PRINCIPLES OF MARKETING

LECTURE ONE: MARKETING OVERVIEW

1.1 Introduction
Welcome to the first lecture on the marketing overview. We shall begin the study of this
unit by highlighting meaning of Marketing and defining some core marketing concepts.
1.2 Specific objectives:

At the end of the lecture you should be able:

1) Define the term ‘Marketing’
2) Define other key marketing concepts.
3) Differentiate between marketing and selling
4) Describe elements of the marketing mix
5) Discuss the evolution of Marketing

1.3 Lecture Outline

1.3.1 Definition of ‘Marketing’ and other related terms. reflection questions, activity,
exercises/quizzes
1.3.2
1.3.3 The Marketing Mix; Conventional and Extended Marketing mix
reflection questions, activity, exercises/quizzes
1.3.4 The Evolution of Marketing, reflection questions, exercises/quizzes
1.3.5 Customer Relationship Marketing

1.4 Definition of Marketing

Probably, before we define Marketing, it is important to note that the term is commonly
used in today’s workplace. You may already have an inclination to its meaning from its
common usage.
Some people loosely define marketing as activities aimed at creating product awareness,
while others view it as activities aimed at persuading customers. Yet others will equate it
to selling. While all this describe some small aspect of marketing, they don’t quite get the
real scope of Marketing. Several authors have given a comprehensive definition of
Marketing.

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The Chartered Institute of Marketing of the United Kingdom defines marketing as, “The
management process which identifies, anticipates, and supplies customer needs
efficiently and profitably.”
Kibera (1996) defines marketing as “the performance of business and non-business
activities which attempt to satisfy a target individual or group needs and wants for mutual
benefit or benefits.”
Kotler (2006), the American marketing guru provides the definition of marketing as “A
social and managerial process whereby individuals and groups obtain what they need and
want through creating and exchanging products and value with others.”

From these definitions it is clear, that marketing is not just about creating awareness,
conviction or selling. Its about identifying needs and engaging in activities [exchanges] to
satisfy these needs in such that both everyone is better off.

DISTINCTIONS BETWEEN MARKETING AND SELLING

Some distinctions between marketing and selling are as below:

Selling Marketing
Emphasis is on the product Emphasis is on customer needs and wants
The company first the product and figures The company first determines the customer
how to sell it. wants and figures out how to make and
deliver a product to satisfy those wants.
The management is sales volume oriented Management is customer oriented in
to make profit. making profit.
Planning is short run oriented in terms of Planning is long term oriented in terms of
today’s products and market. new products
The needs of the seller are stressed. Tomorrow’s market and future growth are
stressed.
The needs of the customer are emphasized

For you to appreciate marketing further there is need to understand the following
concepts.

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Core Marketing Concepts
12 Needs – The basic concept underlying marketing is that of human needs. Needs
comprise of those things that human beings feel they cannot do without e.g. food,
clothing, shelter, safety, education etc.
13 Wants –Wants are the form of human needs take as they are shaped by culture
and individual personality for example urbanites want Television sets.
14 Demand –When a want is backed by buying power it becomes demand.
15 Product – Is anything that can be offered to satisfy needs or wants. It can be
tangible or intangible.
16 Market – A constituency of potential customers sharing particular needs or wants
and who might be willing and able to engage in exchange to satisfy that
need or want.
A market also refers to an institutional arrangement that brings together buyers
and sellers to transact.
17 Marketing offer – Is a combination of products or service presented to the
market to satisfy a need or a want.
18 Value and Satisfaction – Value is the ability of a commodity to satisfy human
wants. It also refereed to as quality or utility. Customers look for value in a
product before paying for it. The ability of a product to meet customer
expectations results in customer satisfaction.
19 Exchange – Is the act of obtaining a desired object from someone by offering
something in return.
20 Transaction – An exchange of values between two or more parties, where either
party gains.
21 Marketing Management – Is the art and science of choosing target markets and
building relationships with them.

1.5 THE MARKETING MIX

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 The marketing mix is a combination of controllable, tactical marketing tools that a firm
blend to produce the response it wants in the target market. The marketing mixes consist
of everything the firm can do to influence the demand for its product.

The many possibilities can be collected into four groups of variables also known as the
“four Ps” of marketing mix i.e. product, price, place and promotion.
The conventional 4 P’s of marketing
have since been expanded to 7 P’s as :

Marketing Mix Description

Product The goods and services on offer and their quality, feature, and
design.
Price That which consumers are willing to pay to get a unit of the
product or services
Place The distribution methodology of the products or service to the
market place or target market
Promotion The selling activity used to motivate the customers and entice
them to buy more of the product
People People are the human beings who drive product or service
delivery
Process The framework that is followed in the marketing and delivery of
products and services
Physical evidence The tangible elements of services, ideas or any other intangible
products put on offer

1.6 THE EVOLUTION OF MARKETING

The field of marketing has developed through 5 stages as shown in the diagram below:

Orientation Profit driver Time frame

1. Production Production and Until 1950s
Concept distribution methods
2. Product Concept Quality of product Until 1960s
3. Selling Concept Selling methods 1950s and
1960s
4. Marketing concept Needs and wants of the 1970s to date
customer
5. Societal Marketing Benefit to the society 1990s – to date
Concept

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This historical evolution of marketing is discussed in five competing concepts as follows.
The competing concepts are also referred to as marketing philosophies.

1. The Production Concept

- It is the idea that consumers will buy products which are highly available
and affordable.
- Therefore businesses managers should concentrate on achieving high
production efficiency, low costs, and mass distribution.
- They assume that consumers are primarily interested in product
availability and low prices.
- Though one of the oldest marketing concepts it is still widely adopted by
leading firms like e.g. Coca cola

2. The Product Concept

- This concept holds that consumers will favour products that offer the best
quality, performance and features.
- Therefore the organization should devote its energy in making continuous
improvements to the product e.g. Auto mobile industry
- However overemphasis on product development might also lead to
marketing myopia. Marketing myopia refers to a mistake of paying more
attention to specific product features a company offers than to the benefits
and experiences produced.

3. The Selling Concept

- The idea that consumers will not buy enough of the organizations products
unless the organization undertakes large scale selling and promotional
effort
- This concept is typically practiced by unsought goods providers e.g.
Insurance services.

4. Marketing Concept
- The marketing management philosophy holds that achieving
organizational goals depends on knowing the needs and wants of target
markets and delivering the desired satisfaction better than competitors do.

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 - Under this concept, customer satisfaction is the path to sales and profits.
Hence the slogan, “the customer is the king as is adopted by some
organisations.”
- Customer driven companies undertake massive marketing research on
customer needs and desires, gather new product and service ideas and test
product improvements.

The Selling and Marketing Concepts Contrasted

Starting Focus Means Ends

Point
The selling
Factory Existing Selling Profits
Concept Products and Through
Promoting sales volume

The marketingMarket Customer Intergrated Profits

Concept Needs marketing through
Customer
satisfaction

5. Societal Marketing Concept

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 Holds that customers will favour products and services that attempt to promote
the values of the society, hence the emergence of corporate social responsibility in
the recent past as a core marketing strategy e.g. Safaricom, Celtel, KCB.

1.7 CUSTOMER RELATIONSHIP MARKETING (CRM)

CRM is defined as the overall process of building and maintaining profitable ties between
organizations and customers by delivering superior customer values and satisfaction.
CRM therefore involves attracting, retaining and growing customers.

Overtime, relationship marketing has grown and replaced transactional marketing as

summarized in the table below.

Transactional marketing Relationship marketing

(One way communication) (Two way communication)

 Focus on a single sale  Focus on customer retention

 Product features oriented  Orientation on product benefits
 Short time scale  Long timescale
 Little customer service  High customer service
 Limited customer commitment  High customer commitment
 Moderate customer contact  High customer contact
 Quality is the concern of  Quality is the concern of all
production

Basic Tenets of CRM

To effectively manage customer relationship, marketers normally employ the following

three approaches:

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1. Customer Value and Satisfaction
Customer perceived value is the customer’s evaluation of the difference between
the benefits and costs of a marketing offer relative to those of the competing
offers. Whereas the customer may not be accurate in judging the cost and values,
they would always want to maximize their benefits at minimum cost.

Customer satisfaction refers to a products perceived performance as compared to

the buyers’ expectation. If the products performance falls short of expectation the
customer is dissatisfied and vice versa. Smart companies aim at delighting
customers by exceeding their expectation.

2. Customer loyalty and retention

Satisfied customers produce several benefits to the company including
(a) They are less price sensitive.
(b) They spread a favourably word of mouth to others about the company
(c) They remain loyal for a longer time.
(d) They buy a wider range of products
(e) They cost less to service as they are familiar with the product and business
design
(f) They exhibit strong Lifetime Customer Value (LCV) as the customer
grows through the loyalty ladder from prospect, to customer, to client to a
supporter, and finally to an advocate as shown below

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 Hence for companies to retain their customers for a longer period, they must aim
high in satisfying their needs and wants.

3. Growing share of customers

Marketers are pre-occupied by the want to increase their share of customers i.e.
the share they get of the customers purchasing in their product categories.

To increase share of customers,

(a) Firms can offer greater variety to current customers

(b) Train employees to cross sell - Cross selling means getting more business
from current customers of one product by selling them additional offering
e.g. offering a customer who comes to buy a suit, a shirt, tie, a belt and
1.8 Activities shoes.
This assignmentAparequires you to undertake the process of analyzing your own
company {a company of your choice if not employed} and its operating
thy a Marketing perspective. You will provide an overview of
environments from
your organization, as well as detail the type of orientation towards marketing it
takes.

Here, you are not just reporting what your organization is doing now and what
‘orientation’ it displays in its marketing strategies, but also assessing whether its
orientation towards marketing is likely to (or perhaps should) change in the future.

You are also required to identify how your organizations blend the 7 elements of 9
the marketing mix for its Key Products. e.g How does it price.
1.9 Summary

In this lecture you have learnt that:

Marketing is the management process which identifies, anticipates, and

supplies customer needs efficiently and profitably.”
Marketing has evolved through FIVE stages popularly referred to as marketing
orientations or philosophies
Traditional marketing mix had it 4ps, which was later extended to 7ps
Customer relationship marketing involves, attracting , retaining and growing the
share of customers.

1.7 Suggestion for further reading

Kotler, P. (2000): Marketing Management – Analysis, Planning,
Implementation and Control, 8th Edition, New Delhi, Prentice-Hall, India.
Stanton, W.J (1981): Fundamentals of Marketing, 5th Edition, New York,
McGraw-Hill, Inc.

LECTURE TWO: MARKETING ENVIRONMENT

2.1 Introduction
Welcome to the Second lecture on the marketing environment. We shall begin the study
of this unit by defining the term ‘Marketing Environment’ and highlighting the two broad
classification of Marketing Environment. That is the Micro marketing Environment and
the Macro marketing Environment. We shall then analyze the forces and factors of both
the micro and macro marketing environment.

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 2.2 Specific objectives:

At the end of the lecture you should be able:

1) Define the term ‘ Marketing Environment’
2) Differentiate between the Micro Marketing Environment and the Macro
marketing Environment
3) Describe factors and forces of the Micro marketing Environment
4) Describe factors and forces of the Macro Marketing Environment.

2.3 Lecture Outline

2.3.1 Definition of ‘Marketing Environment’ reflection questions, activity,

exercises/quizzes
2.3.2 Micro marketing Environment; Its factors and sub-factors. Reflection questions,
activity, exercises/quizzes.

2.3.3 Macro marketing Environment; Its factors and sub-factors. Reflection questions,
activity, exercises/quizzes.

2.4 Definition of Marketing Environment

A company’s marketing environment consists of factors and forces that may affect
marketing management’s ability to built and maintain successful relationship with
customers.

The marketing environment offers both opportunities and threats. Successful companies
are those that adapt to the environmental changes quickly and turn the threats to
opportunities of growth.

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Marketers understand their environments by conducting environmental scanning.
Environmental scanning is the practice of keeping track of external changes that can
affect markets including the demand for goods and services of an organization.

The marketing environment has two broad dimensions:

(a) Micro environment

(b) Macro environment

2.4.1 THE MICRO MARKETING ENVIRONMENT

These are factors very close to the company that affects its abilities to service its
customers. They include; the company, supplier, customer markets, publics and
marketing intermediaries.

1. The Company
The marketing manager is influenced by the other company departments; hence
he/she must work closely with them.

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

2. The Suppliers

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 - Suppliers provide the resources needed by the company to produce its
goods and services.
- Marketing managers must watch supply availability to avoid deficiency of
the product in the market.
- Marketers should monitor price trends of their key inputs e.g. petroleum
products, rubber, etc. rising supply costs translates to increased production
cost which forces selling price to go up.

3. Customer Markets
A customer is one who buys a company’s final product in exchange for a
monetary value. Marketers must understand the types of customer markets and
where possible use price discrimination on these markets. Five types of markets
are explained below:

(a) Consumer markets – Consist of individuals and firms that buy goods and
services for final consumption.
(b) Industrial markets – Buys goods and services for further processing or for
use in their production process.
(c) Resellers markets – Buys goods and services to resell at a profit.
(d) Government markets – Made up of government agencies that buy goods
and services to produce public goods or services.
(e) International markets – Consist of buyers in other countries including
consumers, producers, resellers and governments.

4. Publics
Publics are groups that have an actual or potential interest in an organisation’s
ability to achieve its marketing objectives. They include:

(a) Financial Publics – They influence the ability of a firm to obtain funds for
conducting its marketing programs. They include banks, investment
houses and stockholders.

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 (b) Media publics – Include newspapers, magazines, radio and television
stations that carry news, features and editorial opinion. The marketer must
know how to interact with the media for regular coverage of the
organisation.
(c) Government publics – Marketers must always consult the company
lawyers on issues of product safety, advertisement etc.
(d) Citizen action publics – A company’s public relations sector must stay in
term with consumers and consumer action groups and attend to their
concerns.
(e) Internal publics – Includes workers, management, volunteers, board of
director etc. Companies must motivate their internal publics. It motivates
marketing force strive hard to attaining the set goals and this spills over to
external publics.

5. Marketing Intermediaries
These are forces that can help the company promote, sell and distribute its
products to the final buyer. They include resellers, physical distribution firms and
marketing service agencies.

(a) Resellers – Are distribution channel firms that help the company find
customers e.g. wholesalers, distributors, retailers (Nakumatt, Uchumi,
Tuskys). These organizations often have enough monopsony power to
dictate terms or even shut the manufacturer out of large markets.
(b) Physical distribution firms (transporters) – Are firms that help the
company move its goods from the point of manufacturer to the final
consumers. The marketer must balance factors like costs, delivery time
and safety.
(c) Marketing service agencies – Are research firms (Steadman Group),
advertising agencies, (Adopt A Light, Eagles Outdoor, Monier Outdoor,
The Scann Group), media houses (Nation, Standard, Royal Media, KBC)
and marketing consultants. Such firm’s help the company promote and

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 target its products to the right markets. The marketer must consider price,
service quality, target market etc. before choosing a marketing agency.

2.4.2 MACRO MARKETING ENVIRONMENT

Macro marketing environmental are factors that are outside the company’s control and
often pose threats or provide opportunities to the company. The forces are often
discussed under the PLEST or PEST frame work as follows:

5 Political
6 Legal environment
7 Economic environment
8 Social environment (demographic environment)
9 Technological environment

1. Political and Legal factors

- These comprises of laws, regulations, government agencies and social
pressure groups that include and limit various organizational marketing
effort.
- Every marketing activity is subject to a wide range of laws and
regulations.
- These legislations have been enacted for the following reasons:

(a) To protect companies from each other e.g. patent rights.

(b) To protect consumers from unfair business practices e.g. labels on
cigarettes “… smoking kills …”, “don’t drink and drive …”
(c) To protect consumers from overpricing e.g. laws requiring banks
to charge up to a given interest rate.

- Marketers need to know the major laws protecting consumers, society and
competition.

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

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 - Marketers therefore have to keep close track of the demographic trends
because people make up markets both at home and abroad.
- Marketers have to track changes in age, family structures, geographic

population shifts, population diversity etc.

4. Technological Environment
- Refers to forces that create new technologies, new products and market
opportunities e.g. internet, mobile phones, computers, credit cards,
television, etc.

- New technologies create new markets and opportunities. Companies that

do not keep up with technological change soon find their products having
been rendered obsolete.

- Through research and development, companies are able to produce

practical and affordable versions of products.

5. The Competitive Environment

- A firm’s competitors are those organizations who produce and sell similar
or identical products/service to those of the firm.
- Successful firms are those that provide greater customer value and
satisfaction relative to competition.
- Marketers must gain strategic advantage by positioning their product
offerings strongly against competitor’s offerings.
- Economists describe three main types of competition:

(i) Pure competition

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- Occurs when similar products are offered, there are many buyers and
sellers, the sellers can freely enter the market or exit it and both buyers
and sellers have free access to information.
- Marketers must understand firms under perfect competition take prices as
given by the market and that any marketing effort they engage only creates
awareness and might not affect the quantity demanded directly
- Example include the cooking oil industry in Kenya is made up of Bidco,
Unilever, Kapa, Pwani etc.

(ii) Monopolist

- A large single seller in the market.

- Produces products with no close substitute
- Has control over the prices that they charge in the market.
- Firms limit quantity supplied and charge high prices to maximize profits.

(ii) Monopolistic competition

- Occurs when there are a few large sellers in the market. No free entry or
exit from the market, information does not flow freely and each firm has
full control of its demand curve.
- Firms are price setters, but are weary of competitor’s moves.
- Example includes Celtel, Safaricom and Telcom.

(iii) Oligopoly
- Occurs where products are similar but differentiated.
- There are a few sellers and no free flow of information. Firms have full
control of their prices such that a price reduction by one firm is quickly
followed by competing firms to secure their market share but a price

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 increment by one oligopolist is not necessarily followed by the other
firms.
- Firms often enter a cartel arrangement to push prices upwards as they
operate like a monopolist

- For example; Shell, Kenol Kobil, Total, Caltex, in the oil business in
Kenya.

Competition largely poses the problem of pricing that the marketer must always
try to resolve. The other competitive forces are threat of new entrants, threat of
substitute products and bargaining power of suppliers.( See Porters Model).

2.5 ACTIVITY
You are also required to examine and analyze the context and environments in which
your organization operates. { Company of your choice if not employed} i.e its
industry and the macro-environmental forces impacting on the industry, as well as
how the micro-environmental forces impact its offering.

2.6 SUMMARY

Marketing environment refers to forces and factors that affect our efforts as
marketers.
The Marketing environment is divided into two major classes, i.e the Micro –
marketing environment, and the Macro- marketing environment.
Micro-marketing environment are the forces and factors so close to the company
that the company can influence considerably.
Macro-marketing environment consists of forces and factors that the company has
little or no influence over.

2.7 Suggestion for further reading

1. Kotler P. and Armstrong G.,(2008), Principles of Marketing, 12th Edition, Prentice Hall.

2. Kotler, P & Keller, K.L., (2006), Marketing Management. 12 th ed. Upper Saddle River, NJ:
Pearson – Prentice Hall

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3. Etzel, M.J., Walker, B.J. and Stanton, W.J., (2007), Marketing, 14TH edn. McGraw-Hill,
Irwin.

LECTURE THREE: MARKET SEGMENTATION, TARGETING AND

POSITIONING

3.1Introduction
Welcome to the third lecture on the marketing segmentation, targeting and positioning.
These three activities sometimes referred to as the STP process are undertaken one after
the other beginning with Segmentation, then Targeting and Finally Positioning. We shall
begin the study of this unit by discussing Market segmentation and proceed on to Market
targeting then Product Positioning.

9.1 Specific objectives:

At the end of the lecture you should be able:

1) Define the terms ‘ Market Segmentation’ Market Targeting’ and ‘Product
Positioning’
2) Describe the bases of segmenting Markets
3) Explain market targeting strategies
4) Describe bases for positioning a product.

9.2 Lecture Outline

9.2.1 Definition of ‘Market Segmentation’ and rationale of segmenting markets.

Reflection questions, activity, exercises/quizzes

9.2.2 Bases of segmenting markets, reflection questions, exercises/quizzes

9.2.3 Significance of Market segmentation

9.2.4 Definition of Market targeting
9.2.5 Market targeting Strategies
9.2.6 Definition of Product Positioning
9.2.7 Bases for Product Positioning
9.2.8

9.3
3.4.1 MARKET SEGMENTATION

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Market segmentation means dividing a market into distinct groups with distinct needs,
characteristics or behavior who might require separate products or market mixes.
Market segmentation is the process of dividing the market into specific groups of
consumers who share common needs.

A market segment is a group of customers who respond in a similar way to a given set of
marketing effort. The main strategies used in segmenting consumer markets are;
Geographic, Demographic, behavioral and economic factors
(a) Geographic Factors

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

Many companies in Kenya segment the country into five regions, Nairobi, Mountain, Rift
Valley, Nyanza and Coastal.

Companies do localize their products, advertising, promotion and sales efforts to fit the
needs of individual regions e.g. Daily National Nairobi edition.

(b) Demographic Segmentation

Divides the market into groups based on variables such as age, gender, family size,
family life cycle, income, occupation, education, religion, race, generation and
nationality.

Using these variables, the market could be segmented as follows:

Base Typical segmentation

a) Age Under 6; 6-11; 12-19; 20-34;p 35-49; 50-64;65 and above.
b) Gender Male and female
c) Family size 1-2; 3-4; 5+

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 d) Family life cycle: Young and single; young, married, youngest child six years and
above; older, married with children; older, married no child under
18 years; older, single; other.
e) Income Under $ 10000; $ 10000-15000; $15000-20000; $20000 – 30000; $30000-
50000; $50000-100000; $100000 and above.
f) Occupation Professional and technical: managers, officials and proprietors, clerical;
sales; craft people, foremen; farmers; retired; students; house wives; unemployed.
g) Education Grade school or less: High school or less: High school graduate; college
graduate etc.
h) Religion Catholic, Protestant, Jewish, Muslim, Hindu, etc
i) Race White, Black, Asian
j) Nationality American, British, French, Kenyan etc.

(c) Behavioral Segmentation

Divides buyers into groups based on their knowledge, attitudes, uses or response
to a product. The segments that emerge include:

(i) Occasion segmentation – Divides the market into groups according to

occasions when buyers get the idea to buy, actually buy or use the
purchased item e.g. coffee for cold season.

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

(iii) Loyalty Status – A market can be segmented by consumer loyalty.

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

( d ) Psychographics

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Divides the market into groups based on variables such as Social Class, Lifestyle and
Personality. Using these variables market could be segmented as follows.

Base Typical segmentation

a) Social class Lower lower; upper-lower; working class, middle class,
upper-middle, lower upper; upper-upper.
b) Lifestyle Straights, swingers, longhairs.
c) Personality Compulsive, authoritarian, ambitious, high-achievers,
gregarious.

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

Requirements for effective segmentation

1. Measurable – The size, purchasing power and profiles of segments can be

measured.
2. Accessible – The market segment can be reached and served. E.g if your target
market is school going students, the best time to advertise is in the evenings.
3. Substantial – The market segments should be large and profitable enough to serve
e.g Toyota targets the African market with economical cars, because the larger
populations are medium income earners.
4. Differentiable – The segments are conceptually distinguishable and respond
differently to different market mix elements and programs e.g people in rural
areas are price sensitive and averse to highly price urnanites are less price
sensitive.
5. Actionable – Effective programs can be designed for attracting and serving the
segments.

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 6. Profitable- must be capable of achieving the desired objectives, this
may not be in financial terms, eg segments can be identified and used
as a means of entering a market even though they produce little or no
profit.
7. Reliable-the chosen segment must demonstrate a history and a future –
reason to get started.
8. Identifiable-display some common characteristics which sets it apart
from the overall market, eg distinctive needs, psychological traits.
9. Recognizable-members should recognize themselves as being
“different/recognizable by others.
NB. The main benefit of market segmentation is in the understanding
gained of customers. Greater understanding allows marketers to
appreciate why people buy-begins to know how to serve the customers
and how to position the company or its products.

REASONS FOR SEGEMENTATION.

-to focus activities
-to reduce risk
-to defeat the competitor
-to understand the customer
-to assist in planning.

MARKET TARGETING

Targeting refers to selection of the ultimate sectors which a marketer chooses as being the
most likely to be successful in achieving the corporate/marketing objective.

A target market is a set of buyers sharing common needs or characteristics that the
company decides to serve e.g. wholesalers who stock cooking oil products could be a
target market for a cooking oil manufacturer like Bidco.

TARGET SELECTION
Market attractiveness may be measured by such criteria as:

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-price sensitivity of segment/pricing trends
-potential loyalty
-growth potential
-size of the market
-profitability of the market
-Intensity of competition
-distribution structure.

Market Targeting Strategies

After analyzing the various segments, the company must then decide on the method to
use in approaching the market. The strategies for selecting a target market include:
(i) Undifferentiated marketing
(ii) Differentiated marketing
(iii) Concentrated marketing
(iv) Micromarketing

Undifferentiated Marketing (Mass Marketing)

This is a situation in which a firm decides to ignore the various market segments and go
for the whole market with one type of product using one form of marketing mix e.g. mass
advertising of Equity Bank, mass distribution of Jogoo maize flour, mass promotional
campaigns of Coca-Cola.

The main advantage of this strategy is that it is a cost saving approach

The main undoing of this strategy includes:

 Makes a firm unimaginative
 Makes a firm vulnerable to competition

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Differentiated Marketing (Segmented Marketing)

Using this strategy, a firm decides to target several market segments and designs
separated offers or market mix for each e.g. Toyota has differentiated markets as follows:

(i) Toyota Prado/Lexus – For consumers who care about size, strength, safety and
not price.
(ii) Toyota Corolla – For consumers who care about fuel consumption and are price
sensitive.

The main advantage of this strategy is that may yield financial success with economies of
scale in production and marketing.

The main disadvantage of this strategy is that it is very costly strategy. The high cost
originates from; Product design cost, promotion costs for different markets, inventory
cost for various markets, research cost amongst others.

Concentrated Marketing (Niche Marketing)

This is a strategy where a firm selects a market niche and concentrates on it. It involves
offering one product to one specific group.

Is especially appealing when company resources are limited. Instead of going after small
share of large markets, the firm goes after a large share of one or a few segments or
niches e.g. KCB has branches all over the country, I & M Bank, has branches only in
cities i.e. Nairobi, Kisumu, Mombasa. I & M is applying niche marketing.

Micromarketing (One to One Marketing)

Micromarketing is the practice of tailoring products and marketing programmes to suit

the tastes of specific individuals and locations. It is broadly divided into local marketing
and individual marketing.

26
Local marketing is tailoring brands and promotions to the needs and wants of local
customer groups i.e. cities, neighborhoods or specific stores

Individual marketing is the tailoring of products and marketing programs to the needs and
preferences of individual, customers also called one to one marketing.

3.4.3 POSITIONING

Product positioning means the way the product is defined by consumers on important
attributes i.e. the place the product occupies in the mind of the consumers relative to
competitors products. One positioning expert once commented that “products are created
in the factory, but brands are created in the mind”

Positioning refers to the place that a product or service holds in the mind of the target
audience(s).
-how a customer “sees” or “perceives” an offering and marketers must make every effort
to ensure that what they are offering is what the customer wants. Eg high price and high
quality.
-positioning is the act of designing the company’s offer and image so that the target
market understands and appreciates what the company stands for in relation to its
competitors.

Toyota 110 is positioned as an economical car, Volvo positions on sa Mercedes is a

luxuriuorise car, Hummer positioned on a very high performance with a price tag to
match.

Examples of positioning slogans:

(a) Safaricom: The better option

27
 (b) Nakumatt: You need it we’ve got it
(c) Nation newspaper: The Truth
(d) Mash : We lead the leaders
(e) Kenya Airways: The pride of Africa
(f) Lexus: The passionate pursuit of excellence
(g) Mercedes: In a perfect world, everyone would drive a Mercedes

The Nature of Positioning

 Positioning assumes that consumers compare products along important features.

To simplify the buying process, consumers organize companies, products and
services into categories and position them in their minds
 Positioning must clearly indicate these features lest it fails. The marketer must
position the market offer so that it gives them the greatest possible advantage
 Marketers must come up with excellent positioning maps. A positioning map is an
effort of the marketer to show consumer perception of their brands versus
competing products on important dimensions.
 Positioning must be built around a differentiation gimmick
 Marketing mix is used to facilitate positioning

Poor Positioning May Lead to:

1. Undesirable positioning: head on with stronger competition

2. Undesirable position: Position without demand from customers
3. Fuzzy positioning: Nobody knows what the distinctive feature really is.
4. No positioning: Nobody has heard of the positioning

Bases for Positioning a Product

1. Benefits
2. Price and quality combination
3. Uses and application
4. Product user position
5. Product class position
6. Positioning against Competitor (comparative)
7. Origin positioning

28
Choosing a Differentiation and Positioning Strategy

Positioning task takes four steps:

(1) Identifying a set of possible competitive advantages
(2) Choosing the right competitive advantages
(3) Selecting an overall positioning strategy
(4) Developing a Position Statement

Example of a Position Statement

- A positioning statement summarizes company or brand positioning.

- A good positioning statement should follow this form:
To (target segment and need) our (customers), our (brand) is (concept) the
best in the market (point of difference).
e.g to all trendy men, Sir Henrys Suits offers the latest designer suits,
specially tailored to fit the modern fashion and a look of elegance. Non
compares with us in men’s wear.
“Sir Henrys, the best a man can get.”

Challenges of Positioning
(a) Over positioning
(b) Under positioning
(c) Confused positioning
(d) Doubtful positioning: Buyers cannot believe

Tools to Facilitate Positioning

1. Advertising
2. Pricing
3. Personnel
4. Product features
5. Branding
6. Slogan
7. Service environment

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 9.4 ACTIVITY

Describe the Segmentation, Targeting and Positioning strategy that your organization
adopts with respect to its products. In other words, identify the target segments, as well as
how the organization wants its product(s) to be viewed by the targeted segments.

Note: If your organization produces many goods and/or services, you may want to pick a
particular one and provide more depth on that particular one, rather than being very
general about the entire organization.

9.5 SUMMARY

Marketing Segmentation refers to divided the target market into smaller sub-
markets [segments], each that has similar response to your offering.

Four main bases used in segmenting markets include the Geographical,

Demographic, Behavioral, and Psychographic.
The process of determining how many and which particular segments to serve is
known as Market targeting. It comes after market segmentation
Four commonly used market targeting strategies are; Undifferentiated Marketing,
Differentiated Marketing, Focus/Niche Marketing & Micro marketing.
Product positioning refers to the place the product takes in the mind of the target
customer, on certain attributes relative to competing products.

3.7 Suggestion for further reading

4. Kotler P. and Armstrong G.,(2008), Principles of Marketing, 12th Edition, Prentice Hall.

5. Kotler, P & Keller, K.L., (2006), Marketing Management. 12 th ed. Upper Saddle River, NJ:
Pearson – Prentice Hall
6. Etzel, M.J., Walker, B.J. and Stanton, W.J., (2007), Marketing, 14TH edn. McGraw-Hill,
Irwin.

30
 LECTURE FOUR: CONSUMER BEHAVIOR

4.1 Introduction
Welcome to the fourth lecture on consumer behavior. The field of consumer behavior
holds great interest for us as consumers, as marketers or even as scholars. We shall begin
the study of this unit by highlighting meaning of consumer behavior. We shall also
discuss the consumer buying decision process and various buyer behaviors.

4.2 Specific objectives:

At the end of the lecture you should be able:

Define the term ‘ Consumer behavior’
Describe the buying decision process
Explain the types of consumer behavior
Discuss the factors influencing consumer behavior.

4.3 Lecture Outline

4.3.1 Definition of ‘Consumer Behavior’ and types of consumer entities. Reflection

questions, activity, exercises/quizzes

4.3.2 Model of Consumer behaviour, reflection questions, exercises/quizzes

4.3.3 The Buying decision Process

4.3.4 Types of Consumer Behaviour

4.4 CONSUMER BUYING BEHAVIOUR

Consumer buyer behaviour is the behaviour exhibited by the final users – Individuals and
households who buy goods and services for personal consumption. Consumer behavior
studies how individuals, groups and organizations, select, Buy, use and dispose of, goods,
services, ideas or experiences so as to satisfy their needs and wants.
4.4.1 Types of Consumer Entities
The term ‘consumer’ is often used to describe two different types of consumer entities.
i. The Personal Consumer
ii. The Organizational Consumer
The Personal Consumer buys goods and services for use by the household. The goods are
bought for final use by individuals reffered to as End users or Ultimate Consumers.

The Organizational consumer buys products in order to run their operations. This
encompasses; Profit making businesses, Non-Profit making concerns as well as
institutions life schools and hospitals.

4.4.2 Customer versus Consumer

A customer is one who buys the product from the seller. The consumer is one who finally
uses the product for own satisfaction. For instance a mother buys ice-cream and the child
eats the ice-cream. The mother is the customer and the child the ultimate consumer.
Marketers must understand the consumer buying behavior and the customer buying
behaviuor.

4.4.3 Basic Model of Consumer Behaviour

The central question that concerns marketers is how do consumers respond to the various
marketing efforts the company employs? A company that is able to precisely understand
and supply customer expectation of value tends to have an advantage over competition.

The model of buyer behaviour below has been presented by Kotler (2006) in an attempt
to explain the consumer buyer behaviour.

Buyers Black Box

Buyer Response
Marketing and other Stimuli
Buyer Buyer
Characteristics
Decisio
n

Process
 Product Choice
Marketing Other
Brand Choice
Product Economy
Dealer Choice
Price Technology
Purchase Choice
Place Political
Purchase amount
Promotion Cultural

The figure shows that the marketing stimuli and other factors enter the buyer “black box”
and produce certain responses. Marketer’s stimuli consist of all the marketing effort of an
organization broadly captured in the four P’s of Product, Price, Place and Promotion.
Other stimuli include major forces and events in the buyer’s environment i.e. economic,
technology, political and cultural forces.

After receiving a stimuli the buyers the enter a black box during which the buyer thinks,
weighs, chooses and makes a decision. The decision making process is influenced by
buyer characteristics as discussed below.

The decision made is displayed in the buyer response comprising of choosing a product,
brand, dealer, purchase and quantity to purchase.

Marketers attempt to understand how the stimuli are converted to response, and often
manipulate the external stimuli to favour their marketing offer.

4.4.5 THE BUYING DECISION PROCESS

Marketers have to develop an understanding of how consumers actually make their
buying decisions. To do so, they have to seek answers to the following questions.
- Who Makes the Buying decisions
- What type of Buying decision behavior is exhibited
- What steps are followed in the buying process
BUYING ROLES {who makes the buying decision}

Purchasing decisions are made by various people from the initiation of a purchase idea to
the final purchase of the product. The following are the various roles in the consumer
buying process:
1. The Initiator – This is the person who first suggest or thinks of the idea of a
particular product or service.

2. The Influencer – This is the person in the active buying process whose views or
advice influence the buying decision.

3. The Decider – This is the person who finally makes the final buying decisions, or
any part of it. This includes the decisions on whether to buy, when to buy, how to
buy and from whom to buy.

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

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

4.4.6 TYPES OF BUYING-DECISION BEHAVIOUR {what type of buying decision

behavior is exhibited}

There are four types of buying behaviour:

1. Complex buying behaviour

2. Dissonance reducing buying behaviour.
3. Habitual buying behaviour
4. Variety seeking buying behaviour

High Involvement Low Involvement

Significant difference Complex buying behaviour Variety seeking buying

between brands behavior
Few difference between Dissonance reducing Habitual buying behavior
brands buying behaviour

Complex Buying Behaviour

This is a buying behaviour characterized by high consumer involvement in a purchase

and significant perceived differences among brands.

The consumer involvement is high when the product is expensive, risky, purchased
infrequently and it is highly self expressive. Hence the consumer has a lot to learn about
the product e.g. buying a computer, car etc. The buyer first develops beliefs about the
product, then attitudes, and then makes a thoughtful purchase choice.

Marketers of high involvement products must help buyers learn about the product
benefits and features. They can do this by availing a catalogue or describing the brands
benefits using print media.

Dissonance – Reducing Buying Behaviour

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

Habitual Buying Behaviour

It is a consumer buying behaviour characterized by low consumer involvement and a few

significant perceived brand differences.

For example bread. Consumers have little involvement in this product category, they
simply go to a shop and pick a loaf of bread. If they keep buying the same brand, it is out
of habit rather than strong brand loyalty. Consumers appear to have low involvement
with low priced products.

Because buyers are not committed to any brands, marketers of low-involvement products
will use price and sales promotions to create brand familiarity. Television ads are more
effective in such promotions.

Variety-Seeking Buying Behaviour

This is a consumer buying behaviour characterized by low consumer involvement but

significant perceived brand differences.

For example cooking fat. A consumer may buy Kasuku brand without much evaluation
then evaluate the brand during consumption. Next time the consumer may buy Tily, yet
another time Kimbo. Brand switching occurs for the sake of variety rather than because
of dissatisfaction.
For such products, the marketing strategy may differ for the market leader and for
followers. The market leader will try to encourage habitual buying behaviour by
dominating shelf space, running frequent reminder adverts e.g. Kimbo, Kasuku.
Challenging firms will encourage variety seeking by offering lower prices, special deals,
and free samples e.g. Mpishi Poa.

4.4.7 THE BUYER DECISION PROCESS {what steps are followed in the buying
process}

A consumer goes through a series of rational steps in the buying decision process. These
include:

1. Need Recognition
At this decision stage, the buyer recognizes a problem or need. The buyer senses a
difference between his actual state and some desired state.

A need can be triggered by internal stimuli when one of the persons needs e.g.
hunger, thirst, desire etc. rises to a level high enough to become a drive. The need
can also be triggered by external stimuli like an advert or a sales person talking of
the product.

The marketer at this stage should carry out market research to understand
consumer needs and looks for ways of satisfying them.

2. Information Search
The stage in which the consumer is aroused to search for more information. The
consumer may move from a state of active information search to a state of
heightened attention where the consumer actively seeks information from:
(a) Personal sources (family, friends, neighbors)
(b) Commercial sources (advertising, salespeople, dealers)
 (c) Public sources (mass media, consumer awareness org.)
(d) Experimental sources (handling, examining, using the product)

Companies have realized that people who ask others (word of mouth sources) end
in buying. It is convincing and a more cost effective strategy.
3. Evaluation of Alternatives
At this stage, the consumer uses information to evaluate alternative brands in the
choice set.

Consumers sometimes make careful calculations and logical thinking of the

product benefits and features (complex buying behaviour). At other times,
consumers do little or no evaluation, instead they buy on impulse and rely on
intuition. Some other times consumers make buying decisions on their own,
sometimes they turn to friends, consumer guides or salespeople.

Marketers should study buyers to find out how they actually evaluate brand
alternatives.

4. Purchase Decisions

- At this stage, the buyer makes a decision of

a) Which brand to buy?

b) From which store to buy
c) How much to buy
d) How much to spend in the purchase

5. Post-purchase Behaviour
- At this stage, the consumers take further action after purchasing the
product based on their satisfaction or dissatisfaction.
 - If the product falls short of expectations, the consumer is disappointed
(cognitive dissonance). If it meets expectations, the consumer is satisfied,
if it exceeds expectations, the consumer is delighted.

- Marketers must at all times strive to satisfy the consumer in order to retain
the existing customers and get new customers.

4.5 ACTIVITY

State the cause of satisfaction and dissatisfaction among consumers, then differentiate
between the probable behavioral reactions of a satisfied consumer and a dissatisfied
consumer.

A market survey on customers of Bidu Stores reveals that they exhibit Dissonance
reducing and Complex buying behaviors. Comment on the goods sold at Bidu Stores.

4.6 SUMMARY

Consumer behavior studies how individuals, groups and organizations, select, Buy, use
and dispose of, goods, services, ideas or experiences so as to satisfy their needs and
wants.

Four main types of consumer behavior include; habitual, variety seeking, dissonance
reducing and complex buying behavior
Consumer buying decision process goes through FIVE stages; Problem Recognition,
Information Search, Evaluation of alternatives; Purchase and Post-purchase Behavior

Consumers have been seen to perform various buying roles; initiator, influencer, decider,
buyer and User.

4.7 Suggestion for further reading

1. Schiffman, Leon G. & Kanuk, Leslie Lazar; Consumer Behaviour – 8th edition –
Delhi; Pearson Education, 2004.
2. Batra, Satish K & Kazmi, SHH - Consumer Behaviour Text and cases – New
Delhi, Books. 2001.
3. Brennan, Ross (et al): Contemporary Strategic Marketing – London: Palgrave
Macmillan, 2003
LECTURE FIVE: CONSUMER BEHAVIOR

5.1 Introduction

Welcome to the fifth lecture on consumer behavior. In the previous lecture we

introduced Consumer behavior, We also discussed the consumer buying decision process
and various buyer behaviours. We shall now look at the factors affecting consumer
behavior, and the buying decision for a new product.

5.2 Specific objectives:

At the end of the lecture you should be able:

1) Discuss factors affecting the consumer buying behaviour
2) Define the term ‘ adoption’ as used in consumer behaviour
3) Explain the adoption process
4) Illustrate the adopter categories

9.6 Lecture Outline

5.3.1 Factors affecting Consumer Behaviour. Reflection questions, activity,

exercises/quizzes

5.3.2 Buying decision for a new product, reflection questions, exercises/quizzes

5.3.3 Adopter Categories

5.3.4 Innovation characteristic that affect rate of adoption

5.4 FACTORS AFFECTING CONSUMER BUYING BEHAVIOUR

The character of a consumer will largely be affected by the following factors:

1. Cultural factors
2. Social factors
3. Personal factors
4. Psychological factors

5.4.1 Cultural Factors

The marketer must understand the role played by the buyer’s culture, subculture
and social class.
(a) Culture – Culture affects a person’s wants and behaviour. Growing up in
a society a child learns basic values, perceptions, wants and behaviours
from the family and other important institutions e.g. different cultures
assign different meanings to colour. White is usually associated with
purity and cleanliness in Western communities. However it can signify
death in Asian countries. Also according to Taiwan culture, a man puts on
green cloths to signify his wife has been unfaithful.
(b) Subculture – Subculture include nationalities, religions, racial groups,
and geographic regions. Many subcultures make up important market
segments and marketers often design products tailored to their needs e.g
the Black Americans in the United States are strongly motivated by
quality and selection. They place more importance on brand names and
are more brand loyal.

(c) Social class – Social classes are society’s relatively permanent and
ordered divisions whose members share similar values, interests and
behaviours e.g. of social class: upper class, middle class, lower class.

Social class is determined by many factors like income, occupation,

education, wealth and other variables. Marketers are interested in social
class because people within a given social class tend to exhibit similar
buying behaviour. Social classes show distinct product and brand
preferences in areas like clothing, home furnishings, automobiles etc.
5.4.2 Social Factors
The buyer’s behaviour may also be influenced by social factors, such as groups,
the family, social roles and status.

(a) Groups - Groups are combinations of two or more people who have come
together or interact to accomplish individual or mutual goals.

A group member is influenced by the other members as he/she strives to

belong. Marketers try to identify the reference groups of their target
markets. Reference groups expose a person to new behaviours, lifestyles
and create pressure to conform e.g. a group of young people can be
attracted to the football game and would wish to put on branded products
just like the football player whom they wish to imitate.
(b) Family
Marketers are interested in the roles and influence of the husband, wife,
children and house help on the purchase of different products and service.
In most families, the wife is the main buyer of food, household products
and clothes. The husband is the main buyer f hardware, car or even a
home. However changes in the market trend have seen women take up the
reverse roles.

Children and house helps are the main consumers of T.V. adverts and may
from time to time influence the family buying decisions.

(c) Roles and Status

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

(a) Age and Lifecycle Stage

Marketers often define their target markets in terms of the life-cycle stage
and develop appropriate products and marketing plans for each stage.

Traditionally family life-cycle include young singles, married couples

with children, and the elderly. Markets strive to capture brand loyalty of
consumers at a young age and develop long term relationship.

(b) Economic Situation

Economic situation of an individual affect his/her buying ability. A high
income earner has more income to spend and a low income earner has
little income to spend. Marketers of income sensitive goods watch trends
in personal income, savings and interest rates. During economic
recession, marketers must re-price reposition or even redesign their
products.

(c) Lifestyle
Lifestyle is a person’s pattern of living as expressed in his or her activities,
interest and opinions. Marketers classify people based on how they spend
their money and time as follows:
4. Status oriented buyers – Base their purchases on the actions and opinions of
others.
5. Action oriented buyers – Are driven by their desire for acting, risk taking and
variety.
 6. Principle oriented buyers – Consumers who buy based on their views of the
world.

Based on lifestyle, consumers can also be classified as:

(i) Actualisers – People with so many resources that they can indulge
in any of the orientations above.
(ii) Achievers – People with middle income and just enough resources.
They strive to be actualisers and are often status oriented.
(iii) Strivers – People with little resources and are principle oriented.
(iv) Strugglers – People with too few or no resources. They are often
not included in any consumer orientation.
Lifestyle study is used by marketers to design appropriate adverts for each class
of consumers.
(e) Personality and Self-concept

Personality is the distinguishing psychological characteristic that leads to

relatively consisted and lasting responses to one’s own environment.

Personality can be described as self-confident, dominant, social, defensive,

adaptable and aggressive.

Personality is useful in analyzing consumer behaviour for certain products

e.g. coffee marketers have discovered that heavy coffee drinkers are
highly sociable.

5.4.4 Psychological Factors

A person’s buying choices are further influenced by motivation,
perception, learning, beliefs and attitudes.

(a) Motivation
 A motive (drive) is a need that is sufficiently pressing to direct the person
to seek satisfaction.

Many marketers develop adverts bearing in mind their products ability to

quench the buyers motive e.gThe Sprite advert “obey your thirst”,
Nakumatt slogan “You need it you get it”, Toyota Pickup advert, ‘Shujaa
wa Kazi’ etc.

(b) Perception
Perception is the process by which people select, organize and interpret
information for form a meaningful picture of the world. There are three
perceptual processes:
(i) Selective attention
(ii) Selective distortion
(iii) Selective retention
Selective attention is the tendency for people to screen out most of the
information to which they are exposed e.g. consumers in Kenya are
exposed to over 1,000 adverts everyday. Do they pay attention to any of
them? Marketers must strive to capture consumer attention.

Selective distortion is the tendency of people to interpret information in a

way that will support what they already believe. Marketers must try and
understand the mindset of consumers and how this will affect
interpretations of adverts and sales information.

Selective retention is the tendency of people to retain information that

supports their attitudes and beliefs. This explains why marketers use so
much drama and repetition in sending messages to their market e.g. action
hits pain hard, Doom advert etc.

(c) Learning
 Learning describes changes in an individual’s behaviour arising from
experience. Most human behaviour is learned. Learning occurs through
the interplay of drives, stimuli, cues, responses and reinforcement e.g if a
consumer buys a Nokia phone, if his experience with the phone is
rewarding he will in future reinforce this behaviour by buying it again.
But if it is not rewarding he will not reinforce the need for that product.

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

Marketers must understand the beliefs that people formulate about a

specific product because the belief make up product and brand images.

If some beliefs are wrong and prevent purchase, a marketer launches a

campaign to correct them e.g. the Jik advert on detergents that bleach and
tear your garments, the Nissan X-trail advert that depicts Nissan on rough
roads.
(e) Attitudes
Attitude is a person’s consistently favourable or unfavourable evaluation,
feelings and tendencies toward an object or idea e.g. people have the
attitude that Japanese electronics are quality products while Chinese
electronics are poor quality products.

A marketer must understand people’s attitudes and try to change them to

their benefit.

5.5 THE BUYING DECISION PROCESS FOR A NEW PRODUCT

A new product is a good or service or idea that is perceived by some potential customers
as new.

New products take sometime before they are finally adopted for use by the consumers.
The process through which a new idea or product is received and consequently accepted
is referred to as the adoption process.

Adoption Process

This is the mental process through which an individual passes from first hearing about an
innovation to final acceptance of the product.

Stages in the Adoption Process

Consumers go through five stages in the process of adopting a new product:

(i) Awareness – The consumer gets to know of the new product, but lacks
information about it.
(ii) Interest – The consumer seeks information about the new product.
(iii) Evaluation – On receiving additional information on the product, the potential
consumer make a consideration as to whether trying out the new product makes
sense.
(iv) Trial – The consumer makes a trial of the new product on a small scale. This is
to help in estimation of the products value.
(v) Adoption – On receiving full satisfaction after the trial, the consumer decides to
make full use and adoption of the new product.
Adoption Rate of a New Product

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

34%
34% Late
Early Majority
Majority
14% 16%
Early Laggards
3%
Adopters
Innovators

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

5.6 INDUSTRIAL MARKETING

It is the managerial effort directed toward satisfying wants and needs of organization
through the exchange process. It also referred to as Business to Business Marketing

Definition of industrial goods

These are goods intended for use in the making of other products or for rendering a
service in the operation of a business or institutional enterprise. Examples of Industrial
goods: steel, cement, mechanical equipment, factory tools, office desks etc

The General Characteristics of the Business Markets

22 Has fewer buyers in number
23 Has larger buyers in terms of quantity demanded
24 Has close suppliers to buyer relationship
25 Has geographical concentration of buyers
26 Buying is derived demand dependent
27 Inelastic demand: not affected by price much
28 Fluctuating demand
29 Professional purchasing
30 Has several buying influences
31 Direct purchasing: not via intermediaries
32 Possibility of purchase reciprocity

Who influences the buying process in organization? (Participants)

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

The Seven are also referred to as the buying centers. Buying centers are key groups of
persons within the organization who influence the decisions on what is bought in the
organization.

5.7 ACTIVITY

Identify the different individuals/departments that play specific buying roles for the
products procured in the organization you work for.
Discuss the stages in the family life cycle as an influence on consumer behavior.
Differentiate between industrial markets and consumer markets.

5.8 SUMMARY

Our behavior as consumer is influenced by numerous factors that can be classified into
four Broad categories. Cultural, Social, Personal and Psychological.
Adoption is the mental process through which an individual passes from first hearing
about an innovation to final acceptance of the product.
Adopters of new products have been observed to pass through five stages; Awareness,
interest, Evaluation, Trial and Adoption.
5.9 Suggestion for further reading

1. Kotler P. and Armstrong G.,(2008), Principles of Marketing, 12th Edition, Prentice Hall.

2. Kotler, P & Keller, K.L., (2006), Marketing Management. 12 th ed. Upper Saddle River, NJ:
Pearson – Prentice Hall
3. Etzel, M.J., Walker, B.J. and Stanton, W.J., (2007), Marketing, 14TH edn. McGraw-Hill,
Irwin.
 LECTURE 6: MARKETING INFORMATION SYSTEM

6.1 Introduction

Welcome to the Sixth lecture on marketing information system. We shall begin the study
of this unit by highlighting meaning of marketing information system. We shall also
discuss the components of the marketing information system.

6.2 Specific objectives:

At the end of the lecture you should be able:

1) Define ‘ Marketing Information System’
2) Explain the components of the MIS
3) Differentiate between the marketing research system and MIS

6.3 Lecture Outline

6.3.1 Definition of Marketing Information System. Reflection questions, activity,

exercises/quizzes

32.1.1 Components of MIS, reflection questions, exercises/quizzes

32.1.2 Marketing Research System vs. MIS

6.4 Marketing Information System

6.4.1 Definition Marketing Information System (MIS)

Two definitions of a marketing information system (MIS) are:

(a) “A structured, interacting complex of persons, machines and procedures designed
to generate an orderly flow of pertinent information, collected from both intra-
and extra-firm sources, for use as the basis for decision making in specified
responsibility areas of marketing management”.

(b) A system that “consists of people, equipment, and procedures to gather, sort,
analyse, evaluate and distribute needed, timely and accurate information to
marketing decision-makers”. (Phillip Kotler).

These definitions imply that MIS is a system that is carefully designed to process and
avail pertinent and timely information to marketing-decision makers.

6.4.2 The Components of MIS

A firm's marketing information system usually consists of four main components:

Internal Records System, Marketing Intelligence System, Marketing Research System,
and Marketing Decision Support System.

(a) Internal Records System (Internal Database)

The most basic information system used by marketing managers is the "internal
records system" or internal database". Internal records information" is information
gathered from sources within the organisation to evaluate marketing performance
and to detect marketing problems and opportunities. This information may be
largely derived from accounting database and may include reports on sales,
prices, accounts opening and closures, customers' financial information and so on.

(b) Marketing Intelligence System (External Database)

While the internal records system supplies marketing managers with "results
data", the marketing intelligence system supplies managers with "happenings
data". Marketing intelligence information is everyday information about
 developments in the marketing environment that helps marketing managers
prepare and adjust marketing plans.

In many respects the marketing intelligence system can be regarded as the

"external database" of MIS because it covers all types of information collected
from external sources. It may take the form of press cuttings, trade journals,
discussions and information from competing organizations or subscriptions to
some specified external database.

(c) Marketing Research System

The marketing research system is that component of the MIS which gathers
information by means of deliberate planned focused studies on specific marketing
problems facing the organisation. Besides information from internal and
marketing intelligence sources, marketing managers often need focused studies of
specific problems and opportunities. For example, they may need a market
survey, a product-preference test, a sales forecast by region or an advertising-
effectiveness study.

Marketing research information is used to identify and define marketing

opportunities and problems, to generate, refine, and evaluate marketing actions; to
monitor marketing performance; and to improve understanding of the marketing
process.

(d) Marketing Decision Support System

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

6.4.3 The Role of MIS

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

6.4.4 The Marketing Research System

(a) Marketing Research Versus Market Research

According to Kotler (2001), marketing research is the systematic design,

collection, analysis, and reporting of data and findings relevant to a specific
marketing situation facing the company.

The American Marketing Association defines marketing research as the

systematic gathering, recording and analyzing of data about problems relating to
the marketing of goods and services.

Marketing research should not be confused with market research, which refers to
finding out information about the market for a particular product or service.
 The fundamental differences between marketing research and market research are
that:

 Market research is a formal procedure for researching into an identified

market. It studies a market for a particular product or service. The scope of
market research activities is limited to an identified "market" (or group of
customers).

 Marketing research is a formal procedure for researching the entire

marketing activity of an organisation.

Thus, market research is only one of the elements of marketing research.

Marketing research is broader than market research and includes not only market
research but also covers a wide variety of variables (pricing, distribution,
advertising, etc) that can affect the marketing of goods and services.

(b) Marketing Research System Versus Marketing Information System (MIS)

Many people often confuse between the marketing research system and MIS.
Although the two systems share a common purpose, i.e. providing information for
marketing decision-makers, some fine lines of contrast exist. These include the
following:

 The focus of marketing research is on the handling of external information

while MIS handles both internal and external information.
 Marketing research is concerned with solving problems while MIS is
concerned with preventing as well as solving problems.
 Marketing research tends to operate on an ad hoc and project-to project
basis while MIS is a continuous process especially in connection to the
monitoring of the external environment.
 Marketing research tends to concentrate on past information while MIS
tends to be future oriented.
  MIS, is often computer-based while a marketing research system is not
necessarily computerized.
 A marketing research system is just one component of MIS while MIS
consists of other components (i.e. internal records, marketing intelligence
and marketing decision support systems) besides marketing research.

(c) Importance of Marketing Research

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

Marketing research can help an organisation’s marketing decision marker with the
following decisions or questions:

 What is the size of the market for a particular organisation services?

 Who are the organisation’s customers?
 What are the organizations’ buying motives?
 What are the trends in the market?
 Is the organisation’s advertising well received?
 Are customers satisfied with the organisation’s products?
 What are the most attractive/least attractive features of the organisation’s
products compared to competitor's products?
 What is the size of the organisation’s market share?
 When should an organisation launch a new product?
 Why has the organisation lost customers to competitors? etc.
6.5 ACTIVITY

Identify the various ways in which your organization collects internal data. Also identify
the external databases to your organization.

Do Jua kali businesses have a Marketing Information System? Discuss

Differentiate between Marketing Intelligence and Market Research Systems.

6.6 SUMMARY

MIS is a system that “consists of people, equipment, and procedures to gather, sort,
analyse, evaluate and distribute needed, timely and accurate information to marketing
decision-makers”
MIS consists of FOUR components. Internal records system, Market Research, Market
intelligence and Market decision support system.

6.7 Suggestion for further reading

1. Kotler P. and Armstrong G.,(2008), Principles of Marketing, 12th Edition, Prentice Hall.

2. Kotler, P & Keller, K.L., (2006), Marketing Management. 12 th ed. Upper Saddle River, NJ:
Pearson – Prentice Hall
3. Etzel, M.J., Walker, B.J. and Stanton, W.J., (2007), Marketing, 14TH edn. McGraw-Hill,
Irwin.
LECTURE 7: THE MARKETING RESEARCH PROCESS:

7.1 Introduction

Welcome to the Seventh lecture on marketing research system. While the marketing
research is a component of the Marketing Information System which we learnt in our
previous lecture, the area of marketing research is very critical of Marketers and we shall
take time to discuss this in depth. We shall begin the study of this unit by highlighting the
stages of the Marketing research process. We shall then discuss activities undertaken at
each stage in depth.

7.2 Specific objectives:

At the end of the lecture you should be able:

1) Enumerate the stages in the Marketing research Process
2) Define a research Problem
3) Develop Research Objectives
4) Develop a Research Plan
5) Analyze research data using an excel spreadsheet

7.3 Lecture Outline

7.3.1 Marketing Research Process. Reflection questions, activity, exercises/quizzes

7.4 The Marketing Research Process:

The six main stages in the research process are as follows:

1. Defining the problem
2. Defining the research objectives
3. Developing the research design
4. Collecting the data
5. Analysing the data and
6. Presenting the findings

7.4.1 Defining the Problem

Defining the problem and the research objectives is the first and most important step in
the research process. A research problem is the question or issue to be studied. It defines
the focus of the study and the direction of the research effort and resources.

Why must Research Problem be defined appropriately?

1. Because Research problem is the baseline foundation for any research project.
2. No problem, No Research!
3. Wrong Problem, Wrong Research!
4. Unless the problem is well defined, the cost of information gathering may well
exceed the value of the findings

An old adage says, "A problem well defined is a problem half solved".
Defining the problem is often the hardest step in the research process. A problem should
not be defined too broadly nor too narrowly. If management fails to define the problem
clearly exploratory research may be required to help bring the problem into focus.

7.4.2 Research Objectives

When the problem has been carefully defined, the marketing manager and researcher
must set the research objectives, that is, the outputs or end results of the research effort.

7.4.3 Developing the Research Plan (Research Design)

Research design is the framework or plan for the study used as a guide in collecting and
analysing data.

There are three types of research design that researchers often use:

i) Exploratory Research Design – Involves gathering preliminary data to

shed light on the nature of the problem and possibly suggest some
hypotheses or new ideas.

ii) Descriptive Research Design - Involves describing certain variables of

interest to the researcher. This is a research design in which the major
emphasis is on determining the frequency with which something occurs or
the extent to which two variables co-vary

iii) Causal Research Design - Involves testing hypotheses about cause and
effect relationships e.g. does X cause Y?

Managers often start with explanatory research and latter follow with descriptive or
causal research. The research plan calls for decisions on the data sources, research
approaches, research instruments, sampling plan and contact methods.
 7.4.4 Data Collection

Data Sources
To meet the manager's information needs the research plan can call for gathering
secondary data, primary data, or both.

 Secondary data consist of information that already exists somewhere

having been collected for another purpose. The internal sources of
secondary data for an organisation include the profit loss statements,
balance sheets, sales figures, sales-call reports, invoices, inventory
records, and prior research reports. External sources of secondary data
include government publications, periodicals and books, and commercial
data.
 Primary data consist of original information gathered for the specific
purpose at hand. The normal source of primary data is through direct
interviewing of individuals or groups of people.
Researchers usually start their investigation by reviewing literature on secondary data to
see whether their problem can be partly or wholly solved without collecting costly
primary data. Secondary data offer the advantages of lower cost and quicker availability.
On the other hand, the data needed by the researcher might not exist, or the existing data
might be outdated, inaccurate, incomplete, or unreliable. In this case, the researcher will
have to collect primary data at greater cost and longer delay but probably with more
relevance and accuracy.

Research Approaches
Primary data can be collected in four broad ways: observation, focus group, surveys and
experiments.

Observational Research - is the gathering of primary data by observing relevant people,

actions and situations. It is best suited for exploratory research purposes.
Focus - Group Research - is the gathering of primary data through personal
interviewing of a group that consist of six to ten people gathered for a few hours with a
trained interviewer to talk about a product, services or organization.

Focus-group research is a useful exploratory step to take before designing a large - scale
survey. It yields insights into consumer perceptions, attitudes, and satisfaction that help
define the issues to be researched more formally. However, the interviewer needs
objectivity, knowledge of the subject matter and industry, and knowledge of group
dynamics and consumer behaviour otherwise the results can be misleading.

Survey Research - the gathering of primary data by asking people questions about their
knowledge, attitudes, preferences, and buying behaviour. Survey research stands midway
between observational and focus-group research, on the one hand, and experimental
research on the other hand.

Experimental Research - the gathering of primary data by selecting matched groups of

subjects, subjecting them to different treatments, controlling extraneous variables, and
checking whether observed differences are statistically significant.

Experimental research is the most scientifically valid research. To the extent that
extraneous factors are eliminated or controlled, the observed effects can be related to the
variations in the stimuli. The purpose of experimental research is to capture cause-and-
effect relationships by eliminating competing explanations of the observed findings.

Application of Research Approaches

Generally speaking, observation and focus groups are best suited for exploratory
research, surveys are best suited for descriptive research, and experiments are best suited
for causal research.
Research Instruments
Marketing researchers have a choice of two main research instruments in collecting
primary data: the questionnaire and mechanical devices.
1. Questionnaires: This is by far the most common instrument in collecting
primary data. Broadly speaking a questionnaire consists of a set of questions
presented to respondents for their answers. The questionnaire is very flexible in
that there are many ways to ask questions. Questionnaires must be carefully
designed and tested before they can be used on a large scale.

2. Mechanical devices: These are less frequently used in marketing research e.g.
use of supermarket scanners and surveillance cameras.

Sampling Plans
The marketing researcher must design a sampling plan which calls for three decisions:
Target population, sample size and sampling procedure:

 Target population. This answers, who is to be surveyed? The marketing

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

 Sampling Procedure: This answers, how should the respondents be

chosen? To obtain a representative sample, probability sampling is usually
used.

Contact Methods
 This answers "How the subject should be contacted?" The choices are mail,
telephone, or personal interviews.

 The mail questionnaire is the best way to reach individuals who would
not give personal interviews or whose responses might be biased or
distorted by the interviews. Mail questionnaires require simple and clearly
worded questions, and the response rate is usually low and/or slow.

 Telephone interviewing is the best method for gathering information

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

 Personal interviewing is the most versatile of the three methods. It

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

(c) Collection of Data

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

(d) Analyzing the Data

 The next step in the marketing research process is to extract pertinent findings
from the data. Depending on the type of collection methods, the results will be
analyzed accordingly:

 Questionnaires will have to be pre-coded or input into a computer by the

interviewer.
 Answers to in-depth interviews would be analysed by identifying key
statements from the interviews, and common characteristics and attitudes
identified.
 The researcher will tabulate the data and develop one-way and two-way
frequency distributions.
 Averages and measures of dispersion will be computed for the major
variables, etc.

7.4.5 Analyzing the Data

The questionnaire is checked for completeness, comprehensibility and legibility. The

questionnaire is coded and transcribed. Once the data is input in a computer it is then
analyzed using computer spreadsheet packages like excel , SPSS etc.

7.4.6 Presentation of the Findings

Involves the following two:-
a) Interpretation and collection of the results
b) Presentation of results
The information generated from the computer is interpreted often using frequencies and
percentages. The otherwise separate information is collected to form one or a few
meaningful points.

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

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

7.5 ACTIVITY

Identify any Marketing challenge that your organization is currently facing and design a
market research to resolve the problem.

7.6 SUMMARY
There are six main stages in the research process are as follows:
1. Defining the problem
2. Defining the research objectives
3. Developing the research design
4. Collecting the data
5. Analysing the data and
6. Presenting the findings
.

7.7 Suggestion for further reading

1. Kotler P. and Armstrong G.,(2008), Principles of Marketing, 12th Edition, Prentice Hall.

2. Kotler, P & Keller, K.L., (2006), Marketing Management. 12 th ed. Upper Saddle River, NJ:
Pearson – Prentice Hall
3. Etzel, M.J., Walker, B.J. and Stanton, W.J., (2007), Marketing, 14TH edn. McGraw-Hill,
Irwin.
LECTURE 8: MANAGING PRODUCTS AND BRANDS

8.1 Introduction
Welcome to the Eighth lecture on Product Decisions. We shall begin the study of this
unit by defining the term ‘Product’ and highlighting the two broad classification of
Marketing Environment. That is the Micro marketing Environment and the Macro
marketing Environment. We shall then analyze the forces and factors of both the micro
and macro marketing environment.

8.2 Specific objectives:

At the end of the lecture you should be able:

1) Define the term ‘ Product’
2) Explain various approaches to product classification
3) Define Product line
4) Explain product line decisions
5) Explain product mix decisions.
6) Discuss Product branding

8.3 Lecture Outline

8.3.1 Definition of ‘Product’ and levels of a product. reflection questions, activity,

exercises/quizzes
8.3.2 Product classifications Reflection questions, activity, exercises/quizzes.

8.3.3 Product Decisions. Reflection questions, activity, exercises/quizzes.

8.4 MANAGING PRODUCTS AND BRANDS

A product is anything that can be offered to satisfy human needs.

8.4.1 PRODUCT LEVELS

Five levels of a product can be identified.
i. Core Benefit – The fundamental service or benefit that the consumer is really
buying.
ii. Basic Product – Is the Physical/tangible product.
iii. Expected Product- Set of attributes and conditions that buyers normally expect
and agree to when they purchase a product.
iv. Augmented Product- This is what consumers desire beyond their expectations.
v. Potential Product- This encompasses all the augmentations and transformations
that the product might ultimately undergo in the future.

8.4.2 PRODUCT CLASSIFICATIONS

A. BY DURABILITY AND TANGIBILITY

Products are broadly divided into three on the basis of durability and tangibility
1. Non-durable goods
Are tangible goods that are normally consumed by one or a few users.
These goods are consumed quickly and purchased frequently.
2. Durable goods
Are tangible goods that normally survive many users. E.g Motor vehicles,
TVs, Clothings
3. Services
Services are intangible, variable and perishable.
 B. BY CONSUMERS WHO USE THEM

Products are broadly divided into two depending on consumers who use them:
(a) Consumer products
(b) Industrial products

(a) Consumer Products

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

(b) Industrial Products

 - Are those purchased for further processing or for use in conducting a
business.
- There are three groups of industrial products i.e.
(i) Materials and parts – Include raw materials and manufactured materials
and parts e.g wheat, cotton, crude petroleum, iron ore, rubber, cement
price and service are the major marketing factors.
(ii) Capital items – Are industrial products that aide the buyer’s production
activities e.g factories, offices, generators, forklift trucks etc.
(iii) Supplies and services – Supplies include stationery, lubricants, brooms
etc. They are purchased with little effort.

8.4.3 PRODUCT DECISIONS

Marketers indulge in a number of product decisions the many of which include
A. Product Attributes

Product attributes include quality, features and design. Marketers make decisions
about product attributes as follows:

1. Product quality – Refers to the ability of a product to perform its functions

as expected by the consumer or to satisfy consumer needs.
2. Product features – Features are the external appearances of a product that
distinguishes it from other similar products. Companies often conduct
consumer surveys to understand what consumers want and design features
that meet consumer needs. Common Products features include; Packaging,
Colour, Options, Sizes, Image amongst others.
3. Product style and design – Style describes the contemporary appearance of
a product. A good design is that which contributes to products usefulness
as well as to its looks.
B. Product Line

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

- The major product line decisions include:

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

2. Product line filling – Involves adding more items within the present range
of the line. This can be done for any of the following reasons, to increase
profits, satisfy dealers, or to utilize excess capacity e.g. Fanta orange,
Fanta black current and Fanta citrus.

3. Product line stretching – Occurs when a company lengthens its product

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

A product mix (or product assortment) is the set of all product lines and items that a
particular seller offers for sale for example EABL produces a product mix made up of
Tusker, White Cup, Guinness, Alvaro, Smirnoff amongst others. Toyota product mix
include Toyota Corolla, Toyota Caldina, Toyota Nadina. Toyota Prado, Toyota RAV 4,
Toyota Camry etc.

A product mix has four important decisions;

 Product mix width- Refers to the number of different product lines a

company carries
 Product mix length- Refers to the total number of items in the product mix
 Product mix depth- Refers to the average number of items in the product
line
 Product mix consistency- Refers to how closely related various product
lines are.

D PRODUCT BRANDING
A brand is a name, term, sign, symbol or design that identifies the maker or seller of a
product or service and differentiates it from the competitor’s products.

Description of Brands

Brand name: Utter able or verbalized part of the brand i.e. Toyota, Kimbo, Imperial,
Fanta, Safari Boot, Nike, Firestone.

Brand mark: Part of the brand that can only be recognized i.e. Merc Symbol,
Barclay eagle etc.

Trademark: Part of the brand given a legal protection. Trademark® is an exclusive

right to use a brand or part of a brand

Copyright: This is the exclusive right to reproduce, publish and sell.

Brand equity: Monetary value of a brand. High brand loyalty builds higher brand
Equity: Coca Cola has brand equity of US$ 36 billion

Significance of Branding to Consumers

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

Significance of Branding to Sellers

(i) The brand name provides a basis of selling special qualities.
(ii) Legal protection of brands from copying by competition
(iii) Helps sellers segment markets e.g Toyota Lexus for the actualizes, Toyota Prado
for the achievers, Toyota Corolla for the strivers.

Characteristics of a “good” brand name

(i) Easy to pronounce, recognise and to remember

(ii) Short
(iii) Distinctive, unique
(iv) Describes the product and product use
(v) Describes product benefits
(vi) Has a positive connotation
(vii) Reinforces the product image
(viii) Legally protectable locally and internationally

E PRODUCT PACKAGING
- Packaging is the activity of designing and producing the container or wrapper for
a product. Traditionally, the primary function of the package was to contain and
protect the product. Today packaging performs numerous functions including
attracting, attention, describing the products and making the sale.
- A good package is one which is in line with the packaging concept (should offer
protection, introduce a new dispensing method, or suggest product qualities. A
good package further addresses issues such as size, shape, materials, colour, text
and brand mark.
There are Three Levels of Packaging
1. Primary package - This is the product’s immediate container i.e. the tube containing
the after shave or tooth paste.
2. Secondary package - This is the material that covers or protects the primary package
and is discarded when the product is just about to be used.
3. The shipping package - This is the packaging necessary for storage, identification and
transportation.

F PRODUCT LABELING
- Labels may range from simple tags attached to product to complex graphics that
are part of the package.
- Labeling performs the following functions:
(i) Identifies the product or brand
(ii) States the price
(iii) Promotes the product – Attractive graphics
(iv) Describes the product – Manufacturer, where made, when made, content,
direction of use, safety etc.

PRODUCT WARRANTIES

 Product warranty protect the buyer and gives essential product information
 Expressed warrantees are written guarantees
 Implied Warranty is an unwritten guarantee that an item is fit for its purpose

8.5 ACTIVITY

Branding is the cornerstone of Marketing. Discuss.

8.6 SUMMARY

There are numerous product decisions marketers make, they include:

1. Product Attributes- style, design
2. Product line decision- length, filling, stretching
3. Product Mix decision- length, depth, width, consistency
4. Product Branding Decisions- private, national
5. Product Packaging Decisions –primary, secondary, shipping
6. Product Labeling Decisions
.

8.7 Suggestion for further reading

1. Kotler P. and Armstrong G.,(2008), Principles of Marketing, 12th Edition, Prentice Hall.

2. Kotler, P & Keller, K.L., (2006), Marketing Management. 12 th ed. Upper Saddle River, NJ:
Pearson – Prentice Hall
3. Etzel, M.J., Walker, B.J. and Stanton, W.J., (2007), Marketing, 14TH edn. McGraw-Hill,
Irwin.

LECTURE 9: PRODUCT LIFE CYCLE

9.1 Introduction

Welcome to the Ninth lecture on Product Life cycle. Like humans, products also have a
life cycle. We shall begin by identifying the stages of the Product life cycle, then discuss
in depth the behavior of sales at the various stages and the most appropriate marketing
strategies to adopt at the different stages.

9.2 Specific objectives:

At the end of the lecture you should be able:

1) Describe new product development process
 2) Define the term ‘ Product Life Cycle’
3) Describe the stages of the Product Life Cycle
4) State the recommended marketing strategies for each stage of PLC

9.3 Lecture Outline

5.3.1 New Product development Process. Reflection questions, activity,

exercises/quizzes

6.7.1 Stages of the Product Life Cycle, reflection questions, exercises/quizzes

6.7.2 Strategies at different Stages of PLC

9.4 NEW PRODUCT DEVELOPMENT STRATEGY

- A new product can be defined as anything that can be offered to a market for
attention, acquisition, use or consumption and that might satisfy a want or need.

- The definition of a new product encompasses; original products, product

improvement, product modifications and new brands that the firm develops
through its own research and development efforts.

- The new product development process takes the following eight steps:

1. Idea generation
2. Idea Screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Test marketing
8. Commercialization

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

- Internal sources include a company top management, manufacturing staff,

the sales people and the research and development departments.

- External sources include customers, competitors, distributors, suppliers

etc.
2. Idea Screening
- Involves filtering new product ideas in order to spot good ideas and drop
poor ones as soon as possible. Ideas are subjected to selection criteria that
include affordability, acceptability, and reversibility.

3. Concept Development and Testing

- An attractive idea must be developed into a product concept. A product
concept is a detailed version of the new product idea stated in meaningful
consumer terms i.e. presenting the consumer with descriptions and
drawings to get their reactions.

- Concept testing involves testing new product ideas with groups of target
consumers e.g. using questionnaire to ask customers of their opinion of a
new product.

4. Marketing Strategy Development

- Involves designing an initial marketing strategy for a new product based

on the product concept.
- The marketing strategy statement consist of three parts:
(a) Target market, market segment, the product positioning
(b) Market mix i.e. product, pricing, distribution and promotion.
 (c) Projecting possible viability of the product.

5. Business Analysis
- Business analysis involves a review of the sales, costs and profit
projections for a new product to find out whether they satisfy the
company’s objectives.

- If they do, the product moves to the product development stage.

- To estimate sales, the company might study the sales history of similar
products and conduct surveys of market opinion.
6. Product Development

- Involves the development of the product concept into a physical product in

order to ensure that the product idea can be turned into a workable
product.

- At this stage, the research and development department develops a sample

or prototype of the product. Development of a successful prototype may
go into weeks, months or years.

7. Test Marketing

- This is a stage in which the product and marketing program are tested in a
more realistic market setting.

- At this stage the company tests the entire marketing program i.e.
positioning strategy, advertising, distribution, pricing, branding and
packaging. Three approaches to test market:
 (a) Standard test markets – Is where a company selects a city or town,
conducts a full marketing campaign in this town and uses shop audits,
consumer and distribution surveys to gauge product performance. The
results are used to forecast national sales and profits discover problems
and fine tune the marketing programme.
(b) Controlled Test markets – A group of customers are selected, they are
directed to participating shops. Within the shops the company researchers
have control factors such as shelf placement, price packaging and
promotions for the product being tested. Behaviourscan is used to track
the consumer behaviour for new products from a television set to a
checkout counter. Detailed scanner information on each consumer
purchases is fed into a central computer where it is combined with the
consumer demographic and TV viewing information, and analysis done
and conclusions drawn based on a daily or weekly report.

(c) Simulated test markets – The Company shows advertisements and

promotions for a variety of products, including the new product being
tested to a sample of consumers. It then gives the consumers a small
amount of money and invites them to a real or laboratory store where they
are allowed to buy anything using the money. The researchers note how
many consumers will buy the new product or competing brands. The
researcher then asks the consumers the reason for purchase or non
purchase. Some weeks later, they interview the consumers by phone to
determine product attitude, usage, satisfaction and repurchase intentions.

8. Commercialization

- Test marketing gives management the information needed to make a final

decision about whether to launch the new product or not.
 - If the company decides to go ahead then it commercializes the product.
Commercialization is the introduction of a new product into the market.
- The company launching a new product must first decide on:
(ii) Introduction timing – Depending on economic trends.
(iii) Where to launch the product – In a single location, region, the
whole nation or internationally. act

PRODUCT LIFE CYCLE

Management of every organisation knows that each product has a life cycle that starts at
conception of product idea and ends at the death of a product. The company therefore
aims at maximizing its profits before the products useful life ends.

Assumptions of the PLC

i) A product has a limited life

ii) Product sales pass through distinct stages each posing different challenges
to the seller
iii) Product profit rise and fall at different stages
iv) Each stage requires different financial, marketing, manufacturing,
purchasing and personnel strategies.
Stages in the Life Cycle

1. Product development CONCEPTION

2. Introduction BORN
3. Growth GROWTH
4. Maturity MATURITY
5. Decline DEATH

Profits & Losses

Innovators Early Middle Laggards

Adopters majority
 PL
C curve
Sales curve

Profits curve
Time
Product
Development Growth Maturity Decline
Introduction
stage

The diagram above shows the sales and profits over the products life from inception to
demise.

NB: The PLC shape presented above is a general shape but different products will
have different shapes.

MARKETING STRATEGIES AT THE VARIOUS STAGES OF THE PLC

1. INTRODUCTION STAGE
Product development begins when the company finds and develops a new product idea.
During product development sales are zero and the company’s investment costs mount.
The introduction stage starts when the new product is first launched.

In this stage, profits are negative or low because of low sales and high distribution and
promotional expenses.

A company that is pioneering a market must choose a launch strategy that is consistent
with the intended production positioning.

Firms therefore focus their selling to those buyers who are most ready to buy and not on
maximizing profits. These groups of first time buyers are also called innovators.
 Strategies at the Introductory Stage
There are four possible strategies at this stage and these are displayed in the table below.

LOW
HIGH PROMOTION
RAPID SKIMMING SLOW SKIMMING
HIGH
High Profile Strategy Selective Penetration Strategy

PRICE
RAPID PENETRATION SLOW PENETRATION
LOW Pre-emptive Penetration Strategy Low Profile Strategy

(i) Rapid Skimming

An organisation can decide to employ rapid skimming if;

 Large Part of the market is unaware of the product

 Market willing to buy at high price
 Competition is present
 Market is large
For Example Safaricom mobile phone service provider

(ii) Slow Skimming

An organisation may decide to employ slow skimming if;

 Market is relatively limited in size

 Large part of the market is unaware of the product
 Market is willing to pay high prices
 A little threat in competition

(iii) Rapid Penetration

An organisation may decide to employ rapid penetration if;

 Market is large in size
 Market is relatively unaware of the product
 Market is price sensitive
 Potential competition exists
 For Example EABL and Alvaro
(iv)Slow Penetration
An organisation may decide to employ slow penetration if;

 Market is large
 Market is aware of the product
 Market is price sensitive
 Established competitors exist

For Example entry of Orange mobile phone service providers into Kenya

2. GROWTH STAGE

- In the growth stage, sales climb quickly. The early adopters start to buy the
product especially after hearing favourable word of mouth about the product.
- The increasing profits soon attract new competitors who join the market in the
hope of gaining from this opportunity.
- The increase in competitors leads to an increase in the number of distribution
outlets and sales jump up.
- Educating the market remains key to marketers, while keeping watch of
competition.
- Profits increase as promotions are spread, while per unit cost falls as indicated by
the first growing profit curves.

Strategies here include:

i) The company improves product quality and adds new product features to
beat competition.
ii) The company opens new distribution channels.
iii) It shifts advertising from building product awareness to building product
conviction and loyalty.
iv) Prices may be lowered to attract new buyers or as a means of creating
competitive advantage.
- A sustained effort on product improvement, promotion and distribution may lead
the company to capturing a dominant position.

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

- Most products die at this stage, because competition is greatest at this point. It is
divided into three:

a) Growth Maturity: This is the point where the growth rate starts to decline
though some laggard buyers continue to come in.

b) Stable Maturity: A stage where sales level off because the market is
saturated.

c) Decaying Maturity: A stage where there is absolute decline of sales because

customers are seeking substitute products. Competitors begin reducing prices,
increase their advertising and sales promotion and increase their research and
development budgets to find better versions of the product. This eventually
leads to a drop in profits.

Strategies here include:

i) In modifying the market, the company tries to increase the consumption of

the current segments. It also looks for ways of increasing usage among
present customers. The company can also move into a new market
segment.

ii) In modifying the product, quality, features, styles and designs are
upgraded to inspire more consumers to use it. Alternatively, the company
might add new features that expand the products usefulness, safety or
convenience.
 iii) In modifying the promotional strategy, the company’s objective will be to
improve sales. It can cut prices to attract new users and lure competitor’s
customers. It can launch a better advertising campaign or use aggressive
sales promotions, trade deals, price offs and contests.

iv) In terms of pricing, the company can maintain current prices as long as
they are competitive. The company might reduce prices if doing so gives
them a competitive advantage.

4. DECLINE STAGE

- This is the PLC stage in which a products sales decline. Sales may plunge to zero
or they may drop to low levels where they continue for many years.
- As sales decline, many competitors exit the market, drop smaller market segments
or cut off promotional budgets and reduce their prices further.
- A weak product can be costly to maintain. It takes a lot of management time, it
requires advertising and sales force attention.
- Management therefore needs to identify the aging products and decide whether to
maintain, harvest or drop each of them.

Strategies here include:

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

b) Conglomerate diversification - Conglomerate diversification is the

involvement in production of products or provision of services that are not
related with the current products and services e.g. EABL deciding to produce
Alvaro.

8.8 ACTIVITY

Elucidate the stages of the product life cycle citing the marketing strategies you may
adopt at each stage.

Explain the slow growth in sales at the introduction phase of the product life cycle.

8.9 SUMMARY

The PLC, explains the behavior of sales at various time points in a products life. It is
made of 4 Stages;
1. Product Development
2. Introduction
3. Growth
4. Maturity
5. Decline
.
8.10 Suggestions for Further Readings

1. Kotler P. and Armstrong G.,(2008), Principles of Marketing, 12th Edition, Prentice Hall.
 2. Kotler, P & Keller, K.L., (2006), Marketing Management. 12 th ed. Upper Saddle River, NJ:
Pearson – Prentice Hall
3. Etzel, M.J., Walker, B.J. and Stanton, W.J., (2007), Marketing, 14TH edn. McGraw-Hill,
Irwin.

LECTURE 10: PRICING DECISIONS

10.1 Introduction
Welcome to the first lecture on the marketing overview. We shall begin the study of this
unit by highlighting meaning of Marketing and defining some core marketing concepts.

10.2 Specific Objectives

At the end of the lecture you should be able:
Define the term ‘ Price’
Enumerate the steps in setting the price of a product.
Differentiate between marketing and selling
Describe elements of the marketing mix
Discuss the evolution of Marketing

10.3 Lecture Outline

10.3.1 Definition of ‘Marketing’ and other related terms. reflection questions, activity,
exercises/quizzes
10.3.2 The Marketing Mix; Conventional and Extended Marketing mix
reflection questions, activity, exercises/quizzes
10.3.3 The Evolution of Marketing, reflection questions, exercises/quizzes
10.3.4 Customer Relationship Marketing

10.4 PRICING PRODUCTS AND PRICING DECISIONS

Price is the amount of money charged for a product or service by the seller. Price is the
only element of the marketing mix that produces revenue, all the other elements are cost
factors.
Throughout most history, prices were set by negotiation between buyers and sellers. This
is also called dynamic pricing – charging different prices to different customers. Today
most prices are fixed prices i.e. one price is set for all buyers.

Price goes by many names a few of which include:

a) Rent for apartment

b) Fees for tuition
c) Fare for taxi
d) Rates for utilities
e) Interest for money borrowed
f) Toll for use of driveway
g) Salaries for white collar jobs
h) Wages for blue collar jobs
i) Commission for sales persons services

10.4.1 PRICING STRATEGIES

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

i) Market skimming strategies

ii) Market penetration strategies

Market Skimming Strategies

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

i) The product quality and image must support its higher price.
ii) Enough buyers must want the product at that price.
iii) The cost of producing the few units must not exceed the target revenue
iv) Competitors should not be able to enter the market easily and undercut the high
price

Market Penetration Strategies

Market penetration pricing is the setting of a low price for a new product in order to
attract a large number of buyers and a large market share. Example of firms that have
ever practiced market penetration include Coca-Cola and Dell.

The low price is geared at penetrating the market quickly and deeply. The high sales
volume results in falling costs allowing the company to cut its price even further.

Several conditions must be met for this strategy to work including the following:

i) The market must be highly price sensitive so that a low price generates more
market growth
ii) The production and distribution costs must fall as sales volume increases
iii) The low price must help keep away competition.

10.4.2 Six Step Procedure for Price Setting

1) Selecting price objective

2) Determining demand
3) Estimating costs
4) Analyzing competitors price
5) Selecting price method
6) Selecting the final price
10.4.3 FACTORS TO CONSIDER WHEN SETTING PRICES

There are two factors to consider in pricing:

(i) Internal factors
(ii) External factors

INTERNAL FACTORS

Internal factors include company’s marketing objectives, marketing mix strategy, costs
and organizational consideration.

1. Marketing Objectives

The company’s marketing goal could be survival, current profit maximization

(Maximize market skimming), market share leadership, or product quality
leadership.

Companies set survival as their objective if they are troubled by too heavy
competition, and changing consumer needs to keep a plant going in this case, the
company sets low prices hoping to increase demand.

A company with current profit maximization as is objective, will choose a high

price that maximizes current profits, cash flow or return on investment. It uses
skimming strategies in every new market segment that it opens up.

To obtain market share leadership, firms set prices as low as possible e.g Coca-
Cola. Such firms employ rapid penetration strategies to optimize on there
representation in the market.

To attain product quality leadership, a firm charges high prices to cover the high
performance quality and high cost of research and development. The firm
 differentiates its product clearly exemplifying the unique qualities of their
product. They position their products as superior products relative to competition
e.g. Safari Park Hotel

2. Marketing Mix Strategy

Companies often position their products on price and then tailor other marketing
mix decisions to the prices they want to charge.

There are five product mix pricing situations including:

a) Product Line Pricing - Is the setting of price steps between various
product lines. The basis of product line pricing could be the difference in
cost, customer evaluation of different features and competitors prices e.g.
EABL sets the price of Alvaro as different from price of Guinness and
Pilsner based on consumer evaluation.
b) Optional Product Pricing – Many companies offer to sell optional or
accessory products along with their main product. They therefore price the
optional products with the main product. e.g. a motor vehicle seller might
offer to sell the car with alloy rims and CD changer as optional products.
The seller set optional prices for the rims and CD changer
c) Captive Product Pricing – Companies may decide to make a separate
product that must be used along with the main product e.g. razor blade and
cartridge, printer and cartridge film and camera etc. HP for instance is said
to make very low margins with its printers but very high margins with its
cartridges.
d) By Product Pricing - Is the setting of a price for by products in order to
make the main product’s price more competitive. For example by
producing meat, petroleum and agricultural products, there are often by
products. Using by product pricing the manufacturer will seek a market for
these by products and should accept any price that covers more than the
cost of storing and delivering them.
 e) Product Bundle Pricing – Is the combination of several products into a
bundle and offering them at a reduced price e.g. fast food restaurants may
bundle chips, chicken and Soda at one reduced price.
3. Costs
Companies always want to charge a price that covers all costs of producing,
distributing, selling and delivering the product at a fair rate of return. The
following types of costs must be remembered:

(a) Fixed cost (overheads) – are costs that do not change with
production or sales levels e.g. rent, interest, salaries etc.
(b) Variable cost – are costs that vary directly with the level of
production e.g. wages, raw materials cost etc.
(c) Total cost - Is the sum of the fixed cost and the variable costs

Marketers make considerations for all the costs (total costs) of making a product
after which a mark up could be used to arrive at the final selling price. Costs must
be minimized for a firm to be competitive in its pricing.
4. Organizational Consideration

- Management must decide who sets the price in the company.

- In smaller companies, top management sets the price rather than
marketing and sales departments.
- In larger companies, prices are set by product or brand managers and
approved by top management.
- In industrial markets, sales people are allowed to negotiate with customers
within certain price range. Even so, management sets the pricing
objectives and policies.
EXTERNAL FACTORS

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

1. Estimated Demand

Demand is the quantity of commodity that consumers are willing and able to buy at a
given price over a given time period.

Price elasticity of demand refers to how responsive demand is to a change in price. Some
products are price elastic others are price inelastic.

In markets with elastic demand the marketer must be aware that a slight increase in price
is followed by a big drop in quantity demanded. While in markets with inelastic demand,
the marketer charges high prices to optimize profitability.

2. Type of Market
Sellers pricing freedom varies with the type of markets as follows:

(a) Pure competition – under this structure, the price is given by the market
forces of demand and supply and sellers take it as the market decides.
Marketers efforts of sales promotion, prices change and advertising play
no role in influencing demand, they only create awareness.

(b) Monopolist – The firm in this market is the largest single seller. The firm
sets the price and is in full control of its demand curve. It can set a high
price to maximize profits or set a low price to maximize on sales revenue.

(c) Monopolistic competition – The firms in this market are the price setters;
however each firm is keen to watch the competitors prices and set theirs as
 close as possible to that of competitors. Aggressive marketing campaigns
i.e. advertising and strong branding reduces the impact of any price
difference between firms.

(d) Oligopolistic competition – Each seller is free to set prices on the similar
but differentiated products. A price increase by one firm is not necessarily
followed by a rival firm.

3. Other External Factors

a) Competitors Costs, Prices and Offers

Firms must benchmark their products, costs and prices with those of competitors
in order to know if they are operating at a cost advantage or disadvantage. A firm
then decides what price to offer to counter competition.

b) Economic Conditions

Economic trends such as recession and boom would affect the price charged.
Economic variables like interest rate would equally impact on prices.

Pricing Approaches/Methods

1. Cost based pricing – Adding a standard mark up to the cost of the product to get
the final selling price. Also called mark up pricing.

Mark up pricing = Unit cost

(1-Desired % return on sales)

2. Perceived value pricing – Also called positioning above competition. Price based
on the perceived value of the product by the customer and company. Mostly used
 in product positioning e.g. for upper markets, marketers charge higher prices and
for low markets lower prices.
3. Competition based pricing – Also called positioning below competition Setting
prices based on the prices that competitors charge for similar products.
4. Breakeven analysis pricing – Setting price to break-even on the costs of marketing
the product.

Break even point in units = Total fixed Cost

(Selling Price-Average variable cost)

5. Sealed bidding price: Based on customers proposals.

6. Target return pricing - This is a price that would help yield a target return on
Investment. Formulation for getting this is given as

TRP = unit costs + Desired returns %  capital invested

Unit sales

10.4.4 OTHER FACTORS CONSIDERED BEFORE ADOPTING A PRICE

There are a number of considerations to be made when charging customers after

determining the base price of a product.

1) Price discounting

i) Cash discount
ii) Quantity discount
iii) Functional discount/trade
iv) Seasonal discount

2) Promotional pricing
 i) Loss leader pricing
ii) Cash rebates
iii) Low interest financing for purchase of products

3) Discriminatory pricing

i) Resident or non-resident
ii) Geographical location of customer
iii) Age or gender
iv) Time pricing i.e. day or night rate
v) Product image pricing

4) Psychological pricing strategy

i) Quality and brand value consideration

ii) Impact of price or other parties i.e. dealers and distributors, sales people, suppliers
iii) Competitor’s price

10.5 ACTIVITY

A manufacturer of metal containers has the following costs and sales expectations

Vrriable cost per unit Ksh 20

Fixed costs Ksh 2 Million
Expected unit sales 50,000
Invested capital Ksh 10 Million
Mark-up 20%
Expected return on investment 40%
Required
(i) Determine two alternative prices for each unit produced and sold

(ii) Which pricing method would yield greater results?

10.6 SUMMARY

We have learned about the six step procedure in setting the price of a product.
 i) Selecting price objective
ii) Determining demand
iii) Estimating costs
iv) Analyzing competitors price
v) Selecting price method
vi) Selecting the final price

10.7 Suggestions for further readings

1. Kotler P. and Armstrong G.,(2008), Principles of Marketing, 12th Edition, Prentice Hall.

2. Kotler, P & Keller, K.L., (2006), Marketing Management. 12 th ed. Upper Saddle River, NJ:
Pearson – Prentice Hall

Etzel, M.J., Walker, B.J. and Stanton, W.J., (2007), Marketing, 14TH edn. McGraw-Hill, Irwin.

LECTURE 11: DISTRIBUTION DECISIONS

11.1 Introduction
Welcome to the eleventh lecture on marketing distribution. Distribution (Place) is one the
the 4p’s of the marketing mix. We shall thereafter look at various channel levels,
channel design decisions and types of intermediaries.

11.2 Specific objectives:

At the end of the lecture you should be able:

5) Define the terms ‘ Marketing Distribution’ and ‘Market Channel’ and ‘
6) Describe the major types of channel
7) Discuss the role/significance of intermediaries.
8) Discuss channel design desicions

11.3 Lecture Outline

11.3.1 Definition of ‘Marketing Distribution’ and ‘ Market Channel’ their similarity and
differences. Reflection questions, activity, exercises/quizzes

11.3.2 Types of Intermediaries, reflection questions, exercises/quizzes

11.3.3 Significance/role of Intermediaries

11.3.4 Definition of Market targeting
11.3.5 Market targeting Strategies
11.3.6 Definition of Product Positioning
11.3.7 Bases for Product Positioning

11.4 DISTRIBUTION CHANNELS

A marketing channel or distribution channel refers to the path followed in the process of
moving a product or service from the producer to the final consumer or to business users.

11.4.1 Major Distribution Channels

There are four major channels of distributions as shown below:

O level Producer Final Consumer

Dire

1 level Producer Retailer Final Consumer

2 level Producer Wholesaler Retailer Final Consumer

3 level Producer Distributor/Agent Wholesaler Retailer Final Consumer

The first channel is also called a direct marketing channel as no intermediary levels are
involved. The company sells directly to consumers’ e.g Safaricom, Celtel, Bata Shoes,
etc.

The others are indirect marketing channels containing one or more intermediaries. A
company may choose one channel of distribution or use a combination of distribution
channels e.g Unilever, EABL, Coca-Cola etc.
A channel level is a layer of intermediaries that performs some work in bringing the
product and its ownership closer to the final buyer. Examples of Intermediaries
a) Merchant Middlemen - These include Retailers and Wholesalers
b) Agent Middlemen - These include Brokers, Company Representatives, and sales
agents.
c) Facilitators - These include Banks, Advertising agencies, Distributors, Transport
Companies, and Independent warehouses.

Retailers

These are merchants who sell goods and services directly to consumers for personal

or non business use. There are two types of retailers

a) Stores Retailers: Like Boutiques, Fast Foods, Discount Stores etc

b) Non Store Retailers: Like Direct Marketing and selling by producer, Automatic
vending, Buying services (Arranging special purchase arrangement for
individuals in companies or specific location.

Wholesalers

These are merchants who sell goods and services to customers who buy for resale or

for business use.

Types of Wholesalers

Wholesalers can be classified into four broad categories.

1. Brokers and Agents - Those who do not take title of the goods and perform only a
few functions.

2. Manufacturers’ and Retailers’ branches and Offices - These are large branches and
company offices set up to facilitate good inventory control

3. Merchant Wholesalers - These are independently owned businesses that take title of
the goods. There are two types:

a) Full Service Wholesalers - These are wholesalers and Distributors for Industrial
products who sell primarily to retailers or manufacturers respectively. They
provide full range of retail services

b) Limited Service Wholesalers - These provide only a few services to their

suppliers and customers e.g. Truck Wholesalers, Cash and Carry wholesalers, and
Mail Order wholesalers.

4. Miscellaneous Wholesalers - These are found in the specialised sectors of the

economy like Agricultural assemblers, Petroleum Bulk plant and terminals

11.4.2 IMPORTANCE OF CHANNEL MEMBERS

The members of a marketing channel perform many key functions including:

1. Information – They gather and distribute marketing research and intelligence

information about actors and forces in the marketing environment needed for
planning and decision making.
2. Promotion – They develop and spread persuasive communication about an offer
i.e. by hanging posters on their vehicles, business premises of price cuts, volume
discounts, branding view with the product etc.

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

4. Physical distribution – They transport and store goods on behalf of

manufacturers.

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

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

7. Negotiation – They discuss price reductions on behalf of the manufacturer with

final buyers to make a sale.

11.4.3 CHANNEL DESIGN DECISIONS

For a company to be effective in its distribution effort, channel analysis and decision
making must be purposeful. The following decisions must be considered when designing
a channel:

1. Analysis of consumer needs

2. Channel objectives
3. Channel alternatives
4. Evaluation of channel alternatives.
1. Analysing consumer needs
Designing the market channel starts with finding out what target consumers want
from the channel e.g do consumers want to buy from nearby locations or are they
willing to travel more distance, do consumers want to buy in person or over the
phone, through mail or internet? Do they want add-on services (delivery, credit,
repairs, installation etc).

Providing the fastest delivery, a wide assortment, and all add-on services may not
be possible because the channel members may not have the resources or skills
needed. The company must therefore balance between consumer needs and the
costs of meeting these needs. Consumers will often accept lower service levels in
exchange for lower prices.

2. Channel objectives
The company should decide which market segments to serve and the best
channels to use in each case.

The company’s channel objectives are also influenced by the nature of the
company, its products, its competitors, and the environment.

3. Major channel alternatives

A firm must identify the types of channel members available to carry out its
channel work in terms of types of intermediaries, number of intermediaries and
responsibility of each.

There are three major types of intermediaries:

(i) Company sales-force – The company can use its sales force to
target the final consumer by enlarging the sales-force and
involving them in direct marketing.
(ii) Manufacturer’s agency – A manufacturer can hire agents or
independent firms to sale its products.
 (iii) Industrial distributors – Find distributors in different market
segment/regions.

In terms of the number of marketing intermediaries, a company can decide

between:

(i) Intensive distribution – Stocking the product in as many outlets as

possible.
(ii) Exclusive distribution – Giving a limited number of dealers the
exclusive right to distribute the company’s products in a given
territory.
(iii) Selective distribution – The use of more than one but few
intermediaries to stock company products.

In terms of responsibility, producers and intermediaries should agree on price

policies, condition of sale, territorial rights and specific service to be performed
by each party.

4. Evaluating the Major Alternatives

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

Using economic criteria, a company compares the likely sales, costs and
profitability of each alternative.

Control issues means giving some control of the marketing of a product to the
intermediary. The company must retain as much control as possible.
 Channels often involve long-term commitment; hence companies must consider
the ability of a channel to adapt to environmental changes.

11.5 ACTIVITY

Think of a start-up business. Give a detailed background of the business then design a
channel structure for it.

11.6 SUMMARY

We have learned about types of channels; Direct, in-direct and Reverse

Channel Levels; 0 level, 1level, 2level, 3levels……..
Types of Intermediaries; Retailers, Wholesalers, Agents
Channel design decisions; Analysis of consumer needs, Evaluation of
channel alternatives.

11.7 Suggestion for further reading

1. Coughlan, Anne T. (et al); Marketing Channels. – 6th edition – New Delhi;
Prentice Hall, 2002.
2. Turban Etraim; Electronic Commerce; A managerial perspective- Delhi;
Pearson Education, 2000.
3. Levy, M and Weitz, B.A: Retailing Management – 5th ed. – New Delhi: Tata
McGraw-Hill, 2003.
LECTURE 12: PROMOTION DECISIONS

12.1 Introduction
Welcome to the eleventh lecture on marketing distribution. Distribution (Place) is one the
the 4p’s of the marketing mix. We shall thereafter look at various channel levels,
channel design decisions and types of intermediaries.

12.2 Specific objectives:

At the end of the lecture you should be able:

Define the terms ‘ Marketing Distribution’ and ‘Market Channel’ and ‘
Describe the major types of channel
Discuss the role/significance of intermediaries.
Discuss channel design desicions

12.3 Lecture Outline

12.3.1 Definition of ‘Marketing Distribution’ and ‘ Market Channel’ their similarity

and differences. Reflection questions, activity, exercises/quizzes

12.3.2 Types of Intermediaries, reflection questions, exercises/quizzes

12.3.3 Significance/role of Intermediaries

12.3.4 Definition of Market targeting
12.3.5 Market targeting Strategies
12.3.6 Definition of Product Positioning
12.3.7 Bases for Product Positioning

12.4 PRODUCT PROMOTION

After companies have developed a product, they must inform the customers and
prospects about the product. The process of passing on product information to product
users is referred to as product promotion.

Designing and Managing an Integrated Marketing Communication

Integrated Marketing Communication refers to the various ways in which a firm
communicates a marketing idea to induce influence on the target market and develop
effective demand to their benefit and the benefits of the organisation. IMC is the basic
engine for driving PROMOTION as a tool of the marketing mix.

Basic Purpose Promotion

1) To inform
2) To persuade
3) To remind
4) To induce inquiry

Steps in Developing effective integrated marketing communication (IMC)

1) Identify the target audience

2) Determine the communication objectives
3) Design communication item
4) Select communication channel
5) Establish communication budget
6) Decide on the communication media mix
7) Measure communication results
8) Manage integrated IMC

12.4.1 Key Promotional Tools

1. Advertising
2. Sales promotion
3. Events and Experiences
4. Public relations
5. Direct marketing
6. Personal selling

1. ADVERTISING
Advertising is any paid form of non-personal presentation and promotion of ideas, goods
or services by an identified sponsor.

General Objectives of Advertising

1) To announce product existence
2) Highlight specific feature: Unique Selling Proposals (USP)
3) Develop favorable corporate or brand image
4) Remind and enforce brand loyalty
5) Encourage greater use
6) Encourage no users to use the product
7) Correct any false information
8) Demonstrate how the product works
9) Provide a reassurance that a customer has made a good decision

Media and Methods of Advertising

1) Television 8) Brochures and booklets
2) Newspaper 9) Posters and leaflets
3) Magazines and Trade Journals 10) Directories
4) Commercial Radios 11) Billboards
5) Transport Media 12) Internet
6) Cinema /Motion pictures 13) Display signs
7) Packaging 14) Point of purchase displays

ADVERTISING DECISIONS

Markets must consider four important decisions when developing an advertising

program: setting advertising objectives, setting advertising budgets, developing
advertising strategies and evaluating advertising campaigns.

1. Advertising objectives
- The main advertising objectives are:

(a) Information advertising – Tells the market about a new product, suggests
new uses for a product or informs the market about a price change e.g Jik,
Omo, Alvaro etc.
(b) Persuasive advertising – Involves building brand preference by
persuading consumers to always buy your brand or to switch to your brand
e.g super loaf adverts, Nissan shift expectation ad.

(c) Reminder advertising

- Involves reminding consumers that they will need the product in
the near future especially during off seasons.
- Also involves keeping consumers thinking about the product e.g
Coca-Cola adverts.

2. Setting Advertising Budget

 - A brands advertising budget often depends on its stage in the product life
cycle.
- A new product typically needs large advertising budgets to build
awareness and persuade consumers to try it.
- A mature product needs lower budgets of advertising as a ratio to sales.
- Also brands in a market with many competitors require aggressive
advertising e.g. beer, soft drinks, pharmaceuticals, insurance etc.

3. Developing Advertising Strategy

- There are two factors to consider in developing advertising strategy i.e.
creating advertising message and selecting advertising media.

- The advertising message must be appealing, believable and distinctive for

consumers to think about it or react to the product. Advertisers take
several approaches when developing their messages. The more common
appeals are: testimonials (messages which are presented and endorsed by
someone who is seen as an expert, trustworthy and believable to
consumers), humorous advertising (with jokes about the product), sex
appeal (Use of sexuality to appeal to a certain gender that constitutes a
target market) and slice of life advertising (portraying the consumer in a
realistic situation)

- A good advertising media is one that reaches more consumers, exposes the
product, the target market frequently, impacts the qualitative values of a
message on the consumer. Major media types include newspapers, T.V,
Radio, direct mail, magazines, bill boards and internet.
4. Evaluating Advertising
- Advertisements effectiveness can be evaluated by copy testing or sales
effects.
- Copy testing can be done before or after an advert is printed or broadcast.
Before an advert is placed, the advertiser can show it to consumers, ask
them how they like it and measure recall or attitude changes resulting from
it. The same can be done after an advert is run.

- One way of measuring sales effects is to compare past sales before an

advert was placed to sales level after an advert is placed.

- Other methods of measuring the effectiveness of an advert include:

1) Measure awareness and impact using recall/recognition test
2) Measure increase in revenue
3) Maintenance and improvement in market share
4) Use marketing research to measure attitude change
5) Measure profit overtime
6) Measure number of inquiries.

2. SALES PROMOTION

- Sales promotion is short term incentives to encourage the purchase or sale of a

product or service.
- The marketer must set sales promotion objectives before deciding on the sales
promotion tool to use.

General Objectives of Sales Promotion

1) Facilitates customer trials: Free samples

2) Cements a long term relationship with middlemen
3) To attract brand switchers: low prices
4) To encourage sales force and middlemen to support a new product
5) To attract users to buy more
SALES PROMOTION DECISIONS

The primary concerns of marketers when making sales promotion decisions include
choosing the target market objective and choosing a sales promotion tool.

1. Target Market Objective

(i) Consumer promotions – Used to increase short term sales or help build
long-term market share.
(ii) Trade promotions – Includes getting retailers to carry new items and more
inventories, getting them to advertise the product and to give it more shelf
space.
(iii) Sales force or business promotions – Are used to generate business leads,
stimulate purchases, reward customers, and motivate salespeople.

2. Sales Promotion Tools

Depending on the sales promotion objective decided and the target market, the
following tools can be used:

(i) Consumer promotion tools

(a) Samples – A small amount of product offered to consumers for
trial.
(b) Coupons – Certificate that gives buyers a saving when they
purchase a specified product.
(c) Cash refunds – Offer to refund part of the purchase price of a
product to consumers who send a proof of purchase to the
manufacturer.
(d) Price pack – Reduced price that is marked by (cents offs) the
producer directly on the label or package.
(e) Premium – Are goods offered either free or at a low price as an
incentive to buy a product e.g Colgate and toothbrush.
(f) Advertising specialties – Are useful articles imprinted with an
advertiser’s name that are given as gifts to consumers e.g pens,
calendars, key holders, shopping bags, T-shirts, caps, nail files,
umbrella, tea mugs etc.
(g) Patronage rewards – Cash or other award for the regular use of a
certain company’s products or service.
(h) Point of purchase (POP) promotions – Include display and
demonstrations that take place at the point of purchase or sale.
 (i) Contests, sweepstakes and games, giving consumers a chance to
win something e.g cash, trips, goods by luck.

(ii) Trade promotion tools

The consumer promotion tools identified above can also be used as trade
promotions.

In addition, the manufacturer may offer:

(a) Discount off the list price. This is also called price off, off invoice
or off list. A straight discount is a straight reduction in price on
purchase during a stated period of time.
(b) An allowance. This is promotional money paid by manufacturers
to retailers in return for agreeing to feature the manufacturer’s
products in some way e.g an advertising allowance compensates
retailers for advertising the product, a display allowance
compensates them for using special displays.

(c) Conventions and trade shows – Organised by manufacturer to

promote their products. Are often costly undertakings.

(iii) Sales Force Tool

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

3. EVENTS AND EXPERIENCES

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

Public relations means building good relations with the company’s various publics.

Publicity - This is the total effort by an organisation to create, improve and maintain a
favorable image of the company and its publics. It is popularised as Public Relations, and
the title for this role and responsibility within the organisation may the Public Relations
Manager or Publicity Manager.

Public relations department perform the following functions:

1) Press relations – Creating and placing newsworthy information in the news media to
attract attention to a person, product or device.
2) Product publicity – Publicising specific products.
3) Public affairs – Getting involved in corporate social responsibility e.g building
schools, roads, and social amenities to a local community.
4) Investor relations – Maintaining relationships with shareholders and others in the
financial community.
5) Lobbying – Building and maintaining relations with members of parliament and
government officials to influence legislations and regulations in favour of an
organisation or industry.

Major Public Relations Tools

1) News Release – PR professional create favourable news about the company and its
products.
2) Press Conferences – Company executives field questions from the media or the MD’s
charismatic talk before a large audience.
3) Special events – Include conferences, press tours, grand openings of branches,
organizing marathons etc.
4) Corporate identity materials – e.g. logos, stationery brochures, signs, business cards,
buildings, uniforms, T-shirts, company cars and trucks.
DIRECT MARKETING

The use of mail, telephone, fax, email or internet to communicate directly with or solicit
response or dialogue from specific customers or prospects.

Other tools used in direct marketing include:

 Catalogues
 Telemarketing
 Electronic shopping
 TV shopping
 Fax mail
 Voice mail
PERSONAL SELLING

Personal selling is the face to face interaction between a company’s salesperson and a
customer or prospect. Personal selling optimizes the buyer seller dyad often resulting in
an actual purchase of the product.

Functions and Roles

 Information gathering regarding sales needs
 Identifying sales leads
 Prospecting: finding and cultivating new customers
 Communicating: Illustrating product and service idea
 Selling: salesmanship
 Servicing: Technical after sales service

Personal selling is about looking for potential buyers (prospecting), presenting the
product and getting an order from the customer. It is therefore the climax of the
entire marketing effort. A good salesperson is one who closes a sale successfully.

12.5 ACTIVITY

Suppose sales people from Unilever are having trouble getting supermarkets in Kenya to
purchase enough of their brands. How can sales promotion be used to help them increase
supermarket orders of the brands?

12.6 SUMMARY

The process of passing on product information to product users is referred to as product

promotion.
The Basic Purpose Promotion it to, inform, persuade, remind and induce inquiry on our
offerings.

We have learned about five key promotional tools that marketers use to communicate
about their organizations offerings. i.e. Advertising, Sales promotion, Personal selling,
Public relations, Direct Marketing.

12.7 Suggestion for further reading

1 Blythe, Jim; Marketing Communication – Singapore; Pearson Education, 2001.

2. Marketing Communications; contexts, contents and strategies/by Chris Fill –

2nd edition – Harlow; Pearson Education, 1999.
3. Schultz, Dan E. and Kitchen, P.J: Communication Globally: An Integrated
Marketing Approach – London Palgrave Macmillan, 2000.