Pea va BUSINESS - MANAGEMENT. iogkie ert ean tessa eee wasSs ew Table 1.3.4. Comparison of vision and mission statements Coucept_| Nbst we wan? Wie a core Ha ERT? we Roe en ec | what the business would ike to seeitselfas. | now, communicates what needs to be done in order to achieve the vision. haan hc ae a renee | statementinspires and motivates | a means for accountability by defining key performance employees | indicators, Forexteral stakeholders, the vision statement | For external stakeholders, the mission statement measures, binds them to the business by givinga sense | how successful the business is at achieving its vision. of shared belies. | + [ehange | Asan expression ofthe Businesscare | Amission statement may change in a word of values thevision shoildneverchange. | dynamically changing extemal envitanments, 2 mission , statement may need tobe madfied a mest new | creumstances Aims, objectives, strategies, and tactics Businesses may also distinguish between aims and objectives and a between strategies and tactics. All of these concepts are interdependent RECURSION, and all these terms, including vision and mission, are linked in some = Fite= oF *RUWUrNeglEe way or another. Figure 1.3.1 is an attempt io show their relationship imme Fake with each other. ictability oF is planning forthe future \ vasion good use ora misuse ofa business's resources? Figure 1.3.4. The vision and mission statements — relationship between aims, objectives, strategies, and tactics The aims of a business are its long-term goals ~ what it wants to achieve in the future. An exemple of an aim might be: “We want to be profitable every year through the production of tasty, high-quality meat products”. Another aim might be more focused on the delivery of the service: “We aim to deliver 384 4 at od Ctra Clr By the end of this chapter, you should be able to: > define marketing and understand its relationship with other business functions > explain the difference between the marketing of goods and the marketing of services > distinguish between market orientation and product orientation > explain the difference between commercial marketing, social marketing and social media marketing > describe the elements that characterize the matket in which an organization operates > calculate market share > discuss the importance of market share and market leadership > compare and contrast the marketing objectives of for-profit organizations and non-profit organizations > evaluate how marketing strategies evolve as a response to changes in customer preferences > examine how the concepts of innovation, ethics and cutture influence marketing practices and strategies. Marketing is essential 10 the success of any business, However, marketing is not just about selling or advertising, as many people think. Its much more than that: itis more of a business philosophy of how best to think about satistying consumer needs or demands. There are many globally acceptable definitions of marketing. Some common ones include the following, Marketing is the management process involved in identifying, anticipating and satisfying consumer needs profitably.” The Chartered Instituce of Marketing “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” American Marketing Associationrketing involves a numbe vities keting decisions, whether related | Finance and marketing Since marketing costs money, the marketi have to work together in setting the appropriate budgets. The marketing department may want to spend more than is in its budget to meet the requirements of a demanding marketing plan, but the finance nd finance department iven. budgetary allocations. department may advise that it sticks to its, This will cause a departmental conflict. Human resource management (HRM) and marketing Marketing information can enable more effective workforce plannin; in the HRM department. This can influence the demand and supply nization. For example, an increase in the demand for a labour in an org product as a result of improved marketing may require the rec of extra staff from the sales and production departments this demand. Ensuring that the right quality of salespeople are h innovative minds and a competitive spirit - will also aid in he marketing department’s objectives. | Marketing Operations management and marketing the management process of he production and marketing departments will need to work together _getingthe Hight praduetto the | to ensure that the products developed meet the specifications of the right customer at the right price customers, Market research will help the marketers in deverm tothe rightplace and time the needs and wants of the consumers. However, both viepan . Marketing of goods need to balance the time needed to test, develo 0 avoid any loss in ales or reputation and any arousal af pote theuse ofthe 4 Ps af product, price, place, and promotion in, the marke The marketing of goods and services Wartestigof Seis 1n deciding how to market their products, businesses first need the use of the 7s of produc price, place, promotion, process, people, and physical to distinguish between goods, such as cars, and services. such as insurance. This is because goods and services ditfer in a number of ways, evidence in the marketing mixumed if you did nar like what you sought an 60 stored and consumed later © yoghurt ot be sored and wil need to be consumed immediately | your consultant's time, There i ownership ofthe product There is no ownership ofthe product Gaods are easier to compare because ofthe similar vices are more dificult compare because of ferent nature of some products,[Link] TVcan easily be | experiencesa custamermay getfromagiven service,eg.2 | compared to another | hotel may treat customer different each time he orshevisits | In selling goods, businesses can focus on specific characteristics that appeal to the consumer. In buying a ne choose one over another hased on the elaborate features one may cellphone, customers can have over the other, such as the number of applications. Managers ina service-providing company such as a hotel may talk about the number and type of rooms it has, but their marketing angle is mostly about offering good customer service to ensure that the customer recurns. To remain globally competitive, multinational companies today outsourcing their goods to countries producing at lower costs. For example, a clothing company based in the USA can manufacture a specific line in Asia and ship ic to customers living in Europe. However, vice businesses need to be closer to be very difficult for many people to travel from country nna day-to-day basis sampling varied couniry cuisines. from the popular Indian curry wo the sumptuous Kenyan nyama chor Therefore different cafés or rest stomers; for example, it (roast meat) ants (mostly franchises} re increasingl nser {0 customers in their localities to sell their cultural foods. addition, organizations offering services must always guard their reputation by having well-trained and approachable employees who will help in enhancing their product quality and image. For example, an airline industry with well-groomed and smiling staff greeting passengers at the entrance of the plane can help in further marketing the airline ssential marketing of goods is based on the four “Ps” of he marketing mix ~ namely price, product, promotion, and includes che three additional aspects of and physical evidence. T unit. Ie is ir ese aspects will be explore: te that many products ni yortant to ni ods and service elem may buy an iPad a: ts to them. For example, a custome a physical product but may receive after-sales service in the form of a warranty or ire Market orientation verses product orientation There are to distinct approaches that businesses can use to market the products, They can either use a product-orientated approach ot a market-orientated approach. These two approaches are she table below. he 249.| Product-orientated approach Market-orientated appraach ‘outward lacking and focused an carrying aut market nd focused on making the product frst and then trying to seit research first and then making products that can sal ates its own mark demand (Says law), Here businesses praduce innovative | demand so as to supply products that meet consumers! | | product-led and assuming that supply sled and focused on establishing consumer | sstorers to buy them needs and wants Organizations that have adopted a product-orientated approach to their products include Microsott, Ferrari, Dyson, and Apple. Many organizations are now market-orientated businesses, including Ford, Sony, Samsung, and Nokia ‘These are the benefits to a business of being market-epfentated: # Asa result of market research, firms have increased confidence tha their products will sell, therefore reducing the risk of failure # Access to market information means that firms can respond more quickly to changes in the market and are also able to anticipate narket changes | «Firms will be in a strong position to meet the challenge of new | competitors entering the market as a result of regular feedback from consumers brought about by market research. However, market orientation does have some limitations: Conducting market research can be costly and therefore weigh heavily on a firm’s budget. Due to frequently changing consumer tastes, firms may find it difficult to meet every consumer's needs with its available resources. ‘Uncertainty about the future could also have a negative influence on Oyson takes a product-orientated market-planning strategy approach te marketing | Product-orientated businesses put a lot of emphasis on the production | process rather than on their potential customers. A product-orientated business will have these advantages | ¢ Itis associated with the production of high-quality products such as, Product erientation { ash helmets, luxury sports cars and safety products such as c : u a business approach that | * Itcan succeed in industries where the speed of change is slow and focuses on making the im has already built tation. product first before attempting © Ichas control over its activities, with a strong belief that consu: will purchase its product laesteioaoden | However, the major limitations such a firm faces include the following: eee neserrne hor | tablishing consumer demand thraugh market research before producing and selling a product ‘¢ Since the firm ignores the needs of the marker, it takes risks that may ead to eventual business failure or clos: © Spending money on research and development without considering consumer needs could be costly and not yield any promising resultsSuccessful businesses usually have unique feature which differentiate them from their competitors. Here are three examples of businesses which have thought creatively about their USPS: 41. Love With Food ([Link]) Love with Food sells organic snack-boxes which are delivered ¢ customers for $10 a month. every box sald, the company donates a meal to a food | bank to feed hungry children, This creates a unique buying experience for their customers that they wouldn't get anywhere else. Love with Food offers something different, while stil selling exactly what their customers want, 2. Flinja([Link]) students and alumni have; finding 3 job. Their unique selling proposition is clear, and mostimportantiu, benefit-driven. “Finja helps college students and alumni find jobs” They have defined their target market and stated how they're going to help them solve a prablem. 3. Hear and Play Many websites and businesses help people learn music, Hear and Play focusses specifically on learning. to play the piano by ear, making it ideal for people who don't want a or cant read sheet music. Flinja aimstto solve a huge problem that college | | L Student workpoint 4.6 Be an inquirer ions offering those products and brands | Unique selling points- some examples 1. Draw a position map of an industry of your choice ai the prod nds on of Using the information in question L, why is it im Exam-style questions 1. With reference to Hear & Play, describe two aspects ofa USP [Unique Selling Point). [4 marks] With reference to Flinja, explain the link between target market and USP [4 marks) Uist 15s whether Love With Food's US! ad dentity portant for the > have a USP?ee MARICETING: Revision checklist Y Amarketing plan is an essential docum at concerns the v jour Ps of the marketing mix are product, price. promot va ate marketing mix for a business ensures that mers! and wants are sufficiently met by produei product, charged at , available at the right place and ommunicated throt { promotion channels, th com Y Atargee market is wants that a business decides to sell to while a market segment oup of consumer 's with similar characteristics ift a % Amass market is a broad market that ignores specific market a narrow market segment segments while a niche market focuses ¢ Y The primary focus of product positioning is to analyse ho perceive a firm’s product compared to other products consumers $n the market in an effort for these firms to gain a competitive advantage in the market || ee aT. o what exten arketing respond to, or change, the perceptions af individuals and | | |Practice question Marketing in a new technological environme! hing {rom visi ghte 2 career in real estate sell virtual products and services, which may include designer clothes. vehicles, o¢ casinos. fe registered its one millionth resident in late 2006 with one user SSL million buying, selling, and renting virtual property Many companies such as Dell, IBM, and Kmart use Second Life to marke products or services to a niche aud \d to target younger customers and technologically aware market segments. Dell, for instance, has in-world island” with a virtual replica of the Dell factory and a retail PCS to be de store where customers 01 vered to thelr virtual homes. On the island, customers pay in Linden dollars, the official currency. The Linden can be converted into US do! s fluctuate, but over the last few years have remained faitly stable as 250 Linden dollars (LS) 10 the US dollar. Customers can also order a real Dell computer that can be delivered to their real home end pay in U dollars, 1B Life recently purchases business training and simulations, Musicians and news organizations, including the BBC and the Reuters news agency, have a Second Life. The BBC, which is frequently an early adoptet, n shops charge corporate clients between US$10,000 and US$200 establish a virtual world presence, [Source: adapted from htpi/secondife reuters com and htp:/[Link]] a) Define the term niche market. 2 marks} b) Explain the advantages to major con as, like market segmentation and consumer targeting, ‘ ©) Discuss how firms may adapr thelr marke egies marketing mixes to changes in technology such as thy TB, May 2008eee CER ltr re ae By the end of this chapter, you should be able to: > calculate up to a four-part moving average > plotthe sales trend lines and explain the relationship between the trend and the actual sales revenue figures > prepare a forecast (including seasonal, cyclical and random variation] using given data > examine the benefits and limitations of sales forecasting. ess of predicting what a firm’s future sales estimate the future sales levels s forecasting is the p will be. It uses quantitative methods and trends over a specified period of time. Accurately future reduces uncertainty, helps in management ¢ d ensures better planning for growth. Busin forecasting information to assist them in making intel n ses need sales gent business decisions. However, makir plex process an accurate pre may be affected by numerous external factors. Time series analysis tative sales forecast: od that predicts future s levels trom past sales data. It relies on time series data, which is businesses have kept over a given period since inesses then rely on this past data in an attempt to 0 be ide eed t ed in n noted after inputting the past sales data. This may indicate the rise and fall of sales over a given perioe sind = Seasonal fluctuations ~ these are cha mand because asonal he varying seasons in periences an increase in sales of clothi is when a business e he beginnil e middle of the year. S| 1 decline in sales ir g of a new year but experien riations are usually repeated occur within one year or l «Cyclical fluctuations ~ these are variations tied to the b cycle in an econc ple. sales could be on the rise d hpi are can exiend for For exan 1 declinin: ore 1 Cyelical the groy none ¥ «Random fluctuations ~ these are notable changes or that stand ou! g sudden increase in the d day in win r example. there ream during 3 en tren be and tor ic re warm ations are unpredictable and cour atMoving averages Cs This is a useful . cing for identifying and indicator i x Sales forecasting he direction an simply predic ; tual sales data. This is the process af predicting the y fluctuations from sal future sales ofa frm ote accurate and com emphasi ethod sales from a because it helps to smooth Table 4.3.1. ¥ arly sales of a calculator manufacturer aen geen a a quantitative sales Sates (USS000} | 400 | 600 forecasting method that predicts future sales levels from pastsales data Calculating a three-year moving average Using table 4.3.1, the following steps can be used to calculate the three- year moving average: 1. Calculate the mean sales for the first three years, For example, the — 600,00. mean from years 1, 2 and 3 is USS 2. Do the same for the next three sets of data uss 00,000 = 659,000) _ 683,333 for years 2, 3 and 4 3. The same process should be used for the following sets of threes: 3.4.5: = 716,667 4,5, 6: uss 1980000 700.000 + 850.000) _ 5755 555 6,7, 8: uss 1990000 950000 120020 _ 1 999,990 The above data is summarized in table 4.3.2 and figure 4.3.1 Table 4.3.2, Sales revenue with three-year maving average (trend] ales (USS000) 400 600 800 650 oo | aso | 9 1,200 Trend [three-year moving 600 | 683.333 | 716.867 | 733332 | 1000 average] (US$000) ———— — sais (uss000 ] Tend three ving avenge] (88000) | Figure 4.3.1, Actual sales and the three-year moving average trend for the calculator manufacturerBoom _ line where year 3 is positioned Calculating a four-y : nl, the sf the first (i) Summation of sales in years 2, 3, 4 and 5 (USS): (600,000 | 300,000 + 680,000 + 700,000) = 2,750,000 | Cleclanag ene nest cian Fear meng ral TavelveS adaing the sammations in (i) and (i) (USS); 2.450.000 = 2.750,000 = 5,200,000 total is divided by 8 as follows (US$). 0.004 650,000. ft is important | | Using the same approach as above eight-year moving tor ur-year moving averages are summarized in table 4.3.3 and F moving average [trend] Table 4.3.3. Sales revenue with four-y Sales (5000) Eight-year moving total (S000) Trend [four year moving average] (8000) Figure 4.3.2, Actual sales plotted against the four-year moving avera Once the trend line h “line of best fit”, shown Extrapolation | |zor” a 2009 Time (year) Figure 4.3.3. Source: ops fhwa det gov ‘ample of an extrapolatec Calculating variations Variation is calculated by getting th the trend values. This is shown in Table 4.3.4, Sales revenue with variations in ano” 208 trend line he table 4.3.4 ch year ference between actual sales and Moving average sales forecasting method that identifies and emphasizes the direction of a trend Extrapolation an extension of a trend line to predict future sales Vari difference between actual sales and trend values ‘ber of years within the period: 100 », then adding 1562.5 gives a f 1,401,562.5 for year 9 For example. if i \d the variation in th the average seasonal var s calculated as follows: rend value (in USS) wa more accurate riation in e. edit | Sates (ussoco) 400 | 600 | 800 | 550 1200 | t 5 [Far feecgearmorg avrg sso | 7ia7s | reas | ese25 | (ussoa0) | Variation in each year (USS000) 1s0 | -ea75 | -ea7s The average cyclical variation using the above table can be calculated as the sum of variations over the period divided by theAssun hat the predicted sales revenue for year 7 in its first quarter was US$350 000, then subtracting 32,900 from 350,000 gives a more accurate sales prediction figure of 317,100 for the first quarter of year The benefits of sales forecasting © Better cash flow management - by taking into consideration cycli and seasonal variation factors, financial managers can better plan to improve the liquidity position of a business «Increased eificiency ~ sales forecasting greatly assists the production department in knowing the number of goods to produce and in planning for the amount of stock required in the future. «Better workforce planning - accurate sales forecasting can help the human resources department in succession planning regarding the number of staff required in the future. «Improved marketing planning - marketers will gain greater awareness of future trends and be able to adjust their marketing strategies accordingly in an effort to increase their market share. The limitations of sales forecasting © Sales forecasting is time-consuming ~ it takes a long time to calculate because of its complex nature, especially when considering the calculation of average seasonal variations in each quarter over a number of years. ‘© Sales forecasting ignores qualitative external factors. A number of political, social, and economic factors can influence the accuracy of sales forecast predictions, for example political instability, changes in consumer tastes and preferences, and exchange rate fluctuations. Student workpoint 4.7 Be knowledgeable AO) eC Towhat extent does knowing assist us in predicting? How do we know that our predictions are reliable? Table 4.3.5 shows the yearly sales figures of a paper manufacturer over a period of eight years. Table 4.3.5, Paper manufacturer's sales 2004—11 Sales revenue (US$000) 200 350 400 600 500 a) Calculate the three-year and four-year moving averages. b) Plot both trend lines and the actual sales revenue on graph paper. 750 sco 1,000 ©) Comment on the relationships between the actual sales revenue and the trends noted. ) Extrapolate the four-year moving trend line and predict the likely sales revenue for 2012. e) Calculate the average cyclical variation over the period.Revision checklist a rirends over a spe i of time. Y- Seasonal jons are caused b jemand due the v s greatly assist ir ag trend lines that help to y fluctuations from sales data ¢ Centring is a more complex method of moving aver bat involves the use of a four-year and an eight-y jablish a mid-point when calculatis moving total to. four year moving averages. 7 Extrapolation is the use of a line of best fit drawn to predictt esearct aily in the Last While accepting the need for a rategy, the marketing director is wortied about Fun-Gamtes’ lack of experience of operating in overseas markets; cultural. ling! stic and social difficulties may be encountered, The financial director is worried about lack of funds for expansion. The managers of Fun-Games are considering the best option for external expansion and intend to use sales trend data from the previous seven years, to belp make a decision Aun-Games computer games sales record: 200-20 (000 units 5500 units 4500 units ‘600 units 9100 units "9300 units b) .¢ years moving average ) Calculate the sales trend, the yearly variation and the ical variation. (Show all your work’ [5 mark ) Constru hi using the sales trev om4.4 Market research By the end of this chapter, you should be able to: explain why and holv organizations carry out market research analyse the primary market research methods comment on the secondary market research methods discuss the ethical considerations of market research distinguish between qualitative and quantitative research ‘explain the various sampling methods interpret results from given data, Pubeuyye Market research is the process of collecting, analysing, and reporting data related to a particular market, including data on consumption of goods and services and on competitors’ behaviour. Importantly, businesses use market research information to make decisions. The purposes of market research © Tide and onsumets' satisfaction levels and patterns in purchase behaviour. For example, a beverage company may want to find out the type of customers buying their sodas and the sales trends over a given period, 'y consumer needs and wants as well as aim 10 und To assist a business in predicting what is likely to happen in future. For example, an upcoming recession may signal firms to be prepared for decreases in overall spending patterns because of a possible decline in consumer income levels. © To reduce the risk of product failure (especially of new products) by effectively carrying out market researc dislikes of consumers. that establishes the likes and the effecti . tk ness of a marketing steategy. Th a or evaluating how a fim implemer required by its marketing mix in specif an be nis the activities To provide current or the latest information r arding activity in the 1arket, For example, most large technological companies have huge research and development budgets so that they keep up to date in ing first-mover advantages. Market research methods Market research can broadly be carried out in two ways: p secondary research,Primary market research This is also known as field research and involves the collection of first hand information from the market. Most organizations will conduct this research co find out specific buying patterns of consumers and attempt to anticipate any changes in their spending behaviour over a given period of time. Firms may decide to carry out this research themselves or seek the help of a market research agency. A key advantage of primary research is that the organization that collects the data will be the first to access it, which gives it an advantage over it rivals. For example, a hotel may discover through primary research that a particular airline is prone to flight cancellations. It can use this information to attract customers who may be waiting for many hours and possibly days for their connecting flights. However, field research is expensive because the research process takes time and requires specialized researchers, Secondary market research This is the collection of second-hand information from the market Also known as desk research, it involves analysing data that already exists in some form. Organizations should first carry out secondary research to get an overall background picture and then conduct primary research as a gap-filling measure, Desk research is a quicker and cheaper method than field research and most of the information involved is readily available. However, the information collected may be out of date and have been collected for purposes other than the specific needs of the researching organization. In some cases the source of data may not be reliable. Primary market research methods and techniques Surveys These are questionnaires sent out to a particular target audience t0 enable the researcher to gather useful information. The questionnaire may contain different types of question, for example those needing “yes” ple choice, or open-ended questions. A consumer survey may focus on getting specific information from consumers by seeking their opinion on a particular product or issue. Surveys can be implemented in a number of different ways. or “no” answers, m Some of the most common ways to administer surveys include: by mail—an example would be an alumni survey distributed via direct mail by the development office in a school seeking the opinions from past students about an issue «by telephone ~ an example would be a researcher calling consumers to elicit their opinion on using a certain product or service # online ~ for example, workshop leaders may use online surveys as an evaluation tool to seek participants’ opinions of the workshop. Market research the process of collecting, ‘analysing and reporting data related to a particular market Primary research the collection of first-hand information from the market Secondary research the collection af second-hand “information from the marketAdvantages Disadvantages © They enable researchers to colle amount of data in a relatively short period of administered can undermine ume. niended rese, large © Surveys that are poly constructed and therwise well: rch «If designed well, surveys can be administered |e The answers provided by respondents on a and completed easily by the respondents survey may not be an accurate reflection o! how they truly feel, with some results also being biased, ¢ Surveys can be used to collect information on | ange of aspects including attitudes, | preferences, and opinions. AAs large samples are usually used, surveys can prove to be costly and use up a lot of time in their construction and administration. While random sampling is generally used to select participants, response rates can bias the results of a survey Interviews An interview is a conversation during which the interviewer asks the a interviewee questions in order to gain information. Interviews can be bechessss) conducted one on one, face to face or by telephone. How does the language used in questionnaizes inttuence | Advantages | Disadvantages consumers and businesses’ | © they can provide detailed 4 The whole process can conclusions when doing information about the be very time-consuming market research? perceptions and opinions of asit involves setting up —_| consumers through in-depth the interview, carrying it | questioning. out, analysing responses, | * They usually achieve a high eaieersleMecgend) | = reporting, | response rate because of the | one-on-one attention provided. | ¢ Some interviewers may | Precise wording can be tailored | be biased, therefore | to the respondent and | influencing interviewees’ | precise meaning of questions responses. clarified during the interview | | process Focus groups Focus groups consist of a small number of people brought together to discuss a specific product or idea. The group comprises individuals who are representative of the customers of the business or of a specific segment of customers. In the discussion, participants respond to questions prepared by market researchers. Participants freely share thelr opinions, ideas, and reactions, They may also be asked to uy a new product. Usually, all their responses are viewed and studied to help 1; market population. researchers predict the reaction of the large:2 Cars Advantages As focus groups consist of a small group of individuals, using them is a cheap and easy way of gathering market research. They can be used to measure the reaction of customers to a firm’s new product or to the firm's strategies. They help identify key product requirements as well as other needs not addressed by the business and its competitors. They provide insights on the current position of the firm’s competitors in the mind of the customer, Observation Observation is a fundamental and basic method of getting information by carefully watching and trying to understand certain things or people's behaviour. Some observations are scientific in nature; however, not all follow this trend. Observation can be used by supermarkets to check how quickly consumers notice their displays or how long they may spend queuing as they wait to pay. It can also be used by a government's uaffic department to observe the flow of traffic in certain areas and help provide recommendations for improvement. | Disadvantages ‘The business may seek information about the entire market or segment and it could be thar the | opinions of a small number of individuals do not reflect it ‘There is the possibility that some members of the group may not express their honest and | personal opinions on the discussion topic. They may be hesitant to express their own views, especially when their opinions oppose those of another participant. Focus groups are more costly to carry out than surveys as each participant usually has to be compensated in cash or in kind, ‘Advantages Itis a direct method of collecting data or information when studying actual human behaviour, as the researcher can see exactly how people behave in a given situation. A large number of individuals can be surveyed ina short space of time. Observation is usually a cost-effective way of gathering data Disadvantages Secondary market research methods or techniques Academic journals These are publications of scholarly articles written by experts. The articles should be well referenced to provide the exact source of the information given. The experts will usuaily include professors, graduate students, or others with first-hand experience in a particular subject. Academic journals are written for the sole purpose of providing and distributing knowledge and not as a money-making opportunity. Complete answers to any problem or issue cannot be obtained by observation alone, so market researchers need to combine this with other methods such as issuing questionanaires Observation cannot be used to study attitudes or opinions of individuals because this usually requires a verbal response from the participant.__.____4i | Advantages Disadvantages «Academic journals undergo a peer-review process | Since they contain information of very where they are checked by academics and other | _ specific academic interest, they may aot be | experts. This increases the reliability of the the best source for general-interest topic information | . view process can be time- 4 Most academic journals include reports, reviews of ing, which may also aifect the current research, and topic-specific information provision of the latest or current event ‘They are therefore good sources when a firm is inforn need of original research om a topic. ‘+ _ They take less time to publish than books Media articles These include newspapers and magazines. A newspaper is a printed publication containing news, feature articles advertisements, and correspondence. Once viewed as the dominant means of communicating world events, newspapers have declined in readership since the rise of television and the Internet. Advantages | Disadvantages © Communicating via a newspaper is. © Itis difficult to communicate events in real-time. cheaper than communicating via ‘As the process of producing content, printing, and television distributing the finished paper is time-consumin articles that were written may be out of date by @ Most serious newspaper articles have been oe the time they ate delivered to the customer. well researched, written with reliable | sources, and edited for accuracy, which is_| © Newspapers can be biased, depending on the type not the case for some Internet resources. | of organization that owns them. © They are widely available and can be found in many retail stores. © The process of producing newspapers could be considered a waste of paper and energy resources. | Government publications ‘These are articles produced by the government on a wide variety of topics. They could provide businesses with useful information on the population ¢ sus in a country, statistics on social trends, or even surveys on consumer expenditure patterns Market analyses ‘These include commercial publications or market intelligence reports that gather data about particular markets. The highly detailed reports are usually carried out by specialist market research agents They can be sourced at various local business libraries, but they are quite costly. Organizations that provide such reports include Dun, Mintel and Verdict.ee isi | ETHICS Marketing rese with the ‘widespread use ofthe intemet and the popularity of social networking Its easier than ever before fr companies to connect ty with customers and collectindividual information conducts its market esearch these days can have serious ethical repercussions, impacting the lives of consumersin ways that have yettobe fully understood. Furcher, companies can be faced witha publi hacklashifits market research practices are perceived as unethical. Deceptive practices The ease with which a company can access and gather data abouts customers can lead to deceptive practices and cishonestyin the company’s research methods. The ype of ethical problems could range from nat teling customers that information is being collected when they visita website ta misrepresenting research numbers by changing database ‘numbers. Any action that uses les and deception to find autor establish information about consumers falls under this category, n has experienced a esurger Invasion of privacy ‘One ofthe most serious ethical considerations involved in ‘market researchis invasion of privacy, Companies have an Unprecedented ability to colect, store and match information| relating te customers that can infringe on 3 customers right ta privacy, In many instances, the customer does not know lrunderstand the extent ofthe company$ inftration into his [or her fe. The company uses this information toreach the customer with targeted advertising but the process of targeting can have a chiling effect on personal freedom, Breaches of confidentiality Anather significant ethical consideration involved in market research involves breaches af confidentiality. Companies regularly share information about customers wit partners and affiliates, requiring the customer to opt-out ofthe sharing if he [orshe] doesnt wantobe invelved. Some companies sell information they have gathered on customers to outside companies. Ethically, any unauthorized disclosure of customer information's problematic. Objectivity Marketing and advertising have asignificantimpact on public perceptions. Market researchers have an ethical obligation to conduct research objectively, so datas available that allows for the development ofthe varying issues nated. Researchers who allow the own opinions tobias their work tend to contribute to the continuation ofstereotypes in advertising. For example, a market researcher wth a one-dimensional view of minorties could o a fair amount ofharmif allowed to shape an advertising campaign based on biased date collection, Source: [Link] convethical-considerations: marketing [Link]| Exam-style questions 1, Descrive ewoforms of marketing esearch. [4 marks] 2. Discuss how and why ethies and globalisation limpact upon marketing research, [10 mars] The differences between qualitative and quantitative research Primary research or secondary r¢ uantitative in nature, can be either qualitative or Table 4.4.1 shows the differences between qualitative and quantitative research Table 4.4.1, Differences be (eed This involves the collection af data about opinions, attitudes arbeliefs, /een qualitative and quantitative research This involves the cal can be measured. ction of numerical data or data that Information is open to a high degree of interpretation, Information is open to less interpretation. Itis subjective Itis objective. Key res h questions would include “Why?” Key research questions would include "How many?" The researcher is par: ofthe process. The researcher is separate Itprovides multile realities, ie, the focus is complex and broad It provides one reality, ie, the focus is concise d narrow.SS MARKET RESEARCH Tess Generally, qualitative research is collecting, analysing, and interp: data by observing what people do and say. Whereas quantitative research refers to counts and measures of things, qualitative research refers to the meanings, definitions, characteristics, and descriptions of things. Common methods used in collecting qualitative data include the use of focus groups and in-depth interviews. Surveys and government publications are methods usually used to collect quantitative data Quantitative research may seek answers to the question: How many customers bought the company's sports shoes in the month of May 2013? Qualitative research may seek answers to the question: Why do stomers like the company’s sports shoes? Sampling methods In reality there is simply not cnough time, energy, money, labour, or equipment to carry out a survey of the whole population. The population comprises all potential consumers in a market. However, in. an effort to gather adequate primary research and still have a clear idea of consumers’ views, taking a sample of the population is required. A sample is a small group of people selected to represent the population or target market under research. For example, a small group of consumers could be selected out of a large number of potential buyers of a product. Sampling is simply the process of selecting the appropriate sample Below are a number of commonly used sampling methods and the advantages and disadvantages of each, Quota sampling This involves segmenting a given population into a number of groups that share certain characteristics (mutually exclusive sub-groups) such as age or gender. Targets are then set for the number of people who must be interviewed in each segment. For example, in a school of 500 students offering the IB diploma programme, a researcher may target 15 males and 20 females to interview regarding their perception of the programme. Advantages Disadvantages This isa quick and cost- © Results obtained are | effective sampling method, not always statistically especially where the representative of the proportions of the different population as random groups in the population are sampling (see below) is known. rot done; this also leads to statistical errors «Findings obtained are usually more reliable than those of The interviewer may be random sampling biased in the selecti interviewees and choose those who will cooperate most in the process,— 7 Random sampling CHANGE In this case every member in the population has an equal chance of selected as part of the sample. The sample of respondents is selected randomly. With technology, a list of random numbers can be gene et population by the use of a computer. An example of selecting a random sample may be choosing any 50 people from a telephone directory containing the names of 1.000 peo Technological innovation has transformed the way market researchis done. Social media has expanded the landscape is transforming itin exciting new ways. Social meta So ar allows unftered feedback abut Advantages: Disadvantages requires new researching skills. © The sample chosen may With new technology, researchers be too small and/or it may can be much more targeted in «Random sampling reduces | | not consist of the target | whatthey measure and who they bias as everyone has an equal chance of being chosen. Iisa relatively easy way of ae repre eanieearnpaia social media and online survey products, businesses are able tacollect data about all sorts of things. They can do faster, better | | population: a larger, more target. Using the mostrecent | have to be selected. Stratified sampling and cheaper than ever In this method the target population is made up of many different rae ea ee groups who are subdivided into segments or strata that share similar ie le econ ees 5 Inconducting market research characteristics. Members are then chosen from each stratum to form Using the recent changes a representative sample. For example, a secondary school may be pepeetoes aphat e deciding to introduce a new school uniform. It may divide the school shinkthese tewwb ch ean ba population based on the different forms, from Form 1 to Form 5. A cadena random sample is then chosen from each of these forms, ensuring that the same proportions of the sample in each category is maintained. As in the above example, for a sample size of 30 people whose names appear ina telephone directory, 10 students from each form (10 x 5) would be randomly selected to make up the required sample Advantages Disadvantages ] The sample selected is more Iris not easy to select relevant | representative of a particular | strata from a population of very target population. | similar characteristics. Cluster sampling This is an appropriate method to use when the population is geographically dispersed, This will involve selecting a group from each region (cluster) and then taking a random sample from the clusters, For example, a multinational ‘wishing to set up a plant in a certain town may carry out research on just a few geographical areas around the location and the opinions of the clusters alation selected will be assumed to represent the whole pop share similar characteristics. ‘Advantage | Disadvantage [+ Wisaquickand cheap | Results obtained may not be | method of carrying out representative of the whole | research from widely population and may be biased. | geographically dispersed | especially if the cluster sample is | Populations | obtained from areas where people |Snowballing This is a process of sampling that involves surveying the first group or individual who then suggests other groups or individuals who could participate, and so on. Members of the initial group use their contacts to refer to other people that they know, hence the snowball effect. It may be used when conducting quite sensitive research, for example a survey done on the use of ARVs among HIV-positive individuals. It is also used when researching expensive sophisticated products where the range of potential customers is limited. Advantage Disadvantage f | | © Itis a cost-effective method of . | obtaining information through | referrals. There is potential for getting a biased sample, since friends | sharing similar lifestyles may refer each other and be part of the same sample. Convenience sampling This is a sampling technique where groups are selected based on their easy access and proximity to the researcher. For example, a teacher doing research on the school canteen could conduct a study by being physically present and directly interviewing students purchasing items from the canteen at break time or lunchtime. Another example would be when conducting research in a hospital, when the researcher may use the first ten names in the patient list to select a sample. Iisa fast, easy and cheap . method of sampling because the research groups are readily available. Advantage Disadvantage The sample may be biased and not be representative of the entire population. Results from data collection Businesses are interested in the range of results they get from carrying out research. It is therefore of prime imporance that they ensure that their data collection methods are appropriate and offer a high degree of accuracy. Whether using either quantitative or qualitative data, or a combination of both, itis essential to maintain integrit y in the research process. Selecting the appropriate data collection instruments and providing clear instructions for their correct use reduces the likelihood of sampling errors occurring. Benefits of properly collected data include: © the ability of research to answer accurately the research questions posed «the ability to repeat and validate a particular study where needed * increased accuracy of findings resulting in efficient use of resources * good opportunities for other researchers to pursue areas needing further investigation. Sen In determining the best sampling method to use, it is important to analyse the strengths and weaknesses of each method. Akey consideration is the level of bias in the sample and how cost-effective the method is. This could also be influenced by factors such as financial resources, business size, and ale of the research. ‘Quantitative research the collection, analysis and interpretation of numerical data ordata that can be measured Qualitative research the collection, analysis, and interpretation of data about ‘consumer opinions, attitudes, orbeliefs ‘Sample ‘a group of people selected to represent the population or target market under research ‘Sampling the process of selecting an appropriate sampleThe heart of research is gathering reliable information about an issue or intervention and analysing it to determine the significance of the sample results. Collecting and analysing quantitative dara can help highlight sida Rea Bathe connections (correlations) among variables and also address other Eo EIS | factors the researcher may not have considered. Collecting and analysing | qualitative data can provide insight into the varying participant experiences, including what may need to be improved or changed. On gaining the required knowledge from the research information provided, a researcher shiould continue evaluating the whole process in an effort to | obtain even better results in the next research round. Marketing research — A case study of Safaricom Safaricom isthe leading telecommunications company operating in Kenya. Itprovides a host of products and services fortelephony, GPRS, 36, EDGE and data and fax. thas been faced with a number of problems with time, one of whichs the entry of many other telecommunication companies into the market over the years. The companies include, Telkom Orange, ‘Yu and Zain, So far the main rival is Zain. The problem caused by the entry of ather companies is that they bring about unwanted competition (decrease in market share). This problem can be solved by conducting marketing research. The first step in the marketing research process is identifying and defining your problem, Defining the problem would mean expanding ont and explaining ‘why it should be seen as a problem. In this case Safaricom has identified a number of competitors as, the threat of losing customers and reducing the market share, which will lead to lower profit margins and growth atthe end of the year is contrary to what they want. Step two is to develop your approach, generally ‘speaking the approach should be developed almost exclusively around a defined set of objectives. Clearer ‘objectives developed in step one will lend them ta a better approach development. Developing your approach should consist ofan honest assessment cof your team’s market research skills, establishing 2 budget, understanding your environment and its influencing factors and formulating hypotheses. Safaricom has to find an approach to counter the problem they are facing, which is campetition. A chosen team at Safaricom came up with a number of possible solutions and chose one that was effective. The first solution would be to introduce lower call rates for subscribers and introduce a competition which only Safaricom subscribers can partisipate, The second solution Safaricom can have a charity event were the money they make goes to a special cause for example food aid, tree planting etc this would affect the market socially. And the final solution would be Supremacy to Control the telephony industry by outmatching other ‘operators to be the first to launch Apple's Phone 36. To do all tis they have to carry out extensive research ta help in a decision, Safaricom decided to be the first to launch the Apple's iPhone 36 increasing the competitar advantage. The third step would be to market research to enable the firm to make an appropriate decision on all the elements of the marketing mix as well as reduce the risk of investing in an unprofitable marketing venture. Since Safaricom is a long established firm and has. ‘a netwark running across Kenya they decided to launch the product in a limited geographical area where demand is observed. The price was high as it was a unique product to capture non price sensitive consumers who see new products as a novelty and as the product would grow older the price is reduced to capture the more price sensitive consumer. twill be launched in Westland's Nairobi next to two shopping malls and excessive advertisements will be done to ensure consumers receive information about the new and exciting product. Step four is called data collection or survey fielding Generally data analysis is concerned with editing, coding and presenting collected raw materials into a form suitable for solving the research problem and making decisions. The data collected from the test. marketing research would include diagrams, sales, ‘etc this would enable us to evaluate it and make the decision on whether to launch the product officially in the whole of Kenya,Step fiveis the analysis of the collected information. Data presentations methods chosen should allow for easy interpretation of the research findings by the analyst. Use of charts and diagrams make this possible as they can plot the data to show trends and relationships between variables. Test marketing provides first hand information about the market and also revenues are collected during collection of data. For example the analyst can use a graph that shows the trend of the sales to help in making decisions. Step six involves the market research report. The report must provide the readers (sponsor) with the information they require in a format they are able to understand and appreciate. Vocabulary, presentations, analysis methods used should match the readers levels and demands. Also the report should contain threats of launching the product. In this case Safaricom launched the iphone 36 as their research in this area was positive, however this was a test on a small group that may not effectively represent the whole market behaviors, Adapted from http:/[Link]/marketing- | [Link]?id=166275 Exam-style questions 4. Qutline two challenges that companies such as Safaricom may face when carrying out market research, [4 marks] 2.” Evaluate Safaricom's strategies to overcome competition. [8 marks] Student workpoint 4.8 Be an inquirer Carry out an investigation on any organization of your choice that carries out market research. In the process, consider the following: 1. What are the primary and secondary research methods it uses? 2. Does it use qualitative or quantitative research, or both? 3. Comment on the sampling method or methods it uses. Revision checklist Market research aids in business decision making by collecting, analysing and reporting data related to a particular market. v v Primary research (field research) and secondary research (desk research) are the two ways in which market research can be carried out. Primary research methods include surveys, interviews, focus groups and observations. Secondary research methods include academic journals, media articles, government publications and market analyses. Quantitative research concems the collection, analysis and interpretation of numerical data as compared to qualitative research that collects, analyses and interprets data about consumer opinions, attitudes or beliefs. In conducting market research it is important that the data collection methods businesses use are appropriate and offer a high degree of accuracy while maintaining integrity in the research process.Ed Piss Practice question Global Brand Values 1984, Professor Leavitt argued hnology had crea din which consumer tastes were conv. jad that successful businesse: ally standardized products. It is no accident that the -ompanies with che biggest increase in brand value in 2005 operate le brands everywhere in the world co create a consistent impact. The global bank HSBC, for example. increased brand value by 20: the same advertising message worldwide, should market glo % by using The traditional approach of building brands through the mass media is over. TV networks have split into hundreds of cable channels, and specialist magazines aimed at smaller groups have replaced mass-market publications. Today, brands se traditional advertising as just one too! in an overall marketing plan. New generation brands, including Amazon and e-Bay, have gained buge global value with litle traditional advertising. Even older brands, such as Coca-Cola, and McDonalds, are decreasing traditional spending. McDonalds cut TV advertising from 80% to 50% of its marketing budget in 2004 Promotion has shifted to online advertising and into video games and films, often aimed at children, The Korean electronics manufacturer, Samsung, the biggest gainer in brand value in 2005, promoted its brand entertainment and sponsored the movie, “The Fantastic Four", in which a variety of Samsung gadgets played a part, {Source: adapted from Global Brands Business Week, July 2005 and Should Global Brands Trash Local Favourites? [Link]] a) Examine the advantages and disadvantages of firms like the bank HSBC operating as a single brand around the world. [6marks] b) Evaluate possible primary and secondary market research. that companies, like Coca-Cola and McDonalds, can conduct to ensure new promotional approaches are effective in largeting existing and potential customers. [8 marks] ¢) Using examples, explain the impact of new technologies and advertising media on the marketing objectives and promotional strategies of large corporations. [6 marks 1B, 292ear aes tae CM Cc Area By the end of this chapter, you should be able to: 2 > draw a product life cycle and identify its various stages > analyse the relationship between the product life cycle and the marketing mix > examine and recommend various extension strategies that could be used by firms 3 > comment on the relationship between the product life cycle, investment, profit and cash flow evaluate an organization's products using the Boston Consulting Group (8C6) Matrix. explain aspects of branding discuss the importance of branding examine the importance of packaging justify the appropriateness of using particular pricing strategies evaluate the impact of new technology on promotional strategies discuss guerrilla marketing and its effectiveness as an innovative promotional method comment an the importance of place in the marketing mix > examine the effectiveness of different types of distribution channel. + bebe + A product is any good (tangible item) or service (intangible offering) 4 that Is offered to the market with the aim of satisfying consumer needs 4 oorwans, The product life cycle A product life cycle shows the course that a product takes from its development to its decline in the market, Most products go through six stages in their life cycle: development, introduction, growth, maturity, saturation, and decline. Stage 1: Development In this stage the product is designed, following this series steps: 1. Generating ideas ~ this is a brainstorming session where a number of stakeholders are consulted to come up with anything that may help satisfy consumer needs and wants. These stakeholders may include employees, department managers, and customers, among others. Conducting market research also helps in identifying any potential gaps that may exist in the marketErin 2. Screening ideas - this involves deciding which ideas to leave out poor ideas) and which ones to research further (good ideas). Some product ideas may not be practical or sell well while others may be too expensive to produce, 3. Creating a prototype - a prototype is a first or trial form of a product from which others are developed. It allows for visualization or physical examination of the product, especially by the production department. A select group of customers could also be provided with the prototype so that they could give feedback that would help if any alterations are necessary. 4. Carrying out test marketing ~ after making the necessary changes to the product, samples of the developed product are launched in a small but representative part of the market to assess the potential demand or sales of the product. At this stage, if the product does not sell well, it can be changed or removed without costing the firm too much. 5. Commercialization ~ after a successful test marketing, a full launch of the product to the market takes place. This will involve the use of all the elements of the marketing mix. At this stage the research and development costs are very high as a lot of time, money, and effort is invested in developing the product. There are no sales yet and therefore no profit is experienced. Cash flow is also negative Stage 2: Introduction This is the launch stage of the product on to the market. Sales are low because most consumers are not yet aware of the product's existence, Costs incurred in the launch are high and it is therefore highly likely that the product is not profitable. Moreover, the cash flow is negative as the cash outflow is still greater than the cash inflow. High prices or price skimming may be used for brand-new technological products, for example personal computers or cellphones, especially where there are few or no competitors. Where there are many competitors, penetration pricing might be the strategy, or low prices could be charged long term. In an effort to increase awareness of the product, informative advertising is used. Expensive products could be sold in restricted retail outlets targeting high-income consumers Stage 3: Growth ‘Once the product is well received by the market, the sales volumes and so revenues start to increase significantly. This translates to rising profits, especially with the possibility of economies of scale or lowering of unit costs. Cash flow now becomes positive. After a successful launch, prices that were initially low (through penetration pricing) can now be increased to maximize profits. On the other hand, products that started at high prices (through price skimming) can have their prices reduced slightly because of increased competition attracted by the profits Advertising becomes persuasive so as to convince consumers to buy more products and establish brand loyalty. A larger number of distribution Price skimming setting a high price when. intraducing a new product to the market Penetration pricing setting a low initial price for ‘a product with the aim of _attractinga large number af customers quickly and gaining a high market shareoutlets are used to push the product to different consumers in various locations. To maintain consumer demand, discussions begin on issues regarding product improvements and developments. Stage 4: Maturity [At this stage sales continue to rise but they do so slowly. The product is well established, with a stable and significant market share resulting in a positive cash flow. Sales revenue is at its peak and profit is high, but with litele growth as competitors have entered the market to take advantage of these profits. Competitive or promotional pricing strategies are preferred to keep competitors at bay. Promotion assumes a reminding role so as to maintain sales growth and emphasize brand loyalty. A very wide range of distribution outlets for the product has been established. Plans on new product developments are at an advanced stage, with some firms introducing extension strategies to extend the life of their products. (This is discussed further below.) Stage 5: Saturation Here, many competitors have entered the market and saturated it. Sales are at their highest point and begin to fall. However, cash flow is still positive, Some businesses are forced out of the marker as a result of the stiff competition. Prices will have to be reduced, so competitive pricing is used. Many firms use extension strategies to stabilize their market share and also use high levels of promotional activities such as, aggressive advertising in an effort to maintain sales. The widest range of geographical distribution outlets has been established to get the products to consumers. Profits are high and mostly stable. Stage 6: Decline This stage signifies the steady drop in sales and, through this, the profits of a product, In addition, cash flow begins to fall but is still positive. The product may have lost its appeal in the eyes of consumers because new models of a product have been introduced to replace the old model. If sales become too low, the product is slowly withdrawn from the market Promotional activities are reduced and kept at a minimum. Prices are lowered in most cases to selloff any existing stock. Distribution outlets that are not profitable are closed | Sales introduction growth maturiy saturation decline Time Figure 4.5.1. The productife cycle.Extension strategies Extension by lengthening at the maturity or saturation st. s are an at ling pt by firms to stop sales from or extending the product's life cycle. This is done iges of a product's life cycle. Here are some common methods businesses use to extend their products’ life cycles’ © They product ell exist w markets. They might sell in other regions within a country and/or export them products into né ¢ They find new uses for the product. For example, the cellphone ‘was first introduced as a basic communication device but now the smartphone has a much wider variety of uses, including offering banking and other online services. © They change the product's packaging. This could include changing the design, appearance, and colour of the package to stimulate consumers’ interest and persuade them to buy the product. For example, the washing detergent OMO® has been repackaged many times, which has helped sustain demand for it for a long time. © They target different market segments. One example is banks having different accounts that customers may open based on their income levels. Some banks have also accommodated customers with various religious beliefs and have special accounts for them ~ for example in Kenya, Barclays bank opened a “Sheria” account to appeal to customers of the Muslim faith. © They develop new promotional strategies. For example, firms could create new advertising campaigns to encourage consumers 0 continue using their products, there by helpi demand for their product. Essentially, extension strategies are important to the long-term success of a business as the market becomes saturated and sales begin to drop. As a result, it would be better to extend the life of a mature product before this decline in sales starts. However, its not always easy to determine where exactly in its life cycle a product is. Some businesses use sales forecasting to assist in this. However, since forecasting is based on predicting trends, the results obtained may not always be entirely accurate. Moreover, unexpected external factors may have a strong influence on any future sales. For example, a recession may have negative effects on fo ss * the demand for a firm’s existing products as well as i new products that it may have introduced as part ofits extension strategy. inthis situation it would therefore be entical for the life eyele for more efficient management of its resources Spending money on a texminally declining product is a Tine mere waste of resources - one example would be spending Figure 4.5.2. Extensio on marketing videotape recorders today fe cycle NN to know where its products lie in the fategies ina product adTable 4.5.1. Summary ofthe relationship between the product life cycle and marketing mix strategies | Product The basie product | Product New peeker = | Beta Heskeproducters | is marketed improvements | developmentis | strategies are | withdrawn from | ornew product | atanadvanced | ertcalto maintain | the marke. | jelopment _| stage. Extension | sales. | plans start strategies are | traduced in | some cases. 4 ike Tostpli, | Panenaton pies | Compentivear | Competnve | Pcs ensare | skimmingor | slightlyincrease. | promotional pricingis used, | made. penetration pricingis used | pricing is used Promotion | informative Persuasive Thereisextensive | Aggressive ‘Adverising | advertisingis advertising is advertisingto —_| advertisingis raguced toa used used remind customers | cared outto | minimum, ofthe product. | emphasize the brandsbenefis | and differences, Place Selective or intensive Thereismore |The widestrange | Thereis selective resticted distibution or | intensive of geographical | distribution and distribution takes | morediswibution | distribution or | distribution unprofitable place. autletsare used. |awiderange outlets isused, | outers are of disvibution eliminated outlets Table 4.5.2, Summary ofthe relationship between the product life cycle, investment, profi and cash flow eset} ee ee Prt en Td eer Investment | Highresearch | Highcastson | Average | Lowercosts | Costfacusis | Verylow level and development | promation | tohigh cenpromotion | onextension | costs on costs costson strategies | promotion promotion Profit None None or Some profit | Highprofi; | Highané | Decreasing negative andrising | reachesits | mastlystable | pro peak | prose Cash fow | Negative Negative but | Positive | Positive Positive Positive but improves with decreasing sales lt cashfow | The Boston Consulting Group (BCG) Matrix nalysis is a process that evaluates the products making up a business. A business will want vo invest more resources into its profitable products and phase out the weaker ones. A very common product portfolio analysis method was developed by the managementEA eas consulting joston. Consulting Group, ki Boston Matrix or the Boston Consulting Group (BCG) Matrix, The BCG Matrix is a growth-share matrix that measures the market growth rate on the vertical axis and relative market share on the horizontal axis. Market growth rate shows how attractive a product is in the market, w much of the market a product 1. This growth-share matrix is while relative market share looks at bi in the mark Classified into the following four cat «Stars. These are products with high market grow share. They are successful products in the market and generate high amounts of income for the business. However, they need high levels of investment to sustain their rapid growth and status in the market, especially in a fast-growing market where competing firms can easily gain market share by attracting new customers. With time, as these products mature and their market growth slows down, they eventually turn into cash cows. and high market «Cash cows. These are products that have low market growth and high market share. They comprise well-established products in a mature market and, as a result, businesses will invest less to hold on to their market share. The product sales are high and | very profitable so they generate a good amount of cash for the business. As the products have a strong presence in the market, businesses can even charge slightly higher prices to increase their | profit margins «Problem children or question marks. These are products with igh market growth and low market share. They are a concern to businesses because of the large amount of money needed to increas their share in the market. Moreover, the high market growth could mean that the products are ope: a fiercely competitive market and need a good marketing strategy if they are to succeed. Businesses should think hard and be very selective about which problem children they should develop into stars and which ones should be eliminated. © Dogs. These are products share that have low market share high and low market growth. They operate in markets that are not growing or in declining markets and 2 therefore generate little Income for the business They offer low futui prospects for the firm and , ty need wo beeper Ae” Businesses with many of ¢ ia { these products may be pM | faced with cash-flow 8 problems if they continue Cash cows Dogs sustaining them, sare L jure 4.5.3, The BCG Matrix4.5 THE FOUR PS (PRODUCT, PRICE, PROMOTION, PL BCG Matrix strategies | In an effort to support the star the following strategies could be used: ws, problem children, and dogs, «Holding strategy ~ the focus here is on products with a high market share, to ensure that they maintain their current position in che market, Some investment will be needed to ensure sustained consumer demand «Building strategy - this centres on turning problem children into stars. Money from the cash cows could be invested in promoting or distributing the product so as to increase market share «Harvesting strategy - the focus here is on milking the benefits of products with a positive cash flow. These products provide the necessary finance, which could be used in investing in the other portfolio products, # Divesting strategy — this is where the poor-periorming dogs are phased out or sold off, The resources freed up from this will need to | be used well in boosting the performance of the other products in the portiolio, A product portfolio that has a good number of stars and cash cows (finance generators) will effectively be able to invest in the other (high market growth) products, for example problem children However, a relatively large number of dogs and problem children can seriously drain any positive cash flow from the business if this is not well checked The limitations of the Boston Matrix It focuses on the current market position of the firm’s products, with little advice or information for future planni © tmay be a time-consuming and complex exercise for businesses to define or classify their products according to marker share and market growth. High market share does not necessarily equate to hi profits. This is because sales revenue could be gained using competitive pricing that may have a downward effect on a firm's profitability Student workpaint 4.9 Bea thinker 1. Draw the product life cycle and explain each of its stages. 2. Why are extension strategies important to a business? 3. Discuss the significance of the BCG Matrix for a large business. product portfolio in the Product any good or service that is, offered to the market with the aim of satisfying consumer needs or wants Product life cycle the course a product passes from its development ta its decline in the market Extension strategies plans by firms to stop sales from falling by lengthening the product's life cycle Boston Consulting Group Matrix ‘an analysis method of a firm's product portalio regarding its market share and market growthB oom Branding A brand may be defined as a name, symbol, sign, or design that, Gifferentiates a firm’s product from lis competitors. Branding is the process of distinguishing one business's product from another and can add great value to a product. Branding can have a strong influence on w consumers view or perceive a product, Examples of well-known, global brands include Nike, Samsung, Coca-Cola, Google, and KFC among many others Aspects of branding Brand awareness ‘This refers to the ability of consumers to recognize the existence and availability ofa firm’s good or service. To effectively promote a product. creating brand awareness is a major step businesses should take. tn addition, it is important when promoting related products because there is usually very litte difference between one firm's product and its competitors’ products, As a result, the product with the greatest brand awareness will sell more than its competitors’ products. For example, in the beverage industry there are very many soft drinks available in the market. However, the name Coca-Cola@ is easily recognized by most consum¢ clearly showing the image it portrays in their minds. A high level of brand awareness often leads to higher sales and can serve as a strong indicator to competitors of the amount of market share a product commands. Brand development This is any plan to improve or strengthen the image of a product in the market. It is a way of enhancing the brand awareness of a product by increasing the power of its name, symbol, or sign, ultimately leading to higher sales and market share. Businesses may have to invest more in promotional campaigns such as sales promotions and advertising io persuade consumers to purchase their products and therefore further develop their brands. Offering free samples is a common way businesses producing consumables, such as Cadbury's, use to provide an opportunity for consumers to taste or try their products in an effort to ‘woo them to buy their brands. Brand loyalty This is when consumers become com to make repeat purchases over time. Brand loyalty is a result of brand preference, where consumers prefer one brand over another. Customers with brand loyalty will consistently purchase products from their preferred brands, despite the high prices of some products, because they feel the added value the brand carries justifies its price. Successful businesses will often employ a variety of marketing stcategies to cultivate loyal customers. In so doing, these businesses develop brand ambassadors. These are consumers who will market a particular brand by talking positively about it among their colleagues, friends, or relatives. They help provide free marketing by word of mouth, which is very effective in enhancing the image and reputation of a business. Samsung is a name that is establishing, strong brand loyalty in the electronics industry and benefiting significantly from consumer recommendations or marketing by word of mouth nitted to a firm’s brand and are willing Brand name, symbol, sign, or design that diferentiates a firm's product from its competitors, Branding, the process of distinguishing tone firm's product from anather Brand awareness ‘the ability of consumers to recognize the existence and availability of firm's good or service Brand loyalty when consumers become committed to a firm's brand and are willing to make repeat purchases overtime4.5 THE FOUR PS (PRODUCT, PRICE, PROMOTION, PLACE] Brand value This refers to how much a brand is worth in terms of its potential income, and market value. Brand value is the extra money a business can make from its products because of its brand name. Brands that have a high value are regarded as considerable assets to a business Thi 1 are willing to pay a high price to obtain such brands. One example would be a consumer purchasing a higher-priced coffee at Starbucks instead of a coffee at another café, Such brands also increase the overall value of a business. Brand values are an expression of a brand’s “personality” and act as a code by which a particular brand lives, Brand values are also those things that cause customers to buy a firm’s product rather than its competitor's product. They help in differentiating a business and making it seem in some way special and better than its competitors. Emphasizing a firm’s brand value is therefore at the heart of successful branding tation, The importance of branding Branding is one of the most important tasks of marketers. Despite the heavy initial investment required in ensuring that a brand is widely known and recognized, it is an essential factor for any type of business — from the start-up to the large, well-established companies. For start-ups, branding is about giving customers a clear image with which they can associate the business. As the business grows, it can work on customer perceptions of its image, and try to establish its brand so thar it can be recognized immediately. Initially itis critical that the brand complements the market and meets the expectations of the target audience, Branding that does not meet the expectations of its target audience is bound to result in decreased sales. Businesses with well-known brands can use price skimming or charge high prices for their products because of the image the brand has in the minds of consumers. Consumers will associate such brands with consistently high quality, enabling the businesses to make good sales and earn high profit margins on a regular basis. For example, Mercedes Benz and BMW have consistently provided good-quality cars to the global market and their brands have been viewed as representing good quality by most consumers. Moreover, customers make judgments about certain products and services based on the way they are presented to them. Something as simple as choosing the right colour for a firm’s brand can have a massive impact on the way it is perceived by the general public. For example, men may not particularly like their gym being painted pink. A firm's brand name can provide legal protection to a product specific features to prevent the product being copied by competitors. Branding provides the product with a unique name that makes it different from its competitors, therefore enabling the business to have a sense of ownership of its products. For example, companies such as Nike, Nestlé and Toyota have been able to distinguish themselves well in their respective industries. The values associated with Starbucks keep many customers ‘coming back, even though cheaper alternatives are available Brand value how much a brandis worth in terms ofits reputation, potential income, and market valueEffective branding can enable a sense of personal identification and emotional connection among consumers. The key is the impression that branding leaves on potential customers. If the impression is positive, t chances of having repeat customers are high. Good brands communica messages that ensure that their target customers respond positively. re is a saying: “The first impression is the lasting impression.” Therefore. to succeed, businesses need to use enough resources to build a good brand reputation, The importance of packaging Packaging refers to the designing and production of the physical tainer or wrapper of a product. Packaging plays a significant role in marketing and can help in distinguishing one product from an other, ‘Together with getting the other elements of the marketing mix right. getting the right packaging is critical. Packaging has the following important functions in marketing: «It provides physical protection. Packaging protects a product from getting spoilt or damaged, especially during tanspoztation. It must also provide a good cover against dust, direct light, or high temperatures. * Itoffers convenience. A good package should make it easy for consumers and distributors to handle the product. This could include the ability to reuse, recycle, and easily dispose of the product. «It provides information. The labels on packages can be used to relay important information to the consumer. Food containers may provide information on the particular ingredients a product contains. Technological products may contain information on how to use the item, It may be a legal requirement for companies producing cigarettes and alcohol to provide warnings on their packages regarding the consumption of these products Itcan help reduce security risks, especially during transportation Packages designed with tamper-proof features can help deter intentional tampering with the product. These features can also help reduce the risks of product pilferage 4 Itaids promotion. The package should be eye-catching and appeal to the consumer. The colour and shape of the package is key in reinforcing and projecting the brand image of the product. This can also help in differentiating a firm’s product from its competitors Packages with attractive graphic designs can encourage impulse buying or unplanned purchases by potential buyers of a product. This is especially important in supermarkets that stock a wide variety of consumables, where good packaging can create instant recognition of a firm’s product. Considering the important role packaging plays today, it is not surprising iat a great deal of time and money is spent by firms on researching the best way of designing and producing a package that will attract the majority of the consumers to their products. Firms should also consider the impact their packages have on the environment and heed growing heaters Is itpossibie to measure brand loyalty? Packaging concemsthe design and production of the physical Container or wrapper ofa product Packaging fulfils a variety of roles. Here it not only protects the product, aut also pravides nutitional information4.5 THE FOUR PS (PRODUCT, PRICE, PROMOTION, PLACE (RRS as. For example, in many countries supermarkets are under pressure to reduce the use of plastic bags when packing jad instead go “green” by using environmentally environmental cor ods for consumers Price plays a significant role in the marketing mix because itis the only " that generates revenue for a business. In essence, the other aspects of the marketing mix are associated with costs. Price re customers pay of give up for having or using a good or service. In an effort to meet their marketing objectives, businesses need to set the appropriate pricing strategies for new and existing products to the Cost-plus pricing (mark-up pricing] Cost-plus pricing (mark-up pricing) refers to adding a mark-up to the average cost of producing a product. The mark-up is a percentage ofthe provita fic wishes to gain for every product that it sel. The average cost is the cost per unit or the total cost divided by the number of products produced. For example, ifthe total cost of producing 10,000 packets of biscuits is US$20,000, and the business wants to calculate how much it would sell each packet for and get a 50-per-cent mark-up on each packet. it would use the following cost-plus pricing method, Firs it would calculate the average cost, which is USS2 (20,000/10,000) Second, it would work out the mark-up profit, which is $1 (50 per cent of US$2). Finally, it would add the average cost to the mark-up to get US$3 as the selling price. ‘Advantages ———S—S—S=* Disadvantages Iisa simple and quick method of calculating the selling price of a product. | © It fails to consider market needs or customer value when setting prices. Since com| Iisa good way toensure |» that a business covers its costs and makes a profit. etitors’ prices are not considered, a firm could lose sales if it sets a selling price that is higher than its competitors’ Penetration pricing Seitis a low initial price for a product with the aim of attracting a large number of customers quickly and gaining a high market share is known as penetration pricing, This could be used by businesses either introducing a new product in an existing market or enterin new markets with existing products. This is a strategy used in mass marketing. As a firm gains market share it also can start to raise its price wy. For example, IKEA is known to have entered the Chinese market Dy using this strategy Cost-plus pricing refers to adding a mark-up to the average cost of praducing a product2 mom Advantages Disadvantages # As the prices are low, consumers are ‘© Gaining high sales volume daes not necessarily encouraged to buy the products and this mean achieving high profits, especially w eads to high sales volume and market share the prices are (00 low. or the bi ‘© Customers may perceive the product to be ¢ * The high sales volume can lead to decreases low quality if the price is kept t00 low fn the costs of production and increases in stock turnover, Penetration pricing is only suitable for use in markets that are very price sensitive. Therefore | as businesses increase their prices over time they risk losing potential customers, who may |___ sees lower-priced products from rival firms. Price skimming Price skimming is when firms set high prices when introducing new products to the market. This strategy Is usually used for a limited period with the objective of gaining as a high profit as possible. These high prices are usually aimed at various market segments where the firm can obtain short-run profits 30 as to recoup its high research and development costs. Technological companies that produce and sell phones and computers, such as Apple, are known to use price skimming when initially introducing their products in the market, before lowering their prices over time. | Advantages | Disadvantage © Consumers associate the high |e The high prices may price with a high-value or discourage some consumers high-quality product and an from buying the product, Paychologieal pricing enhanced brand image | when firms considerhow | «Firms are able to obtain initial pricing affects consumers’ | high revenues that help in perception of the value of their recovering their research and products development costs - Loss leader charging a low price for Psychological pricing 2 product, usually below its average cast, to attract consumers ta buy ather higher-priced products Psychological pricing refers co when firms consider how pricing affects consumers’ perception of the value of their products. It considers the ‘nological effect of pricing on consumers. Consumers may associate high-priced product with high quality, for example designer clothing. Price discrimination On the other hand, firms may slightly to persuade consumers who may be looking for value for money. For example, they may charge US$9.95 instead of USS10 for a given product ~a strategy common in most supermarkets that sell frequently purchased products charging different prices to different groups of consumers for the same productAdvantages and disadvantage of psychological pricing Advantages Disadvantages 4 The psychological effect of | Using prices such as selling at a slightly lower price | _US$199 or USS9.99 may can obtain large revenues be inconvenient for some fora firm selling in large businesses that require whole quantities. numbers in their transactions, | Since ios at consumes | forexample wensport | | perceptions, it is a strategy that can be suitably applied in many market segments. businesses. The loss leader Businesses that charge a low price for a product, usually below its average cost, refer to that product as a loss leader. The aim of this strategy is to attract many customers. Large supermarkets use this strategy by selling some products at a loss with the view that customers will also buy the other higher-priced (profitable) products and therefore compensate for any losses made. — ae ———— | Advantages Disadvantages | «Businesses selling a large Firms using this strategy may number of frequent be accused by competitors of purchased products may undercutting them by using attract many customers and | unfair business practices | benefit from higher overall | profits ¢ Businesses may use loss leaders as a promotional strategy to encourage consumers to switch to their brand instead of buying the competitors’ brands, Price discrimination Charging different prices to different groups of consumers for the same product is referred 0 as price discrimination. For effective price discrimination certain conditions have to be satisfied. First, the business hhas to have price-setting ability. This means that a firm can vary its prices to charge higher prices in a marker that is not very competitive. Second the consumers should have different price sensitivities ot elasticities of demand. This is a measure of how consumers respond in their buying pattems as a result of changes in the price of a product. If the change in price leads to a greater than proportional change in the quantity astic demand, i.e. they demanded, we say that consumers have price el are very sensitive to changes in price. On the other hand, ifa changein price leads to a less than proportional change in demand, we say that consumers have price inelastic demand, i.e. they are less sensitive Key terms to changes in price. For example, sellers will lower the prices of their Competitive pricing stic as there is a possibility of getting hig fnould be separated to ensure that the charging price thatis in line with orjust below the ildren’s and competitors’ prices products if the demand is ner toral revenue. Finally, the market product is not easily traded. For example, the prices fo adults’ tickets may differ for the same music concert —— ES ‘Advantages | Disadvantages Time-based price ‘¢ Businesses need to be certain discrimination can be of about the type of el benefit to either consumers demand of their consumers. or producers. During peak For example, charging higher | times businesses such as prices in a market with i phone companies charge high | elastic demand could lead prices and so generate higher to lower sales revenue. In revenues, while during addition, if firms were still 10 off-peale times consumers charge a lower price in the benefit from the lower prices elastic market, they should charged, ensure that the extra cost of producing and selling more | | products does not exceed the - - xtra revenu Competitive pricing Competitive pricing is a pricing strategy that takes into consideration what competitors are charging for their product sging a price that is in line with or just below the | competitors’ prices. It is mostly applicable to businesses selling similar products. Charging prices lower than the competitors with the aim of driving them out of the market is known as predatory pricing | It involves cl also known as destroyer pricing because it aims to eliminate any opposition, and could include firms charging prices lower than their costs of production. If successful, businesses can subsequently | dominate the market and charge higher prices. This strategy is commonly used in highly competitive markets where the products are in the maturity or saturation stages in the product life cycle Advantages Disadvantages * Consumers benefit from the | # Predatory or destroyer low prices, especially in very pricing is a form of anti competitive markers competitive behaviour and is illegal in many countries | © After using destroyer pricing, P 2 because it is used to restrict remaining dominant firms could gain higher sales | revenue as a result of the higher prices charged. competition.4.5 THE FOUR PS (PRODUCT, PRICE, PROMOTION, PLACE) Student workpoint 4.10 Be knowledgeable 1. Analyse the importance of branding for a start-up business. 2. Examine the most appropriate pricing strategies needed when introducing a new product to the market. Promotion Promotion is concerned with communicating information about a firm’s products to consumers. The main aim of promotion is to obtain new customers or to retain existing ones. Promotional activities should be communicated clearly to consumers and provide useful information to enable them to purchase a firm’s product. Some promotional objectives include: © creating awareness or informing consumers of a new or improved product in the marker © convincing or persuading consumers to purchase a firm’s products, instead of its competitors’ products, © reminding consumers of the existence of a product in order to retain existing customers or gain new customers for a product enhancing the brand image of the product as well as the corporate image of the business, Promotion can be categorized into two forms: above-the-line promotion, and below-the-line promotion. Above-the-line promotion This is a paid form of communication that uses independent mass media to promote a firm’s products. It includes advertising through the television, radio, or newspapers so as to reach a wide target audience, In this case the control or responsibility of advertising is passed on to another organization. Advertising Advertising plays a central role globally in passing on information about a product to a particular target audience. Choosing the right media for advertising is important in ensuring a successful promotional campaign. Advertising can be categorized as follows: © Informative advertising - the focus here is to provide information about a products features, price, or other specifications to consumers. It increases consumers’ awareness of a firm's product so as to enable them to make rational decisions about what to buy. It is useful when businesses want to introduce a new product to the market. Examples of informative advertising include classified advertisements in newspapers and government campaigns to discourage drink-driving.(rina + Persuasive advertising — this aims at convincing customers to buy one firm's product instead of a competitor's product. It persuades consumers to think that they really need the product and should buy it, It makes consumers make unplanned purchases for a product - an. act known as impulse buying. It helps in enhancing a product's brand image. For example, when advertising a slimming product, firms may use pictures of how people looked before they took the product and how they look after they consumed the product ~ in this, case they show the picture of a very fit individual based on the idea that most people would want to look like that. * Reassuring advertising - the focus is on existing customers. to remind them that they made the right purchasing decisions when they chose to buy the firm’s product and that they should continue purchasing it. Coca-Cola’s promotional campaigns are well-known examples of this strategy. ‘The main forms of advertising media include television, newspapers, nes, cinema, radio, posters, billboards, and the Internet. magazi Below-the-line promotion This is a form of communication where the business has direct control over its promotional activities. Unlike above-the-line promotion, it does not depend on the use of independent media. Below-the-line promotion can focus the promotional activities on consumers they know or on those who are interested in their products. Forms of below-the-line promotion include: Direct marketing ~ this ensures that the product is aimed directly at the consumers. I eliminates the use of intermediaries and therefore can save the business money. Direct mail, which is a form of direct marketing, refers to sending information about a product through the post or via email, Businesses that commonly use this method include restaurants sending out their menus or property developers sending out their catalogues. A limitation of this method is that most consumers can regard the information as junk and not pay any particular attention to it. «Personal selling - this involves the sale of a firm’s product through personal contact. It makes use of sales representatives and can be done face to face or over the telephone. It is commonly used when selling expensive products such as cars or technically complex products such as specialized machinery In these cases, customers will need to be reassured that they making the right purchasing decision. They can then be given personal and individualized attention. A major disadvantage of this method may be the cost involved as it may be expensive to retain a sales representative team for this type of selling, especially if they are also paid by commis © Public relations - these are promotional activities aimed at enhancing the image of the business and its products. It includes the use of publicity or sponsorships. For publicity purposes a sei ri Many advertisements use scientific knowledge. Why do they do this and what does this tellus about the hierarchy of different areas of knowledge? ‘Above-the-line promotion 2 paid form of communication thatuses independent mass media to promote a firm's products Below-the-tine promotion 2 form of communication that gives a business direct control over its promotional activities sothatitis not dependent on ‘the use ofindependent media Promational mix abalance of both above- thesline and below-the-line methods used bya firmto ‘support its marketing goalsvl = tonference where business could hold a pre nvites the media and provides informa on about a social responsibility project it would like to launch. In the process, the business could sh its products and gain free publicity for them. Through sponsorsh a business may provide financial support n organization, team mples include Samsung sponsoring Chelsea football, club in the UK and Kenya Airways sponsoring the Kenya national rugby team «Sales promotions ~ these are short-term incentives provided by a business with the alm of increasing or boosting its sales. Examples include the following: = Money-off coupons ~ discounts provided to customers when a product is purchased. The coupons are often found in newspapers, leaflets, or magazines. # Point-of-sale displays can be used for attractive arrangement or display of products at the location where the business sells the items. The main objective is to draw the attention of consumers and encourage impulse buying. Its commonly used by supermarkets when selling confectionary products such as sweets, chocolates, and other snacks. = Free offers or free gifts can be offered to customers such as a free charger when buying a cellphone. Giving free samples such as, through food taste sessions outside supermarkets and offering free sachets for particular products can also help encourage sales. ‘= Competitions ~ after purchasing a product, customers can enter a draw where they stand a chance to win a prize in the competition. This method is commonly used during festive seasons to attract a large number of custome: = “BOGOF” (buy one get one free) is a promotional strategy that can be used to attract new customers or assist in eliminating excess stock. It is often used in the maturity or saturation stages of a product's life cycle The promotional mix A successful promotional mix will involve a good balance of bath above. the-line and below-the-line promotional methods. This could involve using an appropriate mix of advertising, sales promotions, personal selling, direct marketing, and public relations when communicating the advantages of a product to customers ot supporting a firm’s marketing goals. However, certain factors will need to be considered for an effective promotional mix: ‘© Cost: Does the marketing budget support the use of a particular promotional method? * Legal framework: Has the law been taken into account when deciding on the various promotional methods to use? © Target market: What specific segment of the market is the product aimed at?ge (ans 2 Stage in the product life eycle: Which promotional methods will be most appropriate at the differ t life cycle stages? t produc tonal method considered the nature romers? © Type of product: Has the prom it would be successfully sold to ¢ of the product and b Businesses will therefore need to consider the when designing and developing their promotional mix. Moreover, they Will need to be flexible and where necessary tweak the promotional mix 10 succeed in achieving their marketing objectives. The impact of new technology on promotional strategies In the marketing context. technology is defined as the information or tools required to sella firm’s good or service. Over the last decade, technology has changed rapidly and marketers are increasingly incorporating it in their marketing strategy. Important technological terminologies being used today include social networking, social media marketing (SMM), and viral marketing. The impact of these on. jon will be explored below. promo Social media is defined as the technology that connects people. It is any medium where content is shared or where individuals chat. Social networks are the places where social interactions happen, which include sharing, discovering, or advertising information Examples of social networks include Facebook, Twitter, Linkedin, and MySpace. A social networking service is a platform to build social networks or social relations among people who, for example, share interests, activities. backgrounds, or real-life connections. A social network service consists of a representation of each user (often a profile), his or her social links, and a variety of additional services. Most social network services are web-based and provide means for users to interact over the Internet Social media marketing (SMM) refers to the way technology is used to build relationships, drive repeat business, and attract new customers through individuals sharing with other individuals. SMM is the process f site traffic or attention through social media sites. SMM programs usually centre on efforts to create content that attracts attention and encourages readers to share it with their social networks. A corporate message spreads from user to user and presumably resonates because it appears to come from a trusted, third-party source, as opposed to the brand or company itself. Basically, SMM is promotion through word of mouth powered by technology Viral marketing is a form of peer-to-peer communication where individuals are encouraged to pass on promotional messages within their social networks. Not so long ago, advertisements were mostly seen in newspapers, magazines, or television. However, with the advent of the Internet things have changed. Tod s appear as banners, pop-up advertisements, social media, and YouTube videos y, advertiseme: Social media marketing the use of technology to build relationships, drive repeat business, and attract new customers by individuals sharing with other individuals Viral marketing a form of peer-to-peer communication where individuals are encouraged topass on promotional messages within their social networks:Been Tatht MANAGEMENT 5.1 The role of operations management By the end of this chapter, you should be able to: > define operations and describe their relationship with other business functions > comment on operations management in organizations producing goods and/or services > discuss operations management strategies and practices for ecological, social (human resource], and economic sustainability, What are “operations”? Operations refer to the fundamental activities of organizations: what they do and what they deliver, i.e. how they produce the goods and services that meet consumers’ needs and wants, Every organization is a producer of something. When we think of production processes, we tend to imagine a large factory with long lines of sophisticated machines, but production can take a varier’ of forms. There are the large-scale capital- intensive production lines such as oil refineries or car plants, but a small bakery, a restaurant, and a school are also all organizations with an end product. The art of managing production to get the best end product is called operations management The first factory In ancient China, imperial and private workshops, mills and small manufactories had been employed since the Eastern Zhou Dynasty (771— 221 BC), as noted in the historical text of the Zhou Li. In Europe, large mills and manufactories were established in ancient Rome. The Venice Arsenal provides one of the first examples of a factory in the modern sense of the ‘word. Founded in 1104 in Venice, Italy, several hundred years before the | Industrial Revolution, it mass-produced ships on assembly lines using manufactured parts. The Venice Arsenal apparently produced nearly one ship every day and, at its height, employed 16 000 people. Operations may be easier to understand in the case of the secondary sector, with the image of a large factory with long lines of sophisticated nes; however, operations are found in all sectors, for example: * in the primary sector, mining or harvesting © in the secondary sector, industz OPERATIONS MANAGEMENT 340: inthe terval sector, open-heart su in the quaternary sector, business con Student workpoint 5.1 Be a thinker 1. List ten organizations that you know. Try to cover a range of types (e.g, sole trader, charity) and sectors (e.g. primary and quaternary), as studied in unit 1.2 2. Identify the main operations of those organizations. Are they ays straightforward? Why is that? The study of operations provides the opportunity to investigate how products are made ~ at a very concrete level. Lok around you ~ at this book, your computer, your clothes, the furniture in your school and in your house, your parents’ car. They are all rlanufactured, using raw materials (such as cellulose pulp extracted frorti wood for your book) that go through a process of transformation, A simple input-output model can represent how operations are the result of a transformational process (see Figure 5.1.1). The finished product can then be packaged, transported, maybe exported or imported, and then commercialized and sold or bought. LON : (OPERATIONS: \ Iputmaterais > PROCESS, DDUTPUT materials [| mavsronnation Ray mteriale Figure 5.1.4, input-output madel Student workpoint 5.2 Bea thinker 1. Apply the input-output me studied, for example the o useful is that model? el to an organization that you have ganization you chose for your IA. How 2. Apply the input-output model to your school: what corresponds to “the input”, “the process” and “the output”? What conclusions can you draw from this?sumers may lack tools such as computers 0: Internet, Poor Internet connectivity is @ by consumers in some locations. a problem experienc ‘© When looking for information usi sometimes faced with too much informati and so they resort to using other means of a search engine, consumers a n (information overload, ‘aing the product, Student workpoint 4.15 Be an inquirer Examine how e-commerce is currently influencing the marketing strategies of businesses. Revision checklist / E-commerce is the buying and selling of goods and services via the internet Y Common features of e-commerce include ubiquity. customisation, global reach, integration and universal standards. Y E-commerce due to advancements in technology has had a great impact on the marketing mix elements of product, price, promoti and place in businesses. ¥ The categories of e-commerce include; Business to business (B2B) where a business trades with another business, Business to consumer (B2C) which is carried from a business to a customer or consumer and Consumer to consumer (C2: one consumer or customer to an ) which allows transactions from other Y Benefits of e-commerce include a wider market reach, cost effectiveness and convenience while costs of commerce are smet security concerns, increased competition and a lack of ability 10 try out product before purchasing it,Practice question Peace Frogs (PF) Peace Frogs (2 that are brande scessories is an American company sell by a frog making the “peace sign’ ing clothes and a PF specializes in The company started operations in 1985 with the sale of multi-coloured shorts designed after various national flags from around the world der Catesby Jones chose the name Peace Frogs because the fro: a Native American (American Indian) symbol for peace and, in some cultures, a symbol for good luck. As the shorts reached maturity in the product life cycle, the company shifted to selling other items, always branded with the imag of the “peace frog”. PF products include T-shirts, sweatshirts, hats, swimsuits, stickers, and other items. In 2007 the company introduced organic cotton T-shirts to its branded product line. The-cotton meets rigorous organic certification standards, The T-shirts are made without using chemicals harmful et to the environment. The company refuses to purchase clothing from manufacturers that employ children or that do not maintain rigorous safety standards. PE uses e-commerce and has its own retail stores in 11 American states. Since 1998 the company has had multi-coloured vans that drive to shopping centres, concerts and theme parks around the country. Drivers then sell PE-branded products, using the van as a retail store A concern among environmentalist is the decline in the number of species of frogs worldwide. At present, several species of frogs face | extinction. The destruction of their natural habitat is the main threat for them, PF makes financial contributions to several organizations committed to environmental protection, which strengthens PF’s brand, a) Identify ewo features of e-commerce. arks] b) Explain two ways PF practices ethical behaviour [6 marks] ©) Analyse the benefits of two methods of distribution of PF’s product. 5 marks] 4) Discuss the importance and role of branding for PE 7 marks] 1B, May 2012 338 .information for them. They can therefore get access to the mos competitive global prices leading to good savings. E-commerce hhas also led to the increased use of a direct selling approach from 0 consumer, which has helped reduce distribution costs for producers and made affordable products available to consumers. ‘© Promotion. E-commerce has provided an additional medium for businesses using traditional promotion. Many businesses are now supplementing their current promotional methods with online advertising, The increased use of pop-up advertisements, banners, and viral marketing has led to a faster and more cost-effective spread Amazons currently the largest aniline of promotional material than ever before. E-commerce, with the lerin the world help of technological tools, provides multiple ways for businesses to promote their products. For example, through a combined use of audio, video, text messages, or picture images, a promotional campaign is bound to be more effective in the eyes of the consumer. Feedback from consumers through online surveys can further help businesses to tailor products to their customers’ specific needs. «Place. E-commerce has definitely reduced the need for GLOBALIZATION intermediaries in the chain of distribution. This has led to cost savings for manufacturers of various products. However, the role In.2013, the clothing retailer ASOS of these intermediaries in the marketing process should not be launched new websites for Rusia. disregarded. For example, the personal appeal retailers provide to ee consumers is lost by trading over the Internet, which is impersonal oti epscotatt On the other hand, the Internet has made it more convenient sore for consumers to buy products ~ they no longer have to visit the Do research on how globalization retail outlets. Customers searching for products from various Ae inaiencinge-copepence ostan global locations will benefit from the many language translation See Bre ere applications avalabe on websites. which they can download to their _| Staton feconmercein technological tools to aid them in their purchasing decisions. Types of e-commerce E-commerce can be cat rized into the following types. Business-to-business (B2B) is a type of e-commerce where a business trades with another business. Goods and services are bought and sold from one organization to another. This could involve producers transacting with wholesalers or wholesalers with retailers in a chain of distribution. The volume of transactions involved in B2B businesses is usually large. Automobile manufacturers are an example of how B2B is used, In most cases, vehicle component parts such as batteries, tyres, and windows will be sourced and purchased separately from other dealers by the main auto manufacturer. Business to consumer (B2C) is e-commerce carried out from a business to a particular end user who is usually the customer or consumer. These transactions are more visible to the public compared to B2B transactions. Successful B2C businesses include Amazon, eBay, Priceline, and Google. Consumer to consumer (C2C) refers to e-commerce that allows for transactions from one customer to another. C2C businesses provideB mom _ in addition to selling or Buying products to ot from each other, Exam of businesses that fit well into these criteria are eBay and Craigslist ecommerce The benefits of e-commerce to firms ethane ¢ Firms can reach a wide target market in an effort to market and sell pee | their products, resulting in an increased customer base: « [cisa more cost-effective method to use in advertising a firm's Dusizessito hasinaee (E28 | product compared to other means such as television advertising atype of e-commerce where @ | business trades with another ‘¢ Social networking companies such as Facebook have benefited from gusinese, high advertising revenue by selling their high-valued space «Reduced wastage on paper is noted by firms that insist that Business ppronstmer (626) consumers view instructions, news, or information on the web a type of e-commerce caried | instead of waiting to be sent relatively expensive brochures or out from a business toa newspapers. This helps to cut costs for businesses, particular end user whois usually the customer or The benefits of e-commerce to consumers — # Iis convenient for consumers because they can trade on the Internet Consumer to consumer {C2C] in the comfort of their location without having to visit a shop stipe oeanateiasak physically. allows for vansactions from 4 Increased choice is also a key advantage for consumers. They can one customer or consumerto | easily make comparisons of the various products on offer before another. | deciding to make a purchase. * Good online customer service increases customé makes them happy. For example, delivery companies such as Fedex | that deliver documents provide tracking numbers to customers to use online to check the whereabouts of their documents. satisfaction and The costs of e-commerce to firms * Concerns by consumers about Internet security regarding the payment process may lower the sales and growth potential for firms. ‘¢ Businesses spend significant sums trying to find measures to curb online fraud by Internet criminals trying to gain access to customers ‘¢ Firms may be vulnerable to competitors who dan gain access to their | product details and business information Setting up and maintaining a website can prove 10 be expensive for many businesses, especially start-ups, and may turn aut to be a high-risk venture The costs of e-commerce to consumers © Consumers may not have the ability to try or feel certain products before buying them, For example, many consumers would like to sit on a chair before buying it. ¢ Online pop-up advertisements and advertising spam are considered major distractions and time-wasters by consumers\ 4.7 INTERNATIONAL MARKETING (4! Practice question Pacific Blue In 2007, the low cost airline Pacific Blue entered the New Zealand market with an initial offer to sell 70 000 tickets at low prices on fi ween Auckland, Christchurch and Wellington. Almost half of the $29 tickets were booked online within hours. Chief executive Brett Godfrey expressed his surprise: “It almost caused our website to crash’ Air New Zealand and QANTAS, the established market leaders were quick to respond to the new competitor by cutting prices to $49. A di of Air New Zealand doubted whether Pacific Blue could sustain these prices as part of its long-run strategy to enter the New Zealand market, She also questioned whether the company could satisfy demand with only 2 planes for 11 scheduled flights per day between Auckland and Wellington, the most popular route. By contrast, Air New Zealand uses 7 planes on the same route. A QANTAS director has commented that Pacific Blue could face significant capacity utilization problems. ctor Brett Godirey accepted that Pacific Blue might run at a loss initially, but he was also confident about penetration pricing: “we have done this before in Australia and we have money in the bank to survive and hope to offer more routes, subject to government approval and the support of the New Zealand public.” Air New Zealand and QANTAS promised to remain competitive. [Source: adapted from The Age, 4 September 2007] a) Define the following terms: (1). market teader [2 marks] (ii) penetration pricing (2 marks] by Explain two other mark ategies that Pacific Blue could have used. [omarks} ©) Examine two problems that Pacific Blue could face when. using penetration pricing Lomarks} 4) Evaluate two potential opportunities and two potential threats which Pacific Blue could face when entering into a new international market [9 man 1B, May 2009 3334.8 E-commerce By the end of this chapter, you should be able to: > describe the features of e-commerce > analyse the effects of changing technology and e-commerce on the marketing mix > distinguish between the three types of e-commerce > discuss the costs and benefits of e-commerce to firms and consumers. E-commerce involves the buying and selling of goods and services through electronic networks, commonly via the Internet. The features of e-commerce © Ubiquity ~ the Intemet is widely available at any time. It can be accessible at home, at work, or in hotels for 24 hours cach day, 7 days a week. + Customization ~ individuals can personalize their messages and decide how they will be delivered to other individuals or groups ¢ Global reach ~ also known as the worldwide web, the Imernet traverses many national boundaries, «Integration - the Internet allows the combined use of audio, video, and text messages to deliver a marketing message. © Universal standards ~ there is only one set of Internet standards globally The effects of changing technology and e-commerce on the marketing mix Technological smartphones, business transactions have had a g ncements such as the increased use of iPads®, ind laptops, and the growing use of e-commerce today in 1 impact on the market businesses such as Amazon can sell nis also allows them * Product. With e-comme to a wider customer base than ever before. T! to stock a wide range of products to meet demand, which could. lead to higher sales and profitability. Interactive websites such as Dell online allow customers to view and customize a product to suit their own specifications. This can lead to greater customer satisfaction as the product is delivered according to the individual needs of the consumer. © Price. Consumers can now make easy price comparisons using websites such as “Google product search” that can search for price4.2 INTERNATIONAL MARKETING (HL ONL’ Ethics and culture also go hand in hand, For example. chewing gum is banned in Singap in many other countries. Smoking in public is allowed in some countries bur banned in others. Alcohol consumption is only allowed for adults aged 21 and above in the USA; however. in many African countries anyone aged 18 years and above can consume alcohol. nd Is viewed as unethical: however. it is allowed There are many other significant cultural issues that businesses must consider, including symbols and colours used, that have a great impact on how they penetrate international markets. Awareness of all these cultural elements is vital for success in international marketing The implications of globalization for international marketing Globalization, mostly brought about by the growing importance of international trade and the growth of multinational companies, has necessitated the increased use of international marketing. Businesses will need to consider the following implications of globalization while conducting international marketing: «Competition ~ globalization has led to many foreign businesses getting access to domestic markets, so firms in the local markets have had to use aggressive marketing campaigns to compete with the larger foreign multinationals. Deregulation or the liberalization oof markets has also increased global competition. Fiems that once enjoyed monopoly power in the domestic market, such as Safaricom (a mobile telecommunications provider) in Kenya, have had to it off with major cellphone subscriber giants such as Orange, Yu. and Airtel. However, in some cases foreign firms have used anti competitive measures that have driven local businesses out of the country, causing unrest among members of the public th + Changing consumer tastes and expectations - the inilux of cultural exports, which are the beliefs, values, and ideas transferred from one country to another, are changing how businesses are operating today. Indian curry is very popular in the UK, while the US burger is consumed widely in South Africa. While travelling, many consumers expect to see their cultural dish available in man counitries. Businesses have therefore had to adapt so as to provide a variety of food products to meet this growing consumer demand. On the other hand, traditional foods in some countries are disappearing and being replaced by the more westernized dishes, * Location decisions ~ choosing an appropriate global location in which to produce or operate can have significa marketing advantages. Many clothing and shoe companies. for example Nike and Adidas, have located to India and China to take advantage of the low cost of labour. As a result of their cost savings they can use the extra money to market their products and reach a wider customer base. However, some of these companies have been accused of acting unethleally, especially towards their workers and mostly with regard to overexploitation. CULTURE When businesses market thle products and services across iterational boundaries, trey need ‘ounderstandeach local market individ Cary out more research on how culture infuences international ‘marketing, Which cultural factors ddoyouthink have the strongest influence on international ‘marketing? Why?Chia an \creased the possibility of gaining higher profits. They have al what extent does the Internet provide tue value to the customer? xt that they are even able to influence the \licies that act in their favour. Undoubtedly, globalization has played a major role in international marketing. A consideration of the above factors, including their costs and benefits, will assist firms in making better overseas marketing decisions. Student workpoint 4.14 Bea thinker 1. Evaluate the benefits and problems of overseas expansion. 2, Discuss how culture has influenced current intemational marketing Revision checklist 7 International marketing is the marketing of goods and services from ‘one country to another. It provides businesses with the flexibility to siffer in their marketing approach to other countries. Globalization is the main causal factor to the rise in international marketing Y Modes of entry into international markets include the internet, exporting, direct investment, joint ventures and interna franchising. Y The opportunities of international marketing include a larger market share, diversification, enhanced brand image. economies of scale and the formation of new business relationships The threats of international marketing include political, economic, social, legal and technological challenges. Y Due to the global business environment becoming more competitive businesses that can adapt their strategies to suit th external factors will remain competitive nd continue to take advantage of the opportunities that arise in international markets, ¥ Asa result of the significant role culture plays in international marketing, businesses that recognize the varying cultural differences globally in marketing their products stand a bett a competitive advantage than businesses that do not r chance of gaining Y Implications of globalisation that businesses will need to consider in international marketing include competition, cha tastes and expectations, location decisions and economies of scaleThe strategic and operational implications for international marketing A well-defined strategic and operational plan is crucial for a business deciding to operate in international markers. alll staff need to be clear on the vision, mission, values, and objectives that are laid down by the organization they are working in. This will keep them motivated and inspired to work towards fulfilling that dream, However, in some cases long-term strategic plans are very rigid and cannot survive major changes in the external environment such as economic and political changes. Conilict between internal stakeholders may arise. For example, there may be conflict between managers regarding the difference between a strategic issue and an operational tactic. A senior manager operating in a foreign subsidiary company may consider increasing market share as a strategic issue while another manage’ in the home country headquarters may view it as an operational issue, which would clearly result in a clash in their priorities. A firm’s ability to pursue a given international marketing strategy effectively depends to a large extent on the aims and expectations of its stakeholders. These stakeholders play an important role in providing the necessary support and resources needed for strategy implementation Successful firms carefully identify the various stakeholder groups and focus on understanding their key expectations and evaluating their power and influence so as to get a broader picture of how to more effectively operate their businesses. Hamel and Prahalad (1996) suggest that, for firms to succeed in their global operations, they have to perceive the changes in the international environment and develop strategies that will enable them to respond accordingly.‘ in addition, they argue that early identification of changes in the markets and respective industries, together with a thorough analysis of the external international marketing environment, is important for global survival. For a sustainable competitive advantage, businesses need to have management foresight and emphasize organizational learning. Firms also need to understand that international markets are dynamic and need constant monitoring and evaluation. Therefore, as markets change so should marketing strategies and tactics. Innovation as a result is an important competitive variable, not only in terms of developing and improving goods or services but also as a driver of better international marketing strategies. The challenge posed to international marketers is to have the discipline to conduct thoroug market research continuously and have a clear understanding of what is required in order to remain competitive. For firms wanting to be successful in international markets, Doole (2000) suggested three key aspects that firms should incorporate in to their strategies. First, they should have a clear international competitive focus achieved through a thorough knowledge of the international markets, a strong competitive positioning, and a strategic perspective Ham! Gand Fraalad CK (1996) Competing forthe Future, Harvard usiness School Press. ston, MA ® Doo, [2000} How SMEs Learn to Compete EFectively on intenatonal Makes PDBoom ational. Secon ‘hey should incorporate an effective hip strategy achieved through stron; ner relations, ment to quality products and service and a dedication to customer service throughout international markets. Last but not least, a well-managed organization should continuously emphasize a culture of learning, Firms that are innovative and willing to learn showed high ‘kets and had levels of energy and commitment to international 0 effective monitoring and control procedures for all their international markets, The global business environment is becoming more and more competitive and only organizations that can adapt to the changes in external factors will remain competitive and continue taking advantage of the opportunities that arise in international markets. The role of cultural differences in international marketing Culture plays a significant role in international marketing. Businesses that recognize the varying cultural differences globally in marketing their products stand a better chance of gaining a competitive advantage than businesses that do not. Language is a key component of culture globally and understanding the meanings of words in different contexts should be a major priority for international marketers. This is because, in the process of translation, some words are given totally different meanings from the original and in some cases the translated words are confusing or even offensive to the audience. For example, in China Coca-Cola initially sounded like “Kooke Koula” which means “a thirsty mouthful of candle wax" after translation, Coca-Cola Company later had to work on the pronunciation to sound like “Kee Kou Keele” which means “joyful tastes and happiness”. Pepsi Cola’s campaign “Come Alive with Pepsi” failed in Germany because translated it meant “Come Alive out of the Grave.” “Silver Mist” was 4 model car manufactured by Rolls-Royce: however, “mist” translated into German means “dung”. General Motors’ brand name “Nova” was unsuccessful in Spain because “nova” in Spanish means “no go". The differing roles of men and women in society should also be considered. In Europe and the USA itis common to use female models wearing bikinis to advertise summer wear. However, this would be against the culture of more conservative countries. For example, in the United Arab Emirates women are expected to cover their bodies, completely. An advertisement by Camay soap in France showing a husband washing his wife's back was successful in France but failed in Japan as women saw this as an invasion of privacy Local tastes and preferences are another important cultural consideration. In India, McDonalds had to change their beef burgers to chicken burgers because the Hindu religion does not allow people tc consume beef. In Kenya, the Maasai are keen beef consumers. Serving a Maasai household with fish would be considered inappropriate and night even be offensive. | | The SilverMist’ was renamed ‘Silver Shadow’to avoid an awkward translation!4,7 INTERNATIONAL MARKETING (HL ONLY) Wks * Direct investment - whic is also known as foreign direct vestment, where a business sets up production plants abroad ‘One benefit of investing in production plants in a foreign country that a business gains access to the local market, making products easily available to customers. It also becomes well versed in local market knowledge and is able to adapt its products accordingly suit consumer needs and wants. Many companies have followed this including Coca-Cola, Nike, Samsung, and Toyota ro Joint venture - this is a business arrangement where two or more parties agree to invest in a particular business project. These parties share their resources, with each being responsible for the costs, profits, and losses incurred. However, the participants have their independent business interests separate from the newly formed joint venture. For example. in the effort to enter international markets, the joint venture Virgin Mobile India Limited, which is a cellphone service provider company, was formed from Tata Tele service and Richard Branson’s Service Group. The company {joint venture) makes use of Tata’s CDMA network to offer its services under the Virgin Mobile brand name. ‘¢ nternational franchising ~ this is a business arrangement where the franchisor (a business in one country) grants the franchisee (a business in another country) permission to use its brand, trademark, concepts, and expertise in exchange for a franchise fee and a percentage of the sales revenue as royalty. Examples of businesses that have used this as an international marketing strategy include Ocean Basket. Steers, ‘Wimpy and Nandos. See unit 1 for more on franchising Opportunities of entry into international markets International marketing offers many potential opportunities or benefits for the business owner. These include the following: © A larger market — introducing a company’s products to a new market provides a greater reach for its products, which increases the customer base. This enables the business to gain higher sales and profitability. This is also an effective extension strategy when an existing product is in the saturation stage of its product life cycle in the home country but enters a new market to begin its life cycle afresh + Diversification ~ this provides an opportunity for businesses to spread their risks by investing in other countries. Diversification reduces dependence on gaining sales revenue from just the home marker in case of key risks such an economic downturn. © Enhanced brand image - the global reach brought about by international marketing means that the businesses involved can be perceived to be more “successful” than those that operate only in the domestic market. This creates greater brand prestige that can drive brand loyalty. «Gaining economies of scale ~a business can increase its scale of operations through international marketing by selling more products abroad. As a result, this may reduce the average costs of production and International marketing the marketing of goods and services acrass national boundaries, Globalization the increasing worldwide ‘competition leading to arise ininternational marketing Piggybacking the use ofthe existing distribution channels of one domestic business by another home country business trying to sells new productoverseasB Wiss its profit mark-up and gaining | ® Forming new business relationships ~ marketing overseas can 2 business to make new contacts with various stakeholders, such as suppliers who may provide good prices for inputs, for ‘xample taw materials, compared to suppliers in the home market These contacts can therefore provide opportunities for increased efficiency and profitability for home businesses. Threats posed by entry into international markets There are a number of external environmental factors that can be a source of major challenges for businesses engaging in international marketir + Economic challenges - the inequitable distribution of income in many countries can pose a major problem for countries wanting to market overseas. Many developing countries have very low pet capita incomes or purchasing power and therefore may lack the income to buy the products marketed. Fluctuating excha rates and differing interest rates also pose planning problems for businesses willing to market abroad. «Political challenges ~ unstable political regimes pose a great threat to domestic businesses willing to operate in foreign markets, due to the volatile nature of the political arena. The easy tendency for governments to change regulations also increases the political risk of doing international business. The increased threats of global terrorism and civil unrest have also heightened awareness of which countries businesses should trade with. The instability of the Middle East and the invasions of Afghanistan and Somalia are some examples ‘¢ Legal challenges ~ different countries have different laws that businesses need to abide by if they are to market overseas. Fot example, the EU is known for its s n anti-competitive | behaviour, advertising and product standards. International marketers must also adhere to the various consumer protection laws and intellectual property rights that exist in other countries. ict policies o1 Social challenges ~ differences in the demographic or population structures of different countries should be a key consideration for international marketers. In a number of countries in Europe there is an increasing older population, while in many African countries there is 2 growing younger population. Marketers need to be aware of this disparity and segment the markets accordingly if they are tc eap any benefits. The composition of the population in a country in gender or number of immigr factor to consider. r ts present is also a vital social * Technological challenges ~ the the Internet ha: increased the speed in the way businesses operate on a global scale However, access to this vital resource is still lacking in a number of developing countries. This, coupled with limited infrastructure and poor communication systems, can have a drastic impact on how businesses operate.Practice question Fast Eater Fa ‘ater, @ fast food restaurant company went public in 1975 and until 2000 had always made a profit. From 2000, sales in Europe (the company’s biggest market) started to decline. The following table information on Fast Eater’s current portfolio: errrers Market inform Other information taunch 1975 | burgerrolls | highmarkershare but | very profitable, core beginning to fll,very ow | product but profitability is solesgiowh beginning to fall 1975 | Fiedpotatoes | highmarketsharebut | very profitable, core | | beginning ofall, very low | product profitability is | sales growth fling “| 1995 | wastedbacon | high maket share, ow | very suecessilproduct [sandwich | market growth | 2002 [chicken oll | fling sales,lowmarket | nota commercialuecess | | | | share ina low growth | | market _ | [2002 Jeheese and |falingsales low market [rata commercial success | |tomatopizza | shareinalowgromn — | market | During the 1990s, Fast Eater opened stores worldwide at the rate of 250 a year. However, by 2004 Fast Eater was closing restaurants and concentrating on attracting more customers into existing outlets. Industry analysts suggest that the trend towards healthier food is affecting the popularity of the chain and so Fast Eater is proposing the introduction of a new product to cater for the market. Newly established health-food stores are becoming major competitors, Fast Eateris caught in a marketing war with aggressive rivals. In addition, economic downtum in its major markets is affecting demand, a) Explain what is meant by the “company went publi in 1975" 2 marks b) (i) Use the Ansoff Matrix to identify and explain Fast Eater's past and current growth strategies, 4 marks] (ii) Use the Boston Consulting Group Matrix to analyse Fasi Eater's product portfolio. (6 mar ©) Suggest a new product for Fasi Eater and devise a marketing mix (7Ps} to support your chosen product (8 marks IB, Nov 2005 325By the end of this chapter, you should be able to > explain the methods of entry into intemational markets > examine the opportunities and threats posed by entry into international markets > discuss the strategic and operational implications of international marketing > evaluate the role of cultural differences in international marketing > discuss the implications of globalization for international marketing International marketing refers to the marketing of goods and services across national boundaries: products from one country are marketed to another country. Unlike global marketing, where firms use a cdized approach to market their products in other countries, in international marketing firms have the flexibility to differ in their marketing approach to other countries. Increasing worldwide competition, also known as globalization, is the main cause of the rise in ini stan ‘ational marketing, Methods of entry into international markets A method or mode of entry into an international market is a channel through which a business gains entry into an international market. Firms can employ various strategies to enter international markets Some are considered below «The Internet - many businesses are increasingly using the Internet to market their products because of its global reach, New Internet businesses are increasingly being set up to take advantage of the low costs involved in marketing their products abroad. Existing businesses are using the Internet as an additional channel methods. to enhance their current market ding over the Internet, also known as e-commerce, will be explored further in this uni © Exporting ~ this can be done both directly and indirectly. In direct exporting a country commits to market its product abroad on its own behalf, The main advantage here is that the business has control over its products and operations abroad. Indirect exporting, on the other hand, involves hiring an export intermediary or agent in the home country to market the domestic firm's product abroad. A common form of indirect exporting is piggybacking, where already existing distribution channels of one domestic business ate used by another home country business trying to sell a new product overseas.4.5 THE FOUR PS (PRODUCT, PRICE, PROMOTION, Practice question The Q-Drum: “A Revolution in Thinking and Innovation” The problem is obvious. Millions of women and children worldwide endure backbreaking labour carrying open, unstable, heavy water containers for long distances The solution: the Q-Drum, invented by brothers Hans and Piet Hendriske. The brothers have obtained a patent (intellectual propert rights) for producing the Q-Drum. Even a child can pull up to 50 litres of water in the doughnut-shaped plastic drum as it rolls along the ground. In a recent test, one family of 13 used the Q-Drum daily, travelling 12 000 km in 20 months, providing 120 000 litres of transportable water. “The Q-Drum represents a revolution in thinking and innovation”, claimed Dr Paul Polak, who runs an organization helping poor farmers become entrepreneurs. He added, “A billion customers in the world need a US$2 pair of eyeglasses, a USS$10 solar light and a US$100 house. Why do innovators and designers only research and develop products that, target the needs of the planet's richest 10 per cent?”. However, despite its simplicity and life-saving innovation, the Q-Drum has only sold several hundred so far. At USS50 the price is too high for those who need it most. Until it can be manufactured more cheaply and approprate distribution channels can be found, sales will remain low. A non-government organization (NGO) sponsored by the United Nations has offered to help with the market development of the Q-Drum, but the brothers know that significant marketing issues still remain, a) Define the following terms: i) innovation [2 marks] (ii) distribution channels. [2 marks} b) Explain the role and importance of obtaining a patent (intellectual property rights) for the Hendriske brothers In producing the Q-Drum. [6 marks} ©) Analyse ‘wo reasons why “innovators and designers only research and develop products that target the needs of the planet's richest 10 per cent” (6 marks] 4) Discuss an appropriate marketing mix to increase sales of the Q-Drum. [9 marks) Source: httpe/[Link]/ IB, May 2010 files/2008/09/qdrumt jpg, 20 October 2008 319eA a Coat ado ee Gael By the end of this chapter, you should be able to: > discuss the importance of employee-customer relationships in ‘the marketing mix of a service and the cultural variation in these relationships > evaluate the importance of delivery processes in the marketing mix ofa service and changes in these pracesses > examine the importance of tangible physical e fence inthe marketing mix of a service > apply the seven Ps model ina service-based market People Interestingly, ma 'y businesses work very hard on the other elements of the marketing mix and pay little attention to the people in the businesses who essentially are involved) in decision-making on a regular basis. A 6 ability to select, reerui rhe and retain the best people, with the right skills and abilities to do sre job, is a crucial aspect of any business. Collins (2001) found best companies was that they first the wrong people off the bus’ nat an'¢mportant factor present in the jonythe right people, on the bus and After hiring the right people they then “got the right people in the right seats on the bus”. Successful businesses think in terms of getting the right people to carry out specific tasks and responsibilities.’ People are the most important elem are produced and consumed customer experience can be chan t. People usually buy from people they like, so businesses should ensure that their staff appearance at all times. For example, restaurants should encourage their waiters to dress appropriately, to be courteous, and to smile when sustomers, Offering customers an opportuni int of any service business. Services the same moment, and the specific ved to meet the needs of the pe have the right attitude, skills, and (0 feed back to aff can also help to assess how effective customer service is. Examples includ nks providing bi waited too long, questionnaires asking customers if they ‘0 be served or questioning cinema goers on the service experience as they queue to book a ticket. People have an important role to play in service delivery and maintaining good customer relationships. Behind key events such as ing soccer’s World Cup there are many Cains [2001] Good Great: Why Some Companies Make te Harperdusiness. London 1 Others Dont.e2rs, chets, and security guards, d to the customers, ple. for example that the service is appropriately deliveres who en: Another important factor is that people form a transactional link between the organization and its customers. For example, people de! the service and they collect money, Le. they get paid on behalf of the organization for the service. When you there will be a waiter who greets you on arrival, he or she then takes your order and serves you what you requested. Alter that you pay the waiter money for what you consumed, completing the contractual transaction. Therefore, the people’s rale in the customer relationship between the business and the consumer is vital. Customer relationship management (CRM), which ensures that staff are trained to deliver good customer service, is important in developing a long-term employee customer relationship. However, organizations need to deal with the various cultural settings they are faced with. Culture includes the way employees perceive or behave in the organization. Undoubtedly, some cultures may dominate others in the same organization, with groups of employees having differing beliefs and opinions, leading to the formation of a cultural gap. Itis the organization's responsibility to close this gap and foster a sense of unity among its employees. This will help in improving teamworking and will motivate employees to work to achieve the org goals. Consequently, a motivated workforce can also be seen in how the employees treat the customers, further strengthening the employee~ customer relationship. In addition, marketers need to learn and understand the cultural dimensions of customers to be able to satisfy the ;nization’s customers’ needs fully. Processes This refers to the procedures and policies pertaining to how an organization’s product is provided and delivered. It should inform customers on “how easy it is to do business” with a particular organization, Call centre staff who do not answer customers’ questions bres and products in supermarkets with barcodes that are not recognized the human capita in terms of when customers are ready to pay are examples of processes that are not kills, attitudes, and abilities functioning well and need urgent attention. The more intangible the necessary inthe production product, the more important it is to get the process right. of goods orthe provision of Process also involves how the product is delivered to the consumer, sonics DEL, for example, is known for its fast and elficient delivery of parcels fete or documents and prides itself on having the right systems or processes this. It also ensures that utmost care is taken by doing a the procedures and policies security check on documents before they are sent to the recipient. pertaining to how an also ensures that the product is delivered in its exact state and organization's productis form as required by the sender. maintaining optimal quality standards provided and delivered throughout. In addition, the sender receives a tracking number they can 5 use for tracking the document’s path and enquiring about any delay in Phagsioel evidence delivery if necessary the tangible or visible touch Ac the outset, businesses need to define clearly the shape th points that are observable to a business processes will take so that all stakeholders are fully aware of what to customers| MARKETING do, For marketing to be effective, there are number of processes that businesses need to consider, including processes for identifyin requirements, handling customer complaints, and handling orders among others, If these are tackled well they can go a long way towards sustomer loyalty and ensuring repeat customers, developing These are some of the ways a business can improve on its processes: ¢ Any measure taken to speed up is of prime imporiance. the delivery of products to customers ‘¢ A business needs to provide easy and varied payment methods for customers such as paying over the Internet, paying cash, or paying on credit. ‘* Provision of after-sales services such as technical support reduces the time a customer has to spend solving problems wher using a product. ‘¢ Informing customers how long their meal will take to be prepared in a restaurant adds to customer service. However, ensuring that the right process is in place may be time consuming, complex, and expensive, especially for start-up businesses ‘which may lack the experience and capital that larger businesses may have. Physical evidence This refers to all the tangible or visible touch points that are observable to customers in a business, Unlike businesses offering tangible products where consumers can try, touch, or smell the product betore purchasing service businesses usually depend on customers’ recommendations or testimonials, which are usually based on trust. As a result, businesses need to ensure that they are providing adequate evidence of quality throughout. Examples of good-quality evidence include well-groomed and well-dressed staff, a well-organized reception area, ambient lighting ‘with pleasant music in a restaurant and offices located in a clean and prime location. To create a good customer experience, tangible aspects must therefore be delivered with the service. Physical evidence is ar For example, manag providing well-designed and equipped classrooms and spacious offices, for their teaching staff than managers in pub out the differentiating element of physical evidence important differentiator in service marketing, of a private school may pay more attention to ic schools, cle: ly bringing The intangible nature of products with a service element, however, makes it difficult for consumers to evaluate the service being offered, especially regarding the quality and value for money, before deciding to buy. In addition, itis difficult for a business to position new products with a service element because of their intangible nature. Effectively focusing on the tangible aspects of the service offering will enable the business to remain competitive in the market. Physical evidence sbould therefore enable customers to “see” what is on offer, prior to purchasing the service offering. Businesses should also ensure that the testimonials customers pass on to others about their product are good and lead to an enhanced image and increased sales. etPs (HL ONLY Price People + penetration Place \ ‘wholesale Physica evidence s Iotenes sive sales peertaper mutezhannel Promotion 5 fers — \ campaigns } + joint ventures Figure 4.6.1. Summary of the seven Ps relevant to business in the service sector Tretour sareseten rs providing intangible products frameworks suggest that marketing has four or seven aspects all of which can be described with a word that tarts with a“P™ How Student workpoint 4.13 Be an inquirer git ensecirwnlgetl frameworks to you as a knawledge-seeker? Choose a service-based industry of your choi people, processes and physical ev e. Evaluate how important ce are in its marketing strategy.= Sian Revision checklist essential element of any service business so Y People businesses ensure that their employees have the right attitude, skills and ap) re the face of the organisation, These pé the jon and its c term arance at all times as they ople also form a transaction tomers due to their vital role in the lor link betwee the business and the consumer. omer relationship bet Y Processes are the procedures and policies pertaining to how an organization’s product is provided and delivered to the consumer They inform \g business with a particular organization. ers on the ease of doi ¥ Physical evidence includes the visible touch points that are observable to customers in a business and is differentiator in service marketing, important |the commentary question that have not been fully answered ‘ommentary or that might need further investigation in order to aspect in the be judged more effectively A well-presented commentary would include a title page. an accurate able of contents page, appropriate headings and sub-headings, consistent referencing, a complete bibliography and numbered pages. For presentation of references and bibliography, see the information on acknowledging the ideas and work of another person in the “The Diploma Programe” section of the subject guide: Your teacher will be able to offer guidance when you choose your topic. It is important that you choose an issue that engages your interest is realistic in terms of resources meets the criteria for assessment. The title question must be clear and focused, allowing you to investigate the topic within the 1,500 word limit. The following are examples of suitable questions: Is producing a range of clothing for male customers a profitable decision for company X? Is an increase in wages an effective way to increase productivity and motivation in company ¥? Is company 7's decision to increase productive capacity by building a new factory a sound financial decision? Can company X, an independent book shop, survive? Your supporting documents must be contemporary and written a maximum of three years before the submission of the commentary. Whilst the corimentary must be based on secondary sources, you may also include some primary data. Examples of secondary sources include: articles from the local, regional, national or international press financial reports business accounts business plans mission statements web-based surveys ext tracts from company websites government and other statistics at- transcripts of a relevant audio-visual file Examples of primary data include: responses to questionnaires (you must include a blank copy of the questionnaire and a su: mary of your results) transcripts of int ews and discussions with focus groups results of surveys you have conducted. 4 should choose your documents car fully to enisure they present a ¢ of ideas and views that provide balance and dbjectivity. Your commentary is assessed against criteria laid out in the subject guide Criterion Perticulars Marks available A Supporting dacuments 4 8 Choice and application of business tools, 5 techniques and theories c Choice and analysis ofdata and integration of 5 ideas ° Conclusions 3 © Evaluation - 4 F Structure 2 - & Presentation 2 ~ Total 2s For more details on the level descriptors for each criterion, the Business Management guide should be consulted. 124.4 Market research By the end of this chapter, you should be able to: explain why and how organizations carry out market research analyse the primary market research methods comment on the secondary market research methods discuss the ethical considerations of market research distinguish between qualitative and quantitative research explain the various sampling methods VEE UY interpret results from given data Market research is the process of collecting, analysing, and reporting data related to a particular market, including data on consumption of goods and services and on competitors’ behaviour. Importantly, businesses use market research information to make decisions, The purposes of market research © To identify consumer needs and wants as well as aim to understand consumers’ satisfaction levels and patterns in purchase behaviour. For example, a beverage company may want to find out the type of customers buying their sodas and the sales trends over a given period, © Toassist a business in predicting what is likely to happen in future. For example, an upcoming recession may signal firms to be prepared for decreases in overall spending patterns because of a possible decline in consumer income levels © To reduce the risk of product failure (especially of new products) by effectively carrying out market research that establishes the likes and dislikes of consumers. ‘* To measure the effectiveness of a marketing strategy. This can be done by assessing or evaluating how a firm implements the activities required by its marketing mix in specific market segments. © To provide current or the latest information regarding activity in the market. For example, most large technological companies have huge ch and development budgets so that they keep up to dave in offering first-mover advantages. Market research methods Market research can broadly be carried out in two ways: primary and secondary research,