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GABORONE UNIVERSITY COLLEGE OF LAW AND PROFESSIONAL

STUDIES

B-COM PURCHASING &SUPPLY CHAIN MANAGEMENT

Year 2 .1

MODULE BCPSCM 216: MARKETING MANAGEMENT

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How to use the module

Welcome to the module MM201: Marketing Management. I hope you find this module
interesting and helpful .This study guide will help you to understand the contents of the
syllabus.
At the beginning of every topic there are some objectives. These objectives outline the
main points that you need to understand on completion of that topic. At the end of each
topic are some questions which you have to attempt in order to assess your understanding
of the topic. Usually if you are able to answer the questions correctly, you have
understood the essential elements of the topic. If you still find the questions challenging,
you have to spend more time on the topic and consult some of the quoted textbooks on
the reference section.
The module was designed for self study, ensure that you make your own notes
/summaries as you work through the module. The module complements, not substitute
the need for a wider program of reading, research and individual study. It is for this
reason that, throughout the text, you will find references to other books which you have
to consult
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Module overview
The module seeks to develop the knowledge of learners on the module policy areas of
organization, marketing environment, and marketing systems, research and information
systems, marketing strategy decision areas, product pricing, promotion and distribution,
integrated marketing strategy the product life cycles, strategic marketing, marketing
measurement and forecasting, distribution cost analysis, control, sales forecasting
management, application areas of marketing agricultural production and industrial
marketing.
Modules objectives
On completion of the module, students should be able to:

 Discuss the strategic role of marketing in organizations

 Asses how organizations align their strategies with the various
environmental factors
 Discuss the process of marketing research
 Evaluate the process of market segmentation, targeting and positioning of
brands
 Demonstrate understanding of the key marketing mix elements –product,
price, place and promotion.
 Apply the extended marketing mix in the marketing services

Assessment
Assignments 10%
Class attendance and participation 10%
Mid semester examinations 20%
Final examination 60%
Total 100%
Attendance: Class attendance will be monitored, and attendance record has direct
bearing on continuous assessment marks. Regular attendance and participation is
encouraged as it is very helpful to the student. If student’s attendance falls below 75%,
he/she may be required to retake the module.
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MODULE CONTENTS
1. The Nature and Role of Marketing

 Definition of Marketing
 The role of marketing
 Non-profit marketing
 Core concepts of marketing
 Marketing management philosophies
 Ethics and marketing

2: Marketing environment scanning

 The marketing environment

 Analysis of the macro environment
 The Immediate external stakeholders /The Microenvironment
 The internal environment

3: Development of marketing strategies and plans

 Strategic management and planning

 The marketing planning process
 Strategies for competitive advantage
 Company’s position on the market
 Marketing strategies and models for formulating strategies

4. Market Segmentation, Targeting and Positioning

 Defining Marketing segmentation

 Benefits of segmentation
 Conditions for effective segmentation
 Bases of segmenting consumer markets
 Segmenting business markets
 Market targeting strategies
 Product Positioning
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5. Marketing research and marketing information systems

 Defining marketing information system-

 Marketing research

6. Product

 Definition and components of a product

 Classification of products
 New product development
 The product life cycle
 Product adoption and diffusion process
 Adapter categories in the diffusion process
 Product branding
 Product packaging and labelling

7. Price

 The meaning of price to the firm

 Price and the customer
 The general process of determining the price of a product
 Factors that influence setting the price of a product
 Pricing objectives
 Pricing strategies
 Responding to competitors price changes
 Determining the demand for a product
 Elastic and inelastic demand

8. Promotion

 Definition of promotion
 Promotional mix elements
 Promotional objectives
 Sales promotion strategies
 Factors affecting the setting of promotional mix
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 Setting promotional budget

 The communication process

9. Place/ Distribution

 Definition of distribution and its importance

 Distribution Channels
 Functions of channel intermediaries
 Factors influencing the selection of distribution channels
 Channel conflicts
 Distribution intensity
 Physical distribution

10. Service Marketing

 Definition of services
 Developing a service marketing program
 Characteristics of services
 Marketing Mix for Services
 Managing Service Quality

TOPIC 1 .THE NATURE AND ROLE OF MARKETING

Introduction
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It is important to establish the origins of marketing and understand its importance in our
daily life. Besides what it does to individuals, marketing is essential for survival and
growth of most organizations. Marketing forms a large part of our business activities. It is
an essential element for organizational survival. Most importantly marketing is concerned
with the organization’s desire to satisfy its customers profitably. This topic explores the
role of marketing in society, local markets and global market. It provides the learner with
the needed foundation for studying this book
Objectives
After studying this topic you should be able to
 Trace and describe the evolution of the marketing concept
 Describe the different orientations that firms can follow in serving the markets
 Describe the core concepts of marketing
 Distinguish the marketing orientation from selling orientation
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1.0 Definition of Marketing

1.0 Marketing is a social and managerial process by which individuals and groups obtain
what they need and want through creating and exchanging products and value with
others. (Kotler and Armstrong 1996.8).Marketing is also defined as a managerial process
which identifies, anticipates and supplies customers needs efficiently and profitability.
We should note that different authors can provide different definitions to marketing,
however these definitions point out to the central idea of satisfying the customer with
whatever product, service or idea that an entity or individual is offering as well as making
profit out of the process.
Marketing should be distinguished from selling and advertising which many people
confuse as marketing. Marketing is a holistic approach of doing business with the aim of
making profit through satisfying the customer. Itaims at understanding the customer so
well that the product or service will fit into the life of the customer and sell itself.
1.1The importance of marketing
We usually take for granted the media houses that are largely supported by advertising,
the vast assortment of goods distributed through stores close to our homes and the easy
with which we can make purchases. Marketing plays a major role in the global and
domestic economy,in organizations and to individuals.
1.1.0The role of marketing globally
Modern economies are open to imports and exports. The growth of international trade
and foreign direct investment are as a result of marketing of goods in foreign countries.
Most nations today regardless of their economic development and political philosophies
are recognizing the importance of marketing beyond their own national borders.
International marketing has resulted in economic integration between a number of
countries which benefits all parties to the agreements. In Southern Africa we have
ourregional tradebloc, Southern Africa Development Community (SADC). Its
fundamental purpose is to facilitate trade (international marketing) between countries in
the region.
1.1.1The role of marketing in domestic economies
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Effective marketing practices have resulted in the improvement of the living standards of
people worldwide. The efficiency of mass marketing, extensive and rapid communication
with customers through a wide variety of media and a distribution system that makes
products readily available combined with mass production has brought the cost of many
products within reach of most consumers in different countries.
Through marketing, products are even virtually tailored to individual tastes of consumers
as a result consumer of average income can now afford products and services which were
once considered unaffordable.
The role of marketing in an economy can be summarised as:
(i)Employment creation:A significant portion of workers are employed in
retailing,wholesaling,transport, warehousing and communications industries as well as
people who work in marketing departments of manufacturers and those who work in
marketing in agricultural departments and service industries. We can therefore conclude
that marketing creates employment in the economy.
(ii)Reduction of costs:Although marketing increases costs of products, the customised
designing, distribution and promotion of products adds value to products asthis enables
each individual in the society to reap maximum satisfaction from products. Marketing
improves the standards of living through provision of information and creation of need
satisfying products and services.
(iii)Creating utility: The want satisfying power of a product is called utility. Utility
comes in many forms which are created through marketing. These are form utility, place
utility, time utility, information utility, image utility and possession utility.
Form utility: Form utility is associated primarily with production.In the production of
products, marketing contributes on the style, size and colour of the product. Marketing is
involved in developing all products that the business offers to the market.Customers also
derive satisfaction from the form in which the product comes to them.
Place utility: It exists when a product is readily accessible to potential customer. Once
products are purchased they still have to be quickly delivered to the customers in good
condition. This is another essential element of the product value.
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Time utility: This means having a product available when the customer wants it. “A cold
drink made available on a hot summer day provides more satisfaction than it could do on
a cold day”.
Information utility: Unless a customer knows about a product and where to get it, the
product has no value. Information utility is created by informing prospective buyers that
the product exists.
Image utility: This is a special type of utility. It is the emotionalor psychological value
that a person attaches to a product or brand because of its reputation or social standing.
Image utility is often associated with prestige or status products, e.g. designer clothes,
expensive automobilelike Mercedes Benz or certain residential locations. Image utility
value depends on consumers perceptions.
Possession utility: It is created when a customer buys the product, which means
ownership is transferred to the buyer. It exists when the customer imagines that he /she
actually holdsor owns the product.
1.1.2The role of marketing in organizations
Marketing considerations should be an integral part of all short- range and long- range
planning in any company because
 The success of any business comes from satisfying the wants of its customers,
which is the social and economic basis for existence of all organizations.
 Although many activities are essential to the organization, marketing is the
one that interacts with the market and produce revenue directly.
 Marketing enables the organisation to interact well with its environment, it
design products, designs distribution strategies, promotion and pricing
strategies of the organisation’s products in view of competitors.
1.1.3Importance of marketing to individuals
There are quite a number of reasons why individuals should understand marketing.
Theseinclude:
 It has become part of our living; consider the TV commercials, outdoor
advertisements, church campaigns, political campaigns, sales promotions and
daily interactions with sales people from various companies. It is important
for one to understand that all these relate to marketing.
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 Understanding marketing will make an individual a better informed consumer,

one will understand what underlies a seller’s pricing and how brand names are
selected as well as the role of promotion and distribution in the consumption
process.
 Marketing relates to many professions,Accounting and Finance, Purchasing,
Production,Research and Development all require one to have a marketing
background. One should learn how marketing affects managerial decision
making in these various areas of the business. Even if one wants to join the
non profit making organizations marketing knowledge remains a
fundamentals requirement.
1.2Non profit marketers
Today we have a number of such institutions, Charities, Museums, Churches, Political
Parties and Soccer clubs are embracing marketing as a means of growth and survival.
This trend is likely to accelerate because of two main reasons.
 There is increasing competition among non profit making organizations, for
example, competition among churches to boost their membership is
intensifying.
 Not for profit organizations need to improve their image and gain greater
acceptance among donors, government agencies, news media and consumers.
All these determine the organizations success.
1.3.0 Core concepts of marketing
These are needs, wants and demands, products, value, satisfaction and quality.
Exchangetransaction; relationships and markets.
1.3.1Needs, wants and demands
Needs:A human need is a state of felt deprivation. Humans have many needs which
include food, clothes, warmth and safety, these form the first level of needs that human
beings strive to satisfy .The other needs are for belongingness/affiliation and individual
(self) esteem needs. When a need is not satisfied a person will look for something that
will satisfy it or try to reduce the need through other means. The role of marketing is to
provide goods and services that can satisfy the needs of the consumers.
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Wants; Wants are the form taken by human needs shaped by culture and individual
personality. Wants are described in terms of objects that will satisfy needs. For example
if a family has transport problemand needs a car to move from point A to B.The need
satisfying product is a car. Any car can satisfy that need. When the family begins to
compare different brands for comfort, speed and safety (these are wants).As society
becomes exposed to more objects their wants also change and producers try to provide
more want satisfying products and services.
Demands: Demands are human wants which are backed by buying power. Demand is
defined by economists as the quantity of a product that is purchased at any given price.
Consumers are believed to favour products that give them the highest satisfaction at
lower prices thus yielding highest level of utility. In order to understand the needs, wants
and demands of customers, companies should conduct market research; analyze customer
complaints, enquiries as well as seek to understand changing lifestyles of consumers.
1.3.2 Value, satisfaction and quality
Value: It is the customer’s perception of all the benefits of a product weighed against all
the costs of acquiring, consuming and disposing theproduct. The benefits may be
functional or psychological.
Costs does not only relate to what the customers pays for a product, costs might include
learning about the product, negotiating the purchase, arrangingfinancing, waiting for
delivery, learning how to use the product and disposal of the product. Marketers are
taking a closer look at what customervalueis in a product through acquiring information
from them and making continuous improvement to meet those desires. Value creation
means extending the benefits that a product offers to the customer. It goes beyond
offering lower prices to the customers.
Satisfactions:Customer satisfaction is theextend to which a product’s perceived
performance of the product matchesbuyer’s expectations. If the product’s performance
falls short of expectations the buyer is dissatisfied. If performance matches or exceeds
expectations the buyer is satisfied. Satisfied customers make repeat purchases and they
tell others about their good experiences with the product.Companies should strive to
match customers’ expectations withproduct performance. Customerscould be delighted
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by being promised what can be delivered to them by companies.This concept is closely

linked to product quality.
Quality: It is the totality of features and characteristics of a product or service that bear
on its ability to satisfy customer’s needs. The definition assumes that the company
achieves quality only when its products or services meet or exceed customer
expectations. The fundamental aim of total qualitymanagement (TQM) begins with
customerneeds and ends with customer satisfaction. These are the two extremes of the
marketing process hence to efficiently implement marketingprograms; total quality
management should be adopted by firms.
Total quality management (TQM) is a program designed to constantly improve the
firms’ product quality, services and marketing processes. Companies should continuously
improve on quality of their products because quality has a direct impact on product
performance and hence on customer satisfaction.
1.3.3 Exchangeand transactions
Exchange: Exchange is the act of obtaining a desired object from someone by offering
something in return. As a means of satisfyingneeds, exchange enables people to
concentrate on what they can do best and trade with others for those things which they
want but cannot efficiently produce.For exchange to take place there must be two parties;
 Each party must want to deal with the other.
 Each party must accept each other’s offer
 Each party must be able to communicate and deliver.
Exchange therefore creates value since it is done freely. Each party is assumed to gain
from exchange.
Transaction: A transaction is a marketing unit of measurement which consists of a trade
of value between two parties. One party gives away something in return of something.
All transactions are based on exchange of value.
1.3.4Relationship.
Instead of making short term transactions, marketers need to build long term relationships
with valued customers, distributors, dealers and suppliers. Marketersshould ensure that
relationships are built on trust and commitment;they should note that relationships
require a lot of commitment and effort to create and maintain. Recently many firms
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began to allocate much of their marketing effort to building lasting relationships with
their customers, a concept known as Customer Relationship Management (CRM).
1.4.0Marketing management philosophies
Firms are usually faced with conflicting interests with the society and
customers;therefore, whose interest should guide the operations of the firm? What
philosophy should guide the marketing effort of the firm? There are alternative
concepts(businessorientations) under which organizations conduct their marketing
activities? The alternative concepts are the production, product, and selling,marketing
and societal marketing concepts.
1.4.1The production concept
This concept was most popular in businesses years before 1950. Some firms are still
following this philosophy. It holds that consumers will favourproducts that are always
available and highly affordable therefore management should focus on improving
production and distribution efficiency. Managers with production background would
shape the firm’s strategy. This concept is ideal in situations where
 The demand for a product exceeds the supply and increased productivity is
the major aim
 The product cost is too high and can be lowered by increasing output
(economies of scale)
A firm following the production concept concentrates on producing the productswithout
measuring the level of demand at the market.
1.4.2The Product Orientation
This concept holds that customers will favourproducts that offer the most quality,
performance and innovative features hence the organization should devote energy to
ensure product improvements. The organization’s top managers are engineers who have
knowledge in designing and fabricating new and exclusive products making
improvements on, shape,colour, flavour, tastes and sizes. The product concept may lead
to Marketing Myopia, wheremarketers blinker themselvesin stressing the features of their
product without checking the changing customer needsand the new features on products
may not match the needs of consumers.
1.4.3The selling concept
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This is the idea that consumers will not buy enough of the organization’s products unless
the organization undertakes a large scale selling and promotion effort. The concept is
typically practiced with unsought goods (those goods that buyers do not normally think
of buying unless someone makes effort to persuade them e.g. insurance policies).It is also
practiced in non-profit making organizations for example; A political party will
vigorously sell its candidate to voters as a fantastic person for the job.
The selling concept is practiced by firms when they have overcapacity. The aim is to sell
what they make rather than make what the customers wants. The firm focuses on creating
sales transactions rather than building long-term, profitable relationships with customers.
It assumes that customers who are coaxed to buy a product will like it or if they don’t like
it, they will possibly forget their disappointment and buy it again later. (These arevery
wrong assumption to make about customers).
Most studies have shown that an unsatisfied customer tells ten others about his or her bad
experiences whilst a satisfied customer tells three others aboutthe goodexperience.
1.4.4The marketing concept
It holds that, achieving organizational goals depends on determining the needs and wants
of target markets and delivering the desired satisfaction more effectively than competitors
do.
The selling concept and marketing concept are sometimes confused however the
following differences can be cited between the two
1.4.5Differences between sales orientation and market orientation
Aspect of business sales orientation market orientation
management
Organization’s Needs of the seller Needs of the buyers
priority
Planning horizon Short term Long term
Focus Sales Customer satisfaction
Performance measure Market share Profitable sales
Starting point Factory Market
Focus Existing products Customer needs
Means Selling and promoting Integrating and marketing
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Aims Profit through sales Profits through customer satisfaction

volume

It should be noted that the marketing concept does not mean that a company should try to
give all consumers everything they want. Marketers should balance creating more value
for customers against profits for the company. The purpose of marketing is to generate
customer’s value at a profit. A marketing orientation is often reflected in the executive’s
attitude towards marketing. In addition marketing is included in long-term as well as
short term company planning. Thishowever does not mean marketing is more important
than other business functions but it is necessary that everyone in the organization
understands the importance of the customer to the business i.e. be market oriented.
1.6 Nature and rationale of marketing concept
The marketing concept is based on three beliefs which are;
 All planning and operations should be customer oriented. Every department and
employee should be focused on contributing to the satisfaction of customer.
 All marketing activities in an organization should be co-ordinated.This means that
the marketing effort (product planning, pricing, distribution and promotion)
should be designed and combined in a coherent and consistentway and that one
executive should have authority and responsibility for the complete set of
marketing activities.
 Customer oriented coordinated marketing is essential to achieve the
organisation’s performance objectives. Theultimate objective for a business is
typically a profitable sales volume.
The marketing concept is sometimes viewed as customer orientation
1.4.6Societal marketing concept
This concept is based on the idea that the organization should determine the needs, wants
and interests of target markets and deliver the desired satisfaction more efficiently than
competitors, thus, in a way that maintainsor improves the consumers and society’s well
being.
The societal marketing concept is relevant in an age of environmental problems,
resourceshortages, rapid population growth, world wide economic problems and
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neglected social services. It assumes that the firm senses, serves and satisfies individual
wants in the best way for consumers and society in the long run.
The societal marketing concept aims to correct what the pure marketing concept
overlooked; these are the possible conflicts between consumer short run wants and
consumer long run welfare. Such concerns and conflict led to the societal marketing
concept.
This concept is the one that have resulted in the rise of corporatesocial responsibility
or corporate citizenship which entails that, the organization should operate in ways
which improve the well being of the society in which it is operating.
The societal marketing concept is the most current and it seems costlyto the organisation
in the short run.
1.5.0 Ethics and marketing
Ethics: These arestandards ofbehaviour generally accepted by society, Ethics go beyond
laws, which establish the minimumrules a society agrees to follow. It is possible to
behave legally but still unethically.Organizations are taking the following steps to ensure
ethical behaviour from their employees
 Clearly communicating the organization’s ethical standards and expectations
through ethical training and frequent reminders and upgrades.
 Ensuring that employee requirements in terms of goals, quotas and deadlines are
reasonable such that they may not engage in unethical behaviour like bribery.
 Creating a senior level position of Ethics Officer, occupied by a person with the
skill to provide advice as well as the authority to respond to complaints and
enquiries.
 Commenting extraordinary ethical behaviour and dealing decisively with ethical
violations.
The American marketing association’s code of ethics provides the following three
fundamental aspects.

1.5.1 The American Marketing Association code of ethics

Marketers’ professional conduct must be guided by
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 The basic rule of professional ethics, notknowingly to do harm.

 The adherence to all applicable laws and regulations
 The accurate representation of their education, training and experience.
 The active support ,practice and promotion of this code of ethics
Honest and fairness
 Marketers shall uphold and advance the integrity, honour and dignity of the
marketing professional by.
 Being honest in serving consumers clients, employees, supplies, distributors and
the public.
 Not knowingly participating in conflict of interest without prior notice to all
parties involved.
 Establishing equitable free schedules including the payment or receipt of usual,
customary and or legal compensation for marketing exchange.
Rights and duties of parties in the marketing exchange process.
 Participants in the marketing exchange process should be able to expect that.
 Product and services offered are safe and fit for their intended purpose.
 Communication about offered products and services are not deceptive.
 All parties intend to discharge their obligations, financial and otherwise in good
faith
 Appropriate internal methods exist for equitable adjustment and or redress of
grievances concerning purchases.
(Adopted from Stanton and Spiro 1999.554)

Summary
In business terms, marketing can be viewed as a total system of activities designed to
plan, develop, price, promote and distribute the product, service or idea that satisfies the
needs of the consumers.Morden marketing requires the marketer to be sensitive to
quality, relationshipbuilding, value creation and customer retention. The standard of
behaviour accepted by society “ethics” are important consideration in modern marketing.
Self assessment exercise
1. Basing on an organisation of your choice ,discuss the application of the marketing
concept in today’s business (20 marks )
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2. Elaborate on how firms can implement the societal marketing concept. Do you think
corporate social responsibility benefits the business (20 marks )
3. Discuss the core concepts of marketing (20 marks)
4. Discuss some unethical behaviours that marketers engage in and elaborate on the
rights and duties of the parties in the marketing exchange process (20 marks)

TOPIC 2.MARKETING ENVIRONMENT SCANNING

2.0.Introduction
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Environmental scanning is the process of gathering information about the external

environment of the organization, analyzing it andforecasting impact of whatever trends it
suggests.Marketing operates under twoenvironments namely the Micro(internal and
immediate external Environment) and the Macro (External Environment).These two
environments determine the direction of events and how marketers and planners should
respond in each given case. Successfulmarketingdependslargely on the ability of the firm
to manage its marketing programs within its environment. Marketingexecutives must
determine what makes up the firm’s environment and then monitor it in a systematic,
ongoing manner capturing all trends that may be opportunities or threats to the
organization. The macro environment covers such aspects as.
 The political factors
 Economic factors
 Social factors
 Technological
 legal factors which may affect business
 Ecological/physical factors
The immediate external environment (micro environment) covers the following aspects
Suppliers, Customers,Distributors, Competitors
The internal environment of the business include such factors as
 Employees skills, attitudes and behaviour
 Research and development
 Resources
 Location of the business
 The company image
The marketing environmental scanning therefore involves understanding how each of the
above factors affects the marketing process.

2.1.Objectives
It is hoped that after studying this topic learners will be able to
 Identify the forces that constitute the firm’s marketing environment.
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 Identify and describe the macro and micro environmental factors that affect a
firm’s marketing program
 Discuss the impact of economic, social political and legal, physical and
technological forces on marketing decisions
 Describe how firms can respond to changes within its marketing environment.

2.2 Analysis of the macro-environment

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The macro environment comprises of major factors outside the organization which the
organization has no influence. These factors affect all firms in the economy. They do not
affect a particular firm or industry but the entire economy.
2.2.1 Demographic/social environment
The Demographic forces concern those changes that take place within the population of
a given country and the world at large. These forces cover aspects such as world
population growth, age distribution, gender distribution and mortality rates. Closely
associated with demographic forces are cultural forces, which also have a bearing on
marketing decisions.
An increase in the population size generally means an increase in the customer base;
however a marketer needs to understand more detail than that. There is need to
understand age distribution and mortality rates. For example if you intend to provide
children’s products, you need to understand the demographics of the population. It is
necessary to know the life expectancy of the population so that you may decide whether
to provide goods for the old people such as automatic gearbox vehicles, walking sticks,
old peoples’ homes and clothes for warmth.
Dividing the population into age groups will help the marketer to appreciate the demand
for particular products. If there is a huge population for children a firm that sells toys and
other children’s goods will thrive. The 15-30 years age group may be interested in
entertainment oriented products such as CDs, TVs, Radios and films. The 50years plus
age group is interested in leisure thus, provision of holiday facilities to this market will
meet their demands. It is imperative for marketers to take a close look at population size,
growth rate in the regions, the world and cities. Ethnic mixand educational levels of the
population should also be considered. An educated population is an informed one .The
reason why ethnic considerations are critical is that in some countries such as South
Africa and America, you can find people from almost every corner of the world.
Accordingly a marketer should seek to balance the conflicting interests of all these
people. The situation could be different in Japan where almost theentire market will
comprise of Japanese only. Even those marketers dealing in a single product that appeal
to different age groups need to understand these differences in order to effectively
segment the market
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Household Patterns- In most African states, the family unit comprise of, the father and
his wife as well as their children. The extended family used to be an integral part of the
traditional family although this is changing with changes in civilization and the increased
costs of living. What is critical to note is that whilst the traditional view of a family in an
African settingencouraged or in some cases compelled couples to have children, this
aspect is increasingly becoming elective in contemporary society. Marriage is no longer
a compulsory institution, which one can join. Some people choose not to marry while
others marry but choose not to have children. So many people live alone with no
husband/wife or children. It is critical therefore for a marketer to appreciate that such
people have unique needs, which ought to be fulfilled. They should produce goods that
target the live alones, as opposed to concentrating on family goods only.
Migration – the world today has been reduced into a global village. Individuals and
families migrate from one nation to another or one region or continent to another in
search of greener pastures. A marketer today has the added responsibility of ensuring that
his/her products have universal appeal so that even the immigrants can benefit from these
products or services.
World Population Growth
The world population growth is a critical factor to consider because it has bearing world
resources such as food supply and minerals. Accordingly marketers should always seek
to understand population trends at each given time in order to be able to respond
positively to any changes in the population.
Activity 2(a)
Why are demographic forces important from a marketer’s viewpoint?
 Understanding population changes will enable the marketer to decide which
goods /services to provide to a particular population segment.
 Understanding changes in the household patterns will help a marketer to
appreciate those goods for live alones, and those married but without children
should be provided.
 Demand for particular goods may be related to some ethnic considerations.
Some tribes do not eat certain products like donkey meat, goat milk.
 It helps a marketer to forecast future demand for his/her firm’s products.
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 It helps the marketer to respond to any changes, which may affect demand for
his/her, products.
2.2.2 Economic Environment
Just having people is not enough for the marketer to define a market, the people should
have the money to spend,and consequently the economic environment becomes a
significant force to the marketer. Marketers should be concerned with the following
economic aspects as they affect the marketing of the products
 The stage of the economy on the business cycle
 Income distribution
 Savings debt and credit availability
 Outsourcing and free trade
 interest rates and inflation rate
(i)The business cycle
The traditional business cycle goes through three stages: prosperity (growth), recession,
and recovery.It is ideal for the marketer to understand the stage at which the economy is
in because the company’s marketing program should usually be changed to meet the
prevailing conditions as depicted by the economic conditions.
Prosperity/Growth: This is a period ofhigh economicactivity.During this stage,
organizations tend to expand their marketing programs as they add new products and
enter new markets.
Recession: This is a period when there is no growth in the economy but rather adecline in
the economic activity of the country .During this stage consumers reduce their spending
because their income will be low, firms retrench because of decrease in demand.
Consequently the business’ marketing activities are contracted .In such times consumers
will focus on products that satisfy basic needs ,luxury products such as entertainment
and holidays may face serious decline in sales.
Recovery: It is the period when the economy is movingfrom recession to prosperity. The
marketer’s challenge is to determine how quickly prosperity will return. As
unemployment declines and disposable income of consumers increase, companies expand
their marketing activities in order to improve sales and profits
Activity 2(b)
 25

As you read this study pack, what stage of the business cycle is the economy of your
country? How can an effective marketer respond to such an economic environment?
Feedback
Analyze the economy of your country be it Zimbabwe, South Africa,Botswana, Zambia, in
your answer explain what is happening in the industries and communities in terms of
 Employment versus retrenchment
 Improving of living standards versus declining living standards
 The interest rates being offered by the banks
Would you respond by reducing the features of the products to very basic need satisfying
as a marketer?
Are you going to contractor expand the marketing activities?
*you responds on the second part of the question is guided by the stage that you have
declared above.
(ii)Income Distribution
Marketers must have a close look at the income levels of its customers. This is
especially important because availability of income determines the ability of the
customers to buy the goods provided by the firm. It is necessary to identify types of
Industrial structures to appreciate the importance of income to marketing. Those can be
grouped into
 Raw material economies/developing economies: Has very few opportunities
from a marketing viewpoint because the economy only produces what is enough
to feed its population. People in such economies have little disposable incomes
 Industrialized/developed economies:Examples include those economies such
asJapan, United States and Britain.Citizens of such economies have considerable
incomes that they can spend on the goods being marketed by the business.
Marketersshould understand the income levels of the customers in the markets they are
serving.
Countries with low incomes have limited opportunities as the customers have no
disposable income and are price sensitive. When selling high value products it will be
difficult to penetrate such markets, as your products will be viewed as too expensive.
(iii)Savings Debt and Credit Availability
 26

Customers should have some savings for them to afford a firm’s products. Where
income levels are low and consumers live from hand to mouth, they will have low buying
power however where the customers can buy goods on credit it is possible for them to
afford expensive goods although they have limited resources. Availability of credit to
customers also determines the rate of consumption of consumers where credit facilities
are available;consumers tend to spend more since they can flexibly stager their payments
for products over a considerable period of time.
(iii)Outsourcing and international trade: Marketing will be easier in open economies.
Open economies are those which allow for the incoming of imports and outgoing of
exports. In this era of globalization, competition is realized from all over the world.
Firms should be able to solicit for markets and cheap supply of raw materials for their
products from any corner of the world with much easy. Existence of barriers to
international trade may hinder the implementation of marketing strategies more
especially those related to global marketing. Some barriers used by countries to restrict
imports are customs duty, strict health and safety measures on imports and restriction of
the distribution and availability of foreign currency.
(iv)Interest rates and inflation rate
Interest rate: Can be briefly defined as the cost of borrowing, if it cost less to borrow
thenconsumers can borrow and spend. Lower interest rates are favourable for operations
of the business because consumers will be spending more. Economists have also
discovered that if monetary institutions reward less to individuals for saving their
money.The individuals will resort to spending rather than saving. This will stimulate the
economic activity of the country.
Inflation rateis therate at which prices rises in general. When prices rise, consumers will
be forced to buy less of the company’s products. Unless consumer income is increased at
a faster rate than the rising of prices, consumers will be forced to consume less. Inflation
reduces the consumer’s real income.
2.2.3The Natural Environment
The natural environment is under constant attack from various human activities.
Activities such as burning of fire, emission of carbon monoxide and other gases from the
industry contribute to depletion of the ozone layer. Some products are not
 27

environmentally friendly. For example, if some chemicals spill into water or on the
ground, they destroy the animals living in water or the vegetation. Such products are said
to be environmentally unfriendly. Accordingly ethical business involves ensuring that the
products the firm is producing are environmentally friendly. This is known as green
marketing. Further customers in some countries are particularabout whether a firm is
complying with environmental regulations of not.
There are severalworkshops and awareness campaigns carried out through around
theworld to instilenvironmental awareness in marketers,a number of treaties have also
been signed on the protection of the ozone layer. Marketers should, in a similar fashion
respond to the developments around the world in promoting products that are
environmentally friendly.
Firms can contribute positively towards conservation of the natural environment. Some
of the ways would be
Use of Environmentally friendly Ingredient: Firms should use ingredients, which are
environmentally friendly in their products. They should use biodegradable and natural
ingredients in their products. Skin lotions should be based on natural herbs and oils.
Using recyclable and Non wasteful Packaging: Shopping bags and packaging materials
used to wrap goods can be a concern if not properly managed. Some of these plastics can
be dangerous to the environment. Some developed countries like Germany have
introduced laws that put an obligation upon shoppers to return all packaging materials to
the retailers for recycling purposes.
Protection of the Ozone layer: A number of human activities are responsible for the
depletion of the ozone layer. Products such as chlorofluorocarbons used in refrigerators
are a quick example. A number of international agreements have been signed to try and
reduce the depletion of the ozone layer. The most notable international convention is the
Montreal protocol of 2000. This protocol outlawed the continued production of these
chlorofluorocarbons beyond year2 000.
Animal Testing of new Products: Scientistsand chemists should be blamed on this issue.
Most drugs and skin care products are first risked on animals before human beings to
establish whether they have any side effects when used. This procedure values human
life ahead of other animallife. While to some extent this is understandable, the animal
 28

rights organizations see this is a bad practice and have called that the exercise be stopped.
It is submitted that firms should seek to adopt those products, which are animal friendly.
Pollution:It is unethical to dispose harmful products or chemicals into rivers or the sea.
This will kill fish and other aquatic life. It may also be harmful to human beings. Certain
chemicals pollute the air through smoke and account for considerable levels of depletion
of the ozone layer several human diseases. Even motor vehicles emit considerable levels
of carbon, which pollute the air. This is the reason why some countries have introduced a
tax called the carbon tax based on the engine capacity. It is the responsibility of firms to
ensure that their business activities are environmentally friendly.
Energy Conservation: Sources of energy such as coal and oil should be preserved. Firms
should this ensure that the products they sell are energy efficient even cars should be
energy efficient. .
2.2.4 Technological Environment
Technological advancements are a major source of competitive advantage. For any
organization
 Technology improves the efficiency of the manufacturing process. This will
result in reduced prices to consumers as the costs of production are reduced.
 The firm will sell its products at affordable prices.
 It enables a firm to position its products well in the market.
 Technology is also seen as a major force for organizational change.
 New technologies bring about new ways of doing things.
 New technologies may also require new skills development for a firm’s
workforce.
 Controlling state of the art technologies gives a firm a competitive advantage over
competitors who are relying on redundant technologies. New technologies may
result in development of new products or the improvement on the quality of
existing ones.
 Innovation thrives where a firm is able to invest new technologies. Leading edge
technologies enable a firm to improve its business processes and come up with
new ways of doing business.
 29

The investment in and development of new technologies is an expensive venture.

However it’s a worthwhile venture. Technology has the added advantage in accelerating
the pace of change.
2.2.5 Political/ Legal Environment
The political environment is affected by a number of factors. It covers such issues as the
government’s ideology towards business. Where the nature of the economy is such that
the government takes control over all business transactions, this may affected the interest
of the investors further, where there is political instability,investor’s confidence is
high.The rate at which businesses are taxed on their profits might also affect the
operations of firms and either discourage or encourage investors. High tax rates
shunaway investors. Privatization and commercialization of government entities is a
major political factor with considerable effects on business in any country.
Privatization involves turning government or state run institutions, into institutions that
can be run on commercial lines so that they can generate profits. If the government has
zeal to empower the citizens it can come up with deliberate policies to achieve these
goals. The law in some countries require foreign company shareholding structure to be
51% in favour of locals while foreigners take 49%. This is a noble idea to empower the
locals but it should be managed carefully. Accordingly the philosophy of the state
towards business and investment will determine whether investors invest in that state or
not. Governments should thus create favourable business conditions to allow investment
place without too much unnecessary limitations.
Activity 2b
What are the political variables that a marketer should understand?
Your answer should explain how the following variables affect the marketing activities of
the firm
Monetary and fiscal policies
Economic system or ideology
Social legislation
Legislation related to marketing specifically
Government relationships with the industry
2.2.6 Globalization
 30

This external environmental force cannot be neglected;today businesses are facing

competition from all corners of the world. Marketers should think globally whenever they
are making decisions,they should think of penetrating international markets. International
trade liberalization has brought the global economy to be one.
Fig 2.1The marketing environment

Macro environment
Political
Technological Microenvironment
Social Immediate external
Economic Customers
Ecological Competitors
Legal Suppliers Internal Environment
Intermediaries Employees
Media R&D
Resources
Location &image
image

Economic
Ecological
Legal
The micro environment
2.3The immediate external microenvironment
External micro environmental factors include.
 Customers
 Suppliers
 Media
 Competitors
 Intermediaries
2.3.1Customers/ the market
No business can exist without customers in fact businesses exist in order to satisfy the
needs of the customers in their chosen market. The needs of such customers are always
changing. A business should ensure that at each given time it understands the needs of its
 31

customers at that given point. A firm should seek to respond to what its customers want.
It should notcontinue to provide a product or service which is no required by its
customers.
You need to note that there is another school of thought which considers customers as
belonging to the internal environment. I submit that while businesses exist to satisfy
customers’ needs at any given time customers are better discussed as part of a firm’s
external environment. The term customer is not limited to human beings only; it also
covers institutional customers such as schools, other companies, hospitals and banks that
may be interested in a firm’s products. Accordingly it is necessary to be closer to your
customers to understand their needs, understand their purchasing power and understand
their buying behaviour
2.3.2Suppliers
Raw materials are needed by a firm, however where a product is in short supply and the
demand for it is high, the prices for that product go up due to the shortage and increased
demand. This is usually the case with products that are out of season. If you buy
mangoes, guava or maize during a time when they are off season, the prices are up. The
prices will fall when the products are abundant and can be found everywhere across
town.
In marketing the term supplier can also be used to refer to any entity that provides
services to the organization from outside. Such firms which provides maintenance, and
support services can also be regarded as suppliers.
2.3.3Media
The media plays a vital role in the marketing process. Through the media the business
informs the public about its products, their benefits or side effects. The role of the media
in this regard should not be under estimated as it can have both positive andnegative
effects. The media covers the electronic such as TVs, Radios and print media such as
newspapers and magazineswhich the business uses for promoting its products. The
media can be used for positive publicity purposes and in a similar fashion negative
publicity comes through the media if sour relations prevail between the business and
them.
2.3.4 Competitors
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A company’s competitive environment is a major influence on the marketing programs.

Unless otherwise, there is no any business that does not suffer competition at all. All
businesses face competition in one way or the other. From a marketer’s point of view,
competitors are those firms which offer products that satisfy the same needs as ours,
therefore marketers should analyse thecompetitive through seeking answers to the
following questions.
 Who is that we are competing against?
 What are their objectives?
 What strategies are they pursuing and how successful are they?
 What strength and weaknesses theyposses?
 How are they likely to behave and in particular, how are they likely to react to
offensive moves?
According to (Stanton et al 2001) a firm generally faces the following three types of
competition
Brand competition: Whichcomes when the competing firms offer directly similar
products?
Substitute products: These are products which satisfy the same need although they are
not strictly the same for example a chicken producer may not directly compete with a
beef producer however these two products serve the same purpose.
Every company. This is the rival for the consumer’s limited buying power. Economists
believe that the consumer’s resources (income) are limited. These limited resources are
faced with competing needs that have to be satisfied, therefore as firms offer products to
satisfy thesedifferent needs of consumers they compete indirectly for the limited income
of the consumer.
2.3.5 Intermediaries
Marketing intermediaries are independent organizations that directly or indirectly aid
the flow of goods and services between a marketing organization and its markets .These
intermediaries operate between the company and its markets and between the company
and its suppliers. They are part of what is known aschannels of distribution or the supply
chain. These organiz
 33

ations include wholesalers, retailers and agents as well as facilitating organizations such
as transport operators and banks which makes exchange between suppliers and customers
easy. (Intermediaries will be discussed in detail in unit 3 under distribution)
2.4 The internal environment
The internal activity of an organization has the potential to either make it succeed or
failon the market. An organization whose employees are dedicated and loyal to their
work has a potential of doing well on the market. The organisation should seek to get
approval of its internal stakeholders first before it tries to satisfy external customers. This
is known as internal marketing. Internal market environment is sometimes known as
organizational environment. It includes the company’s departments, employees, location,
research and development activities, all these factors are directly controllable by the
organization.
2.4.1 Employees
Employers should make the right choice of employees and the employees should be
always happyabout their working environment. The recruitment and selection procedures
of the organization should be marketing oriented. It should be done with the view of
satisfying the customer ultimately. Highly skilled and experienced employees are an asset
to the organization. It may be difficulty to replace an excellent sales person if he or she
joins the competitor, in some sectors the business can even lose a number of customers
who were under that particular sales person’s control. The firm should also invest
considerable resources in training and developing its employees for them to be equipped
with up-to-date skills ideal for their specific jobs.
2.4.2 Departments
This covers the organization’s sections and process of doing business as well as the
relationship that exist within the departments. A marketing driven firm will have efforts
of all departments focused on the satisfaction of the customer. Interdepartmental conflicts
results in poor service to the customer and this will lead to failure in the market. The
business has to adoptsimplified processes that ensure quick and easy delivery of goods
and services to the customer. The use of new technology in the communication and
marketing information systems of the organization will help the organization gain a
competitive advantage.
 34

2.4.3 Location
The location of a business determines its success or failure as well as its image. A
number of factors influence the location of a business. Some of the factors are
availability of raw materials, availability of land, and proximity of the market. The image
of the business can also be boosted or reduced by the area in which it is located. Wrongly
locating the business may result in high costs in customer service or raw materials
procurement.
2.4.4 Research and development
The effectiveness of the research and development department will dictate if a company
is innovative, market leader ormarket follower.The more innovative this department is,
the more the organization leads the market. Economists believe that in perfectly
competitive market structures the firm does not have power to influence the price on the
market;firms are regarded as price takers. A firm can only survive competition by
formulating and implementing cost serving processes. This can only be facilitated by
research and development.

Summary
This unit covered the environment under which an organization operates. We have
identified different factors which affect the operations of a business. These environments
are the internal environment, the micro environment and the macro environment. It is
very crucial for the marketers to appreciate what all these three environments entail so
that a compatible marketing strategy can be formulated.

Self assessment questions

1Identify thedemographic variableswhich have to be understood by the marketer.

2. What factors wouldone consider when locating a large retail shop?

3. Identify the components of the business’s internal environment and explain how the
business can improve them in order to gain competitive advantage.
 35

Suggested answers to self assessment questions

1. Demographic variables relate to the composition of the population which the business
is serving. In this, the marketer will be trying to understand the following
 Age composition of the customers
 Their income levels
 Educational backgrounds
 Their religion
 Nationalities
2. Factors to consider when locating a large retail shop
 Availability of land
 Nearness to customers
 Transport network links
 Utilities
 Communication links
3. Components of the internal environment of a business are
Relationship of departments, Location of the business, Employeesand Research and
development

TOPIC 3: DEVELOPING MARKETING STRATEGIES AND PLANS

Introduction
 36

A strategy can be a course of action, methods, or plans to be followed towards

achievement of predetermined goals. The process of formulating marketing strategies is
guided by the corporate mission, goals, policies and overall plan .Marketing activities
should go in line with the overall business objectives and shouldalign well with the
activities of other business functions such as Human Resources,Finance, Operations or
Production
An organization should define its business in terms of products that it offers and the
customers that it serves, this is done through having a clear understanding of its mission.
A mission statement defines the purpose of existence of the business. The business then
assesses the internal and external environment in which it operates establishing its
strength, weaknesses, opportunities and threats (SWOT analysis).This enables the
business to formulateits goals forwhich the strategies are formulated in order to be
realised.
Marketing strategies that can be followed include Market dominance strategies, Michael
Porter’s generic strategies, and growth strategies. In this topic we shall look at the models
that are employed in formulating marketing strategies.
Objectives
It is hoped that after working through this topic you should be able to
 Identify and explain Marketing Strategies used by Marketers in organizations
 Describe Strategic Management and Planning
 Define competitive advantage and suggest ways by which companies can sustain
competitive advantage.
 Identify the ways by which organizations can decide which customers to serve
 Link the concept of Marketing Strategies to the entire Corporate Strategy
 Identify and explain the steps involved in Marketing Planning
 Identify and explain the levels of strategy
3.0 Definition of terms
(i)Strategy: A strategy is defined as a fundamental pattern of present and planned
objectives, resource deployment and interaction of an organization with market,
competitors and other environmental factors. Strategic marketing is therefore the
formulation of appropriate market strategies as inputs in business and corporate
 37

strategies. It is vital to note that this process can not be separated from the process of
the organization’s overall strategy. A company should look at its present position and
clearly define its goals before setting the road map to achieve those goals. Closely
related to this, is the concept of planning.
(ii) Planning
It is a process that involves deciding ‘presently’ what you want to achieve in future.
It is necessary to define how the desired future will be achieved in terms of the
strategies to be employedon available resources. Once an organization has established
a clear vision of its desired future, it has to plan and come up with strategies of
achieving the desired future state. Accordinglyplanningis defined as a process of
establishing goals, ways of achieving those goals taking into consideration the
internal and external environmental factors.
(iii)An objective
It is a goal which has a short life span but with specific and measurable outcomes.

3.1.0 Strategic Management and Planning

Strategic management involves a future view of the organization. It answers such
questions as, what does the company want to be in 10 years time? How can that
desired future position be achieved? What are the objectives of the company?
Strategic management involves two basic concepts namely Mission Statement and
Vision Statement. A mission statement describes what business the company is
doing including who its customers are. It is more concerned with the present state of
affairs than the future. A vision statement is futuristic as it describes the company’s
desired future. Strategy can be classified into three levels namely
 Corporate level strategy
 Business Unit strategy
 Functional level strategy
This can be shown diagrammatically as follows
Fig3.1 Levels of organizational strategies

Corporate level
Strategy Multi business Corporation
 38

Business level SBU2 SBU 3

SBU 1
Strategy

Functional level Research Manufactur Sales Marketing

Strategy ing

The diagram shows a multi business corporation which has a number of strategic
business units (SBUs )

(i) Corporate Level Strategy

Some organizations have more than one line of business. They may have business units
in the mining sector, agriculture and manufacturing. Corporate level strategy is
formulated by top management to decide on the kind of business unit the organization
should invest in and how to allocate resources to meet the objectives of the various
business units. Organizations set clear goals on issues such as innovation, profitability,
market share and the desired future position. The organisation proceeds to formulate
strategies to achieve those goals.
(ii)Business Unit Strategy
Such strategies are aimed at meeting the specific needs of an individual business unit.
The process of strategy formulation and implementation is the same as in the case of
corporate level strategy .The difference is that business strategy covers a shorter period
and that it is more specificto a particular business unit.
(iii) Functional Unit Strategies
An organization has many functional areas such as Marketing, Finance, Human
Resources, Research and Development, Manufacturing and Sales department. Functional
strategies are formulated to meet the specific needs and desires of these functional areas
The process of formulating organisationstrategy is affected both by the internal and
externalenvironmental factors. External factors include the following
 39

 Nature of Competition
 Technology
 Political, social and economic factors
 Changing needs of the buyers
In practice business management involves taking a close look at your competitors, studying
their intentions, their resource base and their strategies. Depending on whether your
organization is a market leader, challenger or follower, you need to respond positively and
appropriately to any moves taken by your competitors. If your competitors intend to invest
resources to overtake you in terms of market share you need to defend your position by
taking appropriate counter moves.
Internal factors affecting corporate strategy include
Nature of the managementstyles being employed. Some managers are aggressive and are
goal getters in all cases, while others are passive and reactive. They wait for competitors to
take the first move so that they can decide how to respond. Good managers should take
competition to the competitors rather than being passive. In soccer it is often said that the
best way to defend is to attack. In a similar manner, in business you do not have to wait for
competitors to attack you first, you need to be aggressive.
The objectives- They provide the organization with a sense of direction. Organizations
are not static bodies. They are constantly changing due to environmental changes. If the
major objective is to double sales in five years then this will guide the organization in all
its activities. Objectives also help organizations to focus and to craft appropriate
strategies to achieve the desired future.
It is possible to evaluate progress when you work with set objectives. This is why
objectives should be smart (specific, measurable, achievable, and realistic and time
specific)

Activity 3a
What in your opinion is the importance of strategic management and planning in the
marketing function?
 40

This question requires you to state your opinion. Accordingly once you take a particular
position you need to be able to support it. There is no right or wrong answer in such
questions. However the degree at which you motivate your argument will determine your
score. In general it is necessary to include all or some of the following aspects when
answering such a question
 Define Strategic Management
 Outline the relationship between strategic management and marketing
 Outline the advantages of planning
Note, this question also requires you to explain about planning. This was deliberate so
that your general knowledge about planning could be tested.
3.2 Planning
Planning is an integral process in strategic management and strategy formulation. .
Managers perform the functions of organizing, planning, leading and controlling
organizational activities. According to (Smit and Cronje 2005) the importance of
planning can be illustrated by the following.
 Planning reduces confusion by promoting cooperation between managers and
workers with diverse backgrounds
 Avoids wasting of the organization’s resources by ensuring that resources are
correctly deployed to sections where they can be maximallyutilized.
 Planning helps organizations to decide in the present what to do in future,
managers can cope up with increasing organization complexity
 It brings order in the manner managers execute their duties
 Managers can acquire new technology if they properly plan for it
3.2.1Types of Plans
There are three levels of plans which go in relation with the level of management in
the organization. The levels of plans are
 Corporate plans
 Business plans
 Functional/operational plans
Corporate or visionary planning. This is carried out by top management to allocate
resources to various business units.The visionary element refers to the futuristic approach
 41

to planning. The benefits of planning are enjoyed both today and in future. It involves
such activities as definition of mission statement, environmentalscanning, marketaudit,
setting of objectives and implementation of strategy
Business Planning. A company has to position itself in the market. It is impossible for
a company to seek to serve the mass market. Companies thus target particular markets,
study their needs and then proceed to serve them. Planning at this level involves
implementation of strategy, estimation of results and acquiring of resources in order to
implement the plans.
Functional Planning: The marketing department might wish to achieve certain goals
during a specific trading period. Planning at this level is called functional planning. It
involves identification of alternative plans, implementation of strategy monitoring and
evaluating the progress of a strategy.
3.3 The marketing planning process
Strategic marketing planning processadopts the following stages.
Steps 1. Goal setting
The organization should set up goals to be achieved in a specified period. The goals must
be realistic and achievable. The goals will give the organization a sense of the direction.
They will determine the strategies that are suitable to achieve the set goals. The set goals
will also determine the resources needed to achieve them.
Step 2.Identification of current objectives and strategy
It involves carrying out an audit on the current strategies being employed by the company
to establish ways in which the current strategies have worked or failed to work for the
organization in the past. Formulating new strategies without carrying an audit on the
current strategies may not work because some of the aspects which led to their failure
might be repeated.
Step 3 Environmental analysis.
A business operates in two environments, the external environment and the internal
environment. Organizations can use tools such as the SWOT analysis to establish
theirstrengths weaknesses, opportunities and threats. The legal environment in the form
of government regulation should also be analysed. Technological changes can have a
serious bearing on the performance of a company. Ifcurrent technology is unable to meet
the needs of the company then it must be changed in order to enhance the
 42

competitiveness of the business. Political instability is one of business’s major enemies as

it chases away investors. In carrying out the environmental analysis exercise, it is
necessary not to forget competitors. Competitors pose a major threat to your business in
that if you fail to read their moves properly you are pushed into oblivion.
Step 4Resources analysis.
What do we mean when we talk of a company’s Resources? Traditionally this term was
applied to refer to resources like tractors, cars, and other tangible resources of the
company. It did not apply to the human resources. The human resources are perhaps the
most important asset of the company as it is the engine that drives the
company.Accordingly when defining a company’s resources the intellectual side should
not be forgotten.
Step 5 Identifying strategic opportunities and threats
Threats and opportunities can be identified after carrying out a SWOT analysis of
thefirm. Opportunities can only be pursued if the firm has the necessary resources exploit
them. A firm should maintain sufficient capital to take advantage of any opportunities
that may come its way. Threats, if not taken good care of might threaten the existence of
the firm. Good managers should turn threats into opportunities. An example of a threat is
the current debate on asbestos. Many arguments have been advanced on whether asbestos
should be banned or not. A firm should be able to effectively deal with such threats to
avoid dissolution.
Step 6. Determination of required strategic change:
This can only be established if an audit of the existing strategies is carried out. This
depends on the difference between the desired outcome and the outcome which can be
achieved when we follow the existing strategy.
Step 7 .Decision making and identification of strategic alternatives
A firm should decide which strategy to follow based on its objectives, the marketing
environment and availability of resources
Step 8 Strategy implementation
At this point the selected strategy is implemented ensuring the availability of all
necessary resources. The strategy may be implemented in successive phases so that
controlling is made easy
Step 9 Monitoring, evaluation and review
 43

The strategy has to be monitored for its effectiveness. Control measures should be put in
place to ensure that what was planned is what is transpiring on the ground.
It is important to note that ,not all plans and strategies will follow the above process, it
may differ depending on the prevailing situation and the degree of effect the decisions
will affect the survival of the enterprise.
A company should decide on how it seeks to grow, build competitive advantage and
position itself on the market. This can be achieved through providing a number of
products in either related or unrelated industries in order to spread its risk. Diversification
is often used as a tool to spread risk but there is a limit to which this can go. The need to
control supply of raw materials may result in a company integrating with its suppliers of
raw materials. It may also be necessary to join hands with other competitors at times to
avoid collapse. The marketing function plays a very crucial role to ensure the survival
and growth of organizations.
3.4 Strategies for competitive advantage
A firm is said to have a sustained competitive advantage when it is implementing a
value creatingstrategy not simultaneously being implemented by any current or potential
competitors and when other firms are unable to duplicate the benefits of this strategy for
a given period. A competitive advantage is sustained only if it continues to exist after
efforts to duplicate it have ceased. It is suggested that the current technological
developments and the use of the internet make it much easier to duplicate another firm’s
competitive advantage. Further, changes in the equilibrium status of an industry may
render certain advantages useless. These are unexpected changes that may shake the
stability of a particular industry rendering obsolete some advantages a company may
have.(The chartered institute of marketing 1998)identified eight potential sources for
competitive advantage as
 Superior product benefits
 Advantages in the product or brand that by virtue of the brand ‘s advertising and
its country of origin are perceived by customers to be important
 Low cost operations which offer potential for aggressive pricing
 Legal advantage such as patens and copyrights
 Superior or influential contact with those in the industry or government
 44

 Great knowledge as a result of market research, experience or systems

 Economies of scale
 Competitively offensive attitudes and determination to succeed
3.5 The company’s position on the market
The company should appropriately define its position on the market. A company can be
a market leader, market follower, market challenger, or niche marketer.
Market leader: These are firms which have the largest market share and by virtue of their
position, are able to set the pace on the market in terms of prices and the intensity of
competition.
Market followers: They pursue less aggressive strategies;they avoid direct confrontations
with market leaders. They are generally ready to accept the current market structures and
the status quo
Market challengers: They have a considerably smaller market share but they adopt an
aggressive position by attacking the market leaders or others in the industry in an attempt
to strengthen their position and perhaps gain the leadership position.
Niche Marketer:They concentratetheir efforts upon small and often specialized parts of
the market and in this way avoid head on fights whilst developing detailed but specific
market knowledge.
3.6.0 Strategies in different market positions
The position that an organization occupies compels it to adopt certain strategies in
serving the market.
3.6.1 Strategies for market leaders
Market leadership has significant attractions. Leaders are an attractive and natural target
for others in the industry. Market leaders often find themselves subject to both direct and
indirect attacks .In order to guard the position of being a market leader it is ideal to focus
efforts on the following three areas
Expansion of the overall market:This can be achieved by targeting groups that are
currently non users of the company’s products, identifying new uses of the products or
services, increasingusage rates
Guarding the existing market share: This could be a difficulty strategy to follow in
practice however it can be achieved through
 45

 Strengthening the market leadership position

 Development and refinement of meaningful competitive advantage
 Continuous product and process innovation
 Heavy advertising
 Strong customer service
 Strong distributor relations
Expansion of current market share: Whilst every firm in the industry strives to maintain
its market share .The market leader may seek to expand its existing share through
 Heavy advertising
 Improved distribution
 Price incentives
 New product development
 Mergers
 Takeovers
 Geographic expansion
 Distributor expansion
3.6.2 Strategies for market followers
A market follower does not want to challenge the leader in the market. It rather seeks a
quieter life by remaining a follower. It may adopt any of the following alternatives
Following the leader or challenger closely: Through offering a similar marketing mix
and operating in broadly similar market segments, but taking care not to pose any real
threat or challenge to the leader.
Following at a distance:By proving that there are significant areas of differences with
the leaders and challengers, although some obvious areas of similarities exist.
Following selectively: In some instances there is little todistinguish between the leader
and the follower, whilst in other instances there is a major gap.
3.6.3 Strategies for market challengers
Organisations which are not leaders but wish to be, attempt to be leaders by mounting
challenges through
 A direct attack on the current market leaders
 46

 An attack upon firms of similar size to itself but which for a variety of possible
reasons such as lack of finance or weak management team are vulnerable
 An attack upon smaller firms
 Price discounting
 A different price quantity combination
 Product innovation
 Improved service levels
 Distribution innovation
 Intensive advertising
 Market development
 A more prestigious image
 Product proliferation
 Cost reduction
3.6.4 Strategiesfor niche marketers
Market niche strategy is usuallypursued by smaller firms. If performed well market niche
strategy can be an attractive and profitable strategy for a division or strategic business
unit of a large firm. The principal attraction of niche marketing is that it enables the
organization to concentrate its efforts on a particular segment of the market and in this
way avoid confrontation and competition. The criteria for evaluating the worthiness of a
niche market include the following
 The niche must be significantly large to be profitable
 It must have growth potential
 It must be of little interest to large competitors
 The firm must have the resources and skills needed to serve the niche effectively
 The firm must be able to defend itself ,at least initially against competitive inroads
3.7.0Marketing Strategies and models
Common marketing strategies are undifferentiated marketing, differentiated marketing or
concentrated marketing .Other models of marketing strategies that a business can utilize
are Porter’s generic Strategies, Innovation, Growth strategies and Portfolio analysis
3.7.1 Porter’s generic strategies
According to this model there are three marketing strategies a company can follow, these
are
 47

Cost leadership:This strategy emphasizes selling products at the lowest price as

compared to the prices of competitors. For this strategy to work a firm must be enjoying
economies of scale, experiencecurve economies or have a unique source of inputs that
competitors do not have access to, and should be able the producethe goods in large
quantities .If competitors are unable to match this then it is possible to sell the firm’s
goods at prices below those of competitors.
Differentiation:This strategy involves offering a product which is different in terms of
features from the standard product being offered by competitors. For this strategy to
work,the firmshould ensure that its offering is different from that of competitors.
Customers must see the differences and the advantages of buying the differentiated
product than buying the standard product being sold by the competitors.
FocusA firm can not satisfy every market. Some firms decide to specialize and focus on
a small niche market. Since there is specialisation and little competition it is possible for
a firm to charge high prices for its products.
Table 3.1 Summarizesthe ways in which each of these strategies can be
achieved,together with the benefits and possible problems that are associated with each of
the three strategies.
Type of Ways to achieve the Benefits Possible problems
strategy strategy
Cost Size and economies of scale The ability to Vulnerability to even lower
Leadership Globalization of operations Out perform rivals cost operators
Relocation to low cost parts Erect barriers to entry Possible price wars
of the world Resist the five forces The difficulty of sustaining
Modification and it in the long run
simplification of designs
Greater labour efficiency
Greater operating
effectiveness
Strategic alliances
New sources of supply
Focus Concentration upon or a A more detailed Limited opportunities for
small number of segments understanding of sector growth
The creation of a strong particular segments The possibility of outgrowing
 48

specialist reputation The creation of the market

barriers to entry The decline of the sector
reputation for A reputation for specialization
specialization which ultimately inhibits
The ability to growth and
concentrate efforts development into other sectors

Differentia The creation of strong brand Distancing from The difficulties of

tion identities others in the sustaining the basis for
The consistent pursuit of those market differentiation
factors which customers The creation of a Possibly higher costs
perceive to be important major The difficulty of
High performance in one or competitive achieving true
More spectrum of activities advantage and meaningful
Flexibility differentiation

3.7.2 Innovation
Social Scientists may differ on a number of things but they agree on one thing that ‘a
business can only survive in today’s environment if it isinnovative”. Innovation is a
process rather than an event. It involves coming up with something that is new and
useful not only to the individual who innovated it but the industryand society at large. A
firm must therefore thrive to be innovative by finding new opportunities and new ways of
solving business problems. Innovation or innovativeness range from radical innovations
to incremental innovations. The former results in a complete departure from existing
procedures and processes while the latter is concerned with making small but meaningful
additions to existing systems and processes thereby enhancing them.
Innovation can be on products, process, marketing strategies and management
techniques
Process Innovation: Every organization has various ways and processes by which its
business is carried out. Some of these processes are efficient while others are not.
Improving these processes or introducing new processes will enhance operational
efficiency.
 49

Product Innovation: A product can be either a physical thing or services. This type of
Innovation involves bringing about a new product /service or improving significantly on
an existing product/service.
Marketing Innovation: The Marketing age involves a process whereby firms have to
advertise their offering, engage in promotional activities and ensure that the offering is
rightly priced and properly distributed to customers. Finding newand effective ways of
marketing the firm’s offering may give the firm competitive advantages over rivals.
Management Innovation: These are changes that are designed for the organisation on
issues to do with its management. These include issues such as compensation and
staffing.
3.7.4 Growth strategies
These are strategies that a business pursue for expansion purposes .They include
(i)Vertical and horizontal integration
Controlling the source of raw materials is referred to as backward verticalintegration;
it can be a source of competitive advantage. Where a manufacturer merges witha retailer
or wholesaler for strategic purposes, it is referred to as forward vertical integration.
When a firm merges with its competitor in order to reap the benefits of economies of
scale and eliminate competition from the market, this is referred to as horizontal
integration.All these are forms of external growth for the business.

(ii)The Ansoff matrix

The model explains the company considerations on whether it could gain greater market
share whilst selling its current products incurrent markets, can it find or develop new
markets for existing products, and can it develop new products for its current markets or
develop new products for completely new markets. This model is presented inFig 3.5
(a)Market penetration (current products &current markets)
A firm may penetrate a market by either pursuing strategies that will attract new users of
their products or merely pursuing strategies that will increase sales of their product
among existing customers. Market penetration is briefly defined as the selling of more of
an existing product in exiting markets.
 50

When a firm is penetrating a new market it has to decide on pricing the products lower
than competitors.If it uses prices that are higher than those offered by competitors, their
product will be resisted by the customers.

Fig 3.5

The Ansoff’s Matrix

Products

currentnew
Current
Market Penetration Product development
New…………………………………………………………c Current

.
Market
Market Development Diversification

New

(b) Market development (current product &new markets)

This strategy is applicable if a firm intends to expand into new markets such as
establishing a new branch. It is possible to discover a new use for an existing product.If
this happens, the firm has to market the product to take advantage of the new useof their
product. Customer needs are dynamicand firms should positively respond to these
changes. This strategy is also suitable to carter for changes in customer needs.
(c)Product Development (new product & current market)
We have already noted that customers’ needs are dynamic and that firms should respond
to such changes. This results in the development of completely new products to meet the
new needs of customers. When a firm designs a new product for the existing market .This
strategy is referred to as product development.
(d)Diversification (new products& new markets)
This strategy entails producing new goods for new markets. Diversification can also
bealigned to the saying “do not put all your eggs in one basket”. If anything bad happens
they will all be destroyed? If eggs are kept in different baskets it is hoped that if anything
happens to one basket the others will be safe. In financial terminology this is known as
spreading of risk. Diversification can take many forms namely
 51

Diversification by integration-This involves either vertical or horizontal integration as

we have discussed before. Vertical integration takes two forms, forward or backward
integration. If a firm acquires a supplier of raw materials this is called backward
integration. A company dealing in cloth manufacturing may integrate vertically by taking
over a retail outlet selling clothes [forward integration] and by taking over a ginnery that
processes cotton [backward integration].Control of raw materials and the customer base
is a source competitive advantage.
Diversification by conglomeration-This is a short term strategy to move from your
existing products into new products in order to improve your cash flow.

Weaknesses of the ansoff matrix

The Ansoff model, although widely used, has its own weaknesses some of which are
 It is too rigid and often leaves the hands of planners tied because there is no room
for innovation and creativity
 The marketing environment is always evolving .Macro and micro factors of the
environment are not considered in this model. Accordingly it is this short
sightedness in the model which makes it less effective as a model used in
formulating marketing strategies.
(iii) Portfolio Analysis model
This model is associated with the research by BostonConsulting Group. It places
strategic business units or products of a business in quadrants taking into consideration
the relative market share and potential growth of the market.

Fig3.6 The BCG Matrix

Relative market share

High Low
Stars Question marks
High

Market growth rate

Cash cow Dogs
 52

Low

Source: Stoner&Freeman 1998

(i) Question marks: These are sometimes called problem children or wildcats to
demonstrate that they are products with a low market share yet they are in a highly
growing market .One would have some difficulties in deciding how to deal with such
products. This does not mean the products are not generating funds for the company, they
will be generating funds but the products would still be unclear in terms of their position
in the market. A firm might invest more money in order to improve the performance of
such products. A question mark may graduate into a star thus becoming leaders in
particular markets.
(ii) Stars:Products classified as stars are usually the life line for the organization. They
command high market share in high growth rate markets.
(iii) Cash cows: These products produce more cash for the firm. This money can be used
for investment purposes in problem areas.
(iv) Dogs: These are products with a weak market share in low growth markets. Since
such products are not profitable a firm may decide to drop them altogether.
Four strategies can emanate from this matrix
 As far as question marks are concerned it is necessary to invest more capital to
increase the market share of the product although this will affect profits in the
short term, the future returns may be better.
 Cash cows provide revenue for the firm, it is necessary to preserve them to get
cash for investment in other weaker areas.
 As far as dogs are concerned, it is better to close down the business unit or
discontinue providing the product and to sell what ever is there (harvest).
 Divest .Dogs and question marks may be sold to reduce losses
 Stars should be guarded against competition so that they maintain their status
Portfolio analysis model isalso applicable in corporations with a number or strategic
business units which it need to strategically position.
 53

Summary
In this topic we discussed general strategic management and formulation of marketing
strategies.Planning is important to a business for several reasons. Marketing activities
should be executed following an overall strategy of the business. We also noted that, a
number of models are available for strategy formulation.
Self assessment question
(1) Identify the steps to be taken in the formal marketing planning process
(2) Identify the categories into which plans can be divided
(3) Describe in detail the overall features, benefits and problems associated with cost
leadership strategies

TOPIC 4: MARKET SEGMENTATION TARGETING AND PRODUCT

POSITIONING

Introduction
The aim of marketingis tosatisfy thecustomers. The problem encountered in the pursuit of
this goal is that all customers may not besatisfied by a single marketing mix. The
business may satisfy other groups whilst other groups remain unsatisfied because people
 54

have different tastes and preferences. The process of market segmentationis easy as it is
spoken theoretically but is complicated to implement.
This topic is centred on three fundamental aspects of marketing which are market
segmentation, targeting and product positioning.
Objectives
It is hoped that after studying this topic you should be able to
 Define market segmentation, targeting and positioning.
 Explain the benefits of market segmentation.
 Describe the conditions necessary for effective segmentation.
 Describe the various bases for segmenting consumer markets.
 Identify different targeting strategies.
 Explain the differentpositioning strategies for a product.

4.0 Defining Market Segmentation

A market consists of customers with similar needs, but the needs may not be
homogeneous. Customers differ in the benefits they want to derive from a product or
service, the amounts they are willing to pay for a particular product as well as the media
they use to obtain information.
It is vital for marketers to segment the market and target one or more of these segments
with specially tailored offerings. Morden customers are continuously seeking
 55

personalised /customised service which can be achieved if the market has been
effectively segmented .We can now define Market Segmentation as the process of
dividing a market into groups of buyers having similar needs, characteristics and
behaviour (Kotler & Keller 2006). A segment consists of consumers who share similar
set of needs and wants.
4.1The benefits of segmenting markets
When a business divides its market into different segments, it will enjoy the following
benefits:
(i)Better matching of customer needs:
Because the needs of customers differ, creating separate offers for each segment will
provide better solution. Developing separate brands for each segment allows higher level
of satisfaction to customers who have different tastes and preferences.
(ii)Higher profitability of business:
Market segmentation is in line with the marketing concept. ‘Profitability
throughcustomer satisfaction’. It accommodates price sensitivity of customers. By
segmenting the market the business can raise average prices or reduce prices in relation to
the behaviour of the segments and subsequently enhance profits.
(iii)Enhanced opportunities for growth
Segmentation allows companies to reap higher margin from other segments which can
then compensate low margins for the other segments. For example,the first class tickets
for train at the RailwaysCorporation earns the company higher profit margins which
compensatefor the less profits obtained on economy class tickets. This is facilitated by
market segmentation
(iv)Customer Retention and high degree of loyalty
As an individual, a customer’s circumstances change with age, family and income, his or
her buying patterns change. Market segmentation allows the firm to provide products that
cater for every level and situation that a particular customer will be in.
(v)Targeted communication
It is difficult for a company to deliver a clear message to the broadmarket. It is easier to
achieve effective communication if the market is segmented. For example when
advertising to the youth the company can use the internet, when advertising to the elderly
 56

customers the company can use billboards with large visible pictures.Separation of these
two demographic groups is an act of segmentation.
(vi)Smaller firms can compete effectively in one or more small markets.
When a firm is small, it can identifysome segments which are not competed for by large
firms. Large firm may not be interested in that small market because it is too small or too
specialised to serve. This helps the smaller firms to escape the pressure of competition
from large firms.
Trying to sell products to groups of customers with varied needs may prove difficult and
expensive because more of the customers may not be reached by the marketing efforts of
the organisation andmay notfind the products satisfying their needs directly, so it is
important to first identify customers with similar needs before approaching them with the
product.
1.2 Conditions/criteria for effective segmentation
In order for market segmentation to be effective the following conditions must be met
regarding the segments and the firm itself. (Jobber 2002)
Homogeneity of needs:The segments identified should consist of customers whose needs
are relatively homogeneous within the segment but significantly different from those in
other segments.
Identifiable: The business must be able to identify customers in the proposed segment. It
is useful to find some customer characteristics that link to the psychological profiles such
as age, media, wage or nationality.
Profitable. If more segments are identified, it means there are greater chances that the
business will precisely offer its products. Targeting many segments also involves higher
costs of production set ups and losses of economies of scale since the large markets are
reduced to be very small.Agood segment should be capable of giving the business the
desired return on investment (profit).
Accessible: It is not profitable to identify a very good segment that the company is unable
to reach. Customers in a segment should be capable of being effectively reached and
served. For example a business might find a good segment for its product but the
customers in that segment cannot be reached due to some barriers existing. Such a
segment should not be considered.
 57

Actionable: A business should be able to take advantage of the segmentation scheme it

develops. It should have adequate resources in form of labour and capital to pursue the
strategy that it has developed.
Activity 4a
You have been appointed as Marketing Manager for Unilever Ltd. One of your first tasks
is to attend a meeting with top management of the company in which you are supposed to
provide your marketing plan. In your plan market segmentation is one of the important
tasks to be performed immediately. What are some of the ideas you would include as
benefits that will accrue to the company if it segments the market?

Define market segmentation

Identify the products ofUnilever and the markets they are offered in
Apply the benefits of segmentation discussed before to the company’s scenario.
4.3 Bases for Segmenting consumer markets
There are a number of ways in which consumer markets can be segmented. The four most
common bases used to segment consumer markets are geographic, demographic,
psychographic and behavioural.
(i) Geographic Segmentation
Geographic segmentation calls for dividing the market into different geographical units
such as nations, regions, cities, or neighbourhoods
The company can operate in one or a few areas, or operate in all but pay attention to local
varieties. The idea is that “people living in the same locality share the same consumption
and purchasing behaviour”. The advantage ofgeographically segmenting markets is that,
socio- cultural differences in customers can be taken into account when formulating the
marketing program.
(ii) Demographic Segmentation
In demographic segmentation, the market (customers)are divided into groups on the basis
age, family size, family life cycle, income, occupation, education, religion, race,
generation, nationality and social class .The idea is that if these different demographic
groups are identified, different marketing mixes can be designed to effectively serve
them.
 58

Age and life cycle stage. Consumer wants and abilities change with age. Age
segmentation can be essential to products that are consumed due to the age of the
customer. For example Pampers Ltd divided its market for baby disposable nappies into
prenatal, newborn infants, toddler, explorer and cruiser. Other examples are when one is
going through a divorce, going into a second marriage or taking care of older parents. All
these experiences impact different needs to people. Life stage defines a person’s major
concern in terms of what to purchase and how to purchase. If a marketer identifies these
life stages, it helps him to design products which enable customers to cope with their
major concerns.
Gender.Gender differentiation is commonly used in clothing, hairstyling, cosmetics and
magazines. Some markets were traditionally male dominated, for example the automobile
industry customers were mainly males, current trends are showing that females are
increasingly becoming automobile customers and the industry is beginning to recognize
gender segmentation.Some motor vehicles colours e.g. yellow, peach and red
wereintroduced to cater for the female customer segments, even small cars for
“shopping” only are common on the market
Income.The amountof income that a consumer earns influences what he/she buys? In
product and service categories such as automobiles, clothing, cosmetics and financial
services income segmentation is a long standing practise. Motor vehicle brands range
from cheap to highly expensive premium brands like Range Rover, Jaguar and Mercedes
Benz. Each brand is targeted for a specific class of customers.
(iii) Psychographic segmentation
Psychographics is the science of using psychology and demographics to better understand
consumers. In psychographic segmentation, buyers are divided into different groups on
the basis of psychological or personality traits, lifestyle or values. It is believed that
people of the same age and in same stage of life cycle may exhibit very different
personalities, traits and attitudes towards the company’s products. Marketers have to take
note of these differences.Segmenting markets on this base may be difficult since it is
difficult to practically measure lifestyle and personality characteristics of consumers.
(iv) Behavioural segmentation
 59

Markets may also be divided on the basis of consumer knowledge, attitude, use, or
response to a product. Customer behaviour towards products can be classified into
occasions, benefits sought, user status, usage rate and loyalty status.
Purchase occasions: Customers may purchase products regularly, occasionally or for
special reasons. Regular purchases are common for those goods required for routine
activities for example toiletry, food and airtime. Occasional purchases are for products
that are required during certain occasions for example a coffin can only be bought when
there is a funeral. Special purchases are for special occasions for example weddings,
graduation ceremonies and birthday parties. One can only buy golden jewellery for a
friend as a wedding gift, birthday gift or for any other special reason.
Benefit sought:Consumer markets may be divided according to the benefits that
customers seek from a product. Customers may buy the same product but to satisfy
different needs from that product.
User status and usage rate:Markets can be segmented into non-user, ex-users, first time
users and regular users of a product. For example, a newly married couple can be a non-
user of disposable nappies but once they begin to expect a baby, the marketer of
disposable nappies will identify them as potential users. They may turn into heavy users
of the product if they purchase the nappies on each of their new birth.
Consumers can be grouped into light, medium and heavy users of the product. Heavy
users for example cigarette chain smokers are often a small percentage of the market but
account for a high percentage of total consumption of the product. Another example is of
heavy beer drinkers. They are assumed to account for eighty seven percent of the beer
consumed. This implies that marketers will be concerned with attracting one heavy user
than several light users.
Loyalty status: Buyers can be divided according to brand loyalty. This is mostly
applicable in cosmetics and toiletries. Most female users of cosmetics prefer to stick to
one brand of cosmetics than switching to substitutes all the time.
Activity 4b
 60

a) Assuming that one firm that manufactures clothes has approached you to assist in
segmenting its market. The manufacturer has already identified five segments from the
market. What criteria are you going to use to justify the worthiness of each segment?
b) Assuming that the manufacturer has gone further to seek your suggestions on how has
identified the market segment, explain the basis that you thinkhe used to segment that
market for clothes.

a) The worthiness of a market segment is assessed by it ability to satisfy the five

conditions for effective segmentation. You have to apply those conditions.
b) The basis on which to segment a market range from geographic, demographic,
psychographic and behavioural. Each of these bases can be applied; all you need is to
justify your reasons for applying each of them. (Hint, Most clothing market are
segmented demographically)
4.4 Segmenting business markets
Traditionally segmentation used to apply only to consumer markets. Recent
developments have shown that there is great need for industrial market segmentation.
Just as consumers,industrial buyers are continuously seeking for products that add value
to their purchases. The same variables as those for consumer markets can be used for
segmenting industrial markets as depicted by the following table
Table 1.1 themajor bases for segmenting business markets
Demographic Industry :Which industries should the company serve
Company size: The buyers are grouped according to their size
regardless of their differences in industries
Location:Grouping according to geographical location
Operating Technology: Segmenting according to the technology being used for
variables example an auditing company may group its clients
According to the accounting packages they use, computerised or
manual accounting (Pastel or ,QuickBooks)
User or non user status: Classify according to heavy ,medium, light
or non users
 61

Customer capabilities:The level of intensity of services or

assistance needed by the customer from the supplier
Purchasing Purchasing function organisation : Segment according to the level
Approaches of centralisation of the purchasing function (decentralised
versus centralised purchasing )
Power structure: Whether the organisation is Engineering
dominated, financially or marketing dominated.
Nature of existing relationship:whether the companies have existing
relationship with our organisation. How strong the relationship is?
whether there is a promising relationship or a souring relationship
General purchase policies : Cash buyers ,leasing companies ,those
which buy on credit ,those which prefer lay-bys or electronic
payment
Purchase criteria: Companies which buy on the basis of price,
Quality or level of services.
Organisational Urgency:According to the urgency of delivery of products or
factors service
Specific application; What applications of the product does the
companies focus on
Size of order:Large versus small orders
Personal Buyer- seller similarity: whether the companies reveal a culture
characteristics similar to us.
Attitude towards risk: Risk taking versus risk avoiding customers
Loyalty:Whether the companies show high loyalty to their
suppliers

4.5 Market targeting strategies

This process is called market targeting. It may be possible for the company to target
all the identified segments, other businesses choose to target one out of all the identified
 62

segments. There are basically five factors that govern the attractiveness of a segment and
accordingly, the targeting strategies to be applied by the business. These factors are
 The size of the segment,
 Segment growth potential
 Capabilities of the segment,
 Current and potential competition
 Capabilities of the business to serve the segment.
According to Kotler & Keller 2006, there are five markettargeting strategies that a
firmcan utilise, these are, single market concentration, selective specialisation, product
specialisation, market specialisation and full market coverage.
4.5.1 Single Market Concentration
From different products that can be offered to different market segments, the firm only
deals with one product targeting one market segments
Through concentrated marketing a firm gains a strong knowledge of segment’s needs and
it can achieve a strong market presence. The firm also enjoys operating economies
through specializing in its production, distribution and promotion. In the long run the
firm might capture segment leadership which may allow it to earn a high return on
investment. Operating economies is the term used to refer to the decrease in costs due
to specialisation in the production and marketing of a product. This strategy has the
disadvantage that if competitors invade themarket, the returns might dramatically fall.
Fig 4.1 Single market targeting
Markets
M1 M2 M3

P1

Products
XX XXXXX
P2 X X X X X X X X

P3
 63

The market has three segments, and three products can be designed for these markets.
The firm will target market 1 (M1) with its product 2 (P2)only and concentrates on this
market and product.
4.5.2 Selective specialisation
This is a strategy through which a firm selects a number of segments regardless of their
relatedness or differences. The segments are analysed objectively in terms of their
profitability. This strategy has the advantage that the firm spreads its risk among a
number of products and markets such that when one becomes weak, the firm can be
sustained by the other strong ones.
FIG 4.2. Selective Specialisation
Markets

M1 M2 M3

P1 X X X X X

XXXXXXX
ProductsP2

P3 X X X X X X X X

Product 1 (P1 is targeted for market 3(M3). Product (2) is targeted for market 1 and
product 3 is targeted for market 2.
4.5.3 Product Specialisation
With this strategy the company makes one product and offer it in different market
segments. For example, Eversharp Zimbabwe Ltd manufactures ball pens which it offers
to school, companies and individuals. The ball pens might be modified to suit different
customer groups in order to build a strong reputation in each segment.
FIG 4.3 Product Specialisation

Markets
M1 M2 M3

P1

Products P2X X X X X XXX XXX XXXXXX

P3
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One product P2 is offered in all the market segments M1, M2, M3

1.5.4 Market Specialisation
Since customers have many needs, a firm may wish to serve all the needs of a particular
segment. This means the firm produces a number of products targeting one market.
Through this strategy, the firm gains a strong reputation in serving the segment and it
may find it easy to develop and introduce other products that will be needed by the
customers in that segment . This will enhance the profitability of the firm.
FIG 4.4 Market Specialisation
Markets

M1 M2 M3

P1X X X X X

ProductsP2 X X X X X

P3 X X X X X X
Products 1, 2, 3 are all targeted for one market (MI).
This is the strategy being used by many firms manufacturing consumer goods for
example Dairy Board Zimbabwe Ltd offers fresh milk, sour milk, dairy juice and ice
creams to one market.
4.5.5 Full Market Coverage
This occurs when the firm tries to serve all segments with all the products that they need.
This strategy requires a lot of capital so it can be undertaken by large firms which have
the capacity to meet the needs of different segments. Firms can provide different
products in different markets. A firm can offer one product to all market segments
ignoring the differences of the segment. This is known as undifferentiated marketing or
mass marketing. Undifferentiated marketing is cheap although it does not ensure total
satisfaction of customers. The costs of production, distribution, advertising and research
and development will be lowered, and this can lead to lower prices.

FIG 4.5 Full Market Coverage.

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Markets
M1 M2 M3

P1 XXXXX XXXXXXXX XXXXXXX

Products P2X X X X X X X X X X X XX XXXXXXX

P3 XXXXXX XXXXXXXX XXXXXXX

Products 1, 2, 3, are offered in all the markets the other way is for the firm to offer one
product to all markets

4.6.0 Positioning
After establishing the segments in which the firm is to offer its product, the next step is to
ensure that the product is perceived by customers in the way the firm wants it to be. .
Product positioning is the firm’s use of all elements at its disposal to create and
maintain in the minds of target market, a particular image relative to competing
products.Good product positioning helps to guidemarketing strategy by clarifying the
product essence, the benefits of the product to the consumer and the uniqueness of the
product as compared to competitors.
Steps in product positioning
The following sequential steps are followed in the process product positioning.
1. Identify the total target market and the manner in which the market segments itself.
2. Asses the organisation’s resources and capabilities and identify the possible alternative
competitive advantages which the organisation may decide to capitalize on.
3. Identify possible matches of possible of comparative advantage to target market needs
4. Select a particular emphasis for the organisation to pursue over the long term planning
period .The selection must be made from those positions seen as credible by the
organisation’s customers
5. Implement the positioning strategy in market terms
6. Communicate the identified position to the customers so that they understand how your
products differ from the competitors
Product positioning strategies
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Product positioning can be based on the following strategies.The attributes of the product,
benefits it gives to consumers, usage, occasions, against competitors, away from
competitors and product classes.
4.6.1 Positioning by product attributes
Here we try to address the attributes of the product that enables it to perform better than
other products in the market. Customers are concerned with the ability of the product to
perform its purpose. Customers may also match the attributes of the product with the
cost.
4.6.2 Positioning by product benefits
A product may be positioned in terms of benefits that customers seek. For example a
customer may be interested in the comfort of the bus, whilst others only want to move
from point A to point B. The bus that provides both comfort and transportation from
point A to point B can be better positioned than the one that does not provide comfort.
4.6.3 Positioning by usage occasion
How often the customer ought to use the product? Customers also base their decision on
the frequency of usage of the product. For example if a customer wants to have dinner at
a hotel and it is not a frequent occasion.The customer will have to choose the best to
maximize utility when given a chance to dine at a hotel.
4.6.4 Positioning against Competition
A firm may compare its product against other competing products in the market. When
the product is compared the seller always prefers his products to be positioned above
those of competitors.This can be achieved through competitive advertising.
4.6.5 Positioning away from competitors
The seller emphasizes the benefits of using his products opposed to the disadvantages of
using another product which is not necessarily a direct competitor. For example
discouraging the consumption of alcohol whist promoting an insurance policy.
4.6.6 Positioning by product class
Products may be positioned against other products within the same class for example diet
coke is positioned in its on class such that it does not compete with any other product
saving the same market.
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The above strategies can be used in combination depending on the nature of the product
and the market in which the product is offered.
Activity 4.4
a) Explain with examples, the 5 targeting strategies which firms can choose from
a) The five targeting strategies discussed are 1. Single market concentration
2. Selective specialisation
3. Product specialisation
4. Market specialisation
5. Full market coverage
You should describe each of them giving advantages and disadvantages

Summary
In this topic we discussedmarket segmentation, targeting and positioning. We have
identified the conditions necessary for effective market segmentation to take place as well
as the bases of segmentation which we identified as geographic, demographic,
psychographic and behavioural segmentation. Concerning market targeting strategies, we
identified five of them; single market concentration, selective specialisation, product
specialisation, market specialisation and full market coverage
We also covered the strategies used to position products in the market and in the mind of
consumers.
Self assessment Exercise
1. Match the left hand side with the correct description on the right hand side

Base of segmentation Description

1 Geographic segmentation a) Division according to age, sex, family size, income,

Occupation, education, race, nationality.

2 Psychographic segmentation b) According to product usage, light, medium,

Heavy users
Brand loyalty, occasional users.
3 Demographic segmentation c) Division according to social class, lifestyle type
And personality type.
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4 Behavioural segmentation d) dividing the market according to regions, districts,

Cities and towns.

2. Explain the benefits of market segmentation to a business.

3. For a consumer product like ‘COKE’ discusses the targeting strategies /strategy that
you would use

Suggested answers to assessment questions

1.1 d
1.2 c
1.3 a
1.4 b
2. Benefits of market segmentation
You should be able to explain how the following benefits accrue to the business
Better matching of consumer needs:
Higher profitability of business
Customer retention:
Enables smaller firms to survive:
3 .Market targeting strategies
Market targeting refers to the selection of market segments that our firm wants to focus
attention on .There are a number of targeting strategies that a business base on ,
Singlemarket concentration,
Selectivespecialisation,
Product specialisation,
Market specialisation
Full market coverage.
Select the one you think is relevant for coke and support you views
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TOPIC 5: Marketing information systems and marketing research

5.0.Introduction

Everyone needs information for a variety of decisions. Simplest decisions that we make
depends on the information we have, although we may not recognize it especially in
minor decisions. Even impulse decisions are taken on the condition that one has
information about the activity being decided on. Best decisions are those taken after
analysis and evaluation of adequate and relevant information that is why firms invest in
collection and storage of information. This reduces the risk inherent in any decision
making.
The organization should develop a system that collects and analyze information useful for
marketing management decision making. A good system should enable the organization
to capture relevant and accurate information and leave the useless information.
Developing and implementing marketing plansrequire up-to-date information on both
macro trends as well as micro effects particular to a business. Marketers recognize that
the marketing environment is consistently presenting new opportunities and threats and
they understand that it is important to continuously monitor the changes in the
environment through gathering information. This enables the firm to adapt to the
environmental changes.
This topic will focus on sources of information for a modern Marketing Information
System (MIS), the stages involved in processing marketing information, the uses of
marketing information, the process of gathering analyzing and interpretation of
information, this process is called marketing research.
5.1.Objectives
It is hoped that after studying this topic you should be able to
 Determine the various sources of marketing information
 Discuss the importance of a marketing information system
 Discuss the concept of market intelligence
 Describe the components of a marketing information system
 Explain the stages in marketing research
5.2. Defining marketing information system
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A marketing information systemis a system that consists of people, equipment and

proceduresto gather, sort, analyze,evaluate and distribute needed timely and accurate
information for marketing decision making. Marketing information system is an ongoing
organized procedure that allows for generation,analysis, dissemination, storage and
retrieval of needed information at ay given time.

5.3. Setting up a marketing information system

There are many sources of information for a firm to set up its marketing information
system or data bank the sources of information are, marketing intelligence, internal
records, suppliers and competitors and marketing research.
5.3.2 Marketing intelligence
A marketing intelligence system is a set of procedures and sources that managers use to
obtain everyday information about developments in the marketing environment.
Marketing intelligence supplies happening data. It can be collected by reading books,
newspapers and trade publications, talking to customers, suppliers and distributors. An
organization can put in place measures to improve the quality of information that it
gathers through its intelligence system.It can train and motivate its marketing staff to spot
and report new developments in the market, motivate distributors, retailers and other
intermediaries to pass own important intelligence, develop external network, set up a
customer advisory panel or use online customer feedback system.
(i)Motivation of marketing staff to sport intelligence: Salespeople and marketing staff
are in a better position to access information because
 They spend most of their time interacting with customers and observing
competition
 They have disciplined methods of collecting information
 They have vast knowledge about buyer wants, preferences and behaviours
 Marketers have extensive knowledge and information about how consumption
patterns vary across countries.
(ii)Motivation of distributors, retailers and other intermediaries to pass on important
intelligence: A company can hire specialists to gather marketing intelligence, some
companies often send mystery shoppers to their stores to find out how employees treat
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them. This is an activity usually utilized by retail companies.Typical questions that

mystery shoppers report on are. How long does it take before a customer is greeted
andserved,did the shop staff act in a way that encourages the customer to buy?How
knowledgeable is the shop staff about the productsthat they sells.
(iii)External network development:The company can purchase competitors products,
attend trade shows, read published reports about competitors, talk to employees of dealers
,distributors and suppliers about the market trends.Competitive intelligence gathering in
this manner should be done legally and ethically. It should not harm the confidentiality
and competitiveness of others.
(iv)Setting up a customer advisory panel:A company can set up a panel that comprise of
representatives of customers, or its outspoken and sophisticated customers.This is a
common practice of educational institutions which have advisory panels made up of
academic gurus who provide valuable feedback on the curriculum.
(v)Use of online customer feedback system to collect competitive intelligence:
Customers can give comments on the features of the products. The system allows
collection and dissemination of information on a global scale at a low cost. Through this
system customers evaluate the product or the firm’s systems .The evaluation can be
distributed to a large number of other potential buyers and also to marketers seeking
information on competition.Some companies encourage their marketing staff to scan the
internet and major publications as well as relevant news bulletins and then disseminate
the news to marketing managers. They collect and file relevant information that assists
managers in evaluating their decisions
Activity 2a
Where does the manager obtain information that he /she uses in decision making?

The question wants you to identify and explain the different sources of marketing
information
5.3.2.Uses of marketing information system
Gathering of information from various sources involves expenditure.The questions that
will come to our minds are,“Why does the business spend its resources in gathering
marketing information?” Are there any benefits? There are several reasons why the
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business would need a marketing information system. The reasons are, generation of
reports, integration of old and new data, analysis of data and ensuring that correct
information is circulating in the organization and outside the organization.
(i)Generation of reports:As information is gathered from various sources, it is not used
by those who have gathered it.When they gather the information, they generate reports
which are based on that information and the reports are used for decision making by any
individual or group in the organization.For example, if one branch of a company is
requested by its headquarter to provide the sales figures for the past quarter, to generate
this report they should be having a data bank where they can dig for the information.
(iii) Integration of past and present data: Most business events are seasonal and
cyclical; they have a tendency of repeating themselves after a given period. Whenever we
want to make decisions about present events, we need to consider the past as our starting
point. For example if the sales manager for OK Supermarket want to ascertain the
quantity of sugar to order for the 2011 festive season,his relevant starting point is to
consider how much sugar he ordered the previous year during the same period.
(iv)Analysis of data:Marketing information system involves conversion of raw data into
meaningful information. Most data collected will be in raw form when gathered.It is
analyzed and processed to ensure that the information held is correct and sufficient. The
analysis of data can be done using mathematical models that enables the information to
be manipulated for decision making.
(v) Circulation of correct information internally and externally:When information is
available, Marketing staff can quickly respond to enquiries with correct information,
marketing information system enables the marketer to provide the right information
without distortion.With a good information system,the marketing manager can be able to
collect sufficient information in the right form from the correct source.This reduces the
probability of taking wrong decisions.
(vi) Marketing decision support system:This a set of statistical tools and decisions
models with supporting hardware and software available to Marketing Managers to assist
them in analyzing data and making better marketing decisions.
5.4 Marketing research
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Although information is a crucial resource to thefirm, it has not yet received adequate
attention up to now. The ways of gathering information that we discussed before are not
systematic, neither are they sustained. To ensure continuous interaction with the
environment for the purpose of gathering relevant information, firms utilize marketing
research.Marketing research is the systematic design, collection, analysis and reporting
of data and findings relevant to a specific marketing situation facing the company.Most
large companies have marketing research departments.In smaller companies marketing
research is often carried out by the marketing department or a hired consultant which
should be an established research firm.
5.4.1 The marketing research process
Market research projects are not run in a specific pattern. Organisations may differ in the
way they implement research projects. Generally the following steps are involved in
carrying out the marketing research.
Stage 1 problem definition
It is important to identify the problem that necessitates the need for research. The
researcher must be able to define the problem correctly and distinguish the problem from
its symptoms.
The vital steps the researcher should take in identifying the problem are
 To probe the background and describe the environment of the problem in general
terms.
 To concentrate and define the general problem
 To analyze the problem and write it out so that it can be agreed by executives who
will use information provided.
 To determine possible or hypothesis solutions. This will help in the design of the
project and the method s of reporting
Step 2 .Develop research plans
When the problem has been clearly defined, the next step is to develop the most efficient
ways of gathering the needed information. The marketing manager needs to understand
the cost of the research and the benefits. Development of research plan involves the
decisions on the data sources, research approaches, research instruments, sampling plan
and contact methods
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Fig 5.1The market research process

STEP 1
Problem Definition and setting of objectives

STEP 2
Development of research

STEP 3
Collection of information

STEP 4
Analyzing the information

STEP 5
Presenting findings

STEP 6
Making the decision

(i)Data sources
Two classifications of data can be identified as primary and secondarydata.Primary data
is data freshly gathered for a specific purpose or for specific research project Secondary
data is information that is already in existence in some form. Secondary data can come
from a variety of sources that can be internal or external.External sources of data include
libraries, government statistics office, academics, trade organizations and professional
 75

publications. Researchers usually start by analyzing secondary data; secondary data

provides the advantage of low cost and ready availability.The disadvantagesare that, it
may not be precisely relevant for the problem at hand, It may be out dated by the time we
are using it,a number of changes would have taken place
(ii)Research Approaches
Primary data can be collected through a number of ways, these include, observations,
surveys, behavioural patternsand experiments.The sources of the data could be the
competitors, consumers, retailers, wholesalers, or the general public
Observation: Consumers can be observed as they shop or as they consume the products
Survey:A sample to represent the market is chosen and contacted to obtain their views.
Behaviouraldata: The researcher can learn more through analyzing the actual behaviour
of consumers as they purchase the products, Consumer’s actual purchases reflect
preferences and are often more reliable than statements they offer to market
researchers.For examples, celebrities may associate themselves with very expensive
brands yet in reality they buy ordinary and less expensive brands.
Experimental research: Primary data can also be obtained through experimentation. A
test market is probably the best example of an experiment where a new product or a
change in price is tried out in a certain area and results compared analysed. Experiments
call for selecting matched groups of subjects, subjecting them to different
treatments,controlling extraneous variables and checking whether observed differences
are statistically significant.If extraneous variables are eliminated or controlled,the
observed effects can be related to the variations in the treatment.
(iii)Research instruments
Marketing researchers have three main research instruments in collecting primary data
these are questionnaires, qualitative measures and mechanical devices.
Questionnaires:A questionnaire is a set of questions presented to respondents. The
questionnaire is the most common instrument used to collect primary data.This is because
it is a flexible instrument.When preparing a questionnaire the researcher should carefully
choose the questions and their form, wording and sequence. Questions should be well
structured not to influence the response of respondents.
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Qualitative Measure:These are relatively unstructured measurement approaches that

permit a range of possible responses. They are creative means of ascertaining customer
perceptions that may otherwise be difficulty to uncover.
Mechanical Devices: This is not yet a common instrument in marketing research
Example of the use of mechanical device is the use of galvanometers to measure the
interest or emotions aroused by exposure to a specific advertisement or picture.
(iv) Sample plan
After deciding on the research approach, the marketing researcher must design a
sampling plan basing on the following three decisions.
 Decisions on who is to be surveyed?
 How many people should be surveyed and
 Howthe respondents should be chosen.
(i)Sampling unit: Who is to be surveyed?
The target population to be sampled should be established for example all people taking
distance courses. Once the sampling unit is determined, a sampling frame should be
developed so that everyone in the target population has equal chances of being sampled
(ii)Sample size. How many people are to be surveyed?
The size of the sample should be established. This is much influenced by the availability
of necessary resources ranging from finances, labour and the equipment to undertake the
research project. Large samples are more desirable because they are likely to bring
reliable results as compared small samples.
(iii)Sampling procedure:How should the respondents be surveyed?
A probability sample of the population should be drawn to obtain a representative sample
.This allows the calculations of confidence limits of the sampling error
(v) Contact methods
The subject of the research can be contacted through mail, telephone, personal contact or
online interview.
(i)Mail questionnaire
When the list of questions have been drawn up.The questionnaire is posted to the
identified respondents.Mail questionnaires has an disadvantage that they provide a slow
and low response rate
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(ii)Telephone interview
Information can be gathered quickly through interviewing the respondents over the
telephone. When using this method, the researcher has to be very brief and precise in his
conversation. The main drawback is that customers are no longer interested in
entertaining telemarketers because they intercept their social lives.
(iii)Personal interview
Personal interviews can either be an arranged or an intercept interviews, Arranged
interviews involve booking for an appointment with the respondent and it often involve
some incentives.Intercept interviews involve stopping people at shopping malls and
requesting an interview with them.
(iv) Online interview
This method involves designing and monitoring the questionnaire through the internet. A
company can include a questionnaire on the website and offer incentives to answer the
questionnaire .This method is faster in providing marketing research information
Activity 2c
Explain what you understand by the term marketing research, in you answer elaborate the
significance of this marketing activity to the profitability of the organization

You have to define the term marketing research and write brief notes to describe its
process. Suggest the benefits that the business might get from conducting marketing
research
Step 3: Collect data
This is the most expensive part of the research process.It involves contacting the
respondents and getting the information in the case of primary research.The researcher
must take great care when collecting data to ensure that it is accurate, relevant, current
and unbiased. The information to be gathered is usually specified during the planning
stage.
Step 4.Analysis of information
The raw material must be processed by tabulation, analysis and interpretation so that the
research findings can be communicated and understood. Significant relationships must be
 78

identified and discussed clearly and objectively in connection with the specific problem
of the research.
Step 5: Present information
The report should be prepared, presenting the major findings and recommendations
coming from the research.It should begin with a short statement of the problem, followed
by an elaboration of the findings and any technical appendices.
Step 6: Make the decision
Based on the report, marketing executives should come up with decisions.If their
confidence in the findings is low; they may decide to launch further research into the
problem
5.4.1 Areas of marketing research
Marketing research is concerned with the marketing activities of the companies in a
specific market .These include customer research, promotion research, pricing research
and product research.
(i)Customer research
The company may be interested in understanding who its customers are, how they buy
and what motivates them to buy the products. The Company also looks into the substitute
products that its customers are likely to buy if they do not find its products.
(ii)Promotion Research
Here the company would like to establish whether its current communication mix is
effective. The company needs to understand the source of information for its customers
and any improvements that it can make on its advertising personal selling publicity and
sales promotion among others.
(iii)Pricing research
Since there are many competing products on the market .It will be vital for the company
to find out if its pricing strategy is matching its marketing strategy relative to what
competitors are doing. The company should get customer’s comments concerning its
prices which may lead to the revision of the pricing strategy
(v) Product Research
This entails the product features, the uses, the qualities that can be utilized and the actual
uses that consumers make of the product. A good example would be of a cell phone
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producer researching on how the customers are using the product.Most cell phone users
only utilize fifty (if not less than) percent of the total features of the cell phones they buy.

Summary
Information is vital for any decision that an individual makes. The risk inherent in any
decision can be minimized by the availability and effective utilization of information. If
enough information of the right kind is collected and analyzed in advance management
can make better decisions. Organization can keep the information in a data bank which is
referred to as Marketing Information System.The components of a modern marketing
information system include internal records(transactional data),marketing intelligence
systemmarketing research and marketing decision support system. The data can be
sourced from internal and external sources. We have covered marketing research in this
topic and we discussed the six steps in the marketing research process.

Self assessment exercise

1. Write brief notes on the following sources of information
(a) Internal records
(b) Suppliers
(c) Competitors
(d) Marketing intelligence
2. Identify the uses of the organization’s marketing information system.
3. Briefly discuss the steps in the marketing research process
4. Identify some of the areas which can be covered by marketing research
5.Setting a marketing information system and conducting marketing research are just
increased costs to the organization out of which no realizable gain is obtained .Discuss
the above statement
Suggested answers to self assessment questions
1 (a) internal records
Internal records include copies of orders, invoices, quotations and enquiries can be used
as sources of information.Information like addresses, telephone numbers types of goods
purchased can be obtained by analyzing these documents.
 80

1 (b) suppliers as suppliers interact with the company, they usually provide information
about the market trends and any changes in the industry standards which can guide the
marketing manager when coming up with decisions. Suppliers always provide useful
information to their customers so that they can remain in business.
1(c ) Competitors; Studying the activities of competitor’s salespeople, the way the
competitor merchandises and display the products in the outlets can help the firm to
shape its activities to better than the competitor. If competitors are successful because of
certain activities like exhibitions, sponsorships or sales promotion activities which our
firm is not engaged incopying such activities will help boost our standing in the market.
1 (d) Marketing intelligence: from the definition, marketing intelligence system is a set
of procedures and sources managers use to obtain everyday information about the
developments in the marketing environment. Marketing intelligence entails collection of
data through analyzing trade publications, reading books, newspapers, talking to
customers, suppliers and distributors as well as meeting with other company’s staff.
2 Uses of a marketing information system
Marketing information system can be used for
 Generation of reports
 Integration of past and present data
 Analysis of data
 Circulation of correct information internally and externally
2 The six steps in marketing research process are
1. Problem identification
2. Development of research plan
3. Collection of information
4. Analysis of information
5. Presentation of findings
6. Decision making
4. Marketing research covers the following areas among others
Customers, Promotion method,Product, pricing of the product
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5 Whist the cost aspect of setting a marketing information system and conducting
marketing research cannot be rejected; there are also a number of benefits that
the two can bring to a business. Some of the benefits are as summarized below
 Provision of information means that all decisions passed are critically
weighed,hence the chances of engaging risky decisions are minimized
 Marketing managers can be more flexible in their activities because information
will allow them to quickly change courses of action if danger is sensed.
 Information allows for efficient use of resources since those activities that are
unnecessary to the organization can be easily dropped.
 Having information makes the organization to be pro active .It anticipates
changes before they come and can act vigilantly so that the changes in the
environment can not disadvantage it.
 The firm keeps abreast of competition; it will become a leader since through
research it finds new ways of doing things before competitors have learned about
them.

Topic 6: Consumer Behaviour

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6.0. Introduction
The understanding of Consumer Behaviour is a crucial to the marketing process.
Marketers should have knowledge of all the factors that influence consumers to buy
products. Consumer buying behaviour is influenced by a number of factors including
cultural, social, economic and psychological factors such as attitudes, awareness,
perception knowledge and status.
In this topic, we shall explore how these factors affect consumer behaviour and how
marketers can understand consumer behaviour in order to respond positively to the
changing needs of consumers. So many trends are developing as far as consumer-buying
behaviour is concerned. Roles are changing; children are now playing a major role in
consumer buying decisions.

6.1.Objectives
It is hoped that after studying this topic you will be able to
 Define consumer behaviour
 Identify and explain factors affecting consumer behaviour
 Identify the trends in consumer behaviour
 Discuss the challenges for marketers in responding to changing trends in
consumer behaviour
 Discuss the importance of understanding consumer behaviour in marketing.
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6.2.Definition of Terms

In this topic we shall make constant reference to the following terms

 Consumer behaviour
 Needs/wants

Defining Consumer Behaviour.

Buying a new product such as a refrigerator involves numerous processes, activities and
decisions that have to be taken before finally buying such a product. These decisions
involve the model to be bought, the supplier, the price and mode of payment for the
product, whether it should be paid for in cash or on credit terms. It is not very easy to
come up with such decisions and the process is influenced by a number of factors. The
buying process can be influenced by such factors as one’s social status, professional
membership, family influences, psychological factors such as knowledge, perceptions
about particular brands and economic factors such as the price of the product and demand
levels for the product.
A number of activities are involved in the buying process .Even after the product is
bought, thecustomer would engage in a post purchase evaluation to establish whether the
purchase was a good or a bad one. All these processes, activities and decisions that have
to be taken in the buying process will define what consumer behaviour is all about. It
also involves the roles played by various parties, family members, professional bodies,
church members and friends in influencing choice of a product.

There is a close relationship between consumer buying behaviour and the process of
needsatisfaction. The first stage of consumer buying involves the identification of a
need, which has to be satisfied. One can only decide to buy a television because of the
need to get news and entertainment. These needs will be satisfied if the family buys a
good product, which is reliable. However you should note that needs are those things
that are physiological i.e. we cannot do without such products. They are required to
sustain life; life would not be sustainable if such things are not there. Needs include such
things as food, shelter and drink. Accordingly needs are meant to give life its full
meaning. Due to changes in the economic needs of people the question of what
constitutes needs in contemporary society is a highly debatable. In the example above we
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talked of a television as an example of a need. Ordinarily a television would be

categorized as a want in that this is a product required for leisure. One cannot fail to
survive because he/she has no television. In this information edge, it is possible to argue
that a television is increasingly becoming a need than a want. Who can live without a
television set? What I need you to remember also is that, wants are those items where you
might have a choice as to whether you have to buy them or not.
In this topic you will notice that the demand for any particular product is a function of
the following
 Cultural factors
 Economic factors
 Psychological factors
 Sociological factors
 Personal influences
6.3.Changing buying roles
It is important to note that consumer needs are always changing. Consumer buying
behaviours are also dynamic and only the smart marketers will take advantage of
suchchanges. Women are no longer taking a back seat when it comes to making decisions
on buying goods of economic consequences such as cars, computers and houses. Children
are also playing a critical role in influencing what should be bought. Marketers should,
keep track of these changes in order to appeal to the right people through their
advertisements. An advertisement is irrelevant unless it appeals to those people who can
influence a buying decision. The buying roles intransactionscan be distinguished as
follows
The initiators: Those who suggests buying decisions
Theinfluencers:Those who are capable of affecting the decision that is ultimately made
The deciders:Those who make the buying decision
The buyer:Who physically make the purchase?
The user or users:Those who consume/use the product

Activity 3a
In your own opinion, do you think one’s culture can influence the buyingbehaviour?
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How do you think marketers should deal with culture in order to influence demand for
their products?

This question requires you to first define culture. Proceed to discuss how you think
culture can affect one’s decision to buy certain products. This question requires you to
give your opinion. Answer this question using your own views about how culture can
affect one’s buying behaviour. We shall discuss these issues latter. This question is
meant to establish your own opinions. You should also be able to discuss how marketers
should respond to these cultural influences in order to create demand for their products.
Explain the importance of understanding one’s beliefs and values, before seeking to sell
your products to such a person. It has to be clear how such information can help the
marketer.

6.4. The Consumer Decision Making Process

So many activities, decisions and processes are involved before the step to buy a
particular product is taken. These decisions and processes can be categorized into various
stages which are
 Need identification
 Information gathering
 Evaluation of alternatives
 Purchase action
 Post purchase evaluation
(i)Step1. Needs Identification
This is because the consumer feels that he /she being deprived of something or if there is
a problem that has to be addressed.A decision to buy a refrigerator would have the
functional purpose of providing cold water during hot weather. A decision to buy a
particular brand of a refrigerator would fulfil the psychological needs. This is based on
the perceptions of the consumer. People have different perceptions on different brands.
Once a need has been identified then there is need to gather information about where to
buy the product, the different brands available and the prices.
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(ii)Step 2. Information Gathering

A decision to buy a product of high economic value is usually not done imperatively. It is
necessary to gather information on various aspects such as the brand or model to be
bought, possible suppliers, their prices and conditions of sale. This information is
necessary because consumers might have brand preferences. If one wants to buy a car, it
is necessary to gather information about brands such as Toyota, BMW, and Mercedes
Benz etc. It is necessary to gather information about prices and possibilities of buying on
credit. This information can be gathered from friends, social groups such as churches and
professional groups. One would wants to know about the time it takes between placing an
order and the time delivery of that order would be affected. It is important to gather
information about the car insurance schemes. It is also vital to gather information about
the advantages of buying the car in Zimbabwe, from South Africa or Japan. All this
information has to be compared to decide on the best deal that meets the financial
circumstances and other conditions of the buyer.
(iii)Step 3 Evaluations of Alternatives
Consumers are faced with various alternatives before they can buy a product. This stage
is divided into four other stages which include relevant criteria, personal beliefs and
perceptions, personal attitudes and behavioural intentions.
Relevant Criteria Method: Products have different features, which distinguish them from
each other. When we buy products, thereare certain features that we look for in those
products leading us to view them as good or bad products. Companies have a commercial
duty to inform the public about the features of their products through promotion, that is
why advertising has to be objective and truthful and should not mislead the consumers.
We can buy a particular product because it is durable or because it has a number of user-
friendly functionalities. We use these features to judge products and this will influence
our decision to buy a particular product ahead of other competing products.
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Personal Beliefs and Perceptions: Consumers have their own perceptions about
particular products based on past experiences. Personal beliefs are affected by values and
customary background. We often use our personal beliefs to influence our decisions
especially when we have failed to gather enough information about a product before
deciding tobuy it.
BehaviouralIntentions:These are psychological processes that influence consumer
behaviour.
6.5.Factors Influencing Consumer Behaviour
So many factors influence consumer behaviour. These factors can broadly be classified
as
 Cultural factors
 Economic factors
 Psychological factors
 Sociological factors

Activity 3b
Discuss the stages involved in the consumer decision-making process.

In order to fully answer this question you need to identify the stages involved in the
consumer buying process. List them before proceeding to explain each and every stage.
List the stages in their chronological order and clearly explain how you progress from
the first stage to the last stage.
(a)Cultural Factors
The term culture is a broad concept covering our beliefs and values. Culture is dynamic
and is different from one tribe or country to another and one ethnic group to another. In a
particular cultural setting, many sub cultures can exist which must also be given attention
by marketers. In most countries subcultures exist in the form of religions and
nationalities. The cultural beliefs and values of the people vary in most cases depending
on their tribe and nationalities as well as religious beliefs. These subcultures can exist in
various regions of the country. When marketing a product, a company should also appeal
to different subculture groups.
We need to establish just how far culture can affect consumer-buying decisions. The
environment in which we grew can determine our attitudes and perceptions about certain
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products. Some cultures are motivated by the desire to achieve while other cultures
produce people who are reserved and fear to take risks.
India is one country that uses the caste system where families are grouped into various
classes depicting their social status. People of a lower castewill buy products that will
depict their class while those of a higher caste buy goods that depict them as the affluent
members of the society. It is very difficult to change castes. Other countries such as the
United States of America have a much wider social stratification ladder that includes the
following
 Lower lowers, upper lowers, working class, middle class, upper middle class,
lower uppers and upper uppers. This system of social stratification might limit
one’s choices although it is allowed to move from one class to another.
In a family set up so many cultural and ethnic factors affect buying behaviour. These
influences can come from one’s parents or one’s immediate family members. Some
cultures teach children to be risk avoiders, to care about others who are disadvantaged, or
to aim to succeed in life. It is important to note that in a single market there can be many
cultural influences that reflect the way we grew up and the environment under which we
grew up. Accordingly marketers must adopt multicultural marketing strategies.
Culture defines one’s worldview and beliefs about certain things. Marketers should take
a close look at any changes in cultural beliefs.
In the contemporary society people’s beliefs about the environment have changed. The
worlds over people are trying to come up with strategies of conducting business, which
are environmentally friendly. Since marketers know the attitude of consumers to
maintain a sustainable environment, they design products which are environmentally
friendly in order to capture these changing consumer attitudes on the environment. The
major point to make about culture is that it is constantly changing and that marketers
should always seek to understand these trends in order to respond positively to cultural
influences on consumer buyer behaviour.
(b)Social Factors
Social factors can best be discussed under three headings namely reference groups,
family and social roles and status. We have already alluded to the fact that every society
is classified into classes through one form or the other. It is critical to note that social
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classes have a major influence on consumer buying behaviour. A person in the upper
class wants a very expensive car and house as well as status oriented clothes. In the same
manner a person in the lower class buys goods that are related to his/her class.
Accordingly when targeting a niche market for the upper class marketers sell high value
goods which are sold at a premium. In the same token when selling to the lower class
marketers should sell goods which this class can afford.
Reference Groups:So many groups have a direct or indirect influence on our decisions.
In life we talk regularly with our family members, friends our neighbours and workmates.
We interact with such people frequently and their views and opinions influence our
decisions in a number of ways. We call such groups (family, neighbours, and workmates)
primary reference groups because we interact with them face to face quite frequently.
Our decisions are influenced by the opinions we get from fellow professionals.
Trade Unions are labour organizations that represent the interests of workers. The
opinions one gets from fellow members of these unions influence one’s opinions about
certain employers or jobs. While the church is a place for worship; it also serves a social
function of bringing people together. It cannot go without saying that your church mates
will inevitably influence your choices on products.
The family: Family can be divided into two parts namely the,family of orientation and
the family of procreation. The former includes our parents and young brothers and sisters.
This family teaches us culture, language, behaviour and interpersonal relations. In most
African societies our parents continue to influence our opinions until they die. If one
comes from a family where scotch carts are valued as reflection of status and means of
transport, it is possible that one will be influenced to buy a scotch cart in his/her life to
conform to family beliefs. One’s wife /husband and children can influence what the
family has to buy;this is the family of procreation.It relates to one’s immediate family
such as spouse and children.

6.6.Trends in Consumer buying Decisions

The most important thing to note is that there are numerous changes, which have taken
place on consumer buying behaviour. There is increased involvement of women and
children in makingpurchasing decisions. However most purchases involve joint
decisions. Marketers should therefore seek to appeal to women and children in their
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advertisements since they now make decisions going beyond basic groceries and
commodities.
When selling to a group it is necessary to appeal to opinion leaders. In professional
groupings such as the Law Society, SAAA, Trade Unions you may wish to appeal to the
President or the Secretary of the association as the opinion leaders of the group. In
professional groups, members behave in a mannerwhich seeks to achieve conformity with
group trends and norms. If leaders of the Law Society buy Mercedes Benz, there is a
tendency that most Lawyers would want to buy this model to conform to groupbehaviour.
Age and life style:People operate at different levels in their life cycles. Accordingly
consumers buy goods which are relevant to their stations in life. A school leaver is
concerned much about buying clothes while a family man wants to buy clothes for his
family as well as furniture, family car and house. People also live different life styles.
Some live in the rural areas while others stay in the affluent suburbs of Harare. These
people’s needs are different because of the differences in their stations of life andalso
differences in life styles.
Life Cycle and life style: In order to fully understand this concept we need to understand
the various stages of life one has to under go. Basically you need to understand that a
Bachelor does not need the same things as those required by a newly married couple. The
needs of married couples who have one, two, three, four or five children are also different

Society has become complicated in that marriage as an institution is no longer something

people are compelled to enter into. Many people nowadays may choose not to marry,
some are widowed and stay alone, while others marry but decide not to have children.
The needs of these people differ and marketers should seek to understand them.
(c)Psychological Factors
In this section we shall make brief references to Maslow’s Hierarchy of needs in order to
understand how physiological and psychological factors (needs for growth and status)
affect consumer-buying behaviour.Abraham Maslow argued that human needs are
grouped into five levels in a hierarchical fashion. He argued that these needs progress
from lower order needs to higher order needs. He categorized these needs as follows
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Physiological Needs – These are basic needs of which a person cannot not survive
without satisfying them .They are fulfilled by such products as food, sleep, shelter etc.
Safety Needs – People need to have security from harm .When customers have acquired
the products to ensure survival, they move own to seek products that ensure safety,
protection and security. (Physiological and safety needs are regarded as lower order
needs or basic needs)
Social/Affiliation Needs – These cover a sense of belonging, and love. A person is happy
if he/she is a member of a social club or a professional board. These are classified as the
beginning of higher order needs.
Fig 6.1 Maslow’s hierarchy of needs

Actualization
needs

Self Esteem
needs

Social /Affiliation needs

Safety needs

Physiological needs

Source (Stoner and Freemen:1992)

Esteem Needs – These are largely associated with status and the need for recognition.
(Houses in low density suburbs, expensive brands of cars, expensive jewellery and
designer clothes)
Self-Actualization Needs – a person operating at this level will be just focusing on
empire building, thus, building a name for himself /herself through charity, andsocial
responsibility.
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From a marketing viewpoint, marketers should be able to identify these needs and seek to
satisfy them.
Activity 3c
To what extents can Maslow’s hierarchy of needs assist marketers in fulfilling
consumer’s needs?

This question requires you to justify the importance of Maslow’s theory from a marketing
viewpoint. There are three approaches you can take; the first one is to decide whether
you consider Maslow’s theory as relevant to marketing and therefore critical for
marketers to utilize it. The second one is to argue that it does not have much relevance to
marketers. The third approach may be to sit on the fence and give both arguments in
favour of the theory and arguments against it. In each case motivate your answer.

According to the psychological approach to consumer behaviour, the starting point is a

perception about a particular product. This will motivate a person to buy a product after
gathering some information on the product.
Before a decision to buy is taken the consumer has to evaluate his /her alternatives in
terms of the four stages we discussed earlier then he/she will make a decision or choice.
(iv)Step 4.Purchase action
Since a consumer will be faced with various solutions to satisfy his/her need, he/ she
should come up with the best solution to satisfy the need and the actual purchase action is
done.At this stage the customer makes the actual purchase

(v)Step 5 Post Purchase Evaluations

Customers will evaluate whether they have made a good purchase or not. If they
conclude that they made a good purchase then they will be satisfied with the transaction.
If they feel that the product is not the right one they wanted, they would be dissatisfied.
Post purchase dissonance: It is a state of tension that occurs on the side of the customer
if the purchase decision is perceived to be unworthy;especially if the customer learns that
there are other possible alternatives which could have provided better satisfaction.

6.7 Other models of Consumer behaviour

Beside the above commonly referred to model of consumer behaviour, marketers have
identified other models of consumer behaviour.
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(i).Engel – Kollat – Blackwell Model

According to this model, various factors can be put forward to explain consumer buyer
behaviour. These include
 Environmental and social factors. Environmental factors here include external
influences such as death. If a relative dies a consumer has no choice but to
purchase a coffin. All resources will be channelled towards solving that problem.
If a consumer is promoted or gets a sudden pay rise he/she can be involved in
some sort of impulsive buying.
 Psychological Influences. We have already discussed these in detail.
 Product Brand and other evaluations. Product features and brand names play a
major role in influencing consumer decisions. It is important to note that this
model does not add much information beyond what we have already discussed; in
fact it merely confirms it.

(ii).The Expectancy Value Model

Consumers have beliefs and perceptions about certain products. These perceptions can be
positive or negative. Consumers have perceptions about certain brands. If Ashley Tango
wants to buy a car and is considering choosing between a BMW and a Mercedes Benz,
she will consider various attributes of the two cars such as speed, comfort and durability
and will rate each car against these attributes. The purchase will be determined by which
attribute Ashley prefers most.
3.3.3The Hierarchy of effects Models
In order to move a consumer into purchasing a product, the following stages must be
induced
 First get the consumer’s attention by advertising your product
 Create interest in him/her to buy your product by explaining why your product
would be good to buy.
 Create a desire in the prospective consumer to want to buy your product
 Show the prospective consumer how he/she can go about the buying process
(action)
6.4 Intervening factors
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Our friends and relatives can interfere with our preferences such that despite the fact that
you may want to buy a particular carmodel, you may get strong influences from others
not to choose that particular brand. This will affect your preference especially if the
person giving you that advice is someone who is closer to you and whom you do not
want to disappoint. Views expressed in magazinesand consumer reports about certain
products may influence someone to buy a particular product or to desist from buying it.
6.5 Consumer Decisions
Consumers have many options to make in their buying process. These can be classified
under the following classes
 Consumers have to decide first what product to buy to fulfil an identified
need.
 They have to decide what quantities of the identified product to buy
 Where to buy the product. This involves decisions on suppliers
 When to buy
 How to buy. This involves whether to buy on credit terms or on a cash
basis.
6.6 Variations in Purchasing Behaviour
People are not the same. Not every consumer will follow the decision process we
discussed in this topic. Cultural influences and status buying can mean that there will be
differences in the manner consumers behave. The cultural, social economic,
psychological and sociological factors make people different in the manner they behave.
Economic factors cover issues such as the price of the commodity and demand levels.
Some consumers are price sensitive. Ability to pay certain prices is another factor to
consider. Some people have a lot of money such that they can afford to buy expensive
products while others cannot afford even averagely priced products.
6.7.Organizational buying process
It is the decision making process by which formal organizations establish the need for
purchasing products and services and identify,evaluate and choose among alternative
brands and suppliers.(chartered institute of marketing 1998.79)
Although organizational and consumer buying processes have numeroussimilarities, there
are also many areas in which they differ including the following
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 Organizations buy goods and services to satisfy a variety of goals which

are ,making profit, reducing costs,meeting employees needs and meeting social
and legal obligations
 More persons are typically involved in organizational buying decisions than in
consumer buying decisions, especially in procuring major items.The decision
participants usually have different organizational responsibilities and apply
different criteria to the purchase decision
 The buyer must heed formal purchasing policies, constraints,and requirements
established by their organizations.
 The buying instruments, such as purchase requisitions, quotations,and orders add
another dimension not typically found in consumer behaviour.
6.8. Organization decision making unit (DMU)
It involves those individuals and groups who participate in the purchasing decision
making process, who share some common goals and the risks arising from the decision
The (DMU) comprise of groups or individuals with the following roles
1. The users:These are the people who use the product;they initiate the purchase.They
define the specifications of the product or service.
2. Theinfluencers: They make input into the process of evaluating the alternatives
available
3. Thedeciders: Those whodecide upon final product specifications and the suppliers?
4. The Approvers .Who authorize the purchase proposal
5. Thebuyers: Who negotiate the purchase terms?
6. Thegatekeepers: Who in one way or another are able to stop or inhibit sellers from
reaching individuals in the DMU .Included within this category are secretaries,
receptionists, purchasing agents and security people on the gates.
3.8 Defective Marketing Strategies
Smart marketers always acquaint themselves with trends in consumer behaviour. Their
marketing strategies would be aimed at targeting the right people who make buying
decisions. Defective marketing is uninformed marketing which does not seek to
understand the factors that influence consumer-buying behaviour. Marketers should
 96

respond positively to these factors in order to gain market share and satisfy the consumer
needs
6.9 The growth of relationship marketing
Marketers have come to realize that,the costof gaining a new customer,particularlyin
mature and slowly declining markets are often high.It is therefore argued that, the
marketer has to ensure that existing customer base is managed as effectively as
possible.One way of doing this is to move away from the traditional come- and- go type
of transactions and implement strategies concerned with the management of long term
relationships.
The table below compares the traditional mode of marketing with relationship marketing
Traditional transaction based Relationship management
model
Focus on single transaction Focus on customer retention and customer
loyalty
Emphasis on product features Emphasis upon product benefits that are
meaningful to the customer
Shorttimescales Long timescales recognizing the short term costs
maybe higher but so will long term profits
Little emphasis on customer Emphasis upon higher levels of service that are
retention possibly tailored to the individual customer
Limited customer commitment Higher customer commitment
Moderate customer contact Higher customer contact with each contact
being used to gain information and build
relationship
Quality is essentially the concern Quality is the concern of all and it is the
of production and no one else failure to recognize this that creates minor
mistakes that lead to major problems

6.10 Steps in developing relationship marketing

In developing relationship marketing program (in business to business markets)the
following steps are relevant
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 Identify the key customers, since it is them ,particularly in the early stages,that
the most profitable long term relationship can be developed
 Examine in detail the expectations of both the customer and the supplier
 Identify how the two organizations can work together
 Think about how operating processes on both sides might need to be changed so
that cooperation can be made easier
 Appoint a relationship manager in each of the two organizations so that there is
neutral focal point
 Go for a series of small wins in the first instances and gradually strengthen the
relationship
 Recognize from the start that the customers has different expectations and that
these needs have to be reflected in the way in which the relationship is developed
Activity 3d
Isit necessary for marketers to under factors that affect consumer behaviour?Support your
answer

Human needs are constantly changing. So many changes are taking place in the
consumer buying behaviour. Marketers need to appreciate these trends in order to be
relevant to the people they market to. Marketers can influence consumers and create a
desire to buy a particular product if they understand the factors that influence consumer
decisions. Accordingly outline your understanding of the importance of studying a topic
on consumer behaviour from a marketer’s viewpoint.
Summary
Understanding consumer behaviour and the current trends in consumer behaviour is
critical to marketers so that they can direct their marketing efforts to the right people.
The consumer buying decision process involves many activities, processes and decisions
such as need identification, information gathering, evaluating alternatives, making the
best decision and post purchase evaluation. On the other hand consumer behaviour is
affected by cultural, economic, social, sociological and psychological factors. Marketers
should keep abreast with the changing roles of women and children in the consumer
buying process.
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Self-assessment exercise
[1] Do you think that marketers need to also consider the various sub cultures that may
exist in a given market in their marketing efforts? State your reasons.
[2] What advice can you give to a marketer in today’s environment?
Suggested answers
[1] It is necessary to appeal to the subcultures in order to capture the whole market. These
sub cultures play a crucial role in marketing. It is necessary to understand the needs of
particular tribes or particular regions within a given market so that you can meet the
needs of that particular tribe, religion or region in a bid to capture the entire market.
[2] A marketer should constantly follow the changing needs of consumers as well as
changes in culture and beliefs. A marketer should always seek to appeal to those people
who can influence buying decisions. Opinion leaders can influence the buying behaviour
of a particular group of people such as a professional body. The role of women and
children in making critical buying decisions is changing. Women and children are
making critical decisions that go beyond buying of groceries. They now make or
influence decisions involving buying of goods of commercial consequence
such as cars and houses. A marketer should thus seek to appeal to women and children in
their marketing efforts.
References
Jobber D (2002) Principles and practice of marketing 3rd Edition McGraw Hill New
Delhi
Gumbo R .Chiparo U&Modesto .S Principles of marketing 1stEdition BOCODOL 2008
–Botswana
Kotler P and Keller .K. L (2006) Marketing Management 12thEdition Prentice
HallNew Jersey
Mburu T and .Kealetsitse B, (2005) Fundamentals of marketingUniversity of Botswana.
Centre for Continuing education .Gaborone
Perreault William. D Jr and McCarthy E Jerome(2000) Basic Marketing- A Global
Managerial Approach 15th Edition Tata McGraw Hill New Delhi
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TOPIC 7: PRODUCT

7.0.Introduction

Marketing entails strategic combination of a number of elements. The concept of the

marketing mix was first put forward by Jerome McCarthy some decades ago. He
suggested the four Ps of the marketing mix as the product, price, place and promotion.
Marketers went on to add three more Ps to the original four bringing the total to seven.
The additional three elements are processes, physical evidence and people. This unit will
cover the four main marketing mix elements (product, price place and promotion) in
detail each as a topic .The other three are covered in service marketing .Below are brief
explanations of the marketing mix variables.
(1) Product: That which the organization offers to the market , might be a tangible
product or a service or idea
(2) Price: The exchange value for the product, service or idea .To the customer it is
the cost of acquiring using and disposing the product.
(3) Promotion: The ways in which the business communicate with customers about
its product
(4) Place: Those decisions to ensure that the product is made available to the
customers at the right place at the time needed.
(5) Processes: The systems used by the organization in producing and marketing its
products for example the types of transactions that the business allows i.e. cash,
lay bys, credit or hire purchase.
(6) Physical evidence: The tangible evidence of the existence of the organization as
the originator and provider of the product.The assurance of continuous provision
of the product or service to the customer.
(7) People: These are the people who are responsible for the execution of the service
to the customers. There appearance, skill, attitudes and character is regarded as a
marketing tool
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The normal starting point for discussion of the marketing mix is the product or the
service that the organization offers to the market.The other decisionsare highlydependent
on what the company offers to the market. Understanding the needs of the market is the
starting point in product decisions. This enables the business to develop products which
are capable of satisfying the needs of the customers. As customers tastes keep on
changing, the business should also identify these changes and develop new products that
meet the new needscontinuously.
This topic looks at the components of the product, the development of the new products,
the management of the new product as well as the strategies of branding and packaging
of products.
7.1.Objectives
It is hoped that after studying this topic you should be able to:
 Define product and explain its components
 Describe how new products are developed
 Explain the product life cycle, diffusion process and adoption process
 Explain the importance of branding a product
 Discuss the advantages of branding to both the marketer and the customer.
 Explain the importance of packaging and labelling of products.
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7.2. Definition and components of product

A product is composition of tangible and intangible need satisfying utilities offered to
customers by a business so that they can take note of them, buy them and use them.
(Jobber. 2002)
Since a product is a composition of tangible and intangible the following four
componentscan be identified
 Core product- can be described in terms of technical and physical qualities that
enables the product to perform its function
 Tangible product- in addition to core product, specific features such as quality,
style, brand,and colour. These can boost customersatisfaction. The appearance of
the product has great impact on customer satisfaction.
 Augmented product- the other benefits provided along with the product for
example after sales service, guarantees, and delivery and credit facilities.
 The total product-it comprises of all the above components and is all what the
customer buys
Fig 1.0Four Components of a consumer product
Total product

Augmented product
Tangible product

Core product

Source: Fundamentals of marketing, University of Botswana, Centre for continuing

education 2002

Activity 7a
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For a product like refrigerator, identify the core, tangible and the augmented product that
consumers expect to find

Core product- consists of the ability of the refrigerator to perform its function of cooling,
storing and preserving
Tangible product- the brand of the refrigerator e.g. LG, Defy or Imperial, also includes
the colour, shape and size of the fridge
Augmented product-such items as delivery, hire purchase, lay by and servicing of the
fridge after purchase
7.3 classification of product
Products can be broadly categorized as either consumer product or industrial products
since we have consumer markets and industrial markets.
7.3.1 Consumer products
Consumer products are intended for immediate use by households or consumers. These
products are not used in further processing or resale but are bought for consumption by
the consumer. We can also distinguish between durable consumer products and non-
durable consumer products
Durable consumer products are utilized over a long period of time (e.g.) fridges, cars and
furniture where as non durable consumer products such as cigarettes, chocolates and milk
have a relatively short life span.
Consumer products can be classified on the basis of consumer buying habits, basing on
this; the following categories can be identified, convenience products, shopping products,
specialty products and unsought products.
Convenience products:These are products which are frequently purchased and require
little planning before buying. Convenience products should be within easy reach of the
consumer .The quality and prices of competing convenience products are reasonably the
same and the product do not require much explaining to be sold. Retailers do not receive
incentives to push on a specific brand leaving the other. Examples of convenience
products are groceries, cold drinks, sweets and milk
Shopping products: These are products which consumers have to shop around for.
Consumers compare prices, various brands, image, guaranties and after sale service
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before making any commitment to buy. Consumers will not be having sufficient
knowledge about the product so they visit a number of outlets to gather information about
the features of various brands before buying. They are of higher value than convenience
products and they involve more risk in purchase. Consumers have to be influenced to
accept one brand than the other basing on the benefits being offered. Examples of
shopping goods are cell phones, cars, and music systems.
Specialty products:Those products with unique characteristics for which consumers will
make special purchasing effort to buy. They usually involve higher cost in terms of
money, image and opportunities.Consumers usually do a thorough research on the
productregarding the features, benefits and all other aspects that relate to the product.
Consumers usually know what they want regarding specialty goods and will not accept
substitutes. They can go up to great length to ensure that they obtain the actual product
they require. Examples of specialty products are designer clothes, luxury cars, jewellery,
and services like plastic surgery.
Unsought products:These are products that consumers do not seek to buy unless they are
sold to them. Consumers can do without them but they can add value to their lives if they
buy them. Consumers usually wait until the salesperson triggers their need to buy
them.Examples of unsought products are life insurance, fitness exercises or fitted
kitchens.
7.3.2 Industrial Products
These are products and services that are bought mainly for the purpose of processing into
finished products or for the purpose of helping in the production of other finished goods.
Industrial products can be divided into the following categories:
 Raw materials: These are basic materials that are transformed into entirely new
products before being offered into the market. The products in the raw form are
not as useful or as valuable as they are after processing. So consumers have to
wait until value is added to them by the manufacturing process before they can be
sold.
 Plant/ equipment: These are the products which are used to facilitate
themanufacturing of the finished goods,the equipment, computer systems,
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production plant and tools without which the processing of the raw materials to
finished product will be almost impossible.
 Components:When producing new products we sometimes use other finished
products which form part of our product. These finished products are called
components. They are finished items that are used in assembling of finished
products examples are car wheels, gear boxes,zipused on clothes.
 Process material: These are materials which are more advanced than raw
materials. Process materials are more specialized and are use in manufacturing
high value, high quality products for example the alloy used in the manufacturing
of planes. These products are similar to components but they are not finished
products like components and not as raw materials.
 Consumable supplies: These are materials and services that are used up by the
manufacturer but do not become part of the finished products they include
cleaning chemicals, lubricants stationery among other things

Activity 7b
Categories the following products as shown by the example

Product Category

Example  Cotton wool for a clothing Industrial / Raw materials

manufacturer
 1 kg washing powder -------------------------
 (BMW)Car Latest Model --------------------------
 Gear Box to be fitted on a new
car ------------------------------
 Stationery used at Garage ------------------------------
 Computer Music system ------------------------------
 Brick moulding machine ------------------------------
 Flour for backing bread in a
chain store
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You are to first identify whether the product is a consumer good or an industrial good.
the second part of the question requires you to sub categorize the product under
convenience, specialty,unsought or shopping for consumer productsand raw
material,plant and equipment,components,consumable supplies or process materials for
industrial products

7.3 New product development

A new product is that offering which is innovative, unique and can satisfy a real need
that is not being satisfied by an existing product. (Kotler and Keller.2006).A new product
can also be an amendment of existing products in order to bring something new to the
market. New product ideas can be obtained from sales representatives, dealer, and
technicians on the manufacturing division or consumers. Large businesses often have
new product venture teams consisting of various functional experts who actively and
constantly seek new ideas for new products.

What characteristics should a product meet for it to be regarded as new?

For a product to be regarded as new it must:
 Be a new innovation in the market
 Be unique or different from any other products in the market
 Be able to satisfy what existing products cannot satisfy
 Be able to replace existing product that have reached decline
Why should businesses develop new products? Can a business realize benefits from
developing new products?

Advantages of developing new products -to the business

 It gives advantages over competitors since the business may be able to skim
market profits before competition starts.
 It increases customer loyalty; the changing preferences may be met by new
products.
 It leads to increased and stable sales because new products replace those products
which will be facing decline on their life cycle
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 The business can spread investment risk such that if one product does not do well,
others can do well on the market
 Image and prestige of the company can be boosted if it is known as the leader in
innovation
 It allows better utilization of production resources
New product development also has some disadvantages to the business.The
disadvantages can be summarized as follows
Disadvantages of developing new products
 Time:It is a time consuming process of which such time could have been utilized
for other business operations more especially when the new product does not
succeed on the market
 Risks: Chances are also high that new products might fail to sale on the market.
This might even risk the other existing products if they use the same brand name.
 Finances: New product development is a venture that requires initial cash outlay
of a substantial amount. This might impact negatively on the cash flows of the
business.
7.3.1New Product Development Process
New product development is planned and executed step by step where the new product
ideas go through various phases until the product is actually introduced into the market
(Jobber 2002)
The phases in the new product development processare
 Idea generation
 Idea screening
 Concept testing
 Marketing strategy development
 Business analysis
 Product development
 Test marketing
 Commercialization
Stage 1. Idea generation: The Company will be actively looking for new product
opportunities so it collects ideas from sales force, distributors, customers, engineers and
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researchers. A new product can be developed in response to a perceived or recognized

demand.
Stage 2 Idea screening :There must be a new product policy that provides boundaries
upon which a new product idea is regarded fit for the organization, for example, We
must be able to produce the product without further investment in production plant or
personnel,there must be a recognized demand for a product.Those responsible for
screening the ideas try to match the ideas against the stated criteria wherever possible this
is a crucial stage because it takes away non-viable ideas
Stage 3. Concept testing
It involves testing new product concepts (idea) with a group of target consumers to see if
it has any consumer appeal or it needs adjustment. The concept can be tested either
physically or symbolically. Target customers will be asked such questions as do you
think it is a good idea? Would you buy it at such prices? Can we make it?
Stage 4. Marketing strategy developments: The marketing strategy development comes
after the concept testing has approved continuation of the idea. On this phase we decide
how we are going to market the product. We consider the following,the distribution
channels of the product, the positioning of the product on the market, the communication
strategy necessary for the product.We also try to predict the first few years product
operating sales budget, profit budget and market share. Decisions made on this stage
depends much on the results of the concepts testing, knowledge of the market place and
the planning skills of the involved marketers
Stage 5 Business analysis: Oncethe product has moved from the concept testing and
marketing strategy development. Management would be concerned with the
attractiveness of the idea or proposal. This stage involves reviewing of projected sales,
cost and profit projections for a new product to establish whether they comply with the
company’s objectives. At this stage management accounting techniques such as capital
expenditureappraisal are utilized. Products are often rejected at this stage because they do
not demonstrate enough potential earning in a given period of time.
Stage 6. Product development: Throughout all the stages above, the product was in
form of an idea, drawing or word description. At this stage the research and development
or engineering functions of the business convert the idea into tangible product. One or
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more physical products that satisfy the product concept are developed. This can take days
or months, the developed prototype must have functional feature so that consumers are
given the opportunity to test the product.
Stage 7 .Test marketing: The product is introduced to a representative sample of the
potential market and aspects of the marketing effortare tested. The product and its entire
marketing strategy are tested.The positioning, pricing, packaging, branding and
communication strategies are tested. This allows the marketer to test the product before
going into full scale launch. The amount of test marketing varies witheach new product.
When management is sure of the success of the product or cost of making it is low, they
might not test the product on the market. But rather resort to full market launching.
Stage 8. Commercialization: This is the full scale manufacture and launch of the
product on the market place. In launching new products,companies must consider timing
for launching and where to launch the product (i.e.) regional, national or international
market. This is however influenced by the size of the company. Once product has been
launched, it has to be backed by full promotion and distribution strategies. The product
starts its life on the market.
7.3.2: Success of the new products
Below are some of the guidelines to assure the success of new product, to be successful
there mustbe:
 An innovative culture within an organization
 Encouragement from senior management
 Committed development teams
 close cooperation between all functional areas of the organization
 adequate resources invested in the development process
 Good understanding of the target market
 Confident decision makers
7.3.3 Failure of new products
A number of products do not succeed on the market.Recent research has shown that
failure in new product is caused by
 poor or inadequate actions at the test marketing stage
 lack of research into the needs of the target market
 time taken to get to the market
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 inadequate investment in promotional aspects

 failure to anticipate changes in technology
Activity 7c
1 .Do you think it is ideal for the sales staff to be part of the organization’s new product
development team? Motivate your answer
1. You are to give reasons why you say the sales people of the organization should be
part of the new product development team. You can also provide reasons as to why you
say they should not be part of the team
7.4.The Product Life Cycle
We have discussed how products are developed up to the point when they are lunched on
the market; the last stage of the new product development process which is the
commercialization becomes the first stage of the product life cycle. The product life
cycle concept describes how the product progresses through various stages on the market
from introduction to decline. The product life cycle model displays, the time and sales
revenues.
Fig 7.2: The Product Life Cycle

Sales

Introduction Growth Maturity Decline

Time

SOURCE :Kotler and Keller 2006, Page 322

Introduction
At this stage the product is completely new to the market. There is need to persuade
retailers to stock the product through offering incentives.Heavy promotionshould
accompany the introduction of the product on the market however this may lead to higher
expenses. Penetration pricing strategy may be used at this stage in order to gain market
share
Growth
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There will be rapid increase in sales and profit; competitors will also be entering the
market. The marketer should add better features to the product and eliminate known
defects. Promotion will be aimed at creating favourable attitudes to the product as well as
establishing the buyer’s loyalty
Maturity or saturation
The market is saturated with the product; the product is well known and established.Sales
and profit levels have reached their maximum.At this stage promotion will be aimed at
reminding larger audience about product features to overcome competition.If there are
signs of good revenue to be earned, marketers will extend the product life cycle by
improving its packaging, increasing promotion, and developing markets.
Decline
The product begins to loose market share and decisions must be made on whether to
support the product or withdraw it from the market.
The business may introduce new product to take the place of those whose market is
declining.
It is assumed that all products exhibit this life cycle but the time scale will vary from one
product to the other.What is important to the marketers is to understand the life cycle of
his or her products so that a proper marketing strategy can be adopted.

Table 7.1 Management of the product life cycle

Marketing Introduction Growth Maturity Decline
Program
elements
Product Basic product Develop product Modify and Reduce
,limited extensions and differentiate features
range service Develop next
generation
Price Low price strategy Penetration Price to Reduce
Strategy meet or beat
competitions
Distrib Selective, Intensive, Limited Intensive, Heavy Selective,
Ution Build dealer trade discount trade discount Phase out
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Relations weak
Outlets.
Advertis Heavy spending Moderate to build Emphasize brand Reduce to
Ing to awareness and Differentiation a level that
build interest in the and maintains
awareness and mass market. special offers hard
encourage Greater word of core loyalty.
trial among Mouth Emphasize
early adopters low prices to
and reduce stock
distributors
Sales Extensive to Reduce to moderate Increase to Reduce or stop
encourage trial level encourage brand Completely
switching
Planning Short to medium Long range Medium range Short
time
frame
Adapted: strategic marketing management (chartered institute of marketing 1997.129)
Activity 7d
Choose any product from any market and suggests the stage on which it could be in the
life cycle. What marketing strategies are there for the marketer to ensure success of the
product in the market?

This is a practical question which requires you to pick any product from the market for
example one model of cell phone,trace it from when it was new on the market up to
now ,you also need to follow upon how the manufacturer is promoting, distributing and
pricing the product
7.5: Product Adoption & Diffusion process
When the product is introduced to the market it might take time before it is accepted by
the consumers. The process by which an individual makes successive decisions before
accepting a product is known as adoption process. Diffusion of a new product is the
process by which an innovation spreads throughout a social system over the time. (Jobber
2002)
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The steps in the diffusion process are:

Awareness: The individual is exposed to the new product. The desire to have the product
may not be created but a person becomes a prospective customer. Awareness is usually
generated through promotional efforts in the launching of the product.Distributor’s effort
can also assist in building product awareness.
Interest: The idea to posses and use the product starts to generate in an individual. The
person seeks further information about the product at this stage the marketer should
ensure that there is enough information with all distributors to assist in reinforcing the
consumers buying decisions.
Evaluation: The prospect weighs the benefits and costs of a new product against the
one he/she is used to. New products should always exhibit better features than those
already in the market
Trial: If evaluation produces positive results, prospect purchases the product for trial .if
the customer is really satisfied the discomfort concerned with whether the decision was a
correct one goes.
Adoption: When the customer is actually satisfied that the product is better than the
others, he /she adopts the product in place of the usual one.
Confirmation: The customer immediately seeks assurance from friends and other peers
about the product compared to the alternative. If friends confirm that the decision was a
correct one, the customer adopts the product and recommends it to others.

7.6.Adapter categories on diffusion process

Here we try to establish groups of customers who buy the new product at each stage of
the product life cycle.We have five categories of customers who adopt the product at
different stages depending on their personalities. The five categories are innovators, early
adapters; early majority, late majority and laggards.
Innovators: These are buyers who are at the fore front in terms of fashion. They buy the
new product as it is introduced to the market because they like to experiment and be seen
as the first to posses the new product. They act as opinion leaders ofsociety in terms of
the innovation. They are of higher social status, well off financially and have broad social
responsibilities. If this category can be convinced to value the product, success of the
product can be guaranteed. They constitute 2, 5%of the total market
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Early adapters: These buyers are never the first to try the new products but they follow
opinion leaders fairly closely. They are not confident or adventurous enough to lead but
like to “fashionable” They first want to see that a product has some value before they
buy. They buy the product on the later stage of its introduction phase and early stage of
growth. They constitute 13, 5%of the total consumers of the product as it goes through its
life cycle.
Fig 7.3 Diffusion of new product

Sales
Late
Innovations Early Early majority majority laggards
Adopters

2.5% 13.5% 34% 34% 16%

Time

Early majority: The group represents 34% of the market; they are deliberate customers
and are above average in social and economic measures. They rely much on
advertisement, sales people and early adapters
Late majority: These are buyers who want who wait until the product is almost on its
maturity stage they require much persuasion and it is often when the product is widely
available that they will buy. They need reassurance of performance. They represent 34 %
of the market
Laggards: These are buyers who are bound by tradition and are behind time. They are
suspicious of innovation. They buy the products when itis going out of fashion or
outdated by technology. Products which are in the decline stage and have been reduced in
price may be attractive to these buyers but marketers would be already paying attention to
other products. They contribute 16% of the market.
Activity 7e
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Moyo is running his own business which gives him substantial income. The guy is crazy
about new models of cell phones, cars and fashionable clothes. When ever a new item is
in fashion he is one of the first buyers. In which category of buyers does Moyo falls?
Explain
The question has given you the characteristics of the adapter.You just have to match the
description to what we have discussed in the analysis of new product adopters
7.7. Product branding
Whenever we go out for shopping, we often see products and identify them with symbols
marks or letters. What is the significance of these symbols in the process of marketing? Is
it always useful to attach a symbol or mark of identification to your products? At this
point we have to carry out an analysis of these marks, symbols and letters which are
referred to as branding of products.
What is branding?
Branding is the attachment of mark that is unique to the product items or ranges of
products which are marketed by a particular business; it is chosen to distinguish them
from similar competitor products. The brand of a product includes the brand name and a
specially designed trade mark. The brand name could be a word; a letter or a group of
words e.g. Mercedes Benz. Customers use these names when they intend to buy the
products. Examples of some well known brands in the motor industry are Toyota,Mazda,
Ford and Isuzu, these are just few examples. Branding has advantages both to the
customers and to the marketers.
7.7.1 Advantages of brands to customers
 They facilitate the identification of products when purchasing.
 They ensure consumers of a quality standard theycan count on.
 They offer a certain degree of protection to customers because branded products
can be identified with a special manufacturer
 They facilitate decision making because consumers easily recognize the brand
they usually buy
 They save as a warning against products that do not meet the requirements set by
consumers
7.7.2 Advantages of brands to marketers
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 Brands are the foundation of the marketing communication strategy, where the
promotion message indicates precisely which product should be purchased as well
as the producer of those products.
 Brands promote brands loyalty among consumers and make products substitution
by the retailer or consumer more difficult.
 Brands make price comparison with competing products more difficult since each
brand is perceived to possess different features from other products. Price
competition is therefore eliminated.
 Brands are an inseparable part of product image and offer a marketer the
opportunity of creating the product image
 Brands make product differentiation possible and enable the marketer to
distinguish his or her products from competing products
 Brands facilitate the expansion of existing products ranges. Consumers tend to
accept new additions to an existing range more readily than unknown product
items that are not part of the range
7.7.3.Brand loyalty
Brand loyalty occurs when consumers show alliance to certain brands. It is a result of
good product quality, proven usefulness and repeated marketing communication .a brand
that does not meet consumerdemands runs the risk of loosing the battle against competing
brands
7.7.4. Branding strategy
To develop a brand, it takes time and involves long term planning and investment. This
means that decisions on the type of branding to be used will be taken at strategic level.
Branding strategies that can be followed are corporate umbrella branding, family range
branding and individual product branding.
Corporate umbrella branding: Thisis where the name of the company is used as the
main “identifier” to the customer e.g. Sony, Toyotaand Nokia. Brands of this type can be
very powerful
The disadvantages associated with such branding is that, if for some reasons a brand
name becomes damaged by adverse conditions or negative publicity of one line of
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products, it can reflect on the entire product range and consequently affect the total
revenue?
Family/range branding: This is where a company has product being sold under a
recognized name which is different to the company name. Family branding can apply to
all products which are sold by the company. They can also apply to individual ranges, for
examples Red Sealfrom National Foods and PrimeBrand fromClover Dairies Botswana.
Individual product branding:This is when the name of the product does not have any
relationship to the company name at all but the product is recognized for its own merit
e.g. Castle Lager.
7.8. Packaging and labelling of products
Packaging can be described as the group of activities concerned with the design,
production and filling of a container or wrapper with the product item in such a way that
it can be effectively protected, stored, transported and identified as well as successfully
marketed.
We can look at packaging from threefunctions that it performs, these are
practical,decorative and informative.
Practical aspects of packaging are
 For containing the right quality product
 Keeping it safe during transit from factory to warehouse then to stock shelves out
to customers home.
 Some products can be very dangerous if they spill over on people or property e.g.
acid. It has to be safely contained and only be spilled at a point where it has to
work.
Decorative aspect of packaging: A package can carry a logo or brand symbol which adds
to the message’sappealing.Advertisements and repetition of the logo helps the customers
to identify the product with some satisfactory experience
Informative aspect /labelling of products: This is very important in view of potentially
dangerous products sold over the counter. Information can simply be written on the
package, such information as procedures of how to open, use and store the product. This
helps customers to derive maximum satisfaction from the products. Many products can
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only be sold iflabelled with specific information, labels differentiate product from other
similar products especially if containers have been standardized.
7.8.1 Different kinds of packaging
Marketing management usually devote a great deal of attention to the choice of
packaging and the design that will show off the contents in best possible way. The
different kinds of packaging that can be chosen are:
Family packaging: The same packaging material is used and the size of the packaging is
more or less the same for example the packaging of Coca-Cola, sprite and iron
brewamong others. Family brands favour consumer decision making but the only source
of irritation isa situation when a consumer purchases the wrong product in place of the
other. Since the packaging will be identical and only the labels will differentiate the
products, consumers may make mistakes in their process of choosing.
Specialty packaging: This type of packaging is designed to give an image of exclusivity
of the product.Perfumes, jewellery and expensive liquor are often sold in specialty
packaging.
Re-usable packaging: This creates the impression that the consumer receives a “free
container” if he or she buys the product.The container can be used for something else.
For example 3kg containers of mayonnaise are re-used to store sugar or other kitchen
food stuffs and 20litre paint containers used for storage of water. Re-usable packaging
may lead to repeat purchase because consumers tend to collect the containers.The danger
is that consumersmay stop purchasing when they have collected enough of the containers.
7.8.2 What influences the choice of packaging design?
The packaging material to be used, the shape and size of the product are the major
influencers of the packaging design.
1. Packaging material
The packaging material used on a product depends on the nature of the product and the
market positioning strategy that the management wants to adopt.As we have seen that
perfumes can be packed in transparent glasses to add an element of exclusivity to it, if
management wants the perfume to be ordinary they can just design a plastic container.
Bottled fruits are more attractive in transparent containers thanwhen they are in none
transparent can.
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2. Shape of product: The shape of the package in much related to the shape of the
product item itself. The shape also has a symbolic value which may, subconsciously
influence buyers. A square shaped is proposed to have male connotations whereas,
female buyers prefer flowing and round shapes
3. Packaging sizes
The smaller the packaging size, the cheaper it is.Management prefer to use as small
packaging as possible, but in so doing they will be foregoing the competitive advantage
of unusual sizes which draw consumers’ attention and make price comparison difficult.
Packaging of a product should not be changed without properly informing the consumers.
This does not necessary mean that packaging should never be changedor modified.
Changes are often made in the shapes of the packaging and the printed matter or labels
for the sake of improvement and functional reasons.
Activity 7f
Packaging is only a burden that is born by the consumer, without it goods would have
been much cheaper:
Discuss this statement

To answer the question, discuss the benefits of packaging to consumers, first, secondly
discuss the limitations which may include
 Biased impressions
 Environmental pollution
 Increase in cost
Summary
We have covered the first element of the marketing mix which is the product.In this topic
we covered how the product is developed,how it progresses through the market.We have
also identified the branding strategies andthe benefits of branding and packaging to both
customers and marketers. The product is the centre of interaction between the firm and
the customer.If the product does not meet the needs of the customers, all other marketing
efforts will be just a waste of time and resources so product planning, development and
management should be carefully executed.

Self assessment exercise

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1. Briefly discuss the three components of a product giving examples

2. Industrial products are those which are marketed not for final consumption by
households .Briefly explain the different types of industrial products that a firm
can market
3. The product life cycle concept is connected to the adoption of the new product by
consumers .With the aid of a diagram ,explain the product adoption and diffusion
process
4. In your own opinion, what would happen if products are not branded?
5. Discuss the significance of packaging of products.

TOPIC 8: PRICE.
8.0. Introduction.
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Price is a common and important aspect of any business transaction although we hardly
seek to establish its background .How does a firm determines the price to charge for its
products or services? What are the implications of price to the consumer and to the firm
selling the goods? Most consumers purchase products on the bases of affordability yet
the firms on the other hand need to maximize profits from their sales. Consumers
favour low prices, firms want higher prices.To harmonize this conflict, the firm should
come up with strategies to determine the price that exploits the marketprofitably.

This topic focuses on priceas an important factor in all economic transactions, its
importanceto the marketer and the consumer, the objectives that a business can pursue
through the pricingof its products.
The price of a product is determined after considering many factors. This topic
discusses the factors that influence the determination of price and the ways in which
pricing strategies can be integrated with other marketing mix elements for the firm to
efficiently benefit from its marketing efforts.
8.1. Objectives
It is hoped that after working through this topic, you will be able to:
 Explain the meaning of price.
 Explain the importance of price to the consumer.
 Describe various pricing objectives.
 Describe factors that influence price setting.
 Distinguish the various pricing strategies
 Integrate pricing with the other marketing mix variables.
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8.2. The meaning of price to the firm.

Price can be regarded as the exchange value of a product or services. It is closely linked
to the concept of value and benefit. The value of a product or service determines the
benefits that the consumer expects to get from that product. It represents the sacrifice
required from the customer in terms of money and effort to obtain the product.

Of all the marketing mix elements, price is the only that represents revenue to the
business. Product, Place and Promotion all represent costs which need to be funded
through the price. It is therefore clear that price is a crucial element of the marketing
program of a company. No matter how good the product or how effective the distribution
is, the price has to cover the cost of all these for the company to make profit. It is
important that the marketer understands the price setting process because either
undercharging or overcharging have drastic effects onthe profitability of the business.

8.3. Price and the consumer

To the consumers the price represents the level of value they ascribe to the item being
bought. Some consumers tend to be more interested in low prices and they ascribe high
value to a product just because it has a high price. There are also other factors which
might influence the consumer’sdecision to buy a product, such factors as quality may
influence the customer’s acceptance of the price attached to the product. It is the price
that enables the customer to compare the benefit of having and consuming the product
and the losses to be suffered when the product is not consumed.
If the benefits surpass the costs, the consumer will accept the product and buy it at that
price. That is why if one is really thirst he/she can sacrifice to pay a higher price for a
drink which he could not have done if he/she was notthirst.

8.4. Role of price in the economy

Most economies today are “monetary economies” which mean money is considered as
the medium of exchange rather than barter trade of the past ages. All goods in the
economy carry a price. The changes in prices are used as a measure of inflation in the
economy. One of the major concerns of economic planners of any country is to ensure
that prices remain stable (fighting inflation) in the economy since all transactions are
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concluded in money terms. All economic activities are basedon price. The growth of an
economy is also measured on the bases of the value of all final goods produced within a
country (Gross Domestic Product) which uses prices as the basis of calculation.
Activity 8a
Explain the reason why some consumers do not favour low priced products.

Explain the meaning of price to the customer and also consider the consumer psychology
in terms of price, How consumer relate the quality of a product to its price.

8.5.The general process of determining the price of a product

In order to avoid over or undercharging of products.All factors necessary should be
considered before a final price for the product is adopted. The process of adopting the
final price of a product has the following four phases:

 Determination of the cost price:How much did it cost us to produce this product
and how much will it cost to distribute and promote the product? This is the
responsibility of the cost accountant. The cost of producing and marketing the
product should be established. The product price cannot be lower than the total
cost of producing and marketing it because this will entail financial loss to the
business.
 Determination of market price:The market price is the price the consumer is
prepared to pay. This can be established by launching a market research project
involving consumers or dealers. A survey of the prices of competitor’s products
can also be undertaken.If the costs of producing the products are much higher
than the market price, the business should consider reducing the costs of
producing the product or else marketing management have to make a special
attempt to convince consumers that the product warrants a higher price than they
expect.
 Determination of target price:The target price is the price that will make the firm
to realize the target rate of return, taking into consideration the cost of producing
the product, the potential sales volume of the product. It can be calculated using
the cost plus method which means establishing total production and distribution
cost and adding a target percentage of profit to arrive at the price.
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 Adopt the final price: The final price isthat price at which the product is offered to
consumers. The price is determined through a reconciliation of the market price
and the target price as well as other factors. The final price may be adjusted
further for various reasons.

8.6. Factors that influence price the setting of a price for the product

Several factors within the organization and outside the organization influence the pricing
decisions of marketers. We also have to accept that no price can be set in isolation of
prevailing circumstances inside and outside the organization. The influencing factors on
price can be categorized into three main groups these are organizational factors, customer
factors, and market factors.
8.6.1 Organizational Factors
These are factors which the organization have control over and are part of the strategy
that the organization wants to implement through pricing. The organizational factors can
further be classified into corporate objectives, quality, product life cycle, product line and
segmentation and positioning strategies
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 Corporate objectives:Different companies have different objectives. A company

which values financial gains muchmay charge high prices. Where market power
ormarket share is considered to be important prices may be kept low. Managerial
ethics and culture will also have impact on pricing, for example in times of
shortages of supply one company may raise the prices to capitalize on the short
term situation but another may sell the product at the original price to be fair to its
customers. Companies which remain fair to their customers even in times of
shortage will reap the greater reward in the long term.
 Quality:There is a direct correlation between price and quality. The better the
quality, thehigher the price. A company can set product price according to
theperceived quality of the product. There is also this perception in the
consumer’s mind that ‘products which have higher prices are of better quality
than those of low prices.’Marketers can play around with this perception and gain
acceptance of the prices they charge for products.
 Product Life Cycle: In the previous topic we discussed the product life cycle
concept. And we have realized that the sales of the product differ at each stage.
The stage at which the product will be on the product life cycle has an impact on
the pricing decisions of marketers.
Pricing decisions can be matched with the stages of product life cycle as follows.
Table2.1 Product life cycle and pricing strategy
Stagein product Pricing strategy and reason Level of price
life cycle

a) Introduction Market penetration to gain market Low

share through changing low prices so that
more customers will accept the product
b) Introduction Market skimming. To gain share through High
giving an impression that the product is
innovative and quickly recover cost of
developing the product
Growth Penetration to defeat competition Low/
Differentiated
Maturity Protection of market share and defeat Low
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competition
Decline Recovery of costs of distribution and selling High / Low
pricing

Decisions on the strategy and level of price can be made by marketing management
hence it is the organization that can influence the price.

 Product Line:The price of one product may affect the price of the other.For
example, it will not be genuine for products which use same resources in
production and are distributed through the same channels to have significantly
differing prices. This however depends on the judgment of management after
considering all influencing factors.
 Segmentation/Positioning:A company that holds a good position in the market
can set higher prices as it will be operating from a position of strength, provided
that its segmentation and positioning are set correctly. The position of the brand
on the market also impacts on the organization’s decisions when setting prices.
When a brand is strong, people are willing to pay higher prices for product.
Customers who are loyal to brands can still pay higher prices until a time when
they can be enticed away by another brand. It depends on whether the
organization assumes that its brand is strong or not. If the organization assumes
that its brand is strong, it charges a higher price, if it sees it to be weak, it charges
a lower price until such a time it is improved and repositioned.

2.5.2 Customer factors

These are factors which relate to the customers who buy the products. It is important that
the firm considers the people who buy its products before setting the price. Customer
factors include demand, benefits, perceived value and income levels.

 Demand: Demand can simply be described as the quantity of a product that

customersare willing to buy at a given price. The law of demand states that “more
of a product is bought when the price is reduced” cetris paribus (all other factors
being constant).The quantity demanded of a product can change due to some
factors affecting the customer for example if the income of customers increases,
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they can buy more because they will now be having more disposable income.
Demandfor productscan respond to the changes in itsown price, changes in
income of consumers and changes in pricesof substitute or complement products.
This concept is known as elasticity of demand. Substitute products are those
which serve the same purpose as the product that we are offering, for example
beef is a substitute for chicken. Reduction of the price of substitute products leads
to decrease in the demand for our products since customers will buy more of the
substitute whose prices will be low. Complement products are those that work
together with the product we are offering to the market for example petrol and
motor vehicles are complements. Reduction of the price of complementproducts
positively impact on the demand for our product. Consumershave revealed high
spending patterns during festive season, Recreational products and services for
example Hotels accommodation , Lodges and Luxury transport can increase in the
price during this time but still experience increased demand for their products.
 Customer Benefit: Customers will accept a basic price for a commodity but may
be prepared to pay more for added benefits.Companies therefore try to provide
these benefits at nominal costs in order to keep profit high.
 Perceived Value: A customer will pay more for what he/she considered good
value but only if the price reflects the ascribed value. Ascribed value can be on
any aspect that is considered important to the buyer (e.g. Quality, Delivery,
Service or Installation)

8.6.3Market factor
These are factors which relate to the nature and state of the market where we sell our
products. They include competition, environment and geography

 Competition: Where there is less competition companies may charge high prices.
When competition increases, they will change low prices. Companies operating in
high competitive market are less profitable unless they have some advantages in
reduced costs of labour, raw materials and operating overheads. Competition
benefits the consumer because there will be a variety to choose from and prices
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are generally kept low. Economists categorise market structures (state of

competition) asfollows.
 Perfect competitions:Where there are many sellers and many buyers of
homogeneous products a good example is that of firms which supply convenient
products e.g. sugar, salt,maize meal
 Monopoly: Where there is a single seller of a product that has no close substitutes
for example electricity.
 Monopolistic: Markets characterised by product differentiation,the products are
not homogeneous as such, but they serve the same purpose, forexample health and
beauty products
 Oligopoly:This market structure is characterised by non price competition,firms
also monitor the decisions taken by others because they are very few large firms
serving the market.One firm will seek to understand the reaction of others before
it increases its prices.

 Environment: Government can intervene in the market operation by controlling

the prices of a product. This can be done for different reasons. Price control can
be established to protect consumers, encourage fair trading or to gain political
support. The government can also increase the price at which a product should be
sold so that it encourages the production of that product.
 Geographical: Distance can add extra costs for delivery which can make pricing
difficult. Where transport and delivery are part of the price, the price varies with
the distance travelled. For example some furniture shops provide delivery for a
certain fee in a specified distance around, the rates increase as the distance
increases. This is the pricing strategy used by transporters. It is called zone
pricing.
Activity 8b
Timber is cheaper in Mutare. Why? As you go farto other parts of the country the
price slightly increases. Suggest the factors influencing these price differences.
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- Government can also allow such increases in price as incentives to encourage firms
to provide timber in those distant areas.
- There may also be less competition which allows firms to charge higher prices
since customers may not have nearer timershops to buy from.

8.7. Pricing objectives

Like any other marketing decision, pricing have to be guided by goals consistent with
strategic objectives. Five objectives relevant to pricing are: build, hold, harvest,
reposition and survival

 Build objective/ maximum market share: This objective is concerned with

building the market share through increasing the sales. If competitors raise their
prices,we willbe slow to follow and our price is always lower than that of
competition. This objective can be pursued in markets which are sensitive to
prices. If the market is insensitive to prices it becomes difficult to pursue this
objective.
 Hold objective: Where the strategic objective is to hold sales and ormaintain
market share it will be appropriate to maintain or match price with competition.
The objective faces challenges of price changes since they tend to follow
competitors.
 Harvest/ maximum current profit: A harvest objective implies the maintenance or
rising of profit margins even though sales or market shares are failing. This means
the company will set premium prices for the products in order to maximize profit.
 Reposition objective: This is facilitated by changing market circumstances for
example if a new market for the product has been identified, it is vital to
reposition the product and revise the price of the product. If a competitor’s
product exist the market, there will be need to reposition our own product on that
positionwhich was held by the competitors if it is favourable, in this case, we may
have to revise the price.
 Survival: Companies pursue survival as their major objective if there is too much
competition or changing consumer need. As long as prices cover variables and
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fixed costs the company stays in business. Survival is a short term objective. In
the long run the company must find ways to increase profits.

8.8. Pricing strategies

The underlying intention of any pricing policy is to set standards which can be used to
price products in such away that profit can be maximized.There are three broad
approaches to pricing. We refer to these approaches as pricing strategies. The three broad
strategies are: competitors oriented pricing strategy; cost oriented pricing strategy and
marketing oriented pricing strategy.
8.8.1Competitor oriented pricing strategy
This is a strategy whereby the company focuses on competition rather than costs when
setting prices. This can take the form of either going rate pricing strategy or competitive
bidding.

 Going rate pricing:In situations where there are no product differences, For
example,a young entrepreneur buys a commuter omnibus to transport people
between Gaborone and Molepolole. He does not think of any other price than that
which is being charged by those operating already. This is directly linked to the
economist’s notion of perfect competition. Although this notion does not hold
useful to marketers because they believe marketing is concerned with creation of
differential advantage. Even for what appears to be commodity markets, creative
thinking can lead to the formation of differential advantage on which a premium
price can be built.
 Competitive bidding: Many contracts (tenders) are won or lost on the basis of
competitive bidding. The most usual process is the drawing up of detailed
specifications for a product and putting the contract out to tender. Potential
suppliers quote a price that is confidential to them. Assuming that all others
factors remain equal among the bidding suppliers, the buyer will select the
supplier that quotes the lowest price. The major focus of the suppliers will
therefore be on having the lowest quote that will bid off competitors. This strategy
utilizes a statistical model of expected profit where Expected Profit= Profit ×
Probability ofWinning, for example. If a supplier bids for a tender in which the
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profit is expected to be 5000 but his probability of winning the contract is 60%
then the expected profit will be 5000× 0.6 = 3,000

8.8.2 Cost oriented strategies

This pricing strategy implies that the price of a product is influenced much by the cost of
producing and distributing the products not the market demand. Under this strategy the
firm can use cost plus pricing or break even pricing .

 Cost plus pricing:This strategy entails adding up the predetermined percentage

mark-up to the total cost of the product. The price of the product will be the
composition of the total cost of the product and the desired profit margin. Let us
work out an example to illustrate this approach.

Example:
To produce a plate of Sadza (lunch meal) that a customer can buy ,a fast food outlet
incurs the following costs, labour $ 0.50, materials (maize meal, meat, salads etc) $6.50,
Electricity and water together with other running expenses are estimated to be $1.00. If
the food outlet expects a profit of 25%, how much will be the price of plate of Sadza?
The price can be worked out as follows:
First add up all the costs of producing the plate of sadza then add the 25% of that total to
it so that you get price.
($ 0.50 + $ 6.50 + $1.00) = $8 +25/100×$8
= $8 + $2 =P10
Using the cost plus pricing method your price will be P 10. In the price of P 10 (Cost is
$8 and profit $2)

 Break Even Pricing:Break even point refers to the point of operation where total
cost equals total revenue. At this level of output the business does not make a
profit, neither does it make a loss. If the firm produces and sale the quantity of
products that allows it to break even, it can cover all its costs but there is no profit
that remains. If the firm can increase the price and yet sell the same quantity,
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itwill make profit. Reducing the price and selling the same quantity will cause the
firm to experience losses. The break even concept is based on the following
aspects
 Fixed costs – These are costs which are paid even if the business does not produce
any quantity. They remain the same at any level of output. Examples of fixed
costs are factory rent, insurance and rates
 Variable costs either decrease or increase in relation to the level of output. They
are directly related to the production of the goods.

The difference between selling price and variable costs is called contribution or marginal
income
Total cost is the sum of variable and fixed costs. TC = FC+ VC

Break even point is the point of output where total cost will be equal to total revenue at a
given price.

 Break-even quantity can be calculated as follows.

Q= Fixed costs

(Unit price – Variable cost)

The strategy is usually utilized by non profit making organization whose intension is not
to make profit.
Activity 2C
Discuss various pricing objective that can be pursued by firms. Use examples in your
answer.
We have identified the pricing objectives to be hold. Build, harvest and reposition. If you
have identified these objectives, now explain the circumstances under which firms can
adopt each of them

8.8.3 Market oriented strategies

These pricing strategies are a bit complicated than the cost oriented and the competitor
oriented pricing strategies.We considers all factors in the market when setting the price.
If you use this approach you would use pricing strategies such as the product life cycle
pricing, product line pricing, promotional pricing, psychological pricing, geographical
and special pricing strategies.
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 (i)Product life cycle pricing: There are two strategies under this approach. The
two approaches are market penetration and market skimming

 Market penetration pricing strategy:This strategy is used to stimulate

market growth, to capture market share or to defeat competition by
gaining more customers through low prices.It works when the company is
strong financially that it may not require quick profitability.The market
should also be one that can respond to low prices by growing. The
production process must be of the types that costs less.The whole
intention is to gain entry or penetrate the market.
 Market skimming pricing strategy:This strategy involves setting prices
high at the initial stages of the product’s life cycle when the demand for
the product is high. Here the firm wants to take advantage of the high
demand and set high prices so that it can earn high profit margins. This
strategy is used for most electronic goods because firms believe that if
they do not get as much profit in the shortest time, their product would
become obsolete due to technological changes which may push the
product out of the market.For example, mobile cell phones and flat screen
televisions.The prices starts very high and fall as time goes.

Companies often combine market penetration pricing within heavy promotional

expenditure.Market skimming pricing strategy may not be combined with aggressive
promotion because the promotional costs may contradict the wanted profit margins
The combination of pricing and promotion can be summarized by the following model:
Fig 2.2Combination of price and promotion
Promotion
High Low

Rapid Slow
Skimming Skimming
High

Price
Rapid Slow
Penetration Penetration
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Low

Source:Jobber D (2002)

High pricing +High promotion= Rapid skimming strategy

High pricing + Low promotion = Slow skimming strategy
Low pricing + High promotion = Rapid penetration strategy
Low pricing + Low promotion = Slow penetration strategy

 (ii)Product Line Strategies: Product line is a group of products intended for

similar uses and sharing similar physical characteristics. Pricing products under
this approach requires that products falling within the same line be priced using
one method. For example, if skimming pricing is used, it has to be applied to all
products in the line and not just one product
 (iii)Promotional pricing strategies: These strategies are applied when the firm
wants to promote the products or some of the products that it markets. Two
pricing methods used under this approach are leader pricing and bait pricing
 (a)Leader Pricing: This entails dropping the price of a few products to attract
customers while selling other products at regular or even higher prices. The idea
is that the reduction in price of the other product is offset by the resulting profits
from increased sales as well as the high prices for other products. This is a
common practice by retailers in Zimbabwe. They reduce prices for a few items
during month end (Month end specials) Whist most goods remain with their
actual prices. Unless otherwise, customers just do all their grocery shopping in
one shop thereby purchasing even those goods whose prices are not reduced.
 (b)Bait pricing: Sales people sometimes try to convince customers to buy
products at higher prices even if they know that such products are not worth those
prices. Customers are convinced to buy higher priced products on the pretext that
they are of higher quality.
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 (iv)Psychological pricing strategies: This approach tries to set prices that have an
emotional appeal on customers. Under this approach a business can use odd
pricing or prestige pricing
 Odd pricing: The seller uses odd numbers when setting prices and the difference
between the odd price and the even price will be actually insignificant. The idea is
to try and appeal to the customers to believe that the odd price is lower than the
even price which will be offered by the competitors. For example the use of P9. 99
instead of P10.00
 (b)Prestige pricing: This is a strategy used to reinforce the image of the product.
It is based on the assumption that customers associate high prices with good
quality. A typical example of this is what we experience with the clothing
industry. Some customers buy from Jet, Options or Edgar’s because they do not
want associate with discount shops yet the same quality of clothes is sold in these
discount shops. In the discount shops it will be lower than what is charged in
other up market shops.
 (v)Geographic Pricing strategies: This pricing is influenced by the location of the
seller and the buyer. In most cases the price of a product will be including the
transport costs. The strategies used under this approach are point of production
pricing, uniform delivered pricing, zone pricing and freight absorption pricing
 Point of production pricing: The seller charges a single price at the point of
production. The buyer will pay the transport costs. The price increases as the
distance between the buyer and seller increases if the seller is to provide transport
 Uniform Delivered pricing: Under this method, the same price is paid by the
buyer regardless of their geographic location. Differences can be charged basing
on the weight of products so transport cost for all buyers will be the same
irrespective of their location provided the weight of the goods is the same.
 Zone – delivered Pricing: The business divides its total market into zones. Each
zone will be allocated a uniform delivered price.
 Freight absorption pricing: The above three strategies have indicated that,
transport costs determine the price set by the sellers. Under this method the seller
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decide to absorb or pay the freight costs. The buyer would only pay the product‘s
set price. This method offsets the disadvantages faced by a distant customer.

8.8.4 Special pricing strategies

Marketers can also device special strategies to set prices for their products depending on
the situation they will be faced with. Under special pricing, marketers can use price
differentiation strategy.
Price Differentiation
It is defined as a situation where companies adjust their basic prices to accommodate
differences in customers, products, locations and otherfactors. Associated with price
differentiation is the concept of price discrimination which occurs when the company
sells a product or services at two or more different prices that do not reflect the
proportional differences in costs. Economists have identified three levels of price
discrimination which are first, second and third degree price discrimination.

 First degree prices discrimination: In this case the seller charges a separate
price to each customer depending on the intensity of his or her demand.
 Second degree prices discrimination: The seller charges less to a buyer who
buys a large volume
 Third degree prices discrimination: The seller charges different amounts to
different classes of buyers as in the following cases.

Customer Segment Pricing

Different customers groups are charged different prices for the same product or services,
for example museums often charge a lower admission fee to students and senior citizens.
This is also applied in music show where kids are charged half the admission price set.
Product – Form Pricing
Different versions of the same product or service for example the sports stadium seats
differ in prices due to locations.
Image Pricing:
Where a company prices the same product differently basing on image differences for
example a perfume manufacturer can put two different containers for the same perfume
in order to give it different images, this will allow the company to charge different prices.
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Channel Pricing:
The same can of coca-cola carries different prices depending on whether it is purchased
in restaurant, supermarket, hotel or a vending machine.
Location Pricing
The same product is priced differently in different locations even though the cost of
offering at each location is the same.
Time Pricing:
Prices are varied by season, day or hour. For example Hotels charge less on weekends,
Our mobile cell phones network providers Telecel ,Netone and Econet sometimes
charge less during late hours of the evening and weekends . Advertising through
television might cost differentrates according to the preferred time. Day hours may be
cheaper than evening hours of between 1900 hrs and 2200 hrs because there will be more
viewers of television.
Activity 2d
a) Explain the circumstances where price differentiation can be applied. give examples of
industries and companies which can succeed in doing this
b) A company should choose between gaining market share and obtaining short term
profits through prices. Discuss

a) The question requires you to identify those companies which charge different prices
and explain how they succeed in doing that examples are construction companies, land
board, estate agents etc
b) The question requires you to compare market penetration and market skimming
strategy

8.9. Responding to competitor’s price changes.

How would a firm respond to price cuts by competitors in a market characterized by high
product homogeneity? Product homogeneity refers to the degree at which the products
sold in the market are identical. When competitors reduce their prices or find some ways
to reinforce the strength of their products on the market such that they can retain the price
and demand. The firm can loose its market if it does not take necessary action. If
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competitors increase their prices the firm might decide not to follow unless the increase
benefits the whole industry.
Market leaders often face aggressive price cutting by smaller firms trying to build market
share. In such situation, market leaders can respond in several ways including
maintaining the price, maintaining price and adding value of the product, reducing the
price, increasing the price and improving value and launching a low priced line of
products.

 Maintain price:The leader maintains its price and profit margins, believing that it
would lose too much profit if it reduces its prices, it would not lose much market
share, it would regain market share when necessary. The problem here is that the
small firms get more confidence, the sales of the leader continue falling, and the
leader loses more share than expected. The leader will then reduce prices after but
might find it difficult to regain its market position.
 Maintain price and add value: The leader could improve its product, service and
communication. The firm might find it cheaper to maintain price and spend
money to improve perceived quality than to cut price and operate at lower margin.
 Reduce Price: The leader might drop its price to match the competitors. It might
do so because

- Its cost fall with volume.

- It would lose share because the market is price sensitive.
- It would be difficult to rebuild market share once it is lost.

 Increase price and improve quality: The leader might raise its prices and
introduce new brands to bracket the attacking brand.
 Launch a low-price fighter line: It might add lower priced items to the line or
create a separate low priced brand.
 The best alternative to adopt varies with the situation. The company has to
consider a number of things for example product’s stage in the life cycle, the
importance of the product in the company’s portfolio ,the competitor’s intentions
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and resources, the market price and quality sensitivity ,the behaviour of cost with
volume and its alternative opportunities.

9.10. Determining demand

Economist view price as the major determinant of changes in demand for a product. If the
price is high, less of the product is demanded, if the price is low, more is demanded.
In the case of ‘prestige goods’ which are not common on the market, demand relates
positively with the price. If the price is increased consumers will feel proud to posses the
product so the demand increases also.Examples of prestige goods are jewellery, and very
expensive car brands
The demand for ordinary goods responds negatively to price changes as shown in fig 2.3
Fig 8.3. The demand curve for ordinary or normal goods.

P15
Price

P10

a. b
200 450
Quantity demanded per period

Source:Kotler and Keller (2006)

Assuming that the price is originally p15, reducing the price to p10 results in an increase
in the quantity demanded from 200 to 450 units per period. An increase in the price from
P10 to P15 will result in a fall in quantity demanded

8.11. Elastic and Inelastic Demand. The concept of elasticity is very crucial in pricing
decision making. Elasticity can be defined as the responsiveness of a dependent variable
(demand) to changes in the independent variables (price) Morh and Fourie (2005)If
prices are increased or reduced, does the demand for the product respond?. The answer is
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yes, demand for many products can be affected by changes in a variety of

factors.Demand for a product can be inelastic under the following circumstances.
 Where the product does not have close substitutes or buyers are unaware of the
substitutes.
 Buyers cannot easily compare the quality of substitutes.
 Consumers spent an insignificant portion of the income on the product.
 The product is used in conjunction with previously bought assets.
 Where the product is habit forming (addiction).
 Part of the cost is borne by another party.
The opposite of these circumstances causes demand to easily respond to changes so it is
said to be elastic.

Summary
In this topic we discussed pricing in detail; we defined price and discussed its
importance to the firm, consumer as well as the economy.We looked at various pricing
objectives that firms can pursue and the factors that influence the setting of prices which
we identified broadly as market factors, customer factors and organizational
factors.Finally we had a detailed discussion on the pricing strategies that firms can utilise.
Assessment Exercise
1. Explain in detail the general steps followed in setting out the price of a product.
2. It is important for the business to consider its market when setting the prices for its
products.Identify and explain these market factors
3. Define the term “pricing strategies” and explain competitor oriented, cost oriented and
marketing oriented strategies
4. ABC Company manufactures floor tiles and each box of tiles is sold at P15.00.The
variable costs (direct labour and direct materials) of producing each box of tiles amounts
to P10.00 .Fixed costs of the company amounts to P50 000.00.Calculate the number of
boxes that the firm has to produce to break even.
Key use the formula
Break even quantity = Fixed Costs
(Unit selling price – variable costs)
5. Define the term price discrimination giving the conditions that necessitates it practice
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6. A firm desires to reap maximum profits as soon as it introduces the product on the
market .explain the strategy that the firm can use giving an example of the products
which normally utilize this strategy

TOPIC 9: PROMOTION

9.0.Introduction

It is essential for the marketer to communicate with the customers about the availability
of the product and features that distinguish it from other products in the market.Having a
good product does not guarantee success on the market ifproper promotional campaigns
are not implemented to back the product. Customers will not have any knowledge about
that product if it is not promoted.This proves the need for promotion in the marketing
process.
In this topic we address the third of the 4ps in the marketing mix which is promotion. It is
a sub plan of the marketing mix and by itself it covers a number of activities.When
brought together all these activities, they areregarded as the promotional /communication
mix.The components of the promotional mix that we will cover in this topic are
advertising, sales promotion, personal selling, events and experiences, direct marketing
and public relations and publicity.

9.1.Objectives
After studying this topic you should be able to
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 Define promotion
 Explain the characteristics of each promotional mix activity/tool
 Define and interpret the communication process
 Describe various promotional objectivities of organizations
 Describe various ways of drawing up a promotional budget
 Explain various sales promotion strategies
 Evaluate the factors that affect the effectiveness of various promotional activities.

9.2Definition of promotion
Promotion can be defined as the means by which firms attempt to inform, persuade and
remind the customers and society at large, directly or indirectly, about the products and
brands that they offer (Jobber 2002). The promotional activities of the organization can
also be regarded as marketing communications. The functions of promotion to customers
include the following:
 Customers can be told of where to find the product
 It distinguishes the kind of people eligible to use the product
 Customers can learn about the manufacturers of the product and what the brand
stands for
 Through marketing promotion the company can link its brand to other people,
places, events brands and experience
 Marketing communication can establish the brand in the memory of the
consumer which will lead to brand loyalty

9.3 Elements of the promotional mix

The six major components of the promotional mix are advertising, sales promotion,
events and experiences, public relations and publicity, direct marketing and personal
selling.
9.3.1 Advertising
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(.Jobber 2002) defines advertising as any paid form of non-personal communication of

ideas or products in the prime media e.g. television, the press, posters, cinemas, and
radio. Advertising should be properly planned and executed because it is seen by the
public who can have different judgments as they receive it. If not properly planned it may
create adverse reactions toward the business and its products on the part of the public

Fig 9.1.The Promotional Mix Elements

Advertising

Sales promotion
Public relations and
publicity

PROMOTION

Events and Direct marketing

experiences

Personal selling
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Source :Kotler & Keller 2006

Activity 9a
‘Promotion is just a cost to the business’ Discuss

The question is argumentative; you need to define promotion fist and then give its
benefits to the business .you also have to suggest the drawbacks of promotion to the
business

Advantages of using advertising as a promotional tool

 Flexibility:It allows the business to target a small defined segment such as school
students. It can also be used to reach mass markets for examplewhen advertising a
product that is universally used by all people.
 Cost efficient: Advertising can reach a large number of people at a low cost per
person. It allows the message to be repeated and this improves the organization
and product’s public image.
 Practical:It allows demonstration of a number of things concerning the product,
so it will be easier for consumers to remember it. Some advertisement are created
in a very interesting manner that many people would favour to watch them or
listen to them for several times
 Also used to build a long term image of the product
 It triggers quick sale:For products which sell on impulse basis, it is very efficient.
Most retail shops in Zimbabweuse it to boost their sales on weekends or month
ends

Disadvantages of advertising
 Very expensive:Is afforded by firms which have a very strong positive cash flow.
It costs approximately $100 U.S for a 30 second flash of television advertisement
 It does not provide quick feedback as some people might not be exposed to it
as it is run on television or on radio
 May not apply to some products which are complicated such products can only
sell when there is face to face persuasion
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 Most advertisements may not reach the targeted people because audience may
not listen or watch the advertisement
9.3.2 Events & experiences
These are company sponsored activities and programs designed to create daily or special
branded related interactions. These include sponsorship of sports activities by
organisations e.g. COSAFACastlecup.
The use of events and experiences has the following advantages
 A well chosen event or experience can be seen as highly relevant as the customer
gets personally involved .e.g.Breakfast day for senior citizens in the community
done on a very cold and wind shopping day.
 Involving: If the event is live and of higher quality consumers can find events and
experiences more actively engaging.
Disadvantage of events and experiences
The main disadvantages of events experiences are
 They are expensive to execute for example to build a company museum involves
a lot of funds.
 It is only favourable to organisations with strong financial background.

9.3.3 Personal selling

It is the oral communication between the organisation’s sales staff and prospective
purchasers, with the intention of making a sale. It involves personal interaction between
the salesperson and the customer. Personal selling is an effective way of building
buyerpreferences, convictions and actions. It has greater impact on customer than other
promotional tools becauseit involves personal touch of the organization (salesperson) and
the customer.
Personal selling has the following advantages
 Messages can be adjusted to meet different customer’s needs as the sales person
discoverer
 It enables the marketer to focus on the most promising leads and reduces waste
 Can communicate more information and answer any question that may arise in
the mind of the customer
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 It encourages interactions; marketers can easily pick out the weaker points of the
product to necessitate improvements.
 It provides immediate and reliable feedback
Disadvantages of personal selling
 It is expensive in terms of the salaries of sales people, fuel and maintenance of
their cars ,mobile phone airtime and accommodation when they are out of town
or country
 It requires long term commitment,so there is need for the organization to recruit
and train sales force
9.3.4 Direct marketing
This involves distribution of products, information and promotional messages to target
customers through interactive communication in a way that allows response to be
measured. Direct marketing has three distinctive characteristics.
 The message can be prepared to appeal to the addressed individual
 Up to date messages can be prepared and delivered quickly
 It is interactive in that the message can be changed depending on the person’s
response.
9.3.5 Public relations and publicity
Public relations is the planned and sustained effort of communication between the
organization with its publics about the products and any developments in order to create
mutual understanding and goodwill, (Jobber 2002)Publicity is non-personal
communication transmitted through mass media where the time or space provided by the
media is not paid for or where there is no sponsor for the message .The two normally
work together. The appeal of public relations and publicity is based on three distinctive
qualities
 Higher credibility: Stories of events that happened are more credible to
customers than advertisement
 Ability to catch buyer off guard :It can reach prospects who prefer to avoid
salespersons and advertisement
 Dramatization: Public relations have the potential to dramatise the product use.
Public relations and publicity are used when the organization aims at
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 Enriching awareness
 Improving the image of a product, service or company
 Demonstrating innovativeness
 Minimizing promotional expenses
 Presenting favourable messages in a highly believable manner.
Negative publicity
Organizations might suffer negative publicity when something unacceptable happens
within or outside and has attracted the media. To avoid negative publicity the
organization should have a policy that guarantees quality throughout its processes.
Products should not be inspected for quality after the completion of production but
should be inspected at every stage of production until the point ownership is transferred
from the organization to the customer.This is known as total quality management
(TQM)
TABLE 3.1Characteristics of promotional mix tools

Promotional tool Characteristics

Advertising  Good for awareness building
 reaches a wide audience quickly
 Repetition means that a brand position concept
can be communicated effectively
 Can be used to support sales effort’ to strengthen a
company and its products in the consumer’s mind
 Impersonal, lacks flexibility and questions cannot be
answered
 Limited capacity to close the sale
Personal selling  Interactive, questions can be answered and objections
are explained by salespeople
 Adaptable, presentations can be changed depending on
customers needs
 Complex arguments can be developed
 Relationships can be build because of its personal nature
 Provides the opportunity to close the sale
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 Sales calls are costly

Direct marketing  Individual targeting to customers mostly likely to
respond to appeal
 Communication can be personalized
 Short term effectiveness can easily be measured
 A continuous relationship through periodic contact can
bebuilt.
 Activities are less visible to competition
 Response rates are often low
 Poorly targeted direct marketing activities cause
customer annoyance
Sales promotion  Incentives provide a quick boost to sales
 Effects may be only short term
 Excessive use of some incentives e.g. money off may
damage brands image
Publicity &public  Highly credible as message comes through a third party
relations  Higher readership than advertisements in technical and
trade publications
 Loss of control, press release may have its contents
distorted.
Events &  Can be highly effective if properly arranged. May only
experiences be effective to targeted segments at a time .

Activity 3b
Barloworld sells heavy construction equipment like JCBs and Graders, suggest the
appropriate way of promoting such products

Heavy plant and equipment can best be promoted through personal selling because they
involve large sums of money and the technical suitability of the product has to be
negotiated between the customer and the seller.Advertising can also be used to augment
the efforts of the sales people.
9.4 Promotional objectives
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There are many reasons why the business should promote its product. When a business
embarks on promotion ,it might be pursuing some or any of the following objectives, to
create awareness, to stimulate trial, to remind and reinforce, to correct misconception or
to provide support for sales force.

- Create awareness: Through promotion, which is communication of the business

with its existing and potential customers, a business can create awareness of itself
and its products. Instead of customers saying ‘I have never head about them’,
their response might be ‘they are quiet well known, aren’t they?” In this way,
promotion might improve the acceptance of the products and sales people. Brand
awareness is an obvious precondition of purchase and can be achieved through
promotion. Through advertising target audience can be made aware of a solution
to a problem relating to the use of the product.
- To stimulate trial:The sales of some products suffer because of lack of trial .If a
customer tries aproduct; it will be easy for him/her to accept it than before trial.
Sales promotion activities such as giving of free samples can stimulate trial.
- Remind and reinforce:One of the objectives of advertising is to remind customers
about the brand’s existence and to reinforce its image. This enables the business
to maintain its high sales, market share and profits. For example, one would
wonder why coca-cola is still advertising yet almost every one knows about its
products and their features. The reason is that they want to safeguard their market
position through reinforcing the consumption of their products by consumers.
- To provide support for the sales force:Whilst personal selling is another
promotional tool. It is very important to augment the efforts of salespeople with
advertising. Some industrial advertising contains return coupons so that potential
customers can send to advertiser indicating a degree ofinterest in the product. This
will help to get customers from those areas where the sales force has failed to call
on.
- Correct misconception:Customers may have developed negative attitudes about
your brands maybe because of negative publicity. It will be worthy to correct the
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misconceptions in customers through marketing communication tools such as

advertising

9.5. Sales promotion strategies

This refers to the methods that we can use in order to stimulate sales for our products.
Sales promotion can be directed to customers or to trade intermediaries.Major customer
typemethods are; money off, bonus packs, free samples,coupons, prize promotions and
loyalty cards. We also have a number of sales promotion strategies targeted towards the
trade intermediaries; these include price discounts, free goods, competitions and
allowances.

- Money off: It provides direct value to the customer since the price of the product
is reduced. It can stimulate short term sales but in the long run it may devalue the
brand’s image,consumers response may be “if the brand is good, why they need to
keep on reducing the price”
- Bonus packs:Theygive added value by giving customers extra quality at no
additional cost. Bonus packs are used in soft dinks and detergents markets. In
some cases they say 25%extra included and it’s free.Extra value is given by
raising quantity other than cutting price.
- Premiums:These are goods offered free or at low cost as an incentive to purchase
a brand .For example, Colgate toothpaste is sometimes packed together with
tooth brush,some perfumes are packed together with face towel and bath soap.
- Free samples: Free samples of a brand may be delivered to the customer’s home
or given out in store. The idea is that, having tried the sample a given proportion
of customers will begin to buy.
- Coupons: Coupons can be delivered at homes, appear in magazines, newspapers
or in packs. The procedure is,when the customer have used the product he/she
attaches part of the package or complete coupon packaged inside and stand a
chance in a prize coupons can encourage repeat purchase.

9.6 Factors that affect the setting of a promotional mix

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If one wants to communicate something to the next person. He or she has to consider a
number of factors which include the language to use so that the receiver will understand;
the cost of the mode of communication that is, it may be cheaper to write an email than to
phone or to go to the person physically. The mode that one could use varies depending on
the prevailing circumstances and as well the above considerations.
This also applies to the organizations when choosing the promotional tools withwhich to
communicate to customers.The organization is influenced by a number of factors which
include:

 Resources available and cost : The business has to use a promotional tool that it
can afford.It has to consider its finances, human resources and other assets needed
for promotion. For example advertising through television is very expensive; an
organization with limited financial resources cannot afford it. The options will be
to use personal selling, and it should have suitably qualified employees who can
do that.
 Market size and concentration:If a market is small and the potential buyers of the
product are not widely dispersed, personal selling may be the most cost effective
promotional tool.
 The type of information needed by customers:Where customers have got common
needs in terms of information, promotion through the mass media will be
economical since one message can just reach all the customers.

9.7. Setting a promotional budget

A budget is a plan of future activities expressed interms of what they shall cost to the
business because we pay for them to take place. This cost has tobe plannedfor before it is
paid in order to asses if we can afford it. On the other hand we need to understand that the
achievement of communication objectives will depend upon the amount spent on it.
According to (Jobber 2002) there are four methods of setting a promotional budget these
are; percentage of sales, affordability, matching competition and objective and task
method.
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- 9.7.1 Percentage of Sale:This method implies that a given percentage of sales can
be allowed as promotional expenditure. For example: If our company wants to
achieve total sales of $1, 000,000 next month. The promotional expenditure can
be set to be 5% of the budgeted sales. So next month we will spend the following
amount on promotion
 5/100 x $1000 000=$50 000

The organization will allow $50, 000 to be spent on promotion. If the percentage is
held constant it means , the more we want to get from sales, the more we should also
spend on promotion. The method is recommendable since it allows for comparison of
the relationship between sales and promotion expenditure. It is also easy to apply and
it discourages advertising wars in pursuit of what competitors are doing. The only
drawback with this method is that there is no actual means of arriving at the
percentage to be used.

 Affordability (affordable amount): This method basis advertising expenditure on

what executive judgment regards as an amount that can be afforded. The
executives are not likely to consider the objectives of promotion or any other
factors but only insist on what can be afforded basing on their budget. The
method has a disadvantage that it may not lead to the achievement of the set
promotional objectives.
 Matching competition: This method implies setting their promotion budgets
basing on what competitors are doing. The method has got the following
disadvantages:

- It proves lack of vision on the side of our organization as we

seem not be able to set our own procedures.
- It is very difficult to have reliable information about
competitors so the organization might end up following biased
reflections.
- This may lead to costly advertising wars.
- It ignores market opportunities and communication objectives
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 Objectives and taskmethod:This method implies that management should

study and understand the objectives of promotion and then set the budget
basing on the cost of arriving at the main tasks related to the objectives.

This method is recommended in that it provides a platform for management to think

about objectives, media exposure levels and the resulting costs (Jobber 2002)
Activity 3c
Which method do you think marketers should use when setting budgets for
promotional activities?

 This question requires a discussion of the method of setting promotional

budget then you support the one that you favour by giving its advantages
over others
9.8. The communication process
Promotion is concerned with conveying messages to existing and potential customers so
that they respond through buying, commenting or increasing their usage of our products.
It is crucial at this point that we understand how information is exchanged between two
parties the first party being our business, the second party the customer.
The process by which two parties exchange information is called communication. Below
is a diagram of this process:
Fig 3.2. Thecommunication process.

Encoded Decoded
Source Message Receiver
Message

Feedback

The source here is our company which wants to communicate the features, benefits or
instructions about our products to the customers. The company encodes the message.
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Encoding is the translation of idea to be communicated into a symbol consisting of

words, pictures or numbers. The company puts these words or pictures into the media
that will convey the message to its customers.
Some distortion, distractions during the encoding can occur, these are regarded as
Noise. Itprevents transmission of the actual message to the target audience for
example: A television advertisement may not reach a number of households because
of conversations or ringing of telephone whilst it is being played.
The media transmits the message to the receiver who will in turn decode the
message. Decoding is the process by which the receiver interprets the message
transmitted by the source. The receiver may or may not interpret the message in the
way intended by the source.
Feedback is the response that customer will show after decoding the message. As
with personal selling, feedback may be immediate since the salesperson can close the
sale after conviction of the customers; feedback may also be in form of objections by
the prospective customers. Other forms of promotions rely on marketing research to
estimate reactions to commercials and increases in sales due to incentives.

Summary
Promotion helps the business to inform, remind and persuade current and potential
customers about the products that it offers. This topic defined promotion and the
various promotional mix tool which are Advertising, Personal Selling, Sales
Promotion, Public relations and publicity, Direct Marketing and Events and
Experiences. Wediscussed the characteristics of these promotional tools. We have
also established theimportance of selecting the promotional mix that suits overall
objectives, nature of the products and available resources. Several methods can be
employed in coming up with an objective and economical promotion budgets.
Assessment Exercise
1 Define promotion and give reasons why it is an important aspect of the
organizational marketing strategy.
2 Examine why most businesses use advertising to promote their products
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3 Promotion is part of the total operational costs of the business hence it has to be
planned for. Given that,discuss the main ways of drawing up a promotional budget
elaborating the advantages and limitations of each.

4 Define public relations and explain how organizations execute public relations
activities

5 Promotional objectives can be matched with the stages on which the product will
be on the lifecycle .Basing on this statement ,use the product life cycle to match the
promotional objectives to the stages that the product will be in the its life cycle
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TOPIC 10: PLACE/ DISTRIBUTION

10.0. Introduction
The place element of the marketing mix entails how the products are made available to
the final consumer.This topic focuses on how thebusiness ensures that the buyer obtains
the product at the right place and in right quantities always. The topic considers all
processes which are involved in getting the product or service to the buyer and,
ultimately, to the users in the most economic manner.These processes include the
selection of channels, order receiving and processing, stocking, transporting, delivery and
display of products in the outlets.

10.1.Objectives
After working through this topic you should be able to
 Explain the importance of distribution in ensuring customers satisfaction.
 Discuss the factors that influence the selection of distribution channels.
 Illustrate distribution channel structures for customer’s goods, industrial goods and
services.
 Differentiate between intensive distribution, selective distribution and exclusive
distribution
 Explain the sources of channel conflicts and suggest the ways of resolving them.
 Explain the components of physical distribution.
.
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10.2.Definition and importance of distribution

Distribution referstothe marketing activities responsible for making the products

available in adequate qualities in convenient locations at any time when customers want
to buy them. (Jobber 2002).It is important that the organization manages its distribution
system efficiently so that it can measure the success of its marketing mix. In most
companies, this function is under direct control of marketing and it is the one that
facilitates the selection of organizations that will help in taking the products to the final
consumers. These organizations are known as channels of distribution
10.3. Channels of distribution
These are means by which the products are moved from producers to the ultimate
consumers.They are decided and selected by the distribution function of the company.
The company can use any channel of distribution depending on the nature of its product,
marketing strategy and nature of the market.
10.3.1 Distribution channels for consumer products
The channels of distribution for different consumer products can be illustrated by the
following diagram.
FIG 4.1 Channels of Distribution for Consumer Products

Producer Producer Producer Producer

Agent

Wholesaler Wholesaler
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Retailer Retailer Retailer

CONSUMER
Adapted from (Jobber 2002)
(i) Producer Direct To Consumer
This method is used with expensive goods for example designer clothes, cosmetics and
jewellery. A producer would prefer this channel because it cuts out distributor profit
margins. It means that the producer either enjoys higher profit margins or offers the
product at a lower pricethan itwould be when intermediaries are used. It is sometimes
called direct marketing.
(ii) Producer - retailer - consumer
This channel can be used for products such as vegetables; milk, flowers, meat and others
that have short life span.Such products are termed perishables.It is better to distribute
straight to retailer where consumers can access the product whilst they are still fresh.
(iii) Producer- Wholesaler -Consumer
Wholesalers for example CA Wholesalers , Mohammad Musa Wholesalers and Jaggers
can orderproducts in bulk from producers and sell smaller qualities to numerous retailers
and consumers. These wholesalers save small retailers like Lucky “7”, and tuck-shop
because large retailers like O.K and TM can buy directly from the producer. That is why
small retail shops are sometimes offering higher prices than large retailers. The buying
power of large retailers enables them to sell products to their customerat cheaper prices.
iv) Producer -Agent -Wholesale -Retailer - Customer
This long channel is usually used by companies entering foreign markets. The company
delegates the task of selling the products to an agent (who does not take title to the goods)
the agent passes the products to wholesalers (or retailers) and receives a commission on
sales.
Before deciding on the channels, the business first analyses its products, resources and
the market then it choose the channel to use. Some companies use multiple channels to
distribute their products.
activity 10a
For a product of your choice, describe how it is distributed from the producer to the
consumer.
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This is a practical question that requires you to apply your daily experience as you shop
around, For the product that you have selected, identify the producer and explain how
the product is moved to those outlets where you have seen the product ; the nature of the
product will also guide you.
10.3.2 Distribution channels for industrial goods
Manufacturers of industrial products use different channels of distribution from those
used for consumer goods. Instead of using a wholesaler and retailer in between the
industrial goods producer distributes through the agent or distributor. The different
distribution channels for industrial goods are
 From producer - industrial customer
 From producer - agent - industrial customer
 From producer - distributor - industrial consumer
 From producer - agent - distributor - industrial customer.
(i) Producer - Industrial Customer
When a producer uses this channel, he or she supplies the product directly to industrial
customers. This is used for expensive products for example, equipment, diesel
locomotives and air craft.There is need for close liaison between supplier and customers
to solve technical problems and also the amount of money involved makes direct selling
and distribution economic and effective.
(ii) Producer -Agent - industrial customer
Instead of selling to industrial customers using their own sales force, industrial goods
manufacturing companies could employ the services of an Agent who may sell a range of
goods from several suppliers on a commission basis.
This distribution channel is attractive to companies without the reserve to set up their
own sales operations.
The disadvantage is that the producer has little control over the agent who is unlikely to
devote full attention theselling producer’s products because he stocks products from
many producers.
(iii) Producer -Distributor - industrial customer
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This channel is used for less expensive and more frequently bought industrial goods e.g.
stationary. Distributors have both internal and field sales staff. Internal sales staff deal
with customer generated enquiries, order follow up and checking inventory level. Field
sales staff is responsible for finding new customers and gather market information.
The use of distributors has the advantage that they can be geographically dispersed which
ensures maximum coverage of the market. To the customer the advantage is that they can
be found nearer allowing them to buy small qualities as and when needed.

(iv) Producer - agent - distributor - industrial customer

This channel can be employed by companies which are selling to the international
market. These companies may employ agents in a foreign country. The agent will engage
some distributors to ensure total coverage of the market.

10.3.3 Distribution channels for services

Distribution channels for services are usually short since there is no stock involved, the
roles of a wholesaler, retailer or industrial distributor do not apply. Services can be
offered either direct or using an agent. The following diagram shows two alternatives for
distribution of services to individual customers or industrial customers.
Fig 10.2 Channels of distribution for services

Service Consumer/
Provider Industrial customer

Services Agent Consumer/

Provider Industrial
consumer
Source: Jobber 2002

(i) Service provider to consumer or industrial customer.

It applies when the service company deals with its customers directly for example
insurance provider Metropolitan Life Insurance sellsits services direct to the individual
consumer or industrial consumer who want insurance service
(ii) Service provider -agent - consumer or industrial customer
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A channel intermediary for services usually takes the form of an agent. Agents are used
when a service provider is geographically distant fromconsumers for example,
Metropolitan Life Insurance can use agents (brokers) to offer its services to the customers
so that it can cover all areas in the country.

10.4. Functions of channel intermediaries

The functions of channel intermediaries are to reconcile the needs of producers and
consumers, to improve efficiency by reducing the number of transactions or creating
bulk; to improve accessibility by lowering location and the time gaps between producers
and consumers, and to provide specialist services to customers. All these functions have
benefits to both the producer and the consumer.

 (i)Reconciling the needs of producers and consumers: Manufacturers typically

produce largequantities of a limited range of goods whereas consumers
usually want only a limited quantity of a wide range of goods. The role of
channel intermediaries is to reconcile these conflicting situations. For
example, a manufacturer of bar soaps sell through OK which stocks a wide
range of products under one roof because customers buy a wide range of
goods.
 (ii) Improves efficiency: Channel intermediaries can improve distribution
efficiency by reducing the number of transactions and
creating bulk for transportation. Small producers can benefit by selling to
intermediaries who then combine a large number of small purchases into bulk
for transportation.Without intermediaries, it may prove too costly for each
small producer to meet transportation costs to deliver to the customer. This
usually applies to small scale farmers when they sell their produce; they bring
their produce together and hire a truck.
 (iii) Improving accessibility: Intermediaries bridge the location and time gap
between producers and customers. The location gap comes from the
geographic separation of producers and the customers they serve.Time gap
results from the differences between when manufactures wants to produce and
when consumers wants to buy. For example manufacturer of automobile spare
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parts may produce from Monday to Friday but consumers may wish to
purchase throughout the week and during the weekends. By operating during
weekends, car accessory outlets (intermediaries) bridge the time gap between
production and consumption.
 (iv)Providing specialist services: Channel intermediaries can perform
specialist customer services that manufacturers may fall ill equipped to
provide.Distributors may have long standing expertise in such areas as selling,
servicing and installation of products to customers. Producers may fill that
these functions are better handled by channel intermediaries so that they can
specialize in other aspects of manufacturing and marketing activities.

Activity 10b
Why do producers find it necessary to use intermediaries instead of reaching the
customers on their own?

The question requires the benefits that manufacturers obtain from using channel
intermediaries in taking their products to the customers.

10.5. Factors influencing the selection of channels of distribution

When choosing channel members, there are a number of factors that a company
considers. There are five general categories each with sub factors. These factors are
market factors, producer factors, product factors, competitive factors and legal factors
10.5.1 Market factors
The most obvious point in the selection of channels of distribution is the customer. The
behaviour of consumers and their expectations may detect that the product be sold in a
certain way. For example, consumers may prefer to buy locally and in a particular type of
shop. The company should match these expectations with the way in which the products
are distributed. The location and geographical concentration of customers also affect
channel selection.If customers are concentrated in one area .It is easier for the
organization to directly market its product to them. Direct marketing is also more useful
when buyers are few in number and when they buy large quantities. A large number of
customers who are geographically dispersed and buy small quantities mean that the
organisation should use intermediaries to distribute the product.
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In general the market considerations when selecting channel members are the size of the
market, geographic concentration and order sizes.

10.5.2 Product factor

The nature of the product that the business offers influences the selection of channel
members. The following variables pertainto how the product influences its distribution.
 How perishable the product is:Product that expires, deteriorate or rot within a
short space of time are usually sold through the shortestpossible channels. For
example fresh milk is sold directly to the processing firm by he farmer;some
farmers process on their own and sell fresh milk direct to retailers. If the fresh
milk isprocessed it into condensed or powdered milk (which are less perishable)
the firm can use longer channels since it will be no longer perishable.
 Unit value:Low priced products usually follow a long distribution channel for
example convenience goods like tooth paste,bath soap can go through
wholesalers and retailers to the consumer, whilst designer clothes,expensive
jewellery and copying machines are sold directly or through an agent.
 Complexity of the product: Highly technical products necessitate the use of
direct selling in which salespeople will be able to demonstrate their use and
arrangements on guarantees and after sales service are made. Bulky and difficult
to handle products may require direct distribution because distributors may
refuse to handle them.
 Stage in life cycle: During introduction and decline stages intermediaries do not
agree to stock the product unlike during growth and maturity stage. When the
product is attractive to the market.
10.5.3 Producer /organization factors
Organizational considerations range from services expected by members, desire to
control channel member, resource availability and management capabilities
 Services expected:If channel members expect excellent services and back up
which the organization cannot be able to offer. It will be vital for the
organization to use an agent.
 Desire for channel control: Organization which desire to control the
movement of their products till they reach the customers would use a shorter
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channel; whilst those organizations which do not mind about how the
product is later priced, stocked and shelved would use longer distribution
channels. For example coca-cola desires to have its products reach final
consumers at a uniform price so they deliver direct to retailers.
 Management capacities and resources availability: If the organization does
not have the managerial capabilities to distribute its products it will delegate
the distribution activities to an agent. For example if the organization does
not have qualified sales force and also the recruitment of such personnel can
be constrained by lack of financial resources, the only alternative would be
to engage an agent, resulting in a longer channel of distribution for the
products.
10.5.4.Competitive Factors
In some cases a firm might find that alternative channels of distribution are controlled
by competitors through franchising or exclusive arrangements. In this case, an
innovative approach to distribution may be used.The two alternatives would be to
recruit a sales force to sell direct to consumers or to set up a producer owned
distribution network. Direct marketing provides opportunities to supply products in a
new way that ensures direct interaction with consumers.
Activity 10c
Why are consumer goods, industrial goods and services distributed through different
channels?

You have to consider the different characteristics of consumer goods that make them
require different distribution strategy from services or industrial goods. Also discuss the
characteristics of industrial goods and services in relation to their distribution strategies.
10.6. Channel conflict
What is channel conflict?
A Conflict is a situation of tension that results from differing views of a given scenario.
Just like two people working together, distribution channel members also conflict with
the manufacturer or among themselves. Channel conflict is defined as a situation in
which one member is adversely engaged in behaviour designed to endure, misuse or gain
scarce resources at the expense of the original member. (Jobber 2002). The intensity of
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conflicts can range from occasional,minor disagreements that are quickly forgotten, to
major disputes that fuel continuous bitter relationships. Channel conflicts can be as a
result of a number of differences.
10.6.1 Sources of channel conflicts
In most cases, sources of channel conflicts are differences in goals, differences in views
on the desired products line carried by channel members, multiple distribution channels
and inadequacies in performance.

 Difference in goals:Most channel members (intermediaries) attempt to maximize

their own profit margins, reduce inventory levels, increase sales, lower expenses
and receive greater allowances from supplies. In contrast producers benefit from
lower margins, greater channel inventories, lowerpromotional expenses and lower
allowances given to channel members.These differing views mean that thereare
potential areas of disagreement between producers and their channel members.
 Differences in desired product line:Resellers who grow by adding products line
may be regarded as disloyal by their original suppliers. For example if Coca-Cola
is selling its products through OK, It may l not want OKto stock fruit juices and
dairy mix drinks fromDairy Board or Schweppes, In its view Coca- Cola will be
saying OK will not devote much needed time to the marketing of its products as
agreed since it now stocks many competing products.On the other hand resellers
maynot wish to specialize and streamline the lines which they deal with because
carrying a wide range of brands is profitable to them; they will be able to cover
the diverse wants of customers. This will cause conflicts with original suppliers.
 (iii) Multiple distribution channels: In trying to achieve market coverage, a
producer may use multiple distribution channels .For example, A producer may
decide to sell direct to major (key) accounts e.g. the government and use channel
intermediaries for wide market coverage.Conflict can arise when a channel
membersalesperson visits the samecustomers who have been visited by
manufacturer’s sales person and the channel member salesperson is denied access
to a lucrative order from a key account because it is being serviced directly by the
producer.
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 vi).Own versus independent retail oulets: Conflict may also arise when a producer
owns retail outlets that compete directly with independent retailers that also sell
the producers brand. For example, Bata Shoe Company owns a chain of outlets
that compete with others shoe outlets that sell Bata brands. If unauthorized
intermediaries begin to stock and compete with authorized distributors, conflict
might occur.

 (iv) Inadequate performance:When parties in the supply chain do not perform to

expectations the result is obviously conflict, for example channel members may
under perform in terms of sales, levels of inventory carried, customer service,
standard of display and salesperson effectiveness. On the other hand producers
give poor delivery inadequate promotional support, low profit margins, poor
quality goods and incomplete shipment. These can also be potential areas of
conflict.

10.6.2 Avoiding and resolving conflict

Conflicts are not beneficial to the channel members and the producer as well. Efforts
must be made to ensure that once they arise solutions are formulated as quickly a
possible.
The strategies that can be used range from developing partnership approach, training in
conflict handling, improving performance, market positioning, channel ownership and
coercion
 Developing a partnership approach: There should be a spirit of mutual
understanding and co-operation between the producer and channel
members.Producers can help channel members with training, finances and
promotion support. Distributors in turn may agree toset higher sales targets and
be willing to provide extra resources to support their selling activities.The
objective is to build a relationship that is based on trust. When conflict arises
under such situations, chances are higher that they can be resolved in a spirit of
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cooperation. Organizing staff exchange programs can be useful in allowing each

party to understand the problems and intensions; thisavoids the rise to conflict.
 Training in conflict handling:Staff who handles conflicts needs to be trained in
negotiation and communication skills.They should be able to handle high
pressure conflict situations without resorting to emotions and blaming
behaviour. They should handle such situations calmly and identify key points of
conflicts in both parties and help them to reach a point of compromise.There are
situations where both channel members and producers benefit fromsuch
agreement.
 Market positioning: To reduce or eliminate conflicts from multiple distribution
channels, producers can try to position markets on some logical basis such as by
customer size or type.Alternatively different channels can be supplied with
different product lines. Premium brands can be sold through up market
department’s stores while low value brands are sold through discount retailers.
 Improving performance:Many conflicts occur for genuine reasons e.g. poor
delivery by manufacturers or inadequate sales effort by distributors can provoke
frustration and anger. In such situations the most effective solution is to improve
performance to reach the level that does not initiate conflicts.
 Channel ownership: An effective but expensive way of resolving conflicting
goals between producers and channel members is vertical integration with channel
members or vice versa. When a producer buys a channel member it is called
forward vertical integration. Since the producer and channel member will be
under common ownership, the common objective is to maximize joint profits.
Although conflicts may still occur, the dominant part will be in a position to
resolve them quickly.
 Coercion:In some situations, conflict resolution may depend on coercion
where one party forces compliance through the use of its powers. For example
producer can threaten to withdraw supply or withdraw financial support. Channel
members on the other hand can threaten to phase out the producers products or
promote competitive products and develop own brands. The development of own
brands. e.g. Spar’s Save more brand and Luck 7’s Family Favourite OK’s Pot
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“O” Gold has strengthened the retailers’ positions and has given them the
advantage of high profit margins
Because of these conflicts and other marketing factors, the producer has to decide on the
degree of intensity with which it wants to distribute its products.
10.7. Distribution intensity
This refers to the number of intermediaries used at each level of the distribution channel.
Three strategies are available to select from, exclusive distribution, selective distribution
and intensive distribution. (Jobber 2002).
10.7.1Intensive distribution
This distribution strategy aims at saturating the market by using all available outlets. It is
commonly used by producers of mass market products such as cigarettes, food stuffs,
toiletries, beer and newspapers. Sales are directly related to the number of outlets
penetrated. This is because consumers have a range of acceptable brands from which they
can choose, that is, if one brand is not available in the outlet an alternative is brought. We
have previously described these goods as convenient goods.New outlets are always
sought which had not stocked the product.

10.7.2 Selective distribution

A producer can use limited number of outlets in a geographical area to sell its products.
The advantages to a producer are the opportunity to select only the best outlets, to focus
efforts to built close working relationships and to train distributor staff on fewer outlets
than with intensive distribution it reduces the selling and distribution costs. Up market
inspirational brands are often sold in carefully selected outlets. Selective distribution is
more likely to be used when buyers are willing to shop around looking for products.
Thismeans it is not necessary for a company to have its products in all outlets.Products
such as audio and video equipment, cameras, personal computers and cosmetics may be
sold in this way.
10.7.3 Exclusive distribution
This is an extreme form of selective distribution in which only one wholesaler, retailer, or
industrial distributor is used in geographic area.Cars are often sold on this basis.For
exampleNaledi Motors is the sole dealers in Mercedes Benz vehicles inBotswana. This
leaves purchasers with no power to negotiate prices since such products may need
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servicing from the same dealer. Buying from a far town would just inconvenience the
customer when he/she needs servicing of the product. The right to inclusive distribution
maybe demanded by distributors as a condition for stocking a manufacturer’sproduct line.
Similarly producers may wish for exclusive dealing where the distributor agrees notto
stock competing lines. Exclusive distribution reduces competition in away that may be
considered contrary to customers’ interest.

The decision on the strategy to be used is much influenced by the nature of the product,
the marketing strategy and the nature of the market.

10.8 Physical Distribution

Physical distribution is defined as a set of activities concerned with the physical flows
of materials, components and finished goods from producer to channel intermediaries and
consumers. The aim is to provide inventory to intermediaries and customers in the right
locations at the right time. This subject has recently drawn much attention of
management because of the potential for cost saving and improving customer’s service
levels. Cost saving can be achieved by reducing inventory levels using cheaper focus on
transport and shipping in bulk rather than small quantities. Customer service levels can be
improved by fast and reliable delivery, including just-in-time, fast order processing and
ensuring that customers do not find stock outs. Physical distribution management is
concerned with striking a balance between inventory cost reduction and meeting
customer service requirements. When all the above aspects are brought together we come
up with what is known as Physical distribution system

10.8.1 Physical distribution system

A system is a set of connected parts managed in such a way that overall objectives are
achieved. The Physical distribution system contains the following parts: customer
service, Order processing, Inventory control, Warehousing, transport and material
handling. Below is the diagrammatic representation of components of the physical
distribution system
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Fig 10.3: Components of the Physical distribution system

Customer Service

Order processing

Physical distribution Inventory Control

system
Warehousing

Transportation

Material Handling

(i)Customer service
The question to guide the marketer here is.“What level of customer service should be
provided? Customer service standards have to be set. For example a customer service
standard might be that 90 % of orders are delivered within 48 hours once placed and
100% are delivered within 72 hours. Higher customers’ service level may be expensive to
the organization since high customer service level means that inventory levels should also
be high. Holding funds in form of inventory has its own costs which need to be
considered by the distribution manager before setting customer service standards. It is
also profitable to maintain consistency since this might be valued by other customers, for
example a customer’s services standard of guaranteed delivery within 5 working days
may be valued. This is an aspect that needs considerable attention because it
differentiates between suppliers. Developments in technology are enabling distribution
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companies to offer customers the ability to integrate their delivery operations with other
business functions.
(ii) Order processing
Reducing time between a customer placing an order and receiving the goods is a
significant measure of efficiency especially in fast food outlets like K F C, Hungry Lion,
and Chicken Inn etc. A computerised link between sales person and order processing
department may be effective. Many order processing systems are characterised by
unnecessary delays.To ensure improvements in this area, basic questions needs to be
answered e.g. what happens when a sales representative receives an order, what happens
when it is received in the orders department? How long does it take to check inventory?
What are the methods of checking inventory? If a company employs a computerised
system, all these questions will be answered by just a click of the mouse.
(iii) Inventory Control
The organization should seek to strike a balance between holding costs and ordering costs
of inventory. High inventory levels are favoured by marketers because they minimize
customer complaints based on stock outs. The finance department of the organization
seeks stock minimisation in order to maintain liquidity of the business. Two related
inventory decisions are to know how much and when to order so that we meet the needs
of the customers efficiently. How much to order depends on the cost of holding stock and
order processing costs. Orders can be small and frequent or large and infrequent. Small
frequent orders raise order processing costs but reduce inventory carrying costs. Large
infrequent orders raise inventory holding costs but lower order processing expenditure.
Therefore a trade-off between the two costs is required to achieve an economic order
quantity (EOQ). The point at which total costs are lower. The economic order quantity is
numerically calculated by use of the following formulae

EOQ = 2DO

1C
Where
D = Annual demand in units.
O = Cost of placing an order
1C = Annual inventory holdingcost per unit
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C = Cost of one unit of the product

Example
Annual demand = 4000 units
Cost of placing an order = $4
Annual inventoryholding cost per unit = 10% of the unit price
Cost of one unit = $2

EOQ = 2 x 4000 x $4

0.10 X$2

=
$32000

$0.20

= 160 000

= 400 Units per Order.

Therefore the most economic order size taking into account inventory and order
processing costs is 400 units.
(iv) Warehousing
Warehousing involves all the activities required in the storing of goods between the time
they are produced and the time they are transported to the customers. These activities
include breaking the bulk, making up product assortment for delivery to customers,
storage and loading. Storage Warehouses hold goods for moderate or longer time
periods where as distribution centres operate as central locations for the fast movement
of goods. Warehousing strategy involves determination of the location and number
warehouses to be used, at one extreme is one large central warehouse to serve the entire
market. At the other extreme are a number of smaller warehouses that are based near to
local markets. The optimum number and location of warehouses is a balance between
customer service and cost considerations.
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(v) Transportation
Customer service ultimately depends on the ability of the physical distribution system to
transport products on time and without damage. Therefore the choice of transportation
mode is vital to the successful implementation of a marketing strategy. The five major
transport modes are: Rail, Air, Water, Road and Pipeline. Each have got its advantages
and disadvantages
Activity 4 C
Suggest a product of your choice and describe its physical distribution system, suggest
the advantages of the transportation mode that you have chosen.

First part: any product can do explain the order processing, warehouse and
transportation of the products

Second part: suggest the advantages of the transportation that you have chosen. The
advantages depend on the nature of the product, cost efficiency, distance of the market
from point of produce.

(vi) Material handling

Material handling involves the movements of products betweenwarehouses and
transportation deports. Modern storage facilitates a higher level of automation, in some
cases robots are used to conduct material handling tasks. The loweringhuman element in
locating inventory and assembling orders has reduced error andincreased the speed of
these operations.Two key developments in material handling are unit handling and
containerization. Unit handling achieves efficiency by combining multiple packages
onto pallets that can be moved by forklifts s. (We usually see this in departmental stores
like Hyper, Macro and Trade World). Containerization involves the combining of many
quantities of good e.g. car components into a single container. An important element in
material handling is the quality of packaging. It is necessary to evaluate not only the
appearance and cost of packaging but also the ability to repackage into larger quantities
for transportation.Packages must be strong enough to sustain the forces of physical
distribution such as harsh handling and stocking.
Summary
In this topic we discussed how products are moved from the producer to the final
consumer of the product. We discussed various channels of distribution for both
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industrial and consumer goods. Distribution channels perform a number of functions

which adds value to the products. We identified the various factors that affect the choice
of the distribution channels to be used as well as conflicts that arise between channels and
producers and how they can be solved and the components of a physical distribution
system .
Self assessment exercise
1. Brieflydescribe the distribution channels for consumer products can utilize

2. Why is it that companies can distribute their products using different channels

3. Discuss the benefits of using distribution channels instead of marketing directly to

customers

4. Regardless of the length of the time a channel members and producers have known
each other,conflicts usually occur between these two parties .Identify the common
sources of channel conflicts and suggest possible ways of resolving such conflicts

5. Physical distribution system is a composition of a number of activities, Identify

andelaborates on the components of a physical distribution system

References
Jobber D (2002) Principles and practice of marketing 3rd Edition McGraw Hill New
Delhi
Kotler P and Keller .K. L (2006) Marketing Management 12thEdition Prentice
HallNew Jersey
Mburu T and .Kealetsitse B, (2005) Fundamentals of marketingUniversity of Botswana.
Centre for Continuing education .Gaborone
Perreault William. D Jr and McCarthy E Jerome(2000) Basic Marketing- A Global
Managerial Approach 15th Edition Tata McGraw Hill New Delhi
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TOPIC 11: SERVICE MARKETING

11.0.Introduction
Research has established that over half of the consumer’s expenditure is on services. The
industry in which job growth is predicted to be fastest is the service industry. The trends
are also indicating that, spending on business services such as advertising, research and
development, auditing and distribution will continue to grow because the commercial
sector is continuously to becoming complex and competitive, business managers find it
worthy to engage specialized service providers.This is why service marketing is on the
rise. In this topic we analyze the nature of services that distinguish them from tangible
products, and establish the relevant marketingmix for services as well as how service
quality can be managed.

11.1.Objectives
It is hoped that after studying this topic you will be able to
 Define services
 Describe the nature of services
 Distinguish services from products
 Describe how to plan a marketing mix for services
 Explain the challenges in managing service quality
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11.0 Definition of services

Services are identifiable, intangible activities that are the main objects of a transaction
designed to provide satisfaction to customers. This definition does not include the
services provided to support the sale of goods or provisions of other services. Services
can be provided for no profit by those organizations like churches which operate not for
profit. Service business firms can be categorized by industry as follows:

 Housing and other structures: Rentals of offices, warehousing, hotels, motels,

apartments, houses and firms.
 Household operations: Utilities, house maintenance and repairs, landscaping and
cleaning.
 Recreation and entertainment: Theatres, spectators, sports, amusement parks and
participation sports
 Medical and healthy: Physical and mental medical services, dental, nursing,
hospitalization and physical therapy.
 Private education: Vocational schools, nursery schools, charter schools and some
education programs.
 Financial services: Personal and business insurance, bank, credit and loan
services, brokerage service and investment counselling.
 Professional business service: Legal, Accounting, Advertising, Marketing,
Research, Public relations, Management.
 Transportation: Freight and passengers service on common carriers, automobiles
repair and rental, express packages deliveries
 Communication: Broadcasting, telephone, fax, computer and internet services.
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Categories of not for profit services organization are churches, political parties, charitable
and philanthropic organizations
11.2 Developing a service marketing program
The marketing of services does not differ much with the marketing of goods. Whether
marketing services or goods, every organization has to define its market first, identify the
segments and select the targets. It then has to put its attention on coordinating the
marketing mix. Some important differences between goods and services which also
influence marketing decisions have to be noted. The differences exist because of the
characteristics of services which distinguish them from goods.
11.3. Characteristics of services
The four characteristics of services that differentiate them from goods are intangibility,
inseparability, heterogeneity and perishability.
11.3.1.Intangibility
Services are intangible; consumers cannot sample them out through taste, feel, and smell,
hear or see, before purchasing. This means when marketing services, emphasis should be
put on the benefits to be driven from the service not the service itself.
When promoting services, strategiesthat may be used to suggest service benefits and
reduce the effect of intangibility are:

 Visualization: The promotional strategy should show the benefits being driven
from the service, for example a Tour Agent may show people enjoying game
viewing, dinning and visiting exotic places other than showing how people
transact for those benefits.
 Association: The service can be connected with a tangible good, person, object or
place in order to create a particular image.
 Physical representation: This is facilitated by the symbols, colours, or nature of
the premises of the business where the services are administered. An up market
building in First Street may communicate a better image than one in the high
density location shopping centre.
 Documentation: There are two forms of documentation: Past performance and
Capability. An organization can use its past performance to communicate its
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abilities to the potential customers; by using websites the company can

communicate a lot of information about their capabilities to potential customers

11.3.2 Inseparability
Services cannot be separated from the creator, seller or provider. Services are created,
dispensed and consumed simultaneously. Services require the presence of the consumer
to be performed for example entertainment, physical therapy and healthy care. Service
providers are involved in the production and marketing efforts concurrently therefore
some services are only produced when the customers are available. This is why services
industries may not experience over production or under production. Some consumers
receive and consume the service at the production site. Customers’opinions regarding a
service are frequently formed through contacts with the production and sales personnel as
well as the impressions of the physical surroundings. In the case of education, this would
be the teacher and the classroom.
From the marketer’s point of view, inseparability means a very short channel of
distribution, services are only distributed where direct contact is possible, and that is from
manufacturer to consumer directly. We also have to note that some services can be
exempted from the inseparability feature since there is a third part who can sell the
service to the consumer on behalf of the originator. Aservice marketingfirm should use
effective criteria to select those who will distribute its services to final consumers.

11.3.3 Heterogeneity
Services may be impossible to standardize, each unit of output may be different from the
other unit of the same service due to the human factor in production and delivery. For
example the beauty of particular hairstyle done on two clients by two different hair
dressers differ depending on the hairdresser who did it ,although you may name the
style the same.This makes it difficulty for the buyer to forecast quality in advance of
consumption. The concept of heterogeneity in serviceis industry being reduced by mass
automation of many operations. Traditionally it was impossible for one to have the same
service experience in a bank if the services are delivered to him/her by different people
on different occasions. Even the same person, the attitude he/she had yesterday may not
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be the same today. This differentiates the way you will be served. The use of Automated
Teller Machines (ATM) in banks allows customers to receive a standardized service on a
similar unit of service requested.

11.3.4 Services are perishable

Services are highly perishable because the existing capacity cannot be stored or
inventoried for future use. If a bus travels from Harare to Bulawayo with 10 empty seats.
Those empty seats cannot be reserved (stored) if they do not find passengers on that trip.
We say they are perishable because they were not consumed on that particular trip, if not
consumed they cannot be stored since each trip would be separately accounted for.
Perishability creates potential imbalances between supply and demand. Furthermore the
demand for many services fluctuates considerably by seasons, time of the day or whether
it is holiday, month end or year end. Some organizations differentiate their prices in
order to even-out the demand throughout their working time. For example advertising
maybe cheap on day hours than when it is on evenings (the time when the entire family is
viewing). This is meant to encourage demand on off peak hours, bookinghotel facilities
maybe cheap when it is not holiday than during holidays.

11.4. Marketing Mix for Services

The marketing mix for services requires the consideration of all the seven Ps of the
marketing mix.Above the common four Ps of the marketing mix for tangible products.
The additional three Ps (people, processes, physical evidence)which leads to the extended
marketing mix are usuallyapplied to the marketing of services although they apply to the
marketing of tangible products too.

 The service offereditself: Service industry became successful by identifying and

satisfying a previously unrecognized and unsatisfied consumer want. Like goods
marketers, service firms seek ways to differentiate their offerings. This is
important because of the intangibility characteristics of services. In the absence of
physical differences, competing services may appear very similar to the customer.
One option is to expand the service by adding other features. For example a cross
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boarder bus operator installing showers at the garage for passengers to bath before
or after a long journey. This should be done with caution because competitors
can duplicate and the result will be that the service added feature will be
neutralised.The life cycle of a service should be strategically managed. A
constant check on the progress of a service on the product life cycle would allow
the company to implement strategies that ensures continued survival of the
service on the market. Branding of services is more problematic than in products
because maintaining consistent quality may be difficulty
 People: The marketing of services brings the need for the people who comes in
contact with customers to be highly skilled and have the right attitude, be
presentable in order to portray the correct image of the organization.Customers’
experiences as they consume the services of the organization are always attached
to the people who facilitate the services to them. That is why some loyal
customers to hair saloons request to be styled by a particular person, the person
being absent may mean that the customers do not buy the service. Service
companies have a risk of loosing customers to competitors, once their trusted
employee join that competitor. The customers may follow him/her. Labour
turnover may be risk to a service business.
 Physical Evidence:Theservice marketer must counteract the intangible aspects of
the service by ensuring that the visible aspects of the services are as good as they
can be. Physical evidence takes the form of uniforms, architecture of buildings,
colours and labels of the company. There should be something tangible that
customers will associate with the company.
 Processes: This refers to how the service is provided at the contact point with the
customer. For example a bank which offers automated teller machines and cards
(ATM) will be more preferred than that which uses books. The withdrawing of
money with ATM is easy than it is with bank books, customers may not need to
queue because the machine is faster than people. This also covers the payment
methods,e.g. lay-by, credit, hire purchase or cash only. The service marketer
should ensure that the services are provided to the customers with much easy.
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Activity 11a
Select a bank of your choice in your locality and explain how it is utilizing the concept of
People, physical evidence and processes in marketing its services

This is a practical question that requires you to analyse how the bank you have chosen is
marketing its services. You should clearly show the marketing mix variables as they are
revealed by the bank’s marketing program
11.5 Managing Service Quality
Customers form service expectations from many sources. Some expectations emanate
from past experiences. Customers generally compare the perceived service with expected
service. If the perceived service fall below the expected service, the customers’ are
disappointed. If the perceived service meets or exceed their expectations, they are likely
to use the service provider again. Successful companies add benefits to their offering
such that they do not only satisfy the customers but surprise and delight them. To delight
a customer, the service provided should exceed expectations.
11.5.1 The service quality model
The attributes of service quality are
1. Reliability
 Provides service as promised
 Dependability in handling customers service problem
 Performing services right the first time
 Providing services at the promised time
 Maintaining error free records
2. Responsiveness
 Keeping customers informed as to when services will be performed.
 Prompt service to customers
 Willingness to help customers
 Readiness to respond to customer’s requests.
3. Assurance
 Employees who instil confidence in customers
 Making customers feel safe in their transactions
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 Employees who are consistently courteous.

 Employees who have knowledge to answer customers questions
4. Empathy
 Giving customers full attention
 Employees who deal with customers in a caring fashion
 Having the customers’ best interest at heart
 Employee who understand the needs of their customers
 Convenient business hours
5 Tangibles
 Modern equipment
 Visually appealing facilities
 Employees who have a neat, professional appearance
 Visually appealing materials associated with the service

Summary
A service is any act or performance that one part can offer to another;it is essential and
intangible and does not result in ownership of anything.Marketers must find some ways
to give tangibility to the services in order to increase acceptability of the
services.Provision of services should be matched with market demand because of the
perishability of services .The quality of services offered by the company should also be
managed by understanding the characteristics of quality services.

Assessment exercise
1. Distinguish between services and products,what implications does the characteristics
of services have on the marketer (20 marks)

2. Colleges,universities and Examination Boards are classified as service organisations.

Apply the concepts learnt in this topic and advice on how GUC can become the best
service provider (20 marks)
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References
Jobber D (2002) Principles and practice of marketing 3rd Edition McGraw Hill New
Delhi
Kotler P and Keller .K. L (2006) Marketing Management 12thEdition Prentice
HallNew Jersey
Mburu T and .Kealetsitse B, (2005) Fundamentals of marketingUniversity of Botswana.
Centre for Continuing education .Gaborone
Perreault William. D Jr and McCarthy E Jerome(2000) Basic Marketing- A Global
Managerial Approach 15th Edition Tata McGraw Hill New Delhi