Business Management Study Manuals Diploma in Business Management MARKETING POLICY, PLANNING AND COMMUNICATION The Association of Business Executives 5th Floor, CI Tower St Georges Square High Street New Malden Surrey KT3 4TE United Kingdom Tel: + 44(0)20 8329 2930 Fax: + 44(0)20 8329 2945 E-mail: info@abeuk.com www.abeuk.com © Copyright, 2008 The Association of Business Executives (ABE) and RRC Business Training All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form, or by any means, electronic, electrostatic, mechanical, photocopied or otherwise, without the express permission in writing from The Association of Business Executives Diploma in Business Management MANAGERIAL ACCOUNTING Contents Unit Title Page Marketing Culture and Orientation The Development of Marketing What is Marketing? The Strategic Orientation of Business Developing a Marketing Orientation Strategic Implications of a Marketing Orientation Coordination of Marketing with other Management Functions Organisation for Marketing 11 13 20 Markets and the Marketing Environment The Concept of the Marketing Environment Macro Forces Micro Forces An Alternative View of the Marketing Environment The Marketing Audit Market Segmentation, Targeting and Positioning The Marketing Mix 29 30 31 35 38 38 44 56 Marketing Strategies Strategy and Planning Corporate Strategy Marketing Strategies Corporate Objectives Marketing Objectives Models for Formulating Marketing Strategies 61 62 63 67 69 70 76 Marketing Plans Development of the Marketing Plan Nature of a Marketing Plan Implementing the Marketing Plan Control and Evaluation Evaluating Sales Performance Evaluating Marketing Performance 93 95 97 102 112 115 116 Research for Marketing The Research Process Types of Research Sources of Information Research Methods Using External Research Agencies Information Systems 121 122 125 128 132 136 139 Unit Title Page Understanding Consumers and Consumer Behaviour The Buying Process Influences on Individual Buying Behaviour Classifications of Consumers The Social Psychology of Consumer Behaviour Organisational Purchasing 145 148 153 157 162 176 Product Management and Development Nature of Products and Services Product Management Product Branding Product Packaging The Product Life Cycle Extending and Expanding the Product Life Cycle New Product Development 181 182 185 198 201 202 210 213 Pricing Policies and Price Setting What Does a Price Represent? The Pricing Decision Breakeven Analysis and Price Price Elasticity Marginal Costing 221 222 224 234 236 238 Distribution Policy and Management The Importance of the Place Element Channels of Distribution Dealing with Intermediaries Distribution Channel Maintenance and Change Physical Distribution Management (PDM) 243 244 247 254 261 264 10 Marketing Communications A Strategic Approach to Promotion The Communications Process Advertising Sales Promotion Personal Selling Public Relations Direct Marketing 269 271 279 284 290 297 304 316 11 The International Dimension to Marketing Globalisation of Markets The International Environment Obtaining Information about International Markets The Influence of Regional Trading Alliances Working in International Markets Adapting the Marketing Mix 319 320 321 325 327 330 333 12 Marketing Issues: Responsibility and Change Introduction Social Responsibility and Corporate Strategy Constraints on Marketing The Changing Marketing Landscape 335 336 336 341 349 Study Unit Marketing Culture and Orientation Contents Page A The Development of Marketing The Industrial Revolution The 20th Century 2 B What is Marketing? C The Strategic Orientation of Business Production Concept Product Concept Sales Concept Marketing Concept 4 D Developing a Marketing Orientation The Need for Integration Introducing the Marketing Concept Internal Marketing 9 10 E Strategic Implications of a Marketing Orientation External Changes Organisational Changes 11 11 12 F Coordination of Marketing with other Management Functions Marketing and Production Marketing and Finance Relations with Other Departments Conflict between Marketing and Other Departments 13 14 16 17 19 G Organisation for Marketing Alternative Structures Organisation Structures for Marketing Comparison of Marketing Structures 20 21 23 27 © ABE and RRC Marketing Culture and Orientation A THE DEVELOPMENT OF MARKETING It would be a mistake to think that marketing is a phenomenon of the 20th century Its origin can be traced back to early civilisation When communities began to specialise they produced surpluses in certain products which they then sought to exchange with other communities The need to exchange goods encouraged the emergence of local markets where different products could be brought together in one place for sellers and buyers to trade In these simple market structures, the sellers had a fairly good idea of what pleased their customers, since often they were neighbours of each other The Industrial Revolution Prior to the 17th century and the start of the Industrial Revolution, producers and merchants tended to operate on a small scale, concentrating their operations in very localised markets The Industrial Revolution, however, brought with it advances in technology and production techniques which meant new processes, greater output and a transformation of the British economy away from its dependence on agriculture to one of industrial production Industry now became more remote from its markets as it sought power and fuel to generate its machines Increased output meant an even greater desire to trade, while the large-scale production forced the development of distribution channels to enable the demand from wider, larger markets to be met The era was founded on the principle of supply in trying to satisfy even greater demands by increasing production efficiency It laid the foundation of the modern industrial society, with sophisticated systems of marketing institutions and finances, all of which are based on the fundamental concept of carrying out trade through exchange The 20th Century Improvements in technology and production processes have meant that this century has witnessed a transition from a production society to a consumption society with service industries such as banking and hospitality growing substantially in the later half of the centre Increasing competition, not simply local or regional, but national and international, has meant that the problem is no longer one of supply but of anticipating demand The invention of the internet has had a major impact on businesses and the way customers purchase products by providing customers with wider access to products and services, more information to inform their purchase decisions and more transparent pricing and by providing businesses with both opportunities and threats, for example, being able to reach new and wider markets but being exposed to increased competition All kinds of industries are now engaged in an intense struggle to establish customer preference in favour of their products over that of the competition Rather than wait for orders to come to them, the industry must go out and manage demand for its products by winning customers and also importantly retaining customers by building customer loyalty For many, this was the start of the marketing era and out of it many of the modern marketing practices were born Advertising appeared as a means of stimulating sales Branding and packaging were developed as a way of saying something about the quality of the product Salesforces were introduced rather than relying solely on the merchants to find and develop new markets for their products, while products themselves were developed to better satisfy customer needs Today there are many more producers and products than there are markets for them, which has resulted in an imbalance where supply now exceeds demand For modern business to achieve the levels of demand it requires, it must not only concentrate on improving efficiency levels of production but, more importantly, must also produce products and provide services the market wants to buy This requires business to place greater emphasis on marketing research to find out what buyers want, not what they simply need, and to match its productive © ABE and RRC Marketing Culture and Orientation capacity and product lines to meet the anticipated wants In effect, the national and international situation has changed from a seller's market to a buyer's market, and failure to give buyers what they want will surely lead to failure B WHAT IS MARKETING? As we have already noted, marketing has been around for thousands of years and has evolved from simple bartering to the highly complex systems which are in use today Marketing as a discipline has its critics These are the people who think of marketing as being a "poison pack" which is responsible for all the evils in the world – mainly because of criticisms relating to the effects of advertising However, marketing also has its devotees Some people see marketing as a "magic wand"; they think that when a company has problems all they need to is to get in a Marketing Manager and all the problems will disappear Neither of these viewpoints is correct Marketing is now recognised almost as a science It is seen as a logical approach to business which involves the studying, and understanding, of relationships and exchanges between buyers and sellers Various definitions of "marketing" have been proposed by practitioners of marketing: "Marketing is a human activity directed at satisfying needs and wants" (Kotler) "The management process responsible for identifying, anticipating and satisfying customer requirements profitably" (CIM) In marketing terms, a customer's needs, wants or requirements tend to mean a product or service Products are tangible, albeit the wider meaning of a product includes intangible benefits such as after sale service and services are intangible However, there are still things that the customer wants in order to deal with a real or imagined requirement that they have or, to put it another way, a customer has a problem to solve People can satisfy their requirements, or problems, in one of four ways: Self-solution (coming up with the answer to the problem themselves) Force (threatening/stealing) Begging (pleading/seeking sympathy) Exchange (offering something of value to the owner) The last method, exchange, is based on a mutually beneficial outcome to both parties This value exchange summarises marketing and applies in every type of product exchange, from the simple purchase of a bar of soap by a customer in a supermarket, to the purchase of attack aircraft by a government In every case both parties give, or exchange, something of value to the other For this to be possible, two parties must: Have something of value to exchange Be capable of communicating Be free to accept or reject the exchange situation The existence of these criteria does not necessarily mean that an exchange WILL take place – only that it is possible Successful exchanges will only occur when there is some individual, or organisation, with enough interest (and available resources) who is prepared to enter into an agreement with the owner, or producer, of some particular item(s) © ABE and RRC Marketing Culture and Orientation C THE STRATEGIC ORIENTATION OF BUSINESS It is very easy, on a marketing course, to get carried away with the total ethos of marketing but we must remember that not every organisation adopts a marketing stance Having identified what marketing means and its development, we must, before we explore the nature of marketing any further, take a look at alternative methods of carrying out business No matter what the market type is, the company has to deal with it on a day-to-day basis and present itself as a successful concern How the company presents itself and its activities to the world will depend very much on a combination of factors, including among others: The nature of the product or service being sold The beliefs of the decision makers The extent of the influences from the environments Customer expectations A company may be seen as being "aggressive", "caring", "ethical" or some other identifying factor which summarises what the company stands for in its marketplace The perceptions held by the public may, to a large extent, be influenced by the approach or stance that the company adopts The different approaches to markets are referred to as Strategic Business Concepts or Strategic Business Orientation There are only really four different types as outlined below: Production Concept (or orientation) Product Concept Sales Concept Marketing Concept Production Concept A company following this concept is operating on the idea that the more you can produce the more you can sell Managers assume that customers are only interested in the availability of products and low prices and that marketing is not necessary This may or may not be true Consider the following examples: A fashion company making exclusive dresses, selling on average at £3,000, produces and sells 12 dresses each month If they were to double their production rate it is unlikely that they could retain their "exclusive" appeal This would mean prices would have to be reduced and revenue would fall – not to mention the increased costs in materials and labour needed to make more dresses A company making electronic switching gear, on a batch production basis, produces 4,000 units each four-week period The units are sold at £3.00 each and are recognised as being "superior" products to those of the competition, which sell at £2.50 per unit The competitor sells more units than the company does If the company were able to increase production and reduce the price slightly they could possibly sell more units and increase their revenue Of course, calculations need to be made taking into account all costs incurred, e.g © ABE and RRC Marketing Culture and Orientation Current Level of production Sales @ £3.00 Fixed costs Variable costs (£0.25 per unit) Profit (per four weeks) 4,000 £12,000 £2,000 £1,000 £9,000 Potential @ £2.75 6,000 £16,500 £2,000 £1,500 £13,000 Assuming that new production plant cost £4,000, and that all units produced were sold, it would take only one month's production to recover the costs After that the company would be making even more money than they are at present Even allowing for a price match to that of the competitor this would seem an advantageous move for this company However, let us take this one step further with another example: Imagine a company that makes a small electrical product which can be used in photography After introducing a small pilot batch, it appears that sales potential for this product is promising The company has the production capacity to produce 3,000 units per month Managers fix a target production level of 12,000, which will take four months to complete, and production begins Once the first monthly batch has been completed selling activity takes place and everyone stands back waiting for the orders, but few orders are taken An investigation is begun after eight weeks as to why the product is not selling – by which time the company has produced a total of 6,000 units The investigations are completed by the end of Week 10 (7,500 units produced) The company discovers, by asking its current customers, that a new digital camera has been launched which has made their product obsolete almost overnight The company are left holding all the stock, and now have to accept the losses or find other markets for the product which, in turn, will involve them in even more costs for research, marketing and other activities In this last example the "production concept" has failed miserably To simply mass produce any product on the outcome of meagre research is foolish in the extreme The company might well find a market for their product but it would be a "niche" market rather than a mass market because of the changes in technology Producing in smaller batches appropriate to the level of demand makes much more sense Using these three examples we can see that there are times when a "production orientation" will work and times when it will not This concept works when: The market is low cost and high turnover There is high demand for the product Buyers are sensitive to price The organisation has the capacity to mass produce, and The marginal production costs incurred are low BUT it does not work in the opposite circumstances © ABE and RRC Marketing Culture and Orientation Companies following a production orientation gain from: Economies of scale Reduced marketing and production costs Greater market share Strength over the competition However, they lose: Any degree of "exclusive" appeal Close contact with customer needs High levels of customer loyalty It is not enough for a company to simply make lots of what it is good at – if the customers not want the product it is a waste of resources and is likely to end in financial ruin Product Concept This type of orientation is present when managers in the company believe that customers will recognise a good product or service and buy it when it is made available The managers have such a firm belief in the quality and appeal of their product that they cannot accept that customers may not readily see the same advantages and they fail to undertake any marketing or even carry out essential research before beginning production Consequently the managers are dumbfounded when customers are not beating a path to their door to buy up the existing stocks Perhaps one of the most quoted examples of this type of orientation concerns the Sinclair CV5, a small motorised vehicle which was introduced into the UK by Clive Sinclair Sinclair thought he had an excellent product which would help alleviate pollution and lower traffic levels on the roads of Britain He did carry out product tests – but they were in a gymnasium When the product was finally launched it proved to be dangerous and frightening when users were faced with large trucks and other vehicles using the public roads Sinclair had underestimated the fact that his target audience liked their cars and that they were not going to buy something which, in their opinion, was inferior to what they already had Despite his belief in it, the product failed completely Although the CV5 is used to demonstrate how product belief by managers can be dangerous it is not the only example in existence Currently there are many organisations who have excellent products of all kinds but, because they not market them or tell people about them, they are not selling One of the most pertinent in my recent experience concerns a branch of the armed forces in the United Kingdom This particular branch of the forces is known throughout the world for its superb training facilities but, because of the global reduction in defence forces, the facilities are now underutilised To make use of the facilities and to recoup some revenue decisions were made at senior levels to offer personnel training to other national governments There is no doubt that the product is excellent and yet it was not taken up to any large extent This is simply because they thought everyone would come running once the decision had been made and little effort was put into finding out if what they had actually matched the requirements of the potential customers The goods news is that professional marketing help was sought and customer needs research was undertaken A major drawback to sales was identified as being the lack of facilities for accompanying families while personnel were being trained This aspect has now been addressed and sales are healthy I am sure that this product will be a major earner in the near future © ABE and RRC ... Marketing Strategies Corporate Objectives Marketing Objectives Models for Formulating Marketing Strategies 61 62 63 67 69 70 76 Marketing Plans Development of the Marketing Plan Nature of a Marketing. .. Alternative View of the Marketing Environment The Marketing Audit Market Segmentation, Targeting and Positioning The Marketing Mix 29 30 31 35 38 38 44 56 Marketing Strategies Strategy and Planning Corporate... Page Marketing Culture and Orientation The Development of Marketing What is Marketing? The Strategic Orientation of Business Developing a Marketing Orientation Strategic Implications of a Marketing