools, decision models, systems and the use of microcomputer software and high level programming may be integrated in the marketing decision support system depending on the marketing decisionmakers information needs. The most commonly used decision support systems include: 1. Time series sales models 2. Linear Programming 3. Analysis of variance (ANOVA) models 4. Regression and correlation models

The Role of MIS In order to carry out their analysis, planning, and implementation and control responsibilities, marketing managers need information about developments in the marketing environment. The role of MIS is to: a) Assess the manager's information needs; b) Develop the needed information; and c) Distribute the information in a timely fashion to the marketing managers. 56

The Marketing Research System (a) Marketing Research Versus Market Research According to Kotler (2001), marketing research is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company. The American Marketing Association defines marketing research as the systematic gathering, recording and analyzing of data about problems relating to the marketing of goods and services. Marketing research should not be confused with market

research, which refers to finding out information about the market for a particular product or service. The fundamental differences between marketing research and market research are that: Market research is a formal procedure for researching into an identified market. It studies a market for a particular product or service. The scope of market research activities is limited to an identified "market" (or group of customers). Marketing research is a formal procedure for researching the entire marketing activity of an organisation. Thus, market research is only one of the elements of marketing research. Marketing research is broader than market research and includes not only market research but also covers a wide 57

variety of variables (pricing, distribution, advertising, etc) that can affect the marketing of goods and services. (b) Marketing Research System Versus Marketing

Information System (MIS) Many people often confuse between the marketing research system and MIS. Although the two systems share a common purpose, i.e. providing information for marketing decisionmakers, some fine lines of contrast exist. These include the following: The focus of marketing research is on the handling of external information while MIS handles both internal and external information. Marketing research is concerned with solving problems while MIS is concerned with preventing as well as solving problems. Marketing research tends to operate on an ad hoc and project-to project basis while MIS is a continuous process especially in connection to the monitoring of the external environment. Marketing research tends to concentrate on past information while MIS tends to be future oriented. MIS, is often computer-based while a marketing research system is not necessarily computerized. A marketing research system is just one component of MIS while MIS consists of other components (i.e. internal records, marketing intelligence and marketing decision support systems) besides marketing research.

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(c)

Importance of Marketing Research The importance of Marketing and Market research arise from the fact that they provide information which can be used by marketing decision makers. If the information provided is accurate, reliable and timely, its use should reduce the risk involved in decision making and thus increase the chances of making the right choice as well as the opportunity for greater monitoring and control of marketing operations. Marketing research can help an organisations marketing

decision marker with the following decisions or questions: What is the size of the market for a particular organisation services? Who are the organisations customers? What are the organizations buying motives? What are the trends in the market? Is the organisations advertising well received? Are customers satisfied with the organisations products? What are the most attractive/least attractive features of the organisations products compared to competitor's products? What is the size of the organisations market share? When should an organisation launch a new product? Why has the organisation lost customers to competitors? etc. The Marketing Research Process: The six main stages in the research process are as follows: 59

1. Defining the problem 2. Defining the research objectives 3. Developing the research design 4. Collecting the data 5. Analysing the data and 6. Presenting the findings 1. Defining the Problem Defining the problem and the research objectives is the first and most important step in the research process. A research problem is the question or issue to be studied. It defines the focus of the study and the direction of the research effort and resources. Why must Research Problem be defined appropriately? 1. Because Research problem is the baseline foundation for any research project. 2. No problem, No Research! 3. Wrong Problem, Wrong Research! 4. Unless the problem is well defined, the cost of information gathering may well exceed the value of the findings An old adage says, "A problem well defined is a problem half solved". Defining the problem is often the hardest step in the research process. A problem should not be defined too broadly nor too narrowly. If management fails to define the problem clearly exploratory research may be required to help bring the problem into focus. 2. Research Objectives

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When the problem has been carefully defined, the marketing manager and researcher must set the research objectives, that is, the outputs or end results of the research effort. 3. Developing the Research Plan (Research Design) Research design is the framework or plan for the study used as a guide in collecting and analysing data. There are three types of research design that researchers often use: i) Exploratory Research Design Involves gathering

preliminary data to shed light on the nature of the problem and possibly suggest some hypotheses or new ideas. ii) Descriptive Research Design - Involves describing certain variables of interest to the researcher. This is a research design in which the major emphasis is on determining the frequency with which something occurs or the extent to which two variables co-vary iii) Causal Research Design - Involves testing hypotheses about cause and effect relationships e.g. does X cause Y? Managers often start with explanatory research and latter follow with descriptive or causal research. The research plan calls for decisions on the data sources, research approaches, research instruments, sampling plan and contact methods. 4. Data Collection Data Sources

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To meet the manager's information needs the research plan can call for gathering secondary data, primary data, or both. Secondary data consist of information that already exists somewhere having been collected for another purpose. The internal sources of secondary data for an organisation include the profit loss statements, balance sheets, sales figures, sales-call reports, invoices, inventory records, and prior research reports. External sources of secondary data include government publications, periodicals and books, and commercial data. Primary data consist of original information gathered for the specific purpose at hand. The normal source of primary data is through direct interviewing of individuals or groups of people. Researchers usually start their investigation by reviewing literature on secondary data to see whether their problem can be partly or wholly solved without collecting costly primary data. Secondary data offer the advantages of lower cost and quicker availability. On the other hand, the data needed by the researcher might not exist, or the existing data might be outdated, inaccurate, incomplete, or unreliable. In this case, the researcher will have to collect primary data at greater cost and longer delay but probably with more relevance and accuracy. Research Approaches Primary data can be collected in four broad ways: observation, focus group, surveys and experiments. Observational Research - is the gathering of primary data by observing relevant people, actions and situations. It is best suited for exploratory research purposes. 62

Focus - Group Research - is the gathering of primary data through personal interviewing of a group that consist of six to ten people gathered for a few hours with a trained interviewer to talk about a product, services or organization. Focus-group research is a useful exploratory step to take before designing a large - scale survey. It yields insights into consumer perceptions, attitudes, and satisfaction that help define the issues to be researched more formally. However, the interviewer needs objectivity, knowledge of the subject matter and industry, and knowledge of group dynamics and consumer behaviour otherwise the results can be misleading. Survey Research - the gathering of primary data by asking people questions about their knowledge, attitudes, preferences, and buying behaviour. Survey research stands midway between observational and focus-group research, on the one hand, and experimental research on the other hand. Experimental Research - the gathering of primary data by selecting matched groups of subjects, subjecting them to different treatments, controlling extraneous variables, and checking whether observed differences are statistically significant. Experimental research is the most scientifically valid research. To the extent that extraneous factors are eliminated or controlled, the observed effects can be related to the variations in the stimuli. The purpose of experimental research is to capture cause-and-effect relationships by eliminating competing explanations of the observed findings. 63

Application of Research Approaches Generally speaking, observation and focus groups are best suited for exploratory research, surveys are best suited for descriptive research, and experiments are best suited for causal research.

Research Instruments Marketing researchers have a choice of two main research instruments in collecting primary data: the questionnaire and mechanical devices. 1. Questionnaires: This is by far the most common instrument in collecting primary data. Broadly speaking a questionnaire consists of a set of questions presented to respondents for their answers. The questionnaire is very flexible in that there are many ways to ask questions. Questionnaires must be carefully designed and tested before they can be used on a large scale. 2. Mechanical devices: These are less frequently used in marketing research e.g. use of supermarket scanners and surveillance cameras. Sampling Plans The marketing researcher must design a sampling plan which calls for three decisions: Target population, sample size and sampling procedure: Target population. This answers, who is to be surveyed? The marketing research must define the target population that will be sampled. 64

Sample Size: This answers, how many people should be surveyed? Large samples give more reliable results than small samples. A sample is a segment of the population selected for marketing research to represent the populations as a whole.

Sampling Procedure: This answers, how should the respondents be chosen? To obtain a representative sample, probability sampling is usually used.

Contact Methods This answers "How the subject should be contacted?" The choices are mail, telephone, or personal interviews. The mail questionnaire is the best way to reach individuals who would not give personal interviews or whose responses might be biased or distorted by the interviews. Mail questionnaires require simple and clearly worded questions, and the response rate is usually low and/or slow. Telephone interviewing is the best method for

gathering information quickly; the interviewer is also able to clarify questions if they are not understood. The response rate is typically higher than in the case of mailed questionnaires. However, only people with telephones can be interviewed and interviews have to be short and not too personal.

65

Personal interviewing is the most versatile of the three methods. It provides additional observations about the respondent, such as dress and body language. Its main drawbacks are that it is the most expensive method and requires more administrative planning and supervision. It is also subject to interviewer bias or distortion.

(c)

Collection of Data After developing the research plan the researcher must collect the data. This will involve: i) Administering the questionnaire; ii) Conducting in-depth interviews or group discussions with the selected sample; iii) Conducting discreet observations so that the targets do not realize they are being observed and hence their behaviour; iv) Conducting experiments.

(d)

Analyzing the Data The next step in the marketing research process is to extract pertinent findings from the data. Depending on the type of collection methods, the results will be analyzed accordingly: Questionnaires will have to be pre-coded or input into a computer by the interviewer. Answers to in-depth interviews would be analysed by identifying key statements from the interviews, and common characteristics and attitudes identified. The researcher will tabulate the data and develop one-way and two-way frequency distributions.

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Averages and measures of dispersion will be computed for the major variables, etc.

5)

Analyzing the Data

The questionnaire is checked for completeness, comprehensibility and legibility. The questionnaire is coded and transcribed. Once the data is input in a computer it is then analyzed using computer spreadsheet packages like excel , SPSS etc. 6) Presentation of the Findings a) Interpretation and collection of the results b) Presentation of results The information generated from the computer is interpreted often using frequencies and percentages. The otherwise separate information is collected to form one or a few meaningful points. After interpretation the service researcher comes up with

Involves the following two:-

recommendations to help solve the problem. The researcher then writes a final report about the research findings. A good research report must have: a) A title page b) Content page c) Executive summary d) An introduction e) Terms of reference (objectives of the research) f) The methodology of research g) The main findings h) Conclusions and recommendations 67

Oral Presentation If the researcher is required to make an oral presentation of the study the researcher should take into account the following factors: a) The original research problem and objectives b) The extent to which the problem has been solved c) The people present (i.e. key people) d) The available time e) The use of visual aids f) Avoid use of jargon and technical language g) Make presentation enjoyable and entertaining h) Involve audience (i.e. ask for comments) i) Put weighty focus on results and recommendations (because this is what concerns the senior executives most).

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THE PRODUCT NEW PRODUCT DEVELOPMENT STRATEGY A new product can be defined as anything that can be offered to a market for attention, acquisition, use or consumption and that might satisfy a want or need. The definition of a new product encompasses; original products, product improvement, product modifications and new brands that the firm develops through its own research and development efforts. The new product development process takes the following eight steps: 1. 2. 3. 4. 5. 6. 7. 8. 1. Idea generation Idea Screening Concept development and testing Marketing strategy development Business analysis Product development Test marketing Commercialization

Idea Generation A company has to brainstorm and generate many ideas in order to find a few good ones. There are two main sources of new product ideas i.e. internal sources and external sources.

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Internal sources include a company top management, manufacturing staff, the sales people and the research and development departments.

2.

External

sources

include

customers,

competitors,

distributors, suppliers etc. Idea Screening Involves filtering new product ideas in order to spot good ideas and drop poor ones as soon as possible. Ideas are subjected to selection criteria that include affordability, acceptability, and reversibility. 3. Concept Development and Testing An attractive idea must be developed into a product concept. A product concept is a detailed version of the new product idea stated in meaningful consumer terms i.e. presenting the consumer with descriptions and drawings to get their reactions. Concept testing involves testing new product ideas with groups of target consumers e.g. using questionnaire to ask customers of their opinion of a new product. 4. Marketing Strategy Development Involves designing an initial marketing strategy for a new product based on the product concept. The marketing strategy statement consist of three parts: (a) Target market, market segment, the product positioning

70

(b)Market

mix

i.e.

product,

pricing,

distribution

and

promotion. (c) Projecting possible viability of the product. 5. Business Analysis Business analysis involves a review of the sales, costs and profit projections for a new product to find out whether they satisfy the companys objectives. If they do, the product moves to the product development stage. To estimate sales, the company might study the sales history of similar products and conduct surveys of market opinion. 6. Product Development Involves the development of the product concept into a physical product in order to ensure that the product idea can be turned into a workable product. At this stage, the research and development department develops a sample or prototype of the product. Development of a successful prototype may go into weeks, months or years. 7. Test Marketing This is a stage in which the product and marketing program are tested in a more realistic market setting.

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At this stage the company tests the entire marketing program i.e. positioning strategy, advertising, distribution, pricing, branding and packaging. Three approaches to test market:

(a)

Standard test markets Is where a company selects a city or town, conducts a full marketing campaign in this town and uses shop audits, consumer and distribution surveys to gauge product performance. The results are used to forecast national sales and profits discover problems and fine tune the marketing programme.

(b)

Controlled Test markets A group of customers are selected, they are directed to participating shops. Within the shops the company researchers have control factors such as shelf placement, price packaging and promotions for the product being tested. Behaviourscan is used to track the consumer behaviour for new products from a television set to a checkout counter. Detailed scanner information on each consumer purchases is fed into a central computer where it is combined with the consumer demographic and TV viewing information, and analysis done and conclusions drawn based on a daily or weekly report.

(c)

Simulated

test

markets

The

Company

shows

advertisements and promotions for a variety of products, including the new product being tested to a sample of consumers. It then gives the consumers a small amount of money and invites them to a real or laboratory store where they are allowed to buy anything using the money. The researchers note how many consumers will buy the new 72

product or competing brands. The researcher then asks the consumers the reason for purchase or non purchase. Some weeks later, they interview the consumers by phone to determine product attitude, usage, satisfaction and repurchase intentions. 8. Commercialization Test marketing gives management the information needed to make a final decision about whether to launch the new product or not. If the company decides to go ahead then it commercializes the product. Commercialization is the introduction of a new product into the market. The company launching a new product must first decide on: (i) (ii) Introduction timing Depending on economic trends. Where to launch the product In a single location, region, the whole nation or internationally. act PRODUCT LIFE CYCLE Management of every organisation knows that each product has a life cycle that starts at conception of product idea and ends at the death of a product. The company therefore aims at maximizing its profits before the products useful life ends. Assumptions of the PLC i) ii) iii) A product has a limited life Product sales pass through distinct stages each posing different challenges to the seller Product profit rise and fall at different stages 73

iv)

Each

stage

requires

different

financial,

marketing,

manufacturing, purchasing and personnel strategies. Stages in the Life Cycle 1. 2. 3. 4. 5. Product development Introduction Growth Maturity Decline CONCEPTION BORN GROWTH MATURITY DEATH

Profits & Losses

Innovators

Early Adopters

Middle majority

Laggards

PLC curve

Profits curve
Time

Product Development stage

Introduction

Growth

Maturity

Decline

The diagram above shows the sales and profits over the products life from inception to demise. NB: The PLC shape presented above is a general shape but different products will have different shapes.

MARKETING STRATEGIES AT THE VARIOUS STAGES OF THE PLC 1. INTRODUCTION STAGE

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Product development begins when the company finds and develops a new product idea. During product development sales are zero and the companys investment costs mount. The introduction stage starts when the new product is first launched. In this stage, profits are negative or low because of low sales and high distribution and promotional expenses. A company that is pioneering a market must choose a launch strategy that is consistent with the intended production positioning. Firms therefore focus their selling to those buyers who are most ready to buy and not on maximizing profits. buyers are also called innovators. These groups of first time

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Strategies at the Introductory Stage There are four possible strategies at this stage and these are displayed in the table below. HIGH LOW PROMOTION SLOW SKIMMING Selective Penetration Strategy

HIGH

RAPID SKIMMING High Profile Strategy

RAPID PENETRATION LOW Pre-emptive Penetration Strategy

SLOW PENETRATION Low Profile Strategy

(i) Rapid Skimming An organisation can decide to employ rapid skimming if; Large Part of the market is unaware of the product Market willing to buy at high price Competition is present Market is large For Example Safaricom mobile phone service provider (ii) Slow Skimming

An organisation may decide to employ slow skimming if; Market is relatively limited in size Large part of the market is unaware of the product Market is willing to pay high prices A little threat in competition Rapid Penetration

(iii)

An organisation may decide to employ rapid penetration if; Market is large in size Market is relatively unaware of the product Market is price sensitive Potential competition exists

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For Example EABL and Alvaro (iv) Slow Penetration An organisation may decide to employ slow penetration if; Market is large Market is aware of the product Market is price sensitive Established competitors exist

For Example entry of Orange mobile phone service providers into Kenya 2. GROWTH STAGE In the growth stage, sales climb quickly. The early adopters start to buy the product especially after hearing favourable word of mouth about the product. The increasing profits soon attract new competitors who join the market in the hope of gaining from this opportunity. The increase in competitors leads to an increase in the number of distribution outlets and sales jump up. Educating the market remains key to marketers, while keeping watch of competition. Profits increase as promotions are spread, while per unit cost falls as indicated by the first growing profit curves. Strategies here include: i) ii) iii) The company improves product quality and adds new product features to beat competition. The company opens new distribution channels. It shifts advertising from building product awareness to building product conviction and loyalty.

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iv) -

Prices may be lowered to attract new buyers or as a means of creating competitive advantage.

A sustained effort on product improvement, promotion and distribution may lead the company to capturing a dominant position. 3. MATURITY STAGE

This is the stage in the PLC in which sales growth slows or levels off. This stage usually lasts longer than the growth stage.

Most products die at this stage, because competition is greatest at this point. It is divided into three: a) Growth Maturity: This is the point where the growth rate starts to decline though some laggard buyers continue to come in. b) Stable Maturity: market is saturated. c) Decaying Maturity: A stage where there is absolute decline of sales because customers are seeking substitute products. Competitors begin reducing prices, increase their advertising and sales promotion and increase their research and development budgets to find better versions of the product. This eventually leads to a drop in profits. A stage where sales level off because the

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Strategies here include: i) In modifying the market, The company tries to increase the consumption of the current segments. It also looks for ways of increasing usage among present customers. The company can also move into a new market segment. ii) In modifying the product, quality, features, styles and designs are upgraded to inspire more consumers to use it. Alternatively, the company might add new features that expand the products usefulness, safety or convenience. iii) In modifying the promotional strategy, the companys objective will be to improve sales. It can cut prices to attract new users and lure competitors customers. It can launch a better advertising campaign or use aggressive sales promotions, trade deals, price offs and contests. iv) In terms of pricing, the company can maintain current prices as long as they are competitive. The company might reduce prices if doing so gives them a competitive advantage. 4. DECLINE STAGE This is the PLC stage in which a products sales decline. Sales may plunge to zero or they may drop to low levels where they continue for many years.

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As sales decline, many competitors exit the market, drop smaller market segments or cut off promotional budgets and reduce their prices further.

A weak product can be costly to maintain. attention.

It takes a lot of

management time, it requires advertising and sales force Management therefore needs to identify the aging products and decide whether to maintain, harvest or drop each of them. Strategies here include: i) Management may decide to maintain the product in the hope that competitors will exit the industry, leaving the company with an advantage. ii) Harvest the declining product - which means reducing various costs (e.g advertising sales force, research and development etc.) and hope that sales hold up. If successful, harvesting increases the companys profits in the short run. iii) Management may decide to drop the product. another firm or simply liquidate it at salvage value. iv) Management may decide to divest. Divesting strategies enables management to do away with a product whose performance is below expectation. Two approaches can be used; a) Concentric diversification - Diversification is the creation of products similar to the one existing or creating products completely different from existing ones but which may appeal to existing and new customers e.g. Coca cola deciding to produce and sell Dasani water b) Conglomerate diversification - Conglomerate diversification is the involvement in production of products or provision of It can sell it to

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services that are not related with the current products and services e.g. EABL deciding to produce Alvaro.

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PRODUCT DECISIONS A product is anything that can be offered to satisfy human needs. Products are broadly divided into two depending on consumers who use them: (a) (b) (a) Consumer products Industrial products Consumer Products (i) Are products bought by final consumers for personal use. Based on how consumers buy them, consumer products are further classified as follows: Convenience products are consumer products and services that consumers buy frequently, immediately and with little or no comparison and buying effort e.g. salt, bread, soap etc. (ii) Shopping products are less frequently purchased consumer products that customers compare carefully on suitability, quality, price and style e.g. furniture, cars, cooker, fridge. (iii) Specialty products Are consumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort e.g. photographic equipment, designer clothes, specific brands of cars (Hummer, Lexus). (iv) Unsought products Are consumer products that the consumer either does not know about or knows about but does not think of buying e.g. cemetery plots, life insurance. (b) Industrial Products

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(i)

Are those purchased for further processing or for use in conducting a business. There are three groups of industrial products i.e. Materials and parts Include raw materials and manufactured materials and parts e.g wheat, cotton, crude petroleum, iron ore, rubber, cement price and service are the major marketing factors.

(ii)

Capital items Are industrial products that aide the buyers production activities e.g factories, offices, generators, forklift trucks etc.

(iii)

Supplies effort.

and

services

Supplies

include

stationery,

lubricants, brooms etc.

They are purchased with little

PRODUCT DECISIONS Marketers indulge in a number of product decisions the many of which include A. Product Attributes Product attributes include quality, features and design.

Marketers make decisions about product attributes as follows: 1. Product quality Refers to the ability of a product to perform its functions as expected by the consumer or to satisfy consumer needs. 2. Product features Features are the external appearances of a product that distinguishes it from other similar products. Companies often conduct consumer surveys to understand what consumers want and design features that meet consumer needs. Common Products features include; Packaging, Colour, Options, Sizes, Image amongst others. 83

3.

Product style and design Style describes the appearance of a product. A good design is that which contributes to products usefulness as well as to its looks.

B.

Product Line A product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same outlets or fall within a given price range. Example of product lines: (a) (b) (c) 1. Toyota: Toyota Corolla :EE 90,100,110,120 Toyota Rav: Rav 4, Rav J EABL: Tusker, Guinness, Smirnoff, Alvaro Coca-cola; Fanta, Coke, Sprite, Bitter Lemon

The major product line decisions include: Product line length Refers to the number of items in a product line. The line is too short if the manager can increase profits by adding items. The line is too long if the manager can increase profits by dropping items e.g. by adding Alvaro to their products EABL lengthened their line

2.

Product line filling Involves adding more items within the present range of the line. This can be done for any of the following reasons, to increase profits, satisfy dealers, or to 84

utilize excess capacity e.g. Fanta orange, Fanta black current and Fanta citrus. 3. Product line stretching Occurs when a company The

lengthens its product line beyond its current range.

company can stretch downward (to penetrate a new market currently held by competitors) or it may stretch upward to add prestige to their current products e.g Barclays Prestige Account. C. Product Mix Decisions

A product mix (or product assortment) is the set of all product lines and items that a particular seller offers for sale for example EABL produces a product mix made up of Tusker, White Cup, Guinness, Alvaro, Smirnoff amongst others. Toyota product mix include Toyota Corolla, Toyota Caldina, Toyota Nadina. Toyota Prado, Toyota RAV 4, Toyota Camry etc. A product mix has four important decisions, product mix width, product mix length, product mix depth and product mix consistency. NB: 1. The product line decisions discussed above applies to the 2. The fewer the number of lines and product mixes, the better for each company. D) PRODUCT BRANDING A brand is a name, term, sign, symbol or design that identifies the maker or seller of a product or service and differentiates it from the competitors products. 85

product mix

Description of Brands Brand name: Utter able or verbalized part of the brand i.e. Toyota, Kimbo, Imperial, Fanta, Safari Boot, Nike, Firestone. Brand mark: Part of the brand that can only be recognized i.e. Merc Symbol, Barclay eagle etc. Trademark: Part of the brand given a legal protection. Trademark is an exclusive right to use a brand or part of a brand Copyright: This is the exclusive right to reproduce, publish and sell. Brand equity: Monetary value of a brand. High brand loyalty builds higher brand Equity: Coca Cola has brand equity of US$ 36 billion

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Significance of Branding to Consumers (i) (ii) Identify the products they need faster. Brands tell consumers something about quality. Customers of a particular brand expect the same features, benefits and quality each time they buy. (iii) (iv) It enhances a sale of a new product It also enables profitable pricing from time to time

Significance of Branding to Sellers (i) (ii) (iii) The brand name provides a basis of selling special qualities. Legal protection of brands from copying by competition Helps sellers segment markets e.g Toyota Lexus for the actualizes, Toyota Prado for the achievers, Toyota Corolla for the strivers. Characteristics of a good brand name (i) (ii) (iii) (iv) (v) (vi) (vii) Easy to pronounce, recognise and to remember Short Distinctive, unique Describes the product and product use Describes product benefits Has a positive connotation Reinforces the product image

(viii) Legally protectable locally and internationally E) PRODUCT PACKAGING Packaging is the activity of designing and producing the container or wrapper for a product. Traditionally, the primary function of the package was to contain and protect the product. Today packaging performs numerous functions including

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attracting, attention, describing the products and making the sale. A good package is one which is in line with the packaging concept (should offer protection, introduce a new dispensing method, or suggest product qualities. brand mark. There are Three Levels of Packaging 1. Primary package - This is the products immediate container i.e. the tube containing the after shave or tooth paste. 2. Secondary package - This is the material that covers or protects the primary package and is discarded when the product is just about to be used. 3. The shipping package - This is the packaging necessary for storage, identification and transportation. PRODUCT LABELING (i) (ii) (iii) (iv) Labels may range from simple tags attached to product to complex graphics that are part of the package. Labeling performs the following functions: Identifies the product or brand States the price Promotes the product Attractive graphics Describes the product Manufacturer, where made, when made, content, direction of use, safety etc. PRODUCT WARRANTIES Product warranty protect the buyer and gives essential product information Expressed warrantees are written guarantees A good package further addresses issues such as size, shape, materials, colour, text and

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Implied Warranty is an unwritten guarantee that an item is fit for its purpose

UNIVERSAL PRODUCT CODES Abbreviated as UPCs and was introduced in 1974 They are numeral codes appearing as thick and thin vertical lines They are used in high volume outlets and supermarkets to ease identification of goods Lines are computerised to match codes with brand name, size and price

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PRICING PRODUCTS AND PRICING DECISIONS


Price is the amount of money charged for a product or service by the seller. Price is the only element of the marketing mix that produces revenue, all the other elements are cost factors. Throughout most history, prices were set by negotiation between buyers and sellers. This is also called dynamic pricing charging different prices to different customers. Today most prices are fixed prices i.e. one price is set for all buyers. Price goes by many names a few of which include: a) b) c) d) e) f) g) h) i) Rent for apartment Fees for tuition Fare for taxi Rates for utilities Interest for money borrowed Toll for use of driveway Salaries for white collar jobs Wages for blue collar jobs Commission for sales persons services

PRICING STRATEGIES The price strategies often change as a product passes through different stages in the PLC. For new products, companies normally face an uphill task while coming up with the price for the first time. Two of the commonly adopted strategies include: i) ii) Market skimming strategies Market penetration strategies

Market Skimming Strategies Market skimming pricing is the setting of a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay a high price. The company gets few customers but more profitable sales. An example companies that practice market skimming strategies are: Nokia and Sony. 90

91

Market skimming strategies are workable only if the following conditions hold: i) ii) iii) iv) The product quality and image must support its higher price. Enough buyers must want the product at that price. The cost of producing the few units must not exceed the target revenue Competitors should not be able to enter the market easily and undercut the high price

Market Penetration Strategies Market penetration pricing is the setting of a low price for a new product in order to attract a large number of buyers and a large market share. Example of firms that have ever practiced market penetration include Coca-Cola and Dell. The low price is geared at penetrating the market quickly and deeply. The high sales volume results in falling costs allowing the company to cut its price even further. Several conditions must be met for this strategy to work including the following: i) ii) iii) The market must be highly price sensitive so that a low price generates more market growth The production and distribution costs must fall as sales volume increases The low price must help keep away competition.

Six Step Procedure for Price Setting 1) Selecting price objective 92

2) 3) 4) 5) 6)

Determining demand Estimating costs Analyzing competitors price Selecting price method Selecting the final price

FACTORS TO CONSIDER WHEN SETTING PRICES There are two factors to consider in pricing: (i) (ii) Internal factors External factors

INTERNAL FACTORS Internal factors include companys marketing objectives, marketing mix strategy, costs and organizational consideration. 1. Marketing Objectives The companys marketing goal could be survival, current profit maximization (Maximize market skimming), market share leadership, or product quality leadership. Companies set survival as their objective if they are troubled by too heavy competition, and changing consumer needs to keep a plant going in this case, the company sets low prices hoping to increase demand. A company with current profit maximization as is objective, will choose a high price that maximizes current profits, cash flow or

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return on investment. It uses skimming strategies in every new market segment that it opens up. To obtain market share leadership, firms set prices as low as possible e.g Coca-Cola. Such firms employ rapid penetration strategies to optimize on there representation in the market. To attain product quality leadership, a firm charges high prices to cover the high performance quality and high cost of research and development. The firm differentiates its product clearly exemplifying the unique qualities of their product. They position their products as superior products relative to competition e.g. Safari Park Hotel

2.

Marketing Mix Strategy Companies often position their products on price and then tailor other marketing mix decisions to the prices they want to charge. There are five product mix pricing situations including: a) Product Line Pricing - Is the setting of price steps between various product lines. The basis of product line pricing could be the difference in cost, customer evaluation of different features and competitors prices e.g. EABL sets the price of Alvaro as different from price of Guinness and Pilsner based on consumer evaluation. b) Optional Product Pricing Many companies offer to sell optional or accessory products along with their main product. They therefore price the optional products with the main product. e.g. a motor vehicle seller might offer to sell the car with alloy rims and CD changer as optional 94

products. The seller set optional prices for the rims and CD changer c) Captive Product Pricing Companies may decide to make a separate product that must be used along with the main product e.g. razor blade and cartridge, printer and cartridge film and camera etc. HP for instance is said to make very low margins with its printers but very high margins with its cartridges. d) By Product Pricing - Is the setting of a price for by products in order to make the main products price more competitive. For example by producing meat, petroleum and agricultural products, there are often by products. Using by product pricing the manufacturer will seek a market for these by products and should accept any price that covers more than the cost of storing and delivering them. e) Product Bundle Pricing Is the combination of several products into a bundle and offering them at a reduced price e.g. fast food restaurants may bundle chips, chicken and Soda at one reduced price. 3. Costs Companies always want to charge a price that covers all costs of producing, distributing, selling and delivering the product at a fair rate of return. The following types of costs must be remembered: (a) Fixed cost (overheads) are costs that do not change with production or sales levels e.g. rent, interest, salaries etc.

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(b)

Variable cost are costs that vary directly with the level of production e.g. wages, raw materials cost etc.

(c)

Total cost variable costs

Is the sum of the fixed cost and the

Marketers make considerations for all the costs (total costs) of making a product after which a mark up could be used to arrive at the final selling price. Costs must be minimized for a firm to be competitive in its pricing. 4. Organizational Consideration Management must decide who sets the price in the company. In smaller companies, top management sets the price rather than marketing and sales departments. In larger companies, prices are set by product or brand managers and approved by top management. In industrial markets, sales people are allowed to negotiate with customers within certain price range. Even so, management sets the pricing objectives and policies.

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EXTERNAL FACTORS These are factors often out of control of the company and may include; Estimated demand, type of competitive markets and other environmental elements. 1. Estimated Demand

Demand is the quantity of commodity that consumers are willing and able to buy at a given price over a given time period. Price elasticity of demand refers to how responsive demand is to a change in price. inelastic. In markets with elastic demand the marketer must be aware that a slight increase in price is followed by a big drop in quantity demanded. While in markets with inelastic demand, the marketer charges high prices to optimize profitability. 2. Type of Market Some products are price elastic others are price

Sellers pricing freedom varies with the type of markets as follows: (a) Pure competition under this structure, the price is given by the market forces of demand and supply and sellers take it as the market decides. Marketers efforts of sales promotion, prices change and advertising play no role in influencing demand, they only create awareness. (b) Monopolist The firm in this market is the largest single seller. The firm sets the price and is in full control of its 97

demand curve. It can set a high price to maximize profits or set a low price to maximize on sales revenue. (c) Monopolistic competition The firms in this market are the price setters; however each firm is keen to watch the competitors prices and set theirs as close as possible to that of competitors. Aggressive marketing campaigns i.e. advertising and strong branding reduces the impact of any price difference between firms. (d) Oligopolistic competition Each seller is free to set prices on the similar but differentiated products. A price increase by one firm is not necessarily followed by a rival firm. 3. Other External Factors a) Competitors Costs, Prices and Offers Firms must benchmark their products, costs and prices with those of competitors in order to know if they are operating at a cost advantage or disadvantage. A firm then decides what price to offer to counter competition. b) Economic Conditions Economic trends such as recession and boom would affect the price charged. Economic variables like interest rate would equally impact on prices. Pricing Approaches/Methods

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1.

Cost based pricing Adding a standard mark up to the cost of the product to get the final selling price. Also called mark up pricing. Mark up pricing = Unit cost (1-Desired % return on sales)

2.

Perceived by the

value customer

pricing and

Also

called Mostly

positioning used in

above product

competition. Price based on the perceived value of the product company. positioning e.g. for upper markets, marketers charge higher prices and for low markets lower prices. 3. Competition based pricing Also called positioning below competition Setting prices based on the prices that competitors charge for similar products. 4. Breakeven analysis pricing Setting price to break-even on the costs of marketing the product. Break even point in units cost) 5. 6. Sealed bidding price: Based on customers proposals. Target return pricing - This is a price that would help yield a target return on Investment. Formulation for getting this is given as TRP = unit costs + invested Unit sales Desired returns % capital = (Selling Total fixed Cost Price-Average variable

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OTHER FACTORS CONSIDERED BEFORE ADOPTING A PRICE There are a number of considerations to be made when charging customers after determining the base price of a product. 1) Price discounting i) Cash discount ii) Quantity discount iii) Functional discount/trade iv) Seasonal discount

2) Promotional pricing i) Loss leader pricing ii) Cash rebates iii) Low interest financing for purchase of products 3) Discriminatory pricing i) Resident or non-resident ii) Geographical location of customer iii) Age or gender iv) Time pricing i.e. day or night rate v) Product image pricing 4) Psychological pricing strategy i) Quality and brand value consideration ii) Impact of price or other parties i.e. dealers and distributors, sales people, suppliers iii) Competitors price

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DISTRIBUTION CHANNELS A marketing channel or distribution channel refers to the path followed in the process of moving a product or service from the producer to the final consumer or to business users. Major Distribution Channels There are four major channels of distributions as shown below:
Channel 1 Producer Final Consumer

Channel 2

Producer

Retailer

Final Consumer

Channel 3

Producer

Wholesaler

Retailer

Final Consumer

Channel 4

Producer

Distributor/Agent

Wholesaler

Retailer

Final Consumer

Channel 1 is also called a direct marketing channel as no intermediary levels are involved. The company sells directly to consumers e.g Safaricom, Celtel, Bata Shoes, etc. The remaining channels 2, 3, 4 are indirect marketing channels containing one or more intermediaries. A company may choose one channel of distribution or use a combination of distribution channels e.g Unilever, EABL, Coca-Cola etc. A channel level is a layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. Examples of Intermediaries

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a) Merchant Middlemen - These include Retailers and Wholesalers b) Agent Middlemen - These include Brokers, Company Representatives, and sales agents. c) Facilitators - These include Banks, Advertising agencies, Distributors, Transport Companies, and Independent warehouses.

Retailers These are merchants who sell goods and services directly to consumers for personal or non business use. There are two types of retailers a) Stores Retailers: Like Boutiques, Fast Foods, Discount Stores etc b) Non Store Retailers: Like Direct Marketing and selling by producer, Automatic vending, Buying services (Arranging special purchase arrangement for individuals in companies or specific location. Wholesalers These are merchants who sell goods and services to customers who buy for resale or for business use. Types of Wholesalers Wholesalers can be classified into four broad categories.

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1. Brokers and Agents - Those who do not take title of the goods and perform only a few functions. 2. Manufacturers and Retailers branches and Offices - These are large branches and inventory control 3. Merchant Wholesalers - These are independently owned businesses that take title of the goods. There are two types: a) Full Service Wholesalers - These are wholesalers and Distributors for Industrial products who sell primarily to retailers or manufacturers respectively. They provide full range of retail services b) Limited Service Wholesalers - These provide only a few services to their suppliers and customers e.g. Truck Wholesalers, Cash and Carry wholesalers, and Mail Order wholesalers. 4. Miscellaneous Wholesalers - These are found in the specialised sectors of the economy like Agricultural assemblers, Petroleum Bulk plant and terminals IMPORTANCE OF CHANNEL MEMBERS The members of a marketing channel perform many key functions including: 1. Information They gather and distribute marketing research and intelligence information about actors and forces in the marketing environment needed for planning and decision making. company offices set up to facilitate good

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2.

Promotion They develop and spread persuasive communication about an offer i.e. by hanging posters on their vehicles, business premises of price cuts, volume discounts, branding view with the product etc.

3.

Contact establishment They find and communicate face to face with the prospective buyer.

4.

Physical distribution They transport and store goods on behalf of manufacturers.

5.

Financing They acquire and use funds to cover the costs of channel work.

6.

Risk taking They cover risks associated with distribution e.g pilferage of goods in storage, theft of goods on transit, lose of goods resulting from accidents on transit etc.

7.

Negotiation They discuss price reductions on behalf of the manufacturer with final buyers to make a sale.

Note: Today many companies outsource the distribution function to other firms and concentrate in their key function of production. CHANNEL DESIGN DECISIONS For a company to be effective in its distribution effort, channel analysis and decision making must be purposeful. The following decisions must be considered when designing a channel: 1. Analysis of consumer needs 104

2. 3. 4. 1.

Channel objectives Channel alternatives Evaluation of channel alternatives. Analysing consumer needs Designing the market channel starts with finding out what target consumers want from the channel e.g do consumers want to buy from nearby locations or are they willing to travel more distance, do consumers want to buy in person or over the phone, through mail or internet? Do they want add-on services (delivery, credit, repairs, installation etc). Providing the fastest delivery, a wide assortment, and all add-on services may not be possible because the channel members may not have the resources or skills needed. The company must therefore balance between consumer needs and the costs of meeting these needs. Consumers will often accept lower service levels in exchange for lower prices.

2.

Channel objectives The company should decide which market segments to serve and the best channels to use in each case. The companys channel objectives are also influenced by the

nature of the company, its products, its competitors, and the environment. 3. Major channel alternatives A firm must identify the types of channel members available to carry out its channel work in terms of types of intermediaries, number of intermediaries and responsibility of each. 105

There are three major types of intermediaries: (i) Company sales-force The company can use its sales force to target the final consumer by enlarging the (ii) (iii) sales-force and involving them in direct marketing. Manufacturers agency A manufacturer can hire agents or independent firms to sale its products. Industrial distributors Find distributors in different market segment/regions. In terms of the number of marketing intermediaries, a company can decide between: (i) (ii) Intensive distribution Stocking the product in as many outlets as possible. Exclusive distribution Giving a limited number of dealers (iii) the exclusive right to distribute the companys products in a given territory. Selective distribution The use of more than one but few intermediaries to stock company products. In terms of responsibility, producers and intermediaries should agree on price policies, condition of sale, territorial rights and specific service to be performed by each party.

4.

Evaluating the Major Alternatives After identifying the channels, the company must evaluate them against economic, control and adaptive criteria. 106

Using economic criteria, a company compares the likely sales, costs and profitability of each alternative. Control issues means giving some control of the marketing of a product to the intermediary. The company must retain as much control as possible. Channels often involve long-term commitment; hence companies must consider the ability of a channel to adapt to environmental changes.

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PRODUCT PROMOTION
After companies have developed a product, they must inform the customers and prospects about the product. The process of passing on product information to product users is referred to as product promotion. Designing and Communication Managing an Integrated Marketing

Integrated Marketing Communication refers to the various ways in which a firm communicates a marketing idea to induce influence on the target market and develop effective demand to their benefit and the benefits of the organisation. IMC is the basic engine for driving PROMOTION as a tool of the marketing mix. Basic Purpose Promotion 1) 2) 3) 4) To To To To inform persuade remind induce inquiry effective integrated marketing

Steps in Developing communication (IMC) 1) 2) 3) 4) 5) 6) 7) 8)

Identify the target audience Determine the communication objectives Design communication item Select communication channel Establish communication budget Decide on the communication media mix Measure communication results Manage integrated IMC

KEY PROMOTIONAL STRATEGIES 1. 2. 3. Advertising Sales promotion Events and Experiences

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4. 5. 6.

Public relations Direct marketing Personal selling

1. ADVERTISING Advertising is any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor. General Objectives of Advertising 1) To announce product existence 2) Highlight specific feature: Unique Selling Proposals (USP) 3) Develop favorable corporate or brand image 4) Remind and enforce brand loyalty 5) Encourage greater use 6) Encourage no users to use the product 7) Correct any false information 8) Demonstrate how the product works 9) Provide a reassurance that a customer has made a good decision Media and Methods of Advertising 1) Television 8) Brochures and booklets 2) Newspaper 9) Posters and leaflets 3) Magazines and Trade 10) Directories Journals 11) Billboards 4) Commercial Radios 12) Internet 5) Transport Media 13) Display signs 6) Cinema /Motion pictures 14) Point of purchase displays 7) Packaging ADVERTISING DECISIONS Markets must consider four important decisions when developing an advertising program: setting advertising objectives, setting advertising budgets, developing advertising strategies and evaluating advertising campaigns. 1. Advertising objectives The main advertising objectives are:

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(a)

(b)

Information advertising Tells the market about a new product, suggests new uses for a product or informs the market about a price change e.g Jik, Omo, Alvaro etc. Persuasive advertising Involves building brand preference by persuading consumers to always buy your brand or to switch to your brand e.g super loaf adverts, Nissan shift expectation ad. Reminder advertising Involves reminding consumers that they will need the product in the near future especially during off seasons. Also involves keeping consumers thinking about the product e.g Coca-Cola adverts.

(c)

2.

Setting Advertising Budget A brands advertising budget often depends on its stage in the product life cycle. A new product typically needs large advertising budgets to build awareness and persuade consumers to try it. A mature product needs lower budgets of advertising as a ratio to sales. Also brands in a market with many competitors require aggressive advertising e.g. beer, soft drinks, pharmaceuticals, insurance etc. Developing Advertising Strategy There are two factors to consider in developing advertising strategy i.e. creating advertising message and selecting advertising media. The advertising message must be appealing, believable and distinctive for consumers to think about it or react to the product. Advertisers take several approaches when developing their messages. The more common appeals are: testimonials (messages which are presented and endorsed by someone who is seen as an expert, trustworthy and believable to consumers), humorous advertising (with jokes about the product), sex appeal (Use of sexuality to appeal to a certain gender that 110

3.

constitutes a target market) and slice of life advertising (portraying the consumer in a realistic situation) A good advertising media is one that reaches more consumers, exposes the product, the target market frequently, impacts the qualitative values of a message on the consumer. Major media types include newspapers, T.V, Radio, direct mail, magazines, bill boards and internet.

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4.

Evaluating Advertising Advertisements effectiveness can be evaluated by copy testing or sales effects. Copy testing can be done before or after an advert is printed or broadcast. Before an advert is placed, the advertiser can show it to consumers, ask them how they like it and measure recall or attitude changes resulting from it. The same can be done after an advert is run. One way of measuring sales effects is to compare past sales before an advert was placed to sales level after an advert is placed. Other methods of measuring the effectiveness of an advert include: 1) Measure awareness and impact using recall/recognition test 2) Measure increase in revenue 3) Maintenance and improvement in market share 4) Use marketing research to measure attitude change 5) Measure profit overtime 6) Measure number of inquiries.

2. SALES PROMOTION Sales promotion is short term incentives to encourage the purchase or sale of a product or service. The marketer must set sales promotion objectives before deciding on the sales promotion tool to use.

General Objectives of Sales Promotion 1) 2) 3) 4) Facilitates customer trials: Free samples Cements a long term relationship with middlemen To attract brand switchers: low prices To encourage sales force and middlemen to support a new product 5) To attract users to buy more

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SALES PROMOTION DECISIONS The primary concerns of marketers when making sales promotion decisions include choosing the target market objective and choosing a sales promotion tool. 1. Target Market Objective (i) (ii) Consumer promotions Used to increase short term sales or help build long-term market share. Trade promotions Includes getting retailers to carry new items and more inventories, getting them to advertise the product and to give it more shelf space. Sales force or business promotions Are used to generate business leads, stimulate purchases, reward customers, and motivate salespeople.

(iii)

2.

Sales Promotion Tools Depending on the sales promotion objective decided and the target market, the following tools can be used: (i) Consumer promotion tools (a) Samples A small amount of product offered to consumers for trial. (b) Coupons Certificate that gives buyers a saving when they purchase a specified product. (c) Cash refunds Offer to refund part of the purchase price of a product to consumers who send a proof of purchase to the manufacturer. (d) Price pack Reduced price that is marked by (cents offs) the producer directly on the label or package. (e) Premium Are goods offered either free or at a low price as an incentive to buy a product e.g Colgate and toothbrush. (f) Advertising specialties Are useful articles imprinted with an advertisers name that are given as gifts to consumers e.g pens, calendars, key holders, shopping bags, T-shirts, caps, nail files, umbrella, tea mugs etc. 113

(g)

(h)

(i)

Patronage rewards Cash or other award for the regular use of a certain companys products or service. Point of purchase (POP) promotions Include display and demonstrations that take place at the point of purchase or sale. Contests, sweepstakes and games, giving consumers a chance to win something e.g cash, trips, goods by luck.

(ii)

Trade promotion tools The consumer promotion tools identified above can also be used as trade promotions. In addition, the manufacturer may offer: (a) Discount off the list price. This is also called price off, off invoice or off list. A straight discount is a straight reduction in price on purchase during a stated period of time. An allowance. This is promotional money paid by manufacturers to retailers in return for agreeing to feature the manufacturers products in some way e.g an advertising allowance compensates retailers for advertising the product, a display allowance compensates them for using special displays. Conventions and trade shows Organised by manufacturer to promote their products. Are often costly undertakings.

(b)

(c)

(iii)

Sales Force Tool A sales contest Organised for salespeople or dealers to motivate them t increase their sales performance over a given period. The winner gets a prize.

3. EVENTS AND EXPERIENCES

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Company sponsored activities and programmes designed to create daily brand related interactions including the following: Sports Company Museums Entertainment Street activities Festivals Road shows Factory tours

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4. PUBLIC RELATIONS Public relations means building good relations with the companys various publics. Publicity - This is the total effort by an organisation to create, improve and maintain a favourable image of the company and its publics. It is popularised as Public Relations, and the title for this role and responsibility within the organisation may the Public Relations Manager or Publicity Manager. Public relations department perform the following functions: 1) Press relations Creating and placing newsworthy information in the news media to attract attention to a person, product or device. 2) Product publicity Publicising specific products. 3) Public affairs Getting involved in corporate social responsibility e.g building schools, roads, and social amenities to a local community. 4) Investor relations Maintaining relationships with shareholders and others in the financial community. 5) Lobbying Building and maintaining relations with members of parliament and government officials to influence legislations and regulations in favour of an organisation or industry. Major Public Relations Tools 1) News PR professional create favourable news about the company and its products. 2) Speeches Company executives field questions from the media or the MDs charismatic talk before a large audience 3) Special events Include conferences, press tours, grand openings of branches, organizing marathons etc.

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4) Corporate identity materials e.g. logos, stationery brochures, signs, business cards, buildings, uniforms, T-shirts, company cars and trucks.

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DIRECT MARKETING The use of mail, telephone, fax, email or internet to communicate directly with or solicit response or dialogue from specific customers or prospects. Other tools used in direct marketing include: Catalogues TV shopping Telemarketing Fax mail Electronic shopping Voice mail PERSONAL SELLING Personal selling is the face to face interaction between a companys salesperson and a customer or prospect. Personal selling optimizes the buyer seller dyad often resulting in an actual purchase of the product. Functions and Roles Information gathering regarding sales needs Identifying sales leads Prospecting: finding and cultivating new customers Communicating: Illustrating product and service idea Selling: salesmanship Servicing: Technical after sales service Personal selling is about looking for potential buyers (prospecting), presenting the product and getting an order from the customer. It is therefore the climax of the entire marketing effort. A good salesperson is one who closes a sale successfully.

THE END

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