SWOT Analysis

SWOT Analysis

SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors. A strength is a positive internal factor. A weakness is a negative internal factor. An opportunity is a positive external factor. A threat is a negative external factor.

SWOT Analysis
Diagram: A SWOT Analysis

We should aim to turn our weaknesses into strengths, and our threats into opportunities. Then finally, SWOT will give managers options to match internal strengths with external opportunities. The outcome should be an increase in ‘value’ for customers – which hopefully will improve our competitive advantage.

The main purpose of the analysis has to be to add value to our products and services so that we can recruit new customers, retain loyal customers, and extend products and services to customer segments over the long-term. If undertaken successfully, we can then increase our Return On Investment (ROI).

Simple rules.

  • Be realistic about the strengths and weaknesses of your organization.
  • It should distinguish between where your organization is today, and where it could be in the future.
  • It should always be specific. Avoid grey areas.
  • Always apply the tool in relation to your competition i.e. better than or worse than your competition.
  • Keep your audit short and simple. Avoid complexity and over analysis
  • It is subjective.

Once key issues have been identified with your SWOT analysis, they feed into marketing objectives. The tool can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter’s Five-Forces analysis. So SWOT is a very popular tool with marketing students because it is quick and easy to learn. During the SWOT exercise, list factors in the relevant boxes. It’s that simple. Below are some FREE examples of SWOT analysis – click to go straight to them.

Strengths and weaknesses are internal factors.

For example:

A strength could be:

  • Your specialist marketing expertise.
  • A new, innovative product or service.
  • Location of your business.
  • Quality processes and procedures.
  • Any other aspect of your business that adds value to your product or service.

A weakness could be:

  • Lack of marketing expertise.
  • Undifferentiated products or services (i.e. in relation to your competitors).
  • Location of your business.
  • Poor quality goods or services.
  • Damaged reputation.

Opportunities and threats are external factors.

For example:

An opportunity could be:

  • A developing market such as the Internet.
  • Mergers, joint ventures or strategic alliances.
  • Moving into new market segments that offer improved profits.
  • A new international market.
  • A market vacated by an ineffective competitor.

A threat could be:

  • A new competitor in your home market.
  • Price wars with competitors.
  • A competitor has a new, innovative product or service.
  • Competitors have superior access to channels of distribution.
  • Taxation is introduced on your product or service.

A word of caution – it can be very subjective. Do not rely on SWOT too much. Two people rarely come-up with the same final version of SWOT.  TOWS analysis is extremely similar.

Do you need a more advanced SWOT Analysis?

Some of the problems that you may encounter with SWOT are as a result of one of its key benefits i.e. its flexibility. Since SWOT analysis can be used in a variety of scenarios, it has to be flexible. However this can lead to a number of anomalies. Problems with basic SWOT analysis can be addressed using a more critical POWER SWOT.

History of SWOT Analysis

Having arrived on this page you have probably surfed the Internet and scoured books and journals in search of the history of SWOT Analysis. The simple answer to the question What is SWOT? is that there is no simple answer, and one needs to demonstrate a little academic wisdom in that nobody took the trouble to write the first definitive journal paper or book that announced the birth of SWOT Analysis. There are a number of contrasting, if not contradictory views on the origin of SWOT. Here are a few of the leading thinkers on the topic (and if you have more please let us know so that we can add them). More . . .

FREE SWOT Analysis Examples

A summary of FREE SWOT analyses case studies are outlined in our Lesson Store.

What is Marketing? Marketing definitions.

Marketing definitions

There are many marketing definitions. The better definitions are focused upon market orientation and the satisfaction of customer needs.

Marketing is the social process by which individuals and organizations obtain what they need and want through creating and exchanging value with others.

Kotler and Armstrong (2010).

The definiton is based upon an a basic marketing exchange process, and recognises the importance of value to the customer.

The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

Kotler and Armstrong (2010).

Kotler and Armstrong develop their orginal definition to recognise the importance of the longer-term relationship with the customer. This is achieved by relationship marketing and Customer Relationship Management (CRM).

Marketing is the management process for identifying, anticipating and satisfying customer requirements profitably.

The Chartered Institute of Marketing (CIM). Accessed 2012.

The CIM definition looks not only at identifying customer needs, but also satisfying them (short-term) and anticipating them in the future (long-term retention). The definition also states the importance of a process of marketing, with marketing objectives and outcomes. CIM is recognised as being one of the most influential marketing
bodies in the world. It is the professional body for marketing in the United Kingdom.

Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. (Approved October 2007)

American Marketing Association Board of Directors. Accessed 2012.

Again, in common with Kotler and Armstrong above, the AMA focuses its definition on value creation and delivery, and the longer-term retained customer.

The enigma of marketing is that it is one of man’s oldest activities and yet it is regarded as the most recent of business disciplines.

Baker (1976).

Baker introduces the elephant in the room. Marketing has always been part of business, and it is a myth that it is purely a contemporary idea.

Also see the Philosophy and Theory of Marketing

SMART Objectives

SMART Objectives

How do you make objectives SMART?

SMART objectives are simple and quick to learn. The objective is the starting point of the marketing plan. Once environmental analyses (such as SWOT, Five Forces Analysis, and PEST) and marketing audit have been conducted, their results will inform SMART objectives. SMART objectives should seek to answer the question ‘Where do we want to go?’. The purposes of SMART objectives include:

  • To enable a company to control its marketing plan.
  • To help to motivate individuals and teams to reach a common goal.
  • To provide an agreed, consistent focus for all functions of an organization.

All objectives should be SMART i.e. Specific, Measurable, Achievable, Realistic, and Timed.

  • Specific – Be precise about what you are going to achieve.
  • Measurable – Quantify your objectives.
  • Achievable – Are you attempting too much?
  • Realistic – Do you have the resources to make the objective happen (men, money, machines, materials, minutes)?
  • Timed – State when you will achieve the objective (within a month? By February 2018?)

Some examples of SMART objectives follow:

1. Profitability Objectives

To achieve a 20% return on capital employed by August 2019.

2. Market Share Objectives

To gain 25% of the market for sports shoes by September 2018

3. Promotional Objectives

To increase awareness of the dangers of AIDS in France from 12% to 25% by June 2017.

To increase trail of X washing powder from 2% to 5% of our target group by January 2019.

4. Objectives for Survival

To survive the current double-dip recession.

5. Objectives for Growth

To increase the size of our Brazilian operation from $200,000 in 2017 to $400,000 in 2018.

6. Objectives for Branding

To make Y brand of bottled beer the preferred brand of 21-28 year old females in North America by February 2017.

There are many examples of SMART objectives. Be careful not to confuse objectives with goals and aims. Goals and aims tend to be more vague and focus on the longer-term. They will not be SMART. However, many SMART objectives start off as aims or goals and therefore they are of equal importance.

 

Marketing mix


The marketing mix

The marketing mix is one of the most famous marketing terms. The marketing mix is the tactical or operational part of a marketing plan. The marketing mix is also called the 4Ps and the 7Ps. The 4Ps are price, place, product and promotion. The services marketing mix is also called the 7Ps and includes the addition of process, people and physical evidence.

The marketing mix is . . . The set of controllable tactical marketing tools – product, price, place, and promotion – that the firm blends to produce the response it wants in the target market.

Kotler and Armstrong (2010).

The concept is simple. Think about another common mix – a cake mix. All cakes contain eggs, milk, flour, and sugar. However, you can alter the final cake by altering the amounts of mix elements contained in it. So for a sweet cake add more sugar!

It is the same with the marketing mix. The offer you make to your customer can be altered by varying the mix elements. So for a high profile brand, increase the focus on promotion and desensitize the weight given to price.

Another way to think about the marketing mix is to use the image of an artist’s palette. The marketer mixes the prime colours (mix elements) in different quantities to deliver a particular final colour. Every hand painted picture is original in some way, as is every marketing mix. Let’s look at the elements of the marketing mix in more detail. Click on the links to go to the lesson on each element.

Price

Price is the amount the consumer must exchange to receive the offering .

Solomon et al (2009).

The company’s goal in terms of price is really to reduce costs through improving manufacturing and efficiency, and most importantly the marketer needs to increase the perceived value of the benefits of its products and services to the buyer or consumer.
There are many ways to price a product. Let’s have a look at some of them and try to understand the best policy/strategy in various
situations.

Place

Place includes company activities that make the product available to target consumers.

Kotler and Armstrong (2010).

Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer.

 

Marketing Mix
The Marketing Mix

 

Product

Product means the goods-and-services combination the company offers to the target market.

Kotler and Armstrong (2010).

For many a product is simply the tangible, physical item that we buy or sell. You can also think of the product as intangible i.e. a service.

In order to actively explore the nature of a product further, let’s consider it as three different products – the CORE product, the ACTUAL product, and finally the AUGMENTED product.

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation and delivery of lifetime value to the customer i.e. looks at the products or services that customers NEED throughout their lives.

Promotion

Promotion includes all of the activities marketers undertake to inform consumers about their products and to encourage potential customers to buy these products.

Solomon et al (2009).

Promotion includes all of the tools available to the marketer for marketing communication. As with Neil H. Borden’s marketing mix, marketing communications has its own promotions mix. Whilst there is no absolute agreement on the specific content of a marketing communications mix, there are many promotions elements that are often included such as sales, advertising, sales promotion, public relations, direct marketing, online communications and personal selling.

Physical Evidence

(Physical evidence is) . . . The environment in which the service is delivered, and where the firm and customer interact, and any tangible components that facilitate performance or communication of the service.

Zeithaml et al (2008)

Physical Evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so a consumer tends to rely on material cues. There are many examples of physical evidence, including some of the following buildings, equipment, signs and logos, annual accounts and business reports, brochures, your website, and even your business cards.

People

(People are) . . . All human actors who play a part in service delivery and thus influence the buyers’ perceptions; namely, the firm’s personnel, the customer, and other customers in the service environment.

Zeithaml et al (2008).

People are the most important element of any service or experience. Services tend to be produced and consumed at the same moment, and aspects of the customer experience are altered to meet the individual needs of the person consuming it.

Process

Process is) . . . The actual procedures, mechanisms, and flow of activities by which the service is delivered – this service delivery and operating systems.

Zeithaml et al (2008).

There are a number of perceptions of the concept of process within the business and marketing literature. Some see processes as a means to achieve an outcome, for example – to achieve a 30% market share a company implements a marketing planning process. However in reality it is more about the customer interface between the business and consumer and how they deal with each other in a series of steps in stages, i.e. throughout the process.

What is a customer?

What is a customer?

In marketing we tend to use the word customer / customers and consumer almost interchangeably. However our customer and the consumer are not strictly speaking the same. A customer is a person or company who purchases goods and services. A customer becomes a consumer when he or she uses the goods or services i.e. where there is some consumption.

Customers categorised

Customers can be categorised as B2C which stands for Business-to-Customer (B2C) for example where you buy sweets from a shop, Business-to-Business (B2B) where the shopkeeper uses the services of an accountant to write his tax return, C2B which is Customer-to-Business (C2B) for example where an individual sells his gold watch to a jewellery store and C2C or Customer-to-Customer (C2C) where customers sell goods to each other. A great example for C2C is eBay, where consumers sell goods to other consumers.

A Marketing Oriented Approach

A marketing orientation underpins our focus on the customer/consumer and their needs and wants. Our marketing orientation occurs as a result of all of the people from within our business from the managing director to the receptionist making the satisfaction of customer needs and wants their whole reason for being. Now let’s take a look at how we find information that will shed light on what our customers and consumers need and want. The benefits of a marketing orientation centre on the fact that customers can be grouped into segments and segments can deliver profits to the organisation. Customers also need information about products and services, and how to use them.

Therefore we can define a consumer as an individual who (buys and) uses a product or service. So the consumer could be the customer that goes into the shop to buy the sweets. However the final consumer may not always be the customer. For example, a parent goes into the sweet shop and buys some sweets. He or she does not eat them, and so they are not the consumer. The child would eat the sweets and be the consumer, although he or she did no buy the sweets and so they are not the initial customer.

The reason we need to know the difference between a consumer and the customer is that we will want to design communications and understand the consumer behaviour of the person that instigates and influences a buying decision as well as the final consumer. For example the child will influence the mother’s decision on which sweets to buy. However it can be much more subtle, for example a wife might influence the clothing choices of her husband, or a child might influence the family’s choice of a holiday destination.

Customer needs and wants.

Obviously the terms customer and consumer are often interchanged. So with a definition of marketing, we will aim to anticipate the needs and wants of consumers and/or customers. Needs and wants may differ. So let’s return to our mother and her child, since a mother may wish to feed her child nutritious food at mealtimes, the child may wish to eat sugary and less healthy food. The mother is the customer and she purchases based upon her need, whereas the child is the final consumer and he or she may focus on what they want. So needs and wants may differ between customers and consumers.

Three Levels of a Product


Three Levels of a Product.

Consumers often think that a product is simply the physical item that he or she buys. In order to actively explore the nature of a product further, let’s consider it as three different products – the CORE product, the ACTUAL product, and finally the AUGMENTED product. This concept is known as the Three Levels of a Product.

Three Levels of a Product
Three Levels of a Product

The CORE product is NOT the tangible physical product. You can’t touch it. That’s because the core product is the BENEFIT of the product that makes it valuable to you. So with the car example, the benefit is convenience i.e. the ease at which you can go where you like, when you want to. Another core benefit is speed since you can travel around relatively quickly.

The ACTUAL product is the tangible, physical product. You can get some use out of it. Again with the car, it is the vehicle that you test drive, buy and then collect. You can touch it. The actual product is what the average person would think of under the generic banner of product.

The AUGMENTED product is the non-physical part of the product. It usually consists of lots of added value, for which you may or may not pay a premium. So when you buy a car, part of the augmented product would be the warranty, the customer service support offered by the car’s manufacturer and any after-sales service. The augmented product is an important way to tailor the core or actual product to the needs of an individual customer. The features of augmented products can be converted in to benefits for individuals.

Features and benefits of products

Features and benefits of a product are also relevant to the three levels of the product. Products tend to have a whole series of features but only a small number of benefits to the actual consumer.

Let’s look at this another way, if you buy a Nintendo console it has many features; for example you can play games alone or you can play against another opponent or two or three opponents. You can also have access to the Internet. Avatars are adaptable so you can create yourself and your friends. These are all examples of features to the consumer. However a consumer may buy it because he or she wants to stay fit and will use software and peripherals to become healthier. Becoming healthier is the benefit to the consumer.

The consistent marketer will aim to discover the consumer’s preference for benefits and will match individual features to the preference. That is why professional salespeople for example, often ask many questions whereas a novice salesperson will just tell you the features of the product.

New Product Development (NPD)

New Product Development (NPD) will take in to account the consumer’s preference for benefits over features by considering research into their needs. NPD aims to satisfy and anticipate needs. NPD delivers products which offer benefits at the core, actual and augmented levels.

NPD might offer a replacement product for a current line, it could add products to the current line, it could discover new product lines and sometimes it delivers very innovative products which the world might not have seen before.

New products are launched for all sorts of reasons. As we know from our previous lesson on the business environment, legislation i.e. changes in the law can mean that companies have to design and develop new products. An example of this was when we moved from videotape recorders to digital and DVD recorders. So products need to be modified for changing target markets.

Sometimes the company will need to increase the volume that a production plant delivers, since maybe it is not running at full capacity. An example of this would be a food manufacturer of tinned soup that has a factory which can operate 24/7, designing different derivatives of the soup in order to lower the unit cost of production. So product lines are extended, in this case the reason being is to ease operational efficiency.

Intense competitive rivalry in the market will also lead to the need for NPD. Just think about your smart phone and how quickly such products go through their product life cycles, throughout your customer life-cycle.

Change in any element of the marketing mix would influence NPD, for example there is a movement to shop online and some products need to be distributed via online retailers, and the product is adapted to make it compact and simple to deliver. NPD can be driven by many influences from changing consumer tastes to the need to adapt products and services for local or international market.

Another marketing tool for evaluating PRODUCT is the Product Life Cycle (PLC). Also see the Customer Life Cycle (CLC).

Target

Targeting

Part of STP – Segment-Target-Postion

Targeting is the second stage of the SEGMENT “Target” POSITION (STP) process. After the market has been separated into its segments, the marketer will select a segment or series of segments and ‘target’ it/them. Resources and effort will be targeted at the segment.

Targeting

The first is the single segment with a single product. In other word, the marketer targets a single product offering at a single segment in a market with many segments. For example, British Airway’s Concorde is a high value product aimed specifically at business people and tourists willing to pay more for speed.

Targeting

Secondly the marketer could ignore the differences in the segments, and choose to aim a single product at all segments i.e. the whole market. This is typical in ‘mass marketing’ or where differentiation is less important than cost. An example of this is the approach taken by budget airlines such as Go/

Targeting

Finally there is a multi-segment approach. Here a marketer will target a variety of different segments with a series of differentiated products. This is typical in the motor industry. Here there are a variety of products such as diesel, four-wheel-drive, sports saloons, and so on.

Now have a look at the final stage, positioning.

Promotion

Promotion

Promotion is the marketing term used to describe all marketing communications activities and includes personal selling, sales promotion, public relations, direct marketing, trade fairs and exhibitions, advertising and sponsorship. Promotion needs to be precisely coordinated and integrated into the businesses global communications message, and this is called Integrated Marketing Communications (IMC). IMC integrates the message through the available channels to deliver a consistent and clear message about your company’s brands, products and services. Any movement away from the single message confuses the consumer and undermines the brand.

The promotions mix (the marketing communications mix) is the specific blend of promotion tools that the company uses to persuasively communicate customer value and build customer relationships.

Kotler et al (2010).

Promotion is the element of the marketing mix which is entirely responsible for communicating the marketing proposition. Marketers work hard to create a unique marketing proposition for their product or service. McDonald’s is about community, food and enjoyment. Audi is about the driver experience and technology.

Think of it like a cake mix, the basic ingredients are always the same. However if you vary the amounts of one of the ingredients, the final outcome is different. It is the same with promotions. You can integrate different aspects of the promotions mix to deliver a unique campaign. Now let’s look at the different elements of the promotions mix.

The elements of the promotions mix are:

  • Personal Selling.
  • Sales Promotion.
  • Public Relations.
  • Direct Mail.
  • Trade Fairs and Exhibitions.
  • Advertising.
  • Sponsorship.

And also online promotions.

marketing communications process
marketing communications process

The elements of the promotions mix are integrated to form a coherent campaign. As with all forms of communication, the message from the marketer follows the ‘communications process’ as illustrated above. For example, a radio advert is made for a car manufacturer. The car manufacturer (sender) pays for a specific advert with contains a message specific to a target audience (encoding). It is transmitted during a set of commercials from a radio station (message/medium).

The message is decoded by a car radio (decoding) and the target consumer interprets the message (receiver). He or she might visit a dealership or seek further information from a web site (Response). The consumer might buy a car or express an interest or dislike (feedback). This information will inform future elements of an integrated promotional campaign. Perhaps a direct mail campaign would push the consumer to the point of purchase. Noise represents the thousands of marketing communications that a consumer is exposed to everyday, all competing for attention.

The Promotions Mix.

Let us look at the individual components of the promotions mix in more detail. Remember all of the elements are ‘integrated’ to form a specific communications campaign.

1. Personal Selling.

Personal Selling is an effective way to manage personal customer relationships. The sales person acts on behalf of the organization. They tend to be well trained in the approaches and techniques of personal selling. However sales people are very expensive and should only be used where there is a genuine return on investment. For example salesmen are often used to sell cars or home improvements where the margin is high.

2. Sales Promotion.

.

Sales promotions tend to be thought of as being all promotions apart from advertising, personal selling, and public relations. For example the BOGOF promotion, or Buy One Get One Free. Others include couponing, money-off promotions, competitions, free accessories (such as free blades with a new razor), introductory offers (such as buy digital TV and get free installation), and so on. Each sales promotion should be carefully costed and compared with the next best alternative.

3. Public Relations (PR).

Public Relations is defined as ‘the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organization and its publics’ (Institute of Public Relations). PR can be relatively cheap, but it is certainly not free. Successful strategies tend to be long-term and plan for all eventualities. All airlines exploit PR; just watch what happens when there is an incident. The pre-planned PR machine clicks in very quickly with a very effective rehearsed plan.

4. Direct Marketing.

Direct marketing is any marketing undertaken without a distributor or intermediary. In terms of promotion it means that the marketing company has direct communication with the customer. For example Nintendo distributes via retailers, although you can register directly with them for information which is often delivered by e-mail or mail.

Direct mail is very highly focussed upon targeting consumers based upon a database. As with all marketing, the potential consumer is targeted based upon a series of attributes and similarities. Creative agencies work with marketers to design a highly focussed communication in the form of a mailing. The mail is sent out to the potential consumers and responses are carefully monitored. For example, if you are marketing medical text books, you would use a database of doctors’ surgeries as the basis of your mail shot.

Similarly e-mail is a form of online direct marketing. You register, or opt in, to join a mailing list for your favourite website. You confirm that you have opted in, and then you will receive newsletters and e-mails based upon your favourite topics. You need to be able to unsubscribe at any time, or opt out. Mailing lists which generate sales are like gold dust to the online marketer. Make sure that you use a mailing list with integrity just as you would expect when you sign up. The mailing list needs to be kept up-to-date, and often forms the basis of online Customer Relationship Management (CRM).

5. Trade Fairs and Exhibitions.

Such approaches are very good for making new contacts and renewing old ones. Companies will seldom sell much at such events. The purpose is to increase awareness and to encourage trial. They offer the opportunity for companies to meet with both the trade and the consumer.

6. Advertising.

Advertising is a ‘paid for’ communication. It is used to develop attitudes, create awareness, and transmit information in order to gain a response from the target market. There are many advertising ‘media’ such as newspapers (local, national, free, trade), magazines and journals, television (local, national, terrestrial, satellite) cinema, outdoor advertising (such as posters, bus sides). There is much more about digital, online and Internet advertising further down this pages, as well as throughout Marketing Teacher and the Marketing Teacher Blog.

7. Sponsorship.

Sponsorship is where an organization pays to be associated with a particular event, cause or image. Companies will sponsor sports events such as the Olympics or Formula One. The attributes of the event are then associated with the sponsoring organization.

The elements of the promotional mix are then integrated to form a unique, but coherent campaign.

Online Promotions

Online promotions will include many of the promotions mix elements which we considered above. For example advertising exists online with pay per click advertising which is marketed by Google. You can sponsor are website for example. Online businesses regularly send out newsletters which are targeted using e-mail and mailing lists, which is a form of direct marketing. Indeed websites are premium vehicle in the public relations industry to communicate particular points of view to relevant publics.

The online promotions field is indeed emerging. The field will soon spread into Geo targeting of adverts to people in specific locations via smart phones. Another example would be how social media targets adverts to you whilst you socialising online. Take a look at Marketing Teacher’s Blog for more up-to-date examples of the emerging online promotions space.

Pricing Strategies

 

In terms of the marketing mix some would say that pricing is the least attractive element. Marketing companies should really focus on generating as high a margin as possible. The argument is that the marketer should change product, place or promotion in some way before resorting to pricing reductions. However price is a versatile element of the mix as we will see.

marketing pricing
marketing pricing

Penetration Pricing.

The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom and Sky TV. These companies need to land grab large numbers of consumers to make it worth their while, so they offer free telephones or satellite dishes at discounted rates in order to get people to sign up for their services. Once there is a large number of subscribers prices gradually creep up. Taking Sky TV for example, or any cable or satellite company, when there is a premium movie or sporting event prices are at their highest – so they move from a penetration approach to more of a skimming/premium pricing approach.

Economy Pricing.

This is a no frills low price. The costs of marketing and promoting a product are kept to a minimum. Supermarkets often have economy brands for soups, spaghetti, etc. Budget airlines are famous for keeping their overheads as low as possible and then giving the consumer a relatively lower price to fill an aircraft. The first few seats are sold at a very cheap price (almost a promotional price) and the middle majority are economy seats, with the highest price being paid for the last few seats on a flight (which would be a premium pricing strategy). During times of recession economy pricing sees more sales. However it is not the same as a value pricing approach which we come to shortly.

Price Skimming.

Price skimming sees a company charge a higher price because it has a substantial competitive advantage. However, the advantage tends not to be sustainable. The high price attracts new competitors into the market, and the price inevitably falls due to increased supply.

Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented. New products were developed and the market for watches gained a reputation for innovation.

 

The diagram depicts four key pricing strategies namely premium pricing, penetration pricing, economy pricing, and price skimming which are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing, and we cover them throughout the entirety of this lesson.

Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example Price Point Perspective (PPP) 0.99 Cents not 1 US Dollar. It’s strange how consumers use price as an indicator of all sorts of factors, especially when they are in unfamiliar markets. Consumers might practice a decision avoidance approach when buying products in an unfamiliar setting, an example being when buying ice cream. What would you like, an ice cream at $0.75, $1.25 or $2.00? The choice is yours. Maybe you’re entering an entirely new market. Let’s say that you’re buying a lawnmower for the first time and know nothing about garden equipment. Would you automatically by the cheapest? Would you buy the most expensive? Or, would you go for a lawnmower somewhere in the middle? Price therefore may be an indication of quality or benefits in unfamiliar markets.

Product Line Pricing.

Where there is a range of products or services the pricing reflects the benefits of parts of the range. For example car washes; a basic wash could be $2, a wash and wax $4 and the whole package for $6. Product line pricing seldom reflects the cost of making the product since it delivers a range of prices that a consumer perceives as being fair incrementally – over the range.

If you buy chocolate bars or potato chips (crisps) you expect to pay X for a single packet, although if you buy a family pack which is 5 times bigger, you expect to pay less than 5X the price. The cost of making and distributing large family packs of chocolate/chips could be far more expensive. It might benefit the manufacturer to sell them singly in terms of profit margin, although they price over the whole line. Profit is made on the range rather than single items.


Optional Product Pricing.

Companies will attempt to increase the amount customers spend once they start to buy. Optional ‘extras’ increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other. Again budget airlines are prime users of this approach when they charge you extra for additional luggage or extra legroom.

Captive Product Pricing

Where products have complements, companies will charge a premium price since the consumer has no choice. For example a razor manufacturer will charge a low price for the first plastic razor and recoup its margin (and more) from the sale of the blades that fit the razor. Another example is where printer manufacturers will sell you an inkjet printer at a low price. In this instance the inkjet company knows that once you run out of the consumable ink you need to buy more, and this tends to be relatively expensive. Again the cartridges are not interchangeable and you have no choice.

Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to move old stock. Blu-ray and videogames are often sold using the bundle approach once they reach the end of their product life cycle. You might also see product bundle pricing with the sale of items at auction, where an attractive item may be included in a lot with a box of less interesting things so that you must bid for the entire lot. It’s a good way of moving slow selling products, and in a way is another form of promotional pricing.

Promotional Pricing.

Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free), money off vouchers and discounts. Promotional pricing is often the subject of controversy. Many countries have laws which govern the amount of time that a product should be sold at its original higher price before it can be discounted. Sales are extravaganzas of promotional pricing!

Geographical Pricing.

Geographical pricing sees variations in price in different parts of the world. For example rarity value, or where shipping costs increase price. In some countries there is more tax on certain types of product which makes them more or less expensive, or legislation which limits how many products might be imported again raising price. Some countries tax inelastic goods such as alcohol or petrol in order to increase revenue, and it is noticeable when you do travel overseas that sometimes goods are much cheaper, or expensive of course.

Value Pricing.

This approach is used where external factors such as recession or increased competition force companies to provide value products and services to retain sales e.g. value meals at McDonalds and other fast-food restaurants. Value price means that you get great value for money i.e. the price that you pay makes you feel that you are getting a lot of product. In many ways it is similar to economy pricing. One must not make the mistake to think that there is added value in terms of the product or service. Reducing price does not generally increase value.

See also eMarketing Price and international Marketing price.

Our financial objectives in terms of price will be secured on how much money we intend to make from a product, how much we can sell, and what market share will get in relation to competitors. Objectives such as these and how a business generates profit in comparison to the cost of production, need to be taken into account when selecting the right pricing strategy for your mix. The marketer needs to be aware of its competitive position. The marketing mix should take into account what customers expect in terms of price.

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

Premium Pricing.

Use a high price where there is a unique brand. This approach is used where a substantial competitive advantage exists and the marketer is safe in the knowledge that they can charge a relatively higher price. Such high prices are charged for luxuries such as Cunard Cruises, Savoy Hotel rooms, and first class air travel.

Marketing Place

Marketing Place

(A marketing channel is) . . . a set of interdependent organisations that help make a product or service available for use or consumption by the consumer or business user.

Kotler et al (2010)

A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption.

Bucklin – Theory of Distribution Channel Structure (1966)

The Bucklin definition above albeit more than 50 years old still represents the basic concept of place in the marketing mix.

Marketing place has a number of names. Place is also known as channel, distribution or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer. So let’s take a look at some basic distribution or channel decisions, and how we decide on the best distribution channel for our product or service.

There are six basic ‘channel’ decisions:

  • Do we use direct or indirect channels? (e.g. ‘direct’ to a consumer, ‘indirect’ via a wholesaler).
  • Single or multiple channels.
  • Cumulative length of the multiple channels.
  • Types of intermediary (see later).
  • Number of intermediaries at each level (e.g. How many retailers in southern Spain?).
  • Which companies as intermediaries to avoid ‘intrachannel conflict’ (i.e. infighting between local distributors).

Selection Consideration – how do we decide upon a distributor?

  • Market segment – the distributor must be familiar with your target consumer and segment.
  • Changes during the Product Life Cycle – different channels can be exploited at different points in the PLC e.g. Foldaway scooters are now available everywhere. Once they were sold via a few specific stores.
  • Producer/distributor fit – Is there a match between their polices, strategies, image, and yours? Look for ‘synergy’.
  • Qualification assessment – establish the experience and track record of your intermediary.
  • How much training and support will your distributor require?

As you will be aware from your experiences as a consumer, producers rarely sell their goods or services directly to the person that consumes them. Marketing channels, or place in terms of the marketing mix, are the means by which interdependent organizations move products or services from the producer to the person that purchases or consumes the product. This is the basic role of distribution.

Different customers have different needs. Customers in different segments have different needs, for example a food distributor will sell flour in different ways when it sells to a hotel as opposed to when the sales to a wholesaler. A business customer will have different needs to a retail customer, for example a stationary distributor will sell printer paper in bulk directly to a large company but will sell a single ream (500 sheets) indirectly to the average householder via his local stationery store.

Types of Channel Intermediaries.

There are many types of intermediaries including wholesalers, agents, retailers, the Internet, licensing and franchising. The main modes of distribution will be looked at in more detail as follows:

Channel Intermediaries – Wholesalers

  • They break down ‘bulk’ into smaller packages for resale by a retailer.
  • They buy from producers and resell to retailers. They take ownership or ‘title’ to goods whereas agents do not (see below).
  • They provide storage facilities. For example, cheese manufacturers seldom wait for their product to mature. They sell on to a wholesaler that will store it and eventually resell to a retailer.
  • Wholesalers offen reduce the physical contact cost between the producer and consumer e.g. customer service costs, or sales force costs.
  • A wholesaler will often take on some of the marketing responsibilities. Many produce their own brochures and use their own telesales operations.

Channel Intermediaries – Agents

  • Agents are mainly used in international markets.
  • An agent will typically secure an order for a producer and will take a commission. They do not tend to take title to the goods. This means that capital is not tied up in goods. However, a ‘stockist agent’ will hold consignment stock (i.e. will store the stock, but the title will remain with the producer. This approach is used where goods need to get into a market soon after the order is placed e.g. foodstuffs).
  • Agents can be very expensive to train. They are difficult to keep control of due to the physical distances involved. They are difficult to motivate.

Channel Intermediaries – Retailers

  • Retailers will have a much stronger personal relationship with the consumer.
  • The retailer will hold several other brands and products. A consumer will expect to be exposed to many products.
  • Retailers will often offer credit to the customer e.g. electrical wholesalers, or travel agents.
  • Products and services are promoted and merchandised by the retailer.
  • The retailer will give the final selling price to the product.
  • Retailers often have a strong ‘brand’ themselves e.g. Ross and Wall-Mart in the USA, and Alisuper, Modelo, and Jumbo in Portugal.

Channel Intermediaries – Internet

  • The Internet has a geographically dispersed market.
  • The main benefit of the Internet is that niche products reach a wider audience e.g.
    Scottish salmon direct from an Inverness fishery.
  • There are low barriers to entry as set up costs are relatively small.
  • Use e-commerce technology (for payment, shopping software, etc)
  • There is a paradigm shift in commerce and consumption which benefits distribution via the Internet

There is a huge growth in online retailing. People buy physical products from companies such as Amazon or eBay, as well as a whole plethora of other smaller retailers marketing in a wide variety of small niches, also known as the long thin tail of marketing. There are many transaction related products such as theatre tickets and software upgrades that can be bought solely online. One way of segmenting Internet users was identified by McKinsey in 2000 and is summarised here as follows:

Simplifiers – experienced Internet users who seek convenience and low prices.

Surfers – an innovative minority who enjoy buying niche items and experiences based upon their own initiative.

Bargainers – price sensitive surfers looking for the best price.

Connectors – those new to the Internet who want to connect with others via Facebook and Twitter, with little knowledge to go much further.

Routiners – who have a small number of favourite sites which they visit often, such as online banking for example.

Sportsters – who spend most of their time looking at entertainment and sport.

Which of the above best represent you and your buyer behaviour when you are online?

Licensing and franchising

Some businesses are hothouses of ideas and innovation but they may lack expertise in terms of business and finance. In these situations licensing or franchising are an ideal option.

Licensing is essentially a contract which allows another business to manufacture or provide a service which conforms to your licence. Licensing is useful if the business wishes to quickly move into foreign countries, if manufacturing in a local market is too expensive then manufacturing could be undertaken overseas under licence, if shipping costs are too expensive or perhaps a market overseas would prefer a locally branded item. In return the licensee will get fees, will be able to penetrate a wide range of overseas markets, generally can control quality and production levels, and ultimately will be able to introduce new models as they arise.

Franchising is similar to licensing but tends to be used where there is a brand name or a particular format that a company owns. There are lots of familiar examples of franchising including KFC and many familiar high street and mall names – marketing everything from hamburgers to jewellery. Try to identify some franchises the next time that you go for a day out shopping.

Changing roles of logistics

Place also includes logistics. Logistics historically were largely about the physical distribution of goods from manufacturer to consumer by road and rail, sea and air. Logistics has undergone many changes since the 1970s. The cargo container was developed which reduced the amount of times the products needed loading on and off vehicles, and in and out of warehouses. More recently goods are loaded onto the container at the factory and products stay in the container until they are unloaded in at their final desination.

Supply chain management is now a focal discipline which takes logistics to the next level. Distribution is a central strategic management topic, and involves logistics professionals with highly technical information technology, resources and software.

The logistics manager integrates all elements of physical distribution and will optimise the flow of services and goods. There is a large amount of planning and organising in terms of the whole process, which includes selecting other agents and suppliers who are integrated into the process. Often logistics will integrate forwards with the supply chain of a large customer. An example of current thinking on logistics would include Just In Time Management (JIT) where components are delivered directly to manufacturing sites as the producers need them on the assembly line.

Let us consider the nature of distribution by looking at a very simple example of how it works in relation to our everyday experiences.

A basic example would be a tin of vegetable soup. The entire chain would begin with the seeds that the farmer sews and then plants. The farmer would sell the vegetables to the soup manufacturer, who would create soup from a recipe and then package the soup in a tin, and then bulk pack tins into a box and then those same boxes onto a pallet. The pallets would be driven by lorry or some other vehicle to a wholesaler. Independent retailers whilst visiting the wholesaler would break down a pallet and take a box of tinned soup. The retailer would return to his or her store and open the boxes of soup and place individual items onto a shelf next to similar products. The purchaser or customer would enter the store and buy a series of products including tinned soup. Having paid for the products the customer returned home and cooked soup for his or her family. The family eats the soup and they are the final consumers, as opposed to customers. This is an example of a very basic marketing channel in operation.


The case is that a manufacturer will attempt to maximise the accessibility of his product to as many consumers as possible. A prime example of this is Coca-Cola and their attempt to put a bottle of Coke within the arms reach of every consumer. For Coca-Cola this means a number of channels of distribution including manufacturing, transportation, bottling, wholesaling, retailing, vending machines and any other form of distribution you can think of. Coca-Cola maximises its accessibility.

PESTEL

PESTEL Model

This lesson is about PESTEL analysis. As we know from our lesson on the marketing environment the wider macroenvironment impacts upon how marketing managers make decisions. During this lesson we’re going to look at how we audit and evaluate our external business environment. There are a number of acronyms which are popular for doing this including PEST (Political/Economic/Sociocultural/Technological), PESTEL (Political/Economic/Sociocultural/Technological/Environmental/Legal), SLEPT (Societal/Legal/Economic/Political/Technological), STEP (Society/Technological/Economic/Political) and others which include LE-PEST-C and SPECTACLES. They are all pretty much the same. Below are details of how to complete a PESTEL analysis, supported by some examples.

Political

The political environment revolves around the current government in a particular country in which we manufacture or trade, and also laws/legislation operate within your home market as well as overseas. If your government is socialist then perhaps there is a policy to tax more and to invest in the public sector. On the other hand if you have a more conservative or Republican government then the free-market is left to take control, taxation is less and there is often a smaller public sector.

Economic

The economic environment is a direct influence on all businesses. Obviously if you are studying marketing there is a huge element of economics within the topic itself, and you should be no stranger to the principles of economics. As we saw from our lesson on the marketing environment there is a macroenvironment, and internal environment and the microenvironment.

More specifically you’ll be at looking elements such as where a business is in terms of the current business cycle, and whether or not you are trading in a recession.

Sociocultural

The sociocultural environment embodies everything which is social and cultural within a nation or society. There are plenty of examples of society and culture on the marketing teacher website, so we recommend that you go to our lesson store and look through some of the consumer behaviour pages. Some notable examples would include the influence of learning, memory, emotion and perception, motivation, lifestyle and attitude and consumer culture. Have a look at the six living generations in America, social environment and class, the impact of your birth order on how you behave as a consumer and take a look at the eight types of online shoppers.

In a more general sense consider influences such as the increase in life expectation of Western consumers, and demographics which is the study of populations.

Technological

Technological factors are a multifaceted influencer. Let’s just think about the sorts of technology that you come in touch with almost daily. Smart phones such as Android and iPhone are now common – all – garden, and we are used to being able to access information and communication technology instantly no matter where we are. During studies or at work we have access to information on quick PCs and over the Internet, with faster broadband connections arriving in many parts of the world.

Technology also surrounds business processes. As we saw from our lesson on the functions within an organisation all departments use information technology or technology in one form or another. Our manufacturing operations will use technology to produce goods and services. Our logistics and warehousing functions use forklifts and lorries as well as order tracking technology and software. The customer service department will use communication technology to talk to customers but will also have access to internal systems, such as technology to simplify credit control and stock control for example. There are many, many more examples of technology.

Environmental

Environmentalism and marketing connect where marketing may affect the environment when serving consumers with products and services. There is an environmental movement which puts pressure on businesses, governments and everyday people to be green. There are a number of examples of how companies can be greener internally and externally, from addressing manufacturing today, to designing a much more sustainable future. A manufacturer might reduce the amount of waste produced as a result of the manufacturing process or a restaurant might reduce the amount of packaging or food waste. An environmental approach is set in today’s tactics, but will eventually be embedded in the strategic vision of the business.

Legal

When marketing overseas your business will need to take into account laws in the local market. For example cars sold in mainland Europe and the United States tend to be left-hand drive, whilst cars which are marketed in Japan and the United Kingdom right-hand drive. This is a local requirement. Different countries have different laws in relation to maximum speed limits and safety ratings on vehicles, as well as many other bylaws and codes.

 

PEST Analysis

PEST Analysis

What is PEST Analysis?

It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning.

Political Factors.

The political environment revolves around the current government in a particular country in which we manufacture or trade, and also laws/legislation operate within your home market as well as overseas. If your government is socialist then perhaps there is a policy to tax more and to invest in the public sector. On the other hand if you have a more conservative or Republican government then the free-market is left to take control, taxation is less and there is often a smaller public sector.

The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:

1.How stable is the political environment?

2.Will government policy influence laws that regulate or tax your business?

3.What is the government’s position on marketing ethics?

4. What is the government’s policy on the economy?

5. Does the government have a view on culture and religion?

6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

Economic Factors.

The economic environment is a direct influence on all businesses. Obviously if you are studying marketing there is a huge element of economics within the topic itself, and you should be no stranger to the principles of economics. As we saw from our lesson on the marketing environment there is a macroenvironment, and internal environment and the microenvironment.

More specifically you’ll be at looking elements such as where a business is in terms of the current business cycle, and whether or not you are trading in a recession.

Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at:

1. Interest rates.

2. The level of inflation Employment level per capita.

3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.

PEST Analysis

Sociocultural Factors.

The sociocultural environment embodies everything which is social and cultural within a nation or society. There are plenty of examples of society and culture on the marketing teacher website, so we recommend that you go to our lesson store and look through some of the consumer behaviour pages. Some notable examples would include the influence of learning, memory, emotion and perception, motivation, lifestyle and attitude and consumer culture. Have a look at the six living generations in America, social environment and class, the impact of your birth order on how you behave as a consumer and take a look at the eight types of online shoppers.

In a more general sense consider influences such as the increase in life expectation of Western consumers, and demographics which is the study of populations.

The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include:

1.What is the dominant religion?

2.What are attitudes to foreign products and services?

3.Does language impact upon the diffusion of products onto markets?

4.How much time do consumers have for leisure?

5.What are the roles of men and women within society?

6.How long are the population living? Are the older generations wealthy?

7.Do the population have a strong/weak opinion on green issues?

Technological Factors.

Technological

Technological factors are a multifaceted influencer. Let’s just think about the sorts of technology that you come in touch with almost daily. Smart phones such as Android and iPhone are now common – all – garden, and we are used to being able to access information and communication technology instantly no matter where we are. During studies or at work we have access to information on quick PCs and over the Internet, with faster broadband connections arriving in many parts of the world.

Technology also surrounds business processes. As we saw from our lesson on the functions within an organisation all departments use information technology or technology in one form or another. Our manufacturing operations will use technology to produce goods and services. Our logistics and warehousing functions use forklifts and lorries as well as order tracking technology and software. The customer service department will use communication technology to talk to customers but will also have access to internal systems, such as technology to simplify credit control and stock control for example. There are many, many more examples of technology.

Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:

1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?

2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?

3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?

4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?

The organization’s marketing environment is made up of:

  • 1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.
  • 2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.
  • 3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as PEST factors.

 

Marketing Environment

The Marketing Environment

The marketing environment surrounds and impacts upon the organization. There are three key elements to the marketing environment which are the internal environment, the microenvironment and the macroenvironment. Why are they important? Well marketers build both internal and external relationships. Marketers aim to deliver value to satisfied customers, so we need to assess and evaluate our internal business/corporate environment and our external environment which is subdivided into micro and macro.

Macroenvironment

The macroenvironment is less controllable. The macro environment consists of much larger all-encompassing influences (which impact the microenvironment) from the broader global society. Here we would consider culture, political issues, technology, the natural environment, economic issues and demographic factors amongst others.

Again for Walmart the wider global macro environment will certainly impact its business, and many of these factors are pretty much uncontrollable. Walmart trades mainly in the United States but also in international markets. For example in the United Kingdom Walmart trades as Asda. Walmart would need to take into account local customs and practices in the United Kingdom such as bank holidays and other local festivals. In the United Kingdom 2012 saw the 60th anniversary of Queen Elizabeth II’s reign which was a national celebration.

The United States and Europe experience different economic cycles, so trading in terms of interest rates needs to be considered. Also remember that Walmart can sell firearms in the United States which are illegal under local English law. There are many other macroeconomic influences such as governments and other publics, economic indicators such as inflation and exchange rates, and the level nature of the local technology in different countries. There are powerful influencers such as war (in Afghanistan for example) and natural disasters (such as the Japanese Fukushima Daiichi nuclear disaster) which inevitably would influence the business and would be out of its control.

To summarise, controllable factors tend to be included in your internal environment and your microenvironment. On the other hand less controllable factors tend to be in relation to your macro environment. Why not list your own controllable versus uncontrollable factors for a business of your choice?

Five Forces
SWOT Analysis
PEST

Internal Environment

The internal environment has already been touched upon by other lessons on marketing teacher. For example, the lessons on internal marketing and also on the functions within an organization give a good starting point to look at our internal environment. A useful tool for quickly auditing your internal environment is known as the Five Ms which are Men, Money, Machinery, Materials and Markets. Here is a really quick example using British Airways. Looking internally at men, British Airways employees pilots, engineers, cabin crew, marketing managers, etc. Money is invested in the business by shareholders and banks for example. Machinery would include its aircraft but also access to air bridges and buses to ferry passengers from the terminal to the aircraft. Materials for a service business like British Airways would be aircraft fuel called kerosene (although if we were making aircraft materials would include aluminium, wiring, glass, fabric, and so on). Finally markets which we know can be both internal and external. Some might include a sixth M, which is minutes, since time is a valuable internal resource.

Let’s look at an example of how the internal environment would impact a company such as Walmart. We are looking at the immediate local influences which might include its marketing plans, how it implements customer relationship management, the influence of other functions such as strategy from its top management, research and development into new logistics solutions, how it makes sure that it purchases high-quality product at the lowest possible price, that accounting is undertaken efficiently and effectively, and of course its local supply chain management and logistics for which Walmart is famous.

Microenvironment

The microenvironment is made from individuals and organizations that are close to the company and directly impact the customer experience. Examples would include the company itself, its suppliers, other marketing input from agencies, the markets and segments in which your business trades, your competition and also those around you (which public relations would call publics) who are not paying customers but still have an interest in your business. The Micro environment is relatively controllable since the actions of the business may influence such stakeholders.

Walmart’s Micro environment would be very much focused on immediate local issues. It would consider how to recruit, retain and extend products and services to customers. It would pay close attention to the actions and reactions of direct competitors. Walmart would build and nurture close relationships with key suppliers. The business would need to communicate and liaise with its publics such as neighbours which are close to its stores, or other road users. There will be other intermediaries as well including advertising agencies and trade unions amongst others.

Marketing Concept

Marketing Concept.

The marketing concept holds that achieving organisational goals depends on knowing the needs and wants of target markets and delivering the desired satisfaction better than competitors do.

Kotler and Armstrong (2010).

The marketing concept arrived after a series of other orientations that marketing companies underwent during the 20th Century. Initially there was production orientation where a company focused upon the science of manufacturing. Then there was a product orientation where a business is not only focused on the production processes but also upon the quality and desirability of a particular product. Then marketing companies progressed to a selling or sales orientation whereby products will proactively sold based upon features rather than the benefits to the individual customer and his or her needs. Hence the arrival of a market orientation which underpins our marketing concept, where needs and wants are satisfied through the delivery of value to satisfied customers. Below are some definitions of the marketing concept which demonstrate the breadth and scope of the term.

Marketing is not only much broader than selling, it is not a specialized activity at all. It encompasses the entire business. It is the whole business seen from the point of view of the final result, that is, from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise.

Drucker (1955, 2007).

Implementation of the marketing concept [in the 1990’s] requires attention to three basic elements of the marketing concept. These are: customer orientation; an organization to implement a customer orientation; long-range customer and societal welfare.

Cohen (1991).

The marketing concept is a philosophy. It makes the customer and the satisfaction of his or her needs the focal point of all business activities. It is driven by senior managers, passionate about delighting their customers.

Now that you have been introduced to some definitions of marketing and the marketing concept, remember the important elements summarised as follows:

  • Contemporary marketing focuses on the satisfaction of customer needs, wants and requirements.
  • It’s about the delivery of value to satisfied customers, through an exchange process.
  • The philosophy of marketing needs to be owned by everyone from within the organization.
  • Future needs have to be identified and anticipated.
  • There is normally a focus upon profitability, especially in the corporate sector.
  • More recent definitions recognize the influence of marketing upon society.
  • There is a longer-term relationship with customers.

Marketing Audit

Marketing Audit

The marketing audit is a fundamental part of the marketing planning process. It is conducted not only at the beginning of the process, but also at a series of points during the implementation of the plan. The marketing audit considers both internal and external influences on marketing planning, as well as a review of the plan itself.

1.The Internal Marketing Environment.

What resources do we have at hand? (i.e. The FIVE ‘M’s):

  • MEN (Labor/Labour).
  • MONEY (Finances).
  • MACHINERY (Equipment).
  • MINUTES (Time).
  • MATERIALS (Factors of Production).
  • How is our marketing team organised?
  • How efficient is our marketing team?
  • How effective is our marketing team?
  • How does our marketing team interface with other organisations and internal functions?
  • How effective are we at Customer Relationship Management (CRM)?
  • What is the state of our marketing planning process?
  • Is our marketing planning information current and accurate?
  • What is the current state of New Product Development? (Product)
  • How profitable is our product portfolio? (Product)
  • Are we pricing in the right way? (Price)
  • How effective and efficient is distribution? (Place)
  • Are we getting our marketing communications right? (Promotion)
  • Do we have the right people facing our customers? (People)
  • How effective are our customer facing processes? (Process)
  • What is the state of our business’s physical evidence? (Physical Evidence)

2. The External Marketing Environment.

As a market orientated organisation, we must start by asking – What is the nature of our ‘customer?’ Such as:

What is the nature of competition in our target markets?

  • Our competitors’ level of profitability.
  • Their number/concentration.
  • The relative strengths and weaknesses of competition.
  • The marketing plans and strategies of our competition.

What is the cultural nature of the environment(s)?

  • Beliefs and religions.
  • The standards and average levels of education.
  • The evolving lifestyles of our target consumers.
  • The nature of consumerism in our target markets.

What is the demography of our consumers? Such as average age, levels of population, gender make up, and so on. How does technology play a part?

  • The level of adoption of mobile and Internet technologies.
  • The way in which goods are manufactured.
  • Information systems.
  • Marketing communications uses of technology and media.

What is the economic condition of our markets?

  • Levels of average disposable income.
  • Taxation policy in the target market.
  • Economic indicators such as inflation levels, interest rates, exchange rates and unemployment.

Is the political and legal landscape changing in any way?

  • Laws, for example, copyright and patents.
  • Levels of regulation such as quotas or tariffs.
  • Labour/labor laws such as minimum wage legislation.

3. A Review of Our Current Marketing Plan

  • What are our current objectives for marketing?
  • What are our current marketing strategies?
  • How do we apply the marketing mix? (Including factors covered above in (a))
  • Is the marketing process being controlled effectively?
  • Are we achieving our marketing budget?
  • Are we realising our SMART objectives?
  • Are our marketing team implementing the marketing plan effectively?
  • Levels of staffing.
  • Staff training and development.
  • Experience and learning.

What is our market share? (total sales/trends/sales by product or customer or channel) Are we achieving financial targets? (profit and margins/ liquidity and cash flow/ debt: equity ratio/ using financial ratio analysis)

There are a number of tools and audits that can be used, for example SWOT analysis for the internal environment, as well as the external environment. Other examples include PEST and Five Forces Analyses, which focus solely on the external environment.

In many ways the marketing audit clarifies opportunities and threats, and allows the marketing manager to make alterations to the plan if necessary.

This lesson considers the basics of the marketing audit, and introduces a marketing audit checklist. The checklist is designed to answer the question, what is the current marketing situation? Lets consider the marketing audit under three key headings:

  • The Internal Marketing Environment.
  • The External Marketing Environment.
  • A Review of Our Current Marketing Plan.

 

Decision Making Unit

Decision Making Unit (DMU)

Individuals who make up the DMU

The decision Making Unit (DMU) is a collection or team of individuals who participate in a buyer decision process. Generally DMU relates to business or organisational buying decisions rather than to those of a family for example. There are a number of key players in this process namely the initiators, the gatekeepers, the buyers, the deciders, the users and the influencers. Let’s consider these individually prior to applying the decision making unit to an example of organisational buying.

Decision Making Unit

Influencers

Influencers are those who may have a persuasive role in relation to the deciders. They may be specialists who make recommendations based upon experience and their knowledge of products and services. Examples are consultants employed by businesses to help deciders make a final decision, or another example might be lawyers employed to offer legal advice. There are also informal influences such as family and friends, and people that you meet at trade associations or informal gatherings.

The relationship amongst the key players will be different for every organisation and in every purchase situation. Individuals may influences as well as initiators, and therefore none of these categories is mutually exclusive i.e. stand alone, since there is much crossover and blurring around the edges of roles.

Initiators

Initiators are the players who recognise that there is a need to be satisfied or a problem to be solved. This might come from a drive for efficiency due to the fact that some equipment will need replacing. There could be many reasons which stimulate the initiation.

Gatekeepers

Gatekeepers are individuals who press the stop/go button in the process. Often gatekeepers will be proactive in searching for information and delivering recommendations for those decision-makers further up the line. On other occasions gatekeepers can be seen stalling the flow of the decision-making process.

Buyers

Buyers are the professional function within an organisation generally responsible for purchasing. They are given a brief with a series of criteria against which to judge potential products or services, and their suppliers. They tend to be responsible for sourcing and negotiation.

Deciders

Deciders in a large organisation certainly are responsible for making the final deal or decision. Their role carries the responsibility of placing the final order. They might be senior managers or agents acting on behalf of an organisation in the market. The deciders will review information provided from lower down the buyer decision process from the buyers, gatekeepers and the original initiators.

Users

Users are those who put the service or product into operation once the deal has been clinched. Their opinions will be important especially if they are using manufacturing equipment, flying aircraft, using software to improve customer satisfaction, and so on. Users will be heavily involved in the post-purchase evaluation phase of the buyer decision process.

Buyer Decision Process

Buyer Decision Process

The stages of the Buyer Decision Process

The buyer decision process represents a number of stages that the purchaser will go through before actually making the final purchase decision. The consumer buyer decision process and the business/organisational buyer decision process are similar to each other. Obviously core to this process is the fact that the purchase is generally of value in monetary terms and that the consumer/business will take time to actually assess alternatives. For FMCG (Fast Moving Consumer Goods) the purchase decision process tends to be shorter/quicker, and for habitual purchase behaviour or repeat purchases the decision process is short-circuited.

Let’s look at an example based upon buying a new smart cellphone. The first stage is likely to be that you have a need for communication or access to the Internet, or problem because you cannot interact with friends using social media. The value added by products such as Android, iPhone or Windows phone and others should satisfy your need or solve your problem. So the second stage is where you speak to your friends and surf the Internet looking at alternatives, which represent stage two – or your information search. As a buyer you might visit a local cellphone store and speak to the sales staff to help you complete stage three, i.e. your evaluation of alternatives. Stage four is the selection of product and you go and make your final decision and buy your smartphone from a local store or using an e-commerce website. Stage five involves your post-purchase evaluation whereby you use the phone and have a positive, negative or mediocre experience of the product. If it doesn’t satisfy your needs you take action and more importantly you’ll tell others of your problems. If you’re pleased with the product, you will tell your friends and this will influence stage two (their information search) when they decide to buy a cellphone.

Remember that organisations and businesses also go through this process and that teams of individuals contribute to the decision-making process. This is called a Decision-Making Unit (DMU).

The stages of the buyer decision process are the recognition of the problem, the search for information, an evaluation of all available alternatives, the selection of the final product and its supplier (of course services are included) and then ultimately the post-purchase evaluation. Let’s have a look at each stage and offer a quick explanation of what it’s all about, and then let’s apply it to an organisation to help us work out what it’s all about.

Stage One

Stage one is the recognition of the particular problem or need and here the buyer has a need to satisfy or a problem that needs solving, and this is the beginning of the buyer decision process.


Stage Two

Stage two is where we begin to search for information about the product or service. Buyers here begin to look around to find out what’s out there in terms of choice and they start to work out what might be the best product or service for solving the problem or satisfying any need.

Stage Three

Stage three sees the evaluation of the available alternatives whereby the buyer decides upon a set of criteria by which to assess each alternative.

Stage Four

We buy or select a product/service/supplier at stage four. Individuals or teams of buyers make the final choice of what to buy and from whom to buy it.

Stage Five

Interestingly the process does not stop at the point of purchase because there is a stage five called the post-purchase evaluation. The process continues even when the product or service is being consumed by the individual or business. So if it doesn’t meet your needs or solve your problem you can take action to improve the product or service. Your actions at this point might inform other potential buyers who would be keen to hear about your experiences – good or bad.

Positioning in marketing

Positioning

The third and final part of the SEGMENTTARGET – POSITION (STP) process is ‘positioning.’ Positioning is undoubtedly one of the simplest and most useful tools to marketers. After segmenting a market and then targeting a consumer, you would proceed to position a product within that market.

The term ‘positioning’ refers to the consumer’s perception of a product or service in relation to its competitors. You need to ask yourself, what is the position of the product in the mind of the consumer?

Remember this important point. It is all about ‘perception’. As perception differs from person to person, so do the results of the positioning map e.g what you perceive as quality, value for money, etc, is different to my perception. However, there will be similarities.

Products or services are ‘mapped’ together on a ‘positioning map‘. This allows them to be compared and contrasted in relation to each other. This is the main strength of this tool. Marketers decide upon a competitive position which enables them to distinguish their own products from the offerings of their competition.

Take a look at the basic positioning map template below.

Positioning map
Positioning map

The marketer would draw out the map and decide upon a label for each axis. They could be price (variable one) and quality (variable two), or Comfort (variable one) and price (variable two). The individual products are then mapped out next to each other Any gaps could be regarded as possible areas for new products.

Trout and Ries suggest a six-step question framework for successful positioning:

1. What position do you currently own?

2. What position do you want to own?

3. Whom you have to defeat to own the position you want.

4. Do you have the resources to do it?

5. Can you persist until you get there?

6. Are your tactics supporting the positioning objective you set?

Look at the example below using the auto market.

Product: Ferrari, BMW, Kia, Range Rover, Saab, Hyundai.

Positioning
Positioning map

Positioning Map for Cars.

The six products are plotted upon the positioning map. It can be concluded that products tend to bunch in the high price/low economy(fast) sector and also in the low price/high economy sector. There is an opportunity in the low price/ low economy (fast) sector. Maybe Hyundai or Kia could consider introducing a low cost sport saloon. However, remember that it is all down to the perception of the individual.

 

Segmentation

Segmentation

This is the first of three lessons based upon segmentation, i.e. SEGMENT – TARGET – POSITION. To get a product or service to the right person or company, a marketer would firstly segment the market, then target a single segment or series of segments, and finally position within the segment(s).

Segmentation is essentially the identification of subsets of buyers within a market that share similar needs and demonstrate similar buyer behavior. The world is made up of billions of buyers with their own sets of needs and behavior. Segmentation aims to match groups of purchasers with the same set of needs and buyer behavior. Such a group is known as a ‘segment’. Think of your market as an orange, with a series of connected but distinctive segments, each with their own profile.

Segmentation
Segmentation in marketing

Of course you can segment by all sorts of variables. The diagram above depicts how segmentation information is often represented as a pie chart diagram – the segments are often named and/ or numbered in some way.

Segmentation is a form of critical evaluation rather than a prescribed process or system, and hence no two markets are defined and segmented in the same way. However there are a number of underpinning criteria that assist us with segmentation:

  • Is the segment viable? Can we make a profit from it?
  • Is the segment accessible? How easy is it for us to get into the segment?
  • Is the segment measurable? Can we obtain realistic data to consider its potential?

The are many ways that a segment can be considered. For example, the auto market could be segmented by: driver age, engine size, model type, cost, and so on. However the more general bases include:

  • by geography – such as where in the world was the product bought.
  • by psychographics – such as lifestyle or beliefs.
  • by socio-cultural factors – such as class.
  • by demography – such as age, sex, and so on.

A company will evaluate each segment based upon potential business success. Opportunities will depend upon factors such as: the potential growth of the segment the state of competitive rivalry within the segment how much profit the segment will deliver how big the segment is how the segment fits with the current direction of the company and its vision.

SEGMENT – TARGET – POSITION